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Organization & Strategy Tools & Concepts IV: March 2003
Organization & Strategy Tools & Concepts IV: March 2003
Organization & Strategy Tools & Concepts IV: March 2003
March 2003
Contents
Objectives
Corporate Strategy
What businesses the corporate should be in?
How the corporate office should manage the array of business units?
CEOs have been obsessed with diversification since the early 60s
No consensus exists about corporate strategy
Much less about how a company should formulate it
Premises
Portfolio Management
The acquired units are autonomous, and the teams that run them are compensated
according to the unit results
The corporation supplies capital and works with each to infuse it with professional
management techniques
It provides high-quality review and coaching
Restructuring
The parent changes the management team, shifts the strategy or infuses the company with
new technology.
It may make follow-up acquisitions to build a critical mass and sell off unneeded or
unconnected parts and thereby reduce the effective acquisition cost.
The parent sells off the stronger unit once results are clear because the parent is no longer
added value.
Transferring skills
By using both acquisitions and internal development, companies can build a transfer-of-
skills strategy: acquisition of a company in the target industry as a beachhead and then
building on it with their internal expertise.
Sharing activities
The ability to share activities is a potent basis for corporate strategy because
sharing often enhances competitive advantage by lowering cost or raising
differentiation. But not all sharing leads to competitive advantage, and companies can
encounter deep organizational resistance to even beneficial sharing possibilities.
Sharing can lower costs if it achieves economies of scale, boosts the efficiency of
utilization, or helps a company move more rapidly down the learning curve.
Sharing can enhance the potential for differentiation and reduce the cost of
differentiation.
Sharing must involve activities that are significant to competitive advantage.
But sharing involves costs such as coordination and compromise of the design of an
activity.
Sharing activities and transferring skills offer the best avenues to value creation.
2. Select the core businesses that will be the foundation of the corporate strategy
5. Pursue diversification through the transfer of skills if opportunities for sharing activities
are limited or exhausted
Growth-Share Matrix
Life-cycle Matrix
Profitability Matrix