The chapter depicts that a corporate strategy level is a general plan that that is employed by a diversified firm. The corporate strategy can be employed by organizations in adding value to their service and product delivery, as well as, in the promotion of sustainable business performance. Managers who implement the desired corporate strategy must ensure that the strategic business unit (SBU) is aligned and in coordination with the proposed strategy. The corporate level strategies are highlighted in an in-depth manner. For instance, some of the major strategies covered in the chapter include the corporate expansion strategies, retrenchment or restructuring strategies, and alternative strategies. The chapter also offers some of the most effective corporate portfolios that can be adopted by an organization for growth or restructuring purposes. The author points out the need for mangers to establish suitable corporate level strategies that may be effective in facilitating organizational growth.
Corporate strategy mainly focuses on managing the emphasis of a firm’s portfolio of strategic business units and exploiting the synergies among its strategic business units while deploying capital to every strategic business unit in order to be successful. The author posits that corporate expansion strategies are aimed at expanding the scope of the firm’s operations. The first corporate expansion strategy is the concentration on a single industry which enables firms to concentrate all resources and capabilities on building their competitive position within a confined market segment. It also allows strategic managers to focus and understand their customer base, therefore, enhancing customer loyalty. As such, the strategy makes it possible for firms to concentrate on what they do best and avoid going into businesses that they know nothing about. Besides, concentrated growth strategies are usually effective in growth markets that make heavy demands on a firm’s resources and capabilities and also offer opportunities for growth and profitability. The second strategy is the horizontal integration strategies which involve acquiring a competitor within the industry that improves the firm’s competitive position by increasing its power and market share through the exploitation of cost-based and revenue-based synergies. As a result, profitability is heightened when horizontal integration lowers operating costs of as a result of economies scale. Horizontal integration also opens up new markets and distribution channels that increase profitability. Moreover, the primary risks of a horizontal integration strategy are reduced flexibility, integration failure, and increased potential for legal repercussions. However, integration failure results from problems associated with merging different corporate cultures, an overestimation of the benefits of the integration of two firms, and high management turnover.
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The third is the vertical integration strategy, which involves making decisions on whether to make the numerous value chain activities within the firm. Vertical integration strategy can enable a firm to either expand its operations upstream into industries that produce inputs for its core products or downstream into industries that use, sell, distributes its products. In addition, the vertical integration strategy has both risks and benefits that can strengthen the competitive position of a core business by forming barriers to lowering costs, entry, protecting product quality, and improving scheduling. Therefore, vertical integration strategies have the potential to increase costs and compromise quality when the firm has to purchase from in-house suppliers. Thus, a vertical integration strategy also reduces the firm’s strategic flexibility in expanding to a rapidly changing the environment in global sectors such as technology. As such, vertical integration has another alternative that is known as strategic outsourcing where the firm contracts several internal value chain activities to reduce the risks of vertical integration. Fourthly, entails diversification strategies that comprise of entering markets that are distinctively different from the firm’s core business to create value for multiple stakeholders.
Diversification strategies consist of both related and unrelated diversification. Related diversification is the expansion to industries that have a strategic fit with the firm’s core business while unrelated diversification is the expansion into in industries that have no relation to the firm’s value chain. Lastly, there is the strategy for global markets which comprise competitive pressures and entry mode. There are two types of competitive pressures that firm’s face that decides to move out of their domestic markets. One of the types is the international strategy that is commonly used there are low pressures for local responsiveness and cost reduction. However, international strategy is fundamental when selling the same product in foreign and domestic markets. It is also used by firms with large domestic markets, reputations and acknowledged brands. The second type is the localization strategy which focuses on increasing profitability by customizing goods and services in order to meet local tastes. The last type is the global standardization strategy which consents for the centralization of functional level activities in few locations thus this strategy assists firms to compete across various market segments successfully.
On the other hand, the collaborative alliance strategy involves agreements between organizations that create competitive advantages for all alliance partners. Consequently, the common strategic alliance strategies are the non-equity alliances whereby there is a contract agreement between firms. There are also the equity alliances which one partner takes partial partnership in the other partner, thereby requiring more investment commitment. As a result, the corporate venture capital investments are a variety of equity where reputable firms make equity investments in entrepreneurial ventures that create options for accessing potentially disruptive technologies. The other collaborative alliance strategies are the joint ventures where partners contribute equity to form a separate legal entity, and these alliances involve important investments which can consume a lot of time regarding negotiating and managing the nature of the relationship between partners.
The build or buy decision is a strategic judgment that is influenced by many factors which include transaction costs of performing the new activities within the firm compared to buying them in the external market are critical in influencing this decision. The other factor is high barriers to entry which makes it hard for a firm to enter a new market, thus buying an established firm in a new market is usually favored. Mergers and acquisitions are common for expanding a firm’s scope to purchase expanded economic activity in external markets. Subsequently, the strategic point to succeed in internal venturing and strategic intrapreneurship is to build the organizational capabilities that are essential to generate the entrepreneurial spirit throughout the firm.
The other major corporate level strategy highlighted in the chapter is retrenchment and restructuring strategies which reduce the scope of organization’s portfolio and activities that change its financial structure. Some of the restructuring or retrenchment strategies include the turnaround strategies, divestment strategies, reorganizational bankruptcy, and liquidation bankruptcy. The turnaround strategies involve reversing the negative trends in the firm’s performance by using intentional, proactive strategy. Also, the divestment strategies involve a firm selling off more than one of its business from its corporate portfolio to develop the market value of the firm’s stock to increase cash and reduce debt. Reorganizational bankruptcy involves creditors giving firms time to reorganize and allowing the firm to restructure its debt obligations to increase its cash flows. Liquidation bankruptcy, on the other hand, involves selling all the assets and closing the entire corporation to recover funds for paying creditors.
The author suggests that the purpose of SSM corporate portfolio is to create capabilities that increase the firm’s ability to efficiently manage its configuration of multimarket strategies to create a triple-bottom-line value across the whole pyramid. This SSM corporate portfolio provides a framework that allows strategic managers to examine or change organizational values, assumptions, and strategies in light of socio-effectiveness. The SSM capabilities allow managers to expand their scope, purpose, and balance their portfolios. Having SSM capabilities at a corporate level on this framework serves to legitimize an organization’s pursuit of success. On the other hand, there is building SSM capabilities through alliance management which require research and selection of alliance partners that share a common vision.
Subsequently, alliance management capabilities require developing trust and forming structures that are suitable for resolving the resource and capability constraints that are associated with incentive problems. In achieving balance in the SSM corporate portfolio balancing cash flow among the firm’s various lines of the strategic business unit is a crucial task incorporate into the corporate strategy. As a result, this means using the cash from economically successful business lines to fun businesses formed to address the opportunities arising from the expanded social and ecological scope of the whole portfolio. In SSM portfolio and social change, the essence of the SSM corporate level portfolio is to develop a process that enables firms to become agents of the transformational social change. Therefore, if business organizations were to move towards the SSM portfolio pyramid collectively, then it would impart a huge force of change into sustainability revolution.
