Page 118 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes Introduction

Corporate strategy is primarily about the choice of direction for the corporation as a whole. The
basic purpose of a corporate strategy is to add value to the individual businesses in it. A corporate
strategy involves decisions relating to the choice of businesses, allocation of resources among
different businesses, transferring skills and capabilities from one set of businesses to others, and
managing and nurturing a portfolio of businesses in such a way as to obtain synergies among
product lines and business units, so that the corporate whole is greater than the sum of its
individual business units. The essence of a corporate strategy vis-a-vis a business-level strategy
is summarized in Figure 7.1.
Figure 7.1

Managers at the corporate level act on behalf of shareholders and provide strategic guidance to
business units. In these circumstances, a key question that arises is to what extent and how might
the corporate level add value to what the businesses do; or at least how it might avoid destroying
value.
Corporate strategy is thus concerned with two basic issues:

1. What businesses should a firm compete in?
2. How can these businesses be coordinated and managed so that they create “Synergy.”

Notes Synergy means that the whole is greater than the sum of its parts. In organisational
terms, synergy means that as separate departments within an organisation co-operate and
interact, they become more productive than if each were to act in isolation. In strategic
management, the corporate parent has to create synergy among the separate business
units by effectively coordinating their activities, so that the corporate whole is greater
than the sum of the independent units. Synergy is said to exist for a multi-divisional
corporation if the return on investment (ROI) of each division is greater than what the
return would be if each division were an independent business.
According to Goold and Campbell, synergy can take place in one of the six forms:
1. Shared Know-how: Combined units often benefit from sharing knowledge and
skills. This is also called a leveraging of core competencies.
Contd...

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