Business and Corporate Strategy

What Is Strategy?

A strategy is the central, integrated, externally oriented concept of how a firm will achieve its objectives. Strategy formulationThe process of deciding what to do; also called strategizing. (or simply strategizing) is the process of deciding what to do; strategy implementationThe process of performing all the activities necessary to do what has been planned. is the process of performing all the activities necessary to do what has been planned. Neither can succeed without the other; the two processes are interdependent from the standpoint that implementation should provide information that is used to periodically modify the strategy. However, it’s important to distinguish between the two because, typically, different people are involved in each process. In general, the leaders of the organization formulate strategy, while everyone is responsible for strategy implementation.

Figure 10.1 Corporate and Business Strategy

Figure 10.1 “Corporate and Business Strategy” summarizes the distinction between business and corporate strategy. The general distinction is that business strategy addresses how we should compete, while corporate strategy is concerned with in which businesses we should compete. Specifically, business strategyThe ways a firm goes about achieving its objectives within a particular business. refers to the ways in which a firm plans to achieve its objectives within a particular business. In other words, one of Splash Corporation’s business strategies would address its objectives within the nutraceuticals business. This strategy may focus on such things as how it competes against multinationals, including Unilever and Procter & Gamble. Similarly, Walmart managers are engaged in business strategy when they decide how to compete with Sears for consumer dollars.

Corporate strategyAddresses three questions: (1) In what businesses should we compete? (2) How can the parent company add value to the subsidiaries? (3) How can diversifying our business or entering a new industry help us compete in our other industries? addresses issues related to three fundamental questions:

1. In what businesses will we compete? The Hortalezas, for instance, say that they are in the wellness business; but from the opening case, you can see that they’re talking about specific niche markets related to wellness.
2. How can we, as a corporate parent, add value to our various lines of business (often called subsidiaries)? For example, Splash’s senior management might be able to orchestrate synergies and learning by using new products coming out of the Splash Research Institute. It can also glean market intelligence through health and beauty care retail outlets. Market intelligence can give Splash information on which brands are selling well, and some of those brands might be good targets for Splash to acquire, such as it did with the Hygienix brand line. Hygienix is a brand line of antibacterial skin-care products. Corporate strategy deals with finding ways to create value by having two or more owned businesses cooperate and share resources.
3. How can diversifying our business or entering a new industry, help us compete in our other industries? The Hortalezas’ experience with the HBC retailers can provide valuable insights into which new products to develop through the Splash Research Institute; in addition, Splash can sell more of its own products through HBC outlets.

International strategyUsing corporate strategy to guide the choice of which markets, including different countries, that a firm competes in. is specialized in the sense that corporate strategy guides the choice of which markets, including different countries, a firm competes in. The different types of international strategy are reviewed in Section 10.3 “International Strategy”. Even when a firm doesn’t sell products or services outside its home country, its international strategy can include importing, international outsourcing, or offshoring. ImportingThe sale of products or services in one country that are sourced in another country. involves the sale of products or services in one country that are sourced in another country. Penzeys Spices, for instance, sells herbs and spices that it buys from all over the world, yet it has retail outlets in only twenty-three states. However, such activity is not limited to small companies like Penzeys. Kohl’s Corporation, one of the largest discount retailers in the country, has stores exclusively in the United States but most of its products are sourced overseas. In outsourcingContracting with a third party to do some of a company’s work on its behalf., the company delegates an entire process (e.g., accounts payable) to the outsource vendor. The vendor takes control of the operation and runs the operation as it sees fit. The company pays the outsource vendor for the end result; how the vendor achieves those end results is up to the vendor. The outsourcer may do the work within the same country or may take it to another country (also known as offshoring). In offshoringTaking some business function out of the company’s country of orgin to be performed in another country, generally at a lower cost., the company takes a function out of its home country and places the function in another country, generally at a lower cost. International outsourcingOutsourcing to to a nondomestic third party. refers to work that is contracted to a nondomestic third party.