Defining Corporate StrategyCorporate Strategy is the way a company creates value throughthe configuration and coordination of its multi-market activitiesThe definition has three important aspects: Value Creation - the generation of superior financial performance (rents) from multi-market activities that create corporate advantages Configuration - the multi-market scope of the corporation (product/market diversification, geographic focus, and vertical boundaries) Coordination - the management of activities and businesses that lie within the corporate hierarchy
Goal of Corporate Strategy: CorporateAdvantageThe goal of corporate strategy is to build corporate advantageso 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-SBUs TATA Motors Corporate Team PCBU CVBU
TATA Motors-Scenario in 2001 Tata Motors was making a loss of $108.6 Million aloneon CVBU during 2001. Mainly due to Market shrinkage. During 2001, there was an aggressive investment inpassenger car business unit. How TATA motors made it turn around by aligningcorporate strategy with the 2 SBUs????
Corporate strategy TML built Balanced scored card approach . TML forms a corporate team of 5 members across various functions to designstrategic 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 sharedinventory. TML made most of the parts communized. All the SBU leaders given autonomy in designing approaches inline withcorporate strategic goals. The performance measured based on the performance of various parameterssuch as product quality, process quality, safety, cost measures etc.( Behavioralcontrol).
Product Transformation curves After Corporate strategy Before corporate Strategy Commercial Vehicles(C) 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)- Machineryand Factories & labor. Shared management resources-Transfers of Tacitknowledge. Common utilization of inventory through communization. Corporate e-sourcing Cost Minimization across SBU unit processes andproducts. Over all The BSC way.
How Economies of scope helped? Approximation of Curve : P2+C2=a2 Line- P+C=a where “a” indicates The all factors mentioned in the previousslide. Let us assume a=6.Then, 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 >7If P =3, C=4 if P=3, C=5.2 Total>8 and so onIf P=4, C=2, etc
Corporate AdvantageThe effective profit of aligning corporate strategywith SBUs with in 2 years of implementation is$106Million from a Loss of over $108 Million. Economies of scope was just one of the reasonsfor increase of profits.