Defining Corporate Strategy
Corporate Strategy is the way a company creates value through
the configuration and coordination of its multi-market activities
The definition has three important aspects:
Value Creation - the generation of superior financial
performance (rents) from multi-market activities that create
Configuration - the multi-market scope of the corporation
(product/market diversification, geographic focus, and vertical
Coordination - the management of activities and businesses
that lie within the corporate hierarchy
Goal of Corporate Strategy: Corporate
The goal of corporate strategy is to build corporate advantage
so as to earn above normal returns
• analogous to a competitive advantage in a business unit
Corporate-Level Strategy (companywide strategy)
Corporate (or Company-wide) Strategy is the overall plan for a multi-
business unit company.
Corporate strategy is what makes the corporate whole add up to more than
the sum of its business unit parts
TATA Motors-Scenario in 2001
Tata Motors was making a loss of $108.6 Million alone
on CVBU during 2001. Mainly due to Market shrinkage.
During 2001, there was an aggressive investment in
passenger car business unit.
How TATA motors made it turn around by aligning
corporate strategy with the 2 SBUs????
TML built Balanced scored card approach .
TML forms a corporate team of 5 members across various functions to design
strategic approach . The people are cross functional expertise from SBUs.
Main Objective was to prioritize Vital Objectives of SBUs and initiatives &
coordinate across SBUs for resources
TML started central resourcing through e-sourcing to minimize the cost of shared
TML made most of the parts communized.
All the SBU leaders given autonomy in designing approaches inline with
corporate strategic goals.
The performance measured based on the performance of various parameters
such as product quality, process quality, safety, cost measures etc.( Behavioral
Product Transformation curves
After Corporate strategy
Before corporate Strategy
Passenger cars (P)
The straight line - No gains or Losses of Joint production.
The Curve – Economies of scope for both prodcuts.
Factors for Transformation
Both products use joint capital (to an extent)- Machinery
and Factories & labor.
Shared management resources-Transfers of Tacit
Common utilization of inventory through communization.
Cost Minimization across SBU unit processes and
Over all The BSC way.
How Economies of scope helped?
Approximation of Curve : P2+C2=a2
where “a” indicates The all factors mentioned in the previous
slide. Let us assume a=6.
P+C=6 P2+C2= 36,
If P=1, C=5 if P=1, C=5.9 Total=7
if P=2, C=4 if P=2, C=5.6 Total >7
If P =3, C=4 if P=3, C=5.2 Total>8 and so on
If P=4, C=2, etc
The effective profit of aligning corporate strategy
with SBUs with in 2 years of implementation is
$106Million from a Loss of over $108 Million.
Economies of scope was just one of the reasons
for increase of profits.
Mckinsey Quarterly & BSR