from competitive advantage to corporate strategy

As the Marriott case illustrates, a company can often pursue the two strategies together and even incorporate some of the principles of restructuring with them. It is what makes the brand, product, or service to be perceived as superior to the other competitors. Philip Morris paid more than four times book value for Seven-Up Company, for example. Exhibit 1 Diversification Profiles of 33 Leading U.S. Companies, 1950–1986. In fact, a company might benefit from entering before the industry shows its full potential. Successful diversification starts with an understanding of the core businesses that will serve as the basis for corporate strategy. The fourth concept of corporate strategy is based on sharing activities in the value chains among business units. A diversified […]. To survive, companies must understand what good corporate strategy is. Marriott has largely failed in diversifying into gourmet restaurants, theme parks, cruise ships, and wholesale travel agencies. To meet the better-off test, the benefits the corporation provides must yield a significant competitive advantage to acquired units. In order to thrive and succeed in the marketplace, businesses must have a strategy for handling the competition and standing out from the crowd. An unattractive industry like steel will have structural flaws, including a plethora of substitute materials, powerful and price-sensitive buyers, and excessive rivalry caused by high fixed costs and a large group of competitors, many of whom are state supported. Even a highly respected company like General Electric divested a very high percentage of its acquisitions, particularly those in new fields. Highly autonomous business units are inimical to such collaboration. Of course, most companies will make certain that their proposed strategies pass some of these tests. (See the insert “An Uncanny British Restructurer” for an example of restructuring. Moreover, successful companies often have very good records with start-up units, as 3M, P&G, Johnson & Johnson, IBM, and United Technologies illustrate. Summary - W2 - … They were all sold, often at significant losses, except for a few of CBS’s publishing-related units. Portfolio managers categorize units by potential and regularly transfer resources from units that generate cash to those with high potential and cash needs. Even widespread opportunities for sharing activities do not allow a company to suspend the attractiveness test, however. The percentage averages may not add up to 100% because of rounding off. Exhibit 3 Diversification Performance in Joint Ventures, Start-ups, and Unrelated Acquisitions, 1950–1986 (Companies in same order as in Exhibit 2). This certificate program covers industry and competitive analysis, firm positioning options, game theory for business decisions, tactical pricing strategies and more. While each business unit has a separate value chain, knowledge about how to perform activities is transferred among the units. A strategy based on shared activities becomes more powerful if business units can also exchange skills. Few companies have grasped this point, however, and many gradually suffer mediocre returns. To understand the role of relatedness in corporate strategy, we must give new meaning to this ill-defined idea. 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. The transfer of skills can be one-time or ongoing. Opportunities to transfer skills, however, may help the company transform the structures of newly entered industries and send them in favorable directions. I studied the diversification records of 33 large, prestigious U.S. companies over the 1950–1986 period and found that most of them had divested many more acquisitions than they had kept. To expand its geographic base, Marriott acquires companies and then disposes of the parts that do not fit. Provided that the target industries are structurally attractive, the restructuring model can create enormous shareholder value. The categories are company infrastructure, human resource management, technology development, and procurement. In the first three businesses, Marriott discovered it could not transfer skills despite apparent similarities. The result is a strengthened company or a transformed industry. When it chooses industries in which to transfer skills or share activities, the company can also investigate the possibility of transforming the industry structure. Companies compound such errors by not identifying costs of sharing in advance, when steps can be taken to minimize them. Many companies have only superficially identified their potential for sharing. Their data cover the period up through takeover but not subsequent divestments. The better-off test does not imply that diversifying corporate risk creates shareholder value in and of itself. All rights reserved. While the concepts are not always mutually exclusive, each rests on a different mechanism by which the corporation creates shareholder value and each requires the diversified company to manage and organize itself in a different way. Unformatted text preview: From Competitive Advantage to Corporate Strategy REORGANIZATION C by Michael E. Porter From the May 1987 Issue orporate strategy, the overall plan for a diversified company, is both the darling and the stepchild of contemporary management practice—the darling because CEOs have been obsessed with diversification since the early 1960s, the stepchild because almost no … What Is Competitive Advantage? A business must add value if it is to be successful. But this enthusiasm will wane—as well it should. Companies using the shared-activities concept can also make acquisitions as beachhead landings into a new industry and then integrate the units through sharing with other units. Such thinking misses the whole point of diversification, which is to create shareholder value rather than to avoid destroying it. From Competitive Advantage to Corporate Strategy: Michael E. Porter: 9789991812991: Books - Amazon.ca This paper will focus on how Tesla can develop a corporate strategy to increase its competitive advantage. The company must put into place a variety of what I call horizontal mechanisms—a strong sense of corporate identity, a clear corporate mission statement that emphasizes the importance of integrating business unit strategies, an incentive system that rewards more than just business unit results, cross-business-unit task forces, and other methods of integrating. In a portfolio strategy, the corporation seeks to create shareholder value in a number of ways. Costs of compromise can frequently be mitigated by redesigning the activity for sharing. A company can use acquisitions as a beachhead or employ start-ups to exploit internal capabilities and minimize integrating problems. and David A. Ravenscraft and Frederick M. Scherer, ‘Mergers and Managerial Performance’, paper presented at the Conference on Takeovers and Contests for Corporate Control, Columbia Law School, 1985. The ability to share activities is a potent basis for corporate strategy because sharing often enhances competitive advantage by lowering cost or raising differentiation. When the benefit to the new unit comes only once, the parent company has no rationale for holding the new unit in its portfolio over the long term. This quickly becomes unprofitable, particularly if the competition have lower costs. Differentiation Strategy. While acquired units do not have to be in the same industries as existing units, the best portfolio managers generally limit their range of businesses in some way, in part to limit the specific expertise needed by top management. Corporate strategy, the overall plan for a diversified company, is both the darling and the stepchild of contemporary management practice—the darling because CEOs have been obsessed with diversification since the early 1960s, the stepchild because almost no consensus exists about what corporate strategy is, much less about how a company should formulate it. Summary - W2 - from competitive advantage to corporate strategy 20. Broad similarities (marketing intensiveness, for example, or a common core process technology such as bending metal) are not a sufficient basis for diversification. Almost always, the company finds it must reinvest in the newly acquired unit, if only to replace fixed assets and fund working capital. See Michael E. Porter, ‘How Competitive Forces Shape Strategy’, https://doi.org/10.1007/978-1-349-20317-8_17, Palgrave Business & Management Collection. : Lexington Books, 1986), p. 143, and David A. Ravenscraft and Frederick M. Scherer, “Mergers and Managerial Performance,” paper presented at the Conference on Takeovers and Contests for Corporate Control, Columbia Law School, 1985. Marriott’s diversification strategy balances acquisitions and start-ups. They have made a disproportionately low percentage of unrelated acquisitions, unrelated being defined as having no clear opportunity to transfer skills or share important activities (see Exhibit 3). A corporation must bring some significant competitive advantage to the new unit, or the new unit must offer potential for significant advantage to the corporation. The failure of corporate strategy reflects the fact that most diversified companies have failed to think in terms of how they really add value. 3. Stories about Learning for Competitive Advantage https://strategicmanagementinsight.com/topics/competitive-advantage.html Find helpful customer reviews and review ratings for From Competitive Advantage to Corporate Strategy (No. From Competitive Advantage to Corporate Strategy, (1996) by M E Porter Add To MetaCart. Many companies have been defeated at skills transfer because they have not provided their business units with any incentives to participate. The lack of meaningful interrelationships in the portfolio is an equally important finding, suggesting the need to justify the value added by the corporation or, alternately, a fundamental restructuring. Hanson has acquired companies such as London Brick, Ever Ready Batteries, and SCM, which the city of London rather disdainfully calls “low tech.”. Paying dividends is better than destroying shareholder value through diversification based on shaky underpinnings. Corporate entrepreneurship strategy is essential and vital for achieving strategic goals of firms. This observation has been made by a number of authors. Leaders responsible for strategic decision making have to consider many factors, including allocation of resources, organizational design, portfolio management, and strategic tradeoffs. Saddled with the worst acquisition record in my study, CBS has eroded the shareholder value created through its strong performance in broadcasting and records. From Competitive Advantage to Corporate StrategyCLICK TO VIEW DETAIL >>From Competitive Advantage to Corporate Strategy ReviewFrom Competitive Advantage to Corporate Strategy Know Your Legal rights - With Kid Custody Method 2009 There is practically nothing worse as a guy or a woman than obtaining oneself locked in a awful, ongoing custody fight more than entry…
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