47. Corporate Strategy Framework

1 May 2023
Which key choices need to be made when formulating a corporate level strategy?

Key Definitions

When an organization operates in two or more lines of business, it needs a separate business level strategy for each business unit, choosing where to position itself in the market system (“where to play”), which model to use for its business system (“how to play”) and which model to use for its organization system (“who should play”). These three key business level strategy choices are described in the Strategic Alignment Model (Meyer’s Management Models #32).

But besides strategies for each of the business parts, multi-business organizations also need an overarching corporate level strategy for the whole. This is true for organizations with just a few business units, but equally for organizations with dozens or even hundreds of them.

Conceptual Model

The Corporate Strategy Framework outlines the four key choices when formulating a corporate level strategy. This framework builds on the business level strategy choices described in the Strategic Alignment Model, shown here as three gray vertical ‘silos’ (the market, business, and organizational system choices of each business unit). Only three lines of business are depicted here to keep it simple, but there can be many more. The key corporate level strategy choices are the red arrows, that come on top of the business level strategy choices. The light red arrows are business model choices, while the dark red arrows represent organizational model choices.

Key Elements

The four key choices that need to be made for a corporate level strategy are the following:

  1. Corporate Value Creation: Which balance between responsiveness & synergy? Each business unit needs to align its market and business system choices, being responsive to its own specific competitive situation. Yet, at the same time, cross-business synergies can be pursued, such as leveraging resources, linking activities and aligning value propositions, but this requires being less unique and using a joint approach. So, a choice must be made about what to do differently or similarly across business systems to create maximum value.
  2. Corporate Composition: What businesses to be in? When choosing which lines of business to be in, a corporation needs to follow the above-mentioned value creation logic, building or acquiring businesses that are responsive and can be successful in their own right (creating standalone value), while simultaneously preferring businesses that fit with the key synergies being pursued (creating synergy value). So, businesses need to be selected that maximize the sum of the standalone and synergy value.
  3. Corporate Linkages: Which balance between autonomy & integration? To support its responsive business system, each business unit requires some autonomy to develop its own specific organizational system, including its own type of culture, structure, processes, people, and leadership. At the same time, to achieve the intended synergies, the business units require some integration into a joint corporate organization. So, a choice must be made about what to do separately or together across organizational systems.
  4. Corporate Management: Which balance between control & empowerment? The more responsive a business unit needs to be and the more autonomy it has been given, the less guidance it will require from the corporate center – it can be empowered to make its own decisions, with limited central control. The more cross-business synergy and cross-unit integration envisioned, the more steering that will be required from the center. So, the center needs to choose what and how much to control, and where to empower.

Key Insights

  • Corporate level strategy encompasses business level strategy. Each business unit part in a corporation needs its own strategy, on top of which a strategy is needed for the whole. Both levels need to be aligned, but which is in the lead can vary.
  • Corporate level strategy is about adding value to businesses. Having a corporate level adds extra cost, so it must add at least as much synergy value to make sense, while avoiding too much loss of responsiveness. This makes finding the right balance between responsiveness and synergy the key business system choice.
  • Corporate level strategy is about choosing the best corporate composition. A corporation will want to be in businesses that can create stand-alone value, but also create synergy value in accordance with chosen responsiveness-synergy balance.
  • Corporate level strategy is about choosing the supporting organization model. To achieve the intended value creation with the chosen businesses, a corporation needs to balance business unit autonomy and corporate integration (called horizontal design), as well as business unit empowerment and corporate center control (called vertical design).
  • Corporate level strategy is more than central vs. decentral. Corporate strategy discussions are often framed as centralization vs. decentralization. This is a dysfunctional approach. Synergies are achieved by integration, which doesn’t have to be at the center, nor does it always require central control. It’s time to ditch the central-decentral dichotomy.  

 

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