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1、Primer on Corporate Strategy An Overview of External Thinking,Achim Berg-FTAndreas Fischer-MU,CONFIDENTIAL,Munich,July 2001,This report is solely for the use of client personnel.No part of it may be circulated,quoted,or reproduced for distribution outside the client organization without prior writte
2、n approval from McKinsey it is not a complete record of the discussion.,1,010729MU_ZXH_178_v3_i,CONTENTS,What is corporate strategy?DefinitionHistory and developmentSchools of thoughtResources and capabilitiesPortfolio managementValue-oriented managementAspiration-based managementBibliography,2,0107
3、29MU_ZXH_178_v3_i,CONTENTS,What is corporate strategy?DefinitionHistory and developmentSchools of thoughtResources and capabilitiesPortfolio managementValue-oriented managementAspiration-based managementBibliography,3,010729MU_ZXH_178_v3_i,WHAT IS CORPORATE STRATEGY?QUOTES FROM ACADEMICS,Corporate s
4、trategy is concerned with the overall purpose and scope of the organization to meet the expectations of owners or major shareholders and add value to the different parts of the enterpriseJ.Johnson/K.Scholes,1999,By the fashionable phrase,corporate strategy()I mean the pattern of company purposes and
5、 goalsand the major policies for achieving these goalsthat defines the business or businesses the company is to be involved with and the kind of company it is to beKenneth R.Andrews,1980,Corporate strategy concerns two different questions:What business the corporation should be in and how the corpor
6、ate office should manage the array of business units.Corporate strategy is what makes the corporate whole add up more than the sum of its business unit partsMichael E.Porter,1987,4,010729MU_ZXH_178_v3_i,THE STRATEGY-MAKING PYRAMID,Source:Adapted from Thomson,Strickland and Thompson,1999,Corporate st
7、rategyIn which businesses should the corporation be in?How can the corporate headquarter add value to the individual businesses?,Business unit strategyHow to create competitive advantage in each of the businesses?,TacticsHow to manage frontline organisational units within a business(i.e.plants,sales
8、 districts)?,Tactics,Businessunitstrategies,Corporatestrategy,5,010729MU_ZXH_178_v3_i,TRADITIONAL CHARACTERISTICS OF CORPORATE STRATEGY,Corporation is diversifiedDecisions about scope and structure of the corporate portfolio are necessaryAcquisitions and divestments are necessary,Multi-business,The
9、corporate whole must add up to more than the sum of its partsCorporate strategy defines functions and duties of the corporate center to create value,Value-creation,The strategic creation,allocation and development of resources and competences are an essential task of corporate strategy,Resources and
10、competences,Corporate strategy has to give the corporation a mission To raise shareholder value is a constraint,not a mission,Sense,The development and definition of the corporate strategy is the responsibility of the senior management,Senior management,Source:McKinsey analysis,6,010729MU_ZXH_178_v3
11、_i,CONTENTS,What is corporate strategy?DefinitionHistory and developmentSchools of thoughtResources and capabilitiesPortfolio managementValue-oriented managementAspiration-based managementBibliography,7,010729MU_ZXH_178_v3_i,EVOLUTION OF CORPORATE STRATEGY,Source:Goold,Campbell and Alexander,1994;Go
12、old and Luchs,1993,Issue to be addressed,Principal theories,Impact on corporate strategy development,Overload at the corporate center,Decen-tralization,Divisional-ization,Growth,Synergy,Diversifi-cation,Resource allocation,Portfolio planning,Balanced portfolios,Value gapsPoor per-formance of diversi
13、fica-tion,Value-based planning,Restructuring/refocusing,Defining the core business,Dominant logicManagement stylesCore competenciesShared resourcesParenting advantage,Manageable portfoliosMaximizing value creation,1950s,1960s,1970s,1980s,1990s,Basis of corporate value added,General management skills
14、,Strategy conceptsPortfolio planning techniques,Value-based planning concepts,Core competencies,8,010729MU_ZXH_178_v3_i,CONTENTS,What is corporate strategy?DefinitionHistory and developmentSchools of thoughtResources and capabilitiesPortfolio managementValue-oriented managementAspiration-based manag
15、ementBibliography,9,010729MU_ZXH_178_v3_i,SCHOOLS OF THOUGHT AND RESEARCH APPROACHES,Aspiration-based management,Purpose of the company as starting point and bench-mark of corporate strategy,Resources and capabilities,Resources and capabilities are important instead of SBUsIdentification and exploit
16、ation of resources and capabilities to achieving competitive advantage,Portfolio management,Management of the corporate portfolioIdentification/selection of businesses to invest in/divest,Value-oriented management,Portfolio planningPortfolio conceptsDiversification,Core competen-ciesStrategic capabi
17、litiesResource-based view,Vision,mission and objectives,Value-based managementParenting advantage,Combination of strategic thinking and the modern theory of financeIncreasing shareholder value,Source:McKinsey analysis,10,010729MU_ZXH_178_v3_i,CONTENTS,What is corporate strategy?DefinitionHistory and
18、 developmentSchools of thoughtResources and capabilitiesPortfolio managementValue-oriented managementAspiration-based managementBibliography,11,010729MU_ZXH_178_v3_i,RESOURCES AND CAPABILITIES:SYNOPSIS/SUMMARY,Focus,Contri-butions,Limi-tations,Corporate strategy should focus on core competencies ins
19、tead of on BUs,Shift in logic of competition from outside-in(external product market positions)to inside-out(internal capabilities),Resources(assets,skills,capabilities)and the way they can be leveraged across BUs are the focus of corporate strategy,Core competencies are the key organizational skill
20、s,mainly related to production and technologiesCore competencies represent the roots of long-term competitive advantageThey represent corporate resources and need to be leveraged across BUs,Competitive success depends on transforming a companys key processes into strategic capabilities,linked by a s
21、upport infrastructureCapabilities are collective and cross-functional/cross-SBUDiversification works by replicating strategic capabilities,Diversification should be based on similarities in resources(not products)The nature of the resources determines the configuration of the corporation(in terms of
22、 scope,coordination and control),Definition of core competencies not very specificPractical implementation approach of core competencies missing,High-level,conceptual approach with difficulties and open questions in implementation,Difficult to determine critical resources,Resources and capabilities,
23、Core competencies,Strategic capabilities,Resource-based view,Main authors,Prahalad and Hamel,1990,Stalk,Evans and Shulman,1992,Wernerfelt,1984;Collis and Montgomery,1998,Source:McKinsey analysis,12,010729MU_ZXH_178_v3_i,CORE COMPETENCIES AND COMPETITIVENESS,Derives from price/performance attributes
24、of current end products,Derives from ability to buildat lower cost and more speedily than competitorscore competencies,Short-term,Long-term,Core competencies are,The collective learning in the organizationAbout how to coordinate diverse production skills and integrate multiple streams of technologie
25、sAbout the cross-unit and cross-functional organization of workCorporate resources and may be reallocated by corporate managementThe engine for new business development(guidance for diversification and market entry)The focus of competitive strategy at the corporate levelBuilt and developed deliberat
26、ely through a process of continuous improvement and enhancement that may span a decade or longerThe roots of competitive advantage,Competi-tiveness of a company,Source:Prahalad and Hamel,1990,13,010729MU_ZXH_178_v3_i,THREE TESTS TO IDENTIFY CORE COMPETENCIES,Few corporations are likely to build worl
27、d leadership in more than five or six fundamental competencies,Source:Prahalad and Hamel,1990,14,010729MU_ZXH_178_v3_i,CORE COMPETENCIES AS THE ROOTS OF COMPETITIVE ADVANTAGE,End products,Business unit 1,Business unit 2,Business unit 3,Business unit 4,Level and goal of competition,Level of competiti
28、on 1:End products Goal:Build leadership position in global brand share(with respect to product markets),Level 2:Core productsGoal:Maximize world manufacturing share in core products(for wide variety of internal and external customers;leads to economies of scale and scope),Level 3:Core competenciesGo
29、al:Build world leadership in design and development of a particular class of product functionality,Analysis of underlying competitiveness has to look at core competencies not at end products,Source:Prahalad and Hamel,1990,15,010729MU_ZXH_178_v3_i,TWO CONCEPTS OF THE CORPORATION,SBU,Core competence,B
30、asis for competition,Corporate structure,Status of the business unit,Resource allocation,Value added of top management,Competitiveness of todays products,Portfolio of businesses related in product-market terms,Autonomy is sacrosanct;the SBU owns all resources other than cash,Discrete businesses are
31、the unit of analysisCapital is allocated business by business,Optimizing corporate returns through capital allocation trade-offs among businesses,Interfirm competition to build competencies,Portfolio of competencies,core products and businesses,SBU is potential reservoir of core competencies,Busines
32、ses and competencies are the unit of analysisTop management allocates capital and talent,Enunciating strategic architecture and building competencies to secure the future,SBU concept of the corporation leads to focus on only one level of the competitive battleIt leads toUnderinvestment:Underinvestme
33、nt in developing core competencies and core products and thus in broader,cross-unit advantagesImprisoned resources:SBUs are unwilling to lend their best talent and carriers of competenciesBounded innovation:Individual SBUs will pursue only innovation opportunities that are close to handespecially no
34、 hybrid opportunities that combine several skills and technologies,Source:Prahalad and Hamel,1990,16,010729MU_ZXH_178_v3_i,STRATEGIC ARCHITECTURE AND THE ROAD TO A COMPETENCE-BASED COMPANY,Definition,Fundamental questions to ask,Strategic architecture is a road map of the future that identifies whic
35、h core competencies to build and their constituent skills and technologiesIt broadly describes the evolving linkages between customer functionality requirements,potential technologies and core competenciesIt provides a logic for product and market diversification and makes resource allocation priori
36、ties transparent to the entire organization,How long could the company preserve its competitiveness in this business if it did not control this particular core competence?How central is this core competence to perceived customer benefits?What future opportunities would be foreclosed if the company w
37、ere to lose this particular competence?,Additional adjustments are necessary to become a competence-based companyResource allocation:Core competencies are corporate resources and SBUs should bid for them in the same way they bid for capitalReward systems:In addition to(SBU-centered)product-line resu
38、lts,investment in and development of competencies have be rewarded heavilyCareer paths:They have to cross SBU boundaries and critical carriers of core competencies have to be tracked and guided specifically,Source:Prahalad and Hamel,1990,17,010729MU_ZXH_178_v3_i,STRATEGIC CAPABILITIES:FUNDAMENTAL SH
39、IFT IN LOGIC OF COMPETITION,Source:Stalk,Evans and Shulman,1992,Old logic of competition,New logic of competition,Nature of com-petition,War of position,chess-like,War of movement,similar to an interactive video game,State of economy,Relatively static:World is characterized by durable products,stabl
40、e customer needs,well-defined national and regional markets and clearly identified competitors,More dynamics:Product life cycles accelerate,markets fragment and customer needs change frequently,globalization breaks down barriers between national and regional markets and competitors multiply,18,01072
41、9MU_ZXH_178_v3_i,FOUR BASIC PRINCIPLES OF CAPABILITIES-BASED COMPETITION,Champion of a capabilities-based strategy is the CEO,because capabilities need to cross functions and SBUs,Competitive success depends on transforming a companys key processes into strategic capabilities that provide superior c
42、ustomer value,Companies create capabilities by making strategic investments in a support infrastructure that links together and transcends traditional SBUs and functions,Strategic capabilities,Business processes,Support infrastructure,get transformed into.,CEO,Business processes,not products and mar
43、kets are the building blocks of corporate strategy,Source:Stalk,Evans and Shulman,1992,19,010729MU_ZXH_178_v3_i,STRATEGIC CAPABILITIES,The key to transform individual business processes into a strategic capability is to connect them to real customer needsA capability is strategic only when it begins
44、 and ends with the customerCapabilities-driven companies conceive of their organization as a giant feedback loop that begins with identifying the needs of the customer and ends with satisfying them,Capabilities-based companies identify their key business processes,manage them centrally and invest in
45、 them heavily,looking for long-term pay backLeveraging capabilities requires many strategic investments across SBUs and functions far beyond what traditional cost-benefit metrics can justify,Capabilities-based companies are integrating vertically to ensure that they,not a supplier or distributor,con
46、trol the performance of key business processesEven when a company doesnt actually own every link of the capability chain,it works very hard to tie these parts very closely into its own business system,A capability is a set of business processes strategically understood,i.e.,they represent the primar
47、y object of strategyCapabilities are collective and cross-functional/cross-SBU:They are a small part of many peoples job,not a large part of a few,Source:Stalk,Evans and Shulman,1992,20,010729MU_ZXH_178_v3_i,BECOMING A CAPABILITIES-BASED COMPETITOR,Abandon traditional focus on strategic positioning
48、in core markets/productsConceive business in terms of strategic capabilitiesIdentify capabilities linking customer needs to customer satisfactionSet aggressive goals,Build up/strengthen chosen strategic capabilities byAdapting the organization,roles and responsibilitiesProviding training to employee
49、sProviding supporting systems,Develop measurement system linked to strategic capabilitiesCompensate according to new measures,Top management needs to be involved because capabilities are cross-functional and cross-SBU and becoming a capabilities-based competitor requires a high amount of change,Let
50、CEO/top management lead the transformation,Source:Stalk,Evans and Shulman,1992,21,010729MU_ZXH_178_v3_i,NEW CAPABILITIES-BASED GROWTH LOGIC,Businesses,Geographicarea,Strategiccapabilities,Source:Stalk,Evans and Shulman,1992,Current,22,010729MU_ZXH_178_v3_i,HOW CAPABILITIES DIFFER FROM CORE COMPETENC
