Overview

The present business case mainly talks about the corporate strategy adopted by multi-business organizations. The case also involves corporate advantage by showing it as a key part of a firm’s business. In the context of competitive advantage, the five forces model is identified as a crucial factor for individual units of a firm. In the part of competitive advantage, it is clearly shown how the threat or power of substitutes can affect the competitive advantage of a firm which have operations in many places. Furthermore, the case discusses the reasons behind the success of the diversified firm and the failures of such firms. It clearly describes how the corporate strategy works differently in the firm who are adopting almost similar business operation strategies. Multi-business firm’s performance is calculated with the help of subtracting the corporate centre cost from the weighted average of performance. Balancing the two components can help a firm to gain a maximum of competitive advantage. In the context of the competitive advantage, three approaches are discussed in the study. They are exploiting synergies, portfolio management and restructuring. The approaches that are mentioned in the case are selected because of their market-power and efficiency reasons, which are adequate to increase the performance of a firm.

Strength analysis of the approaches

Exploiting synergies: It is possible to make a separation between cost and revenue side synergies. Cost synergies are considered as a driving force in the decision of merger along with revenue synergies. During a merger, two businesses come in contact with each other as well as with their internal activities. Both cash and revenue synergies are helpful to share each other’s activities of the merged firms. In such a case, activity analysis is a core thing for the business. The activity analysis helps the firms to assess the details of the activity and forecast its expected outcomes, after that the firm decides whether to implement the activity in the business or not. Sometimes synergies can be in the form of intangible skills or resources. The intangible skills like expertise, common culture, reputation, knowledge can also develop synergies. There are some examples of firms that are used the intangible skills to reach to the cost and revenue synergies. For example, Canon extended its business with laser printers, copiers and cameras by using the expertise in optics, processor controls and imaging.

Portfolio management: The value added to the portfolio management of a firm impacts in the organization and ownership. The corporate centre of Disney and Danaher acts very distinctively because Disney shares its activities with the merged businesses to strengthens the value creation. On the other hand, there is no trace of activity sharing in Danaher as it thinks value creation should be based on systemization degree. In the present study, portfolio management is considered as the best approach among the three identified approaches. Portfolio management allows a business to enhance the process of project selection by analyzing the resource availability, business goals and risk factors related to the new project (TheZeroBoss.com, 2018). The collaboration of quantitative and qualitative techniques helps a firm to make the right decision.

Restructuring: Corporate restructuring is considered mainly to bring change in the firm as well as in its activities. The restructuring decision was taken by a firm either bringing change in the business model and organizational structure or making the necessary change in financial adjustments. The most common reasons behind corporate restructure are improving competitive advantage, reduction of costs, merging with another company and better utilization of talent. During the restructuring process, the outcomes depend on the decision taken by the company and its alignment with the future structure of the organization. The restructuring decision may involve introducing a new organizational structure, in which the multiple layers in management are reduced, and decision-making and communication are improved than the previous one (McMullen, 2019). Simplifying the structure of the organization or financial management is also a part of a restructuring. Sometimes, the addition of new layers and steps are involved in the restructuring are also required to strengthen the security of the specific structure. New technologies added in the restructuring process makes a firm enable to enhance its operational efficiency.

Potential risks involved with the identified approaches

Exploiting synergies: There are some synergies that are tougher for the firms to identify. In practical, the revenue synergies are quite difficult to implement in reality. The intangible resource sharing that is considered in the case of revenue or cost synergies often creates problems for a firm. Analyzing with the intangible skills of other firms leads the merger firm to overestimate the outcomes. The core competencies are overstated at the time, and the firm avoids the need for distinctive competency identification. The intangible skills and its involvement in the business operation of another firm can create problems as they cannot provide concrete outcomes.

Portfolio management: There are certain risk factors related to the portfolio management approach. One of the key risk factors is the rights of people for the success of the project outcomes. If the team does not include the right people, then they cannot meet the exact requirement of the project. If the project priorities are not clearly identified by firms, then it may mislead the firm to implement an adequate strategy while operating the activities. The priorities of the firm continuously shift as the market demand and environment of the market constantly changing (Broderick, 2017). If a firm fails to analyze the market demand and environment adequately, then it may imply a different strategy that may not be fruitful.

Restructuring: It brings potential challenges and risk factors for a firm. During the restructuring, new technologies and process are involved in the management. Accepting the change in the process may hamper the existing job role of the employees, and they feel difficult to adopt the new change. As the employees feel difficulty to accept the change, the overall process of work became difficult for them, and it directly affects the productivity of the firm. Restructuring the process means reassigning the duties that need additional training requirement (McMullen, 2019). The additional training adds more expenses to the existing expense of the firm.

Selection of own approach

Based on the components of corporate strategy, it can be said that there are four components- organizational design, strategic trade-offs, portfolio management and resource allocation.

Figure 1: Components of corporate strategy

Source: (Corporate Finance Institute, 2020)

The three components are already discussed in the study, and they are also presented with their strengths and risk factors. The only left component that is strategic trade-offs is the main thing based on which the approach is selected in the present part of the study. In the present part, strategic differentiation approach as a part of strategic trade-offs is considered as an approach for competitive advantage. Regarding this approach, five common factors of benefit are considered- service, convenience, quality, costa and selection. The competitors can be divided into three parts in terms of competency, and the parts are low, medium and high. The figure below shows the alignment of five common benefit factors of the approach with the three competencies of the rivals.

Figure 2: Trade-off Zone chart

Source: (Horwath, 2018)

The key thing to develop such a chart is to specify the customer profile. The profile of trade-offs needs to show the benefit factors derived from each component. Differentiation approach allows a firm to develop the product or services such a way that the products are reflected as distinctive in the market (Horwath, 2018). The main aim of showing the product as different is to increase its value and to reflect it as unique.

There are both advantages and disadvantages that are existing in the strategic differentiation approach. The main advantage of the approach is it provides a shield to the firm from market competition. It allows the firm to take a higher price for the products if it has high demand in the market. There is less price sensitivity in terms of differentiated products and services, so the consumers are ready to pay a little more price (Nyanchama, 2018). Customer loyalty is attached with the differentiated products, so it is difficult for new firms to replace the customers with their products. The strategic differentiation approach allows the firms to create a long-term reputation in the market that cannot be easily shifted.

There are some disadvantages that are related to this approach that varies based on the situation. Differentiation of products and services sometimes excludes some customers, so the firm may not lead an expanded market. During the arrival of substitute products, the price of the products may hit the differentiated products, and the customers opt to get the products at a cheaper price (Nyanchama, 2018). Considering the advantages and disadvantages of the differentiation approach, a firm needs to develop its decisions.

Recommendations

The approaches of corporate advantage consist of both advantages and disadvantages. The four pillars of corporate strategy are the key to corporate advantage. The approaches that are mentioned in the case shows how one approach is fruitful for one firm and carried negative impact on another firm. It depends on the decision making and proper analysis of the situation by the firm before implementing the approach. The self-selected approach that is mentioned in the study shows how a differentiated product can lead to negative consequences. It totally depends on the changing demand and environment of the market. A firm should always be aware of its competitors and customers preferences while making any new decision. The approaches selected by a firm to enhance its competitive advantage needs to be analyzed all the relevant factors before forecasting the outcomes with the approach. The firms that became a part of the merger with other firms usually share intangible skills and tangible resources. Sometimes, the intangible skills may not prove fruitful for another firm as it does not fit with the organizational objectives or the business activities.

It is important to analyze the intangible skill properly before implementing them in the business process. In such a context, the firms can discuss intangible skills with each other and can make a decision based on mutual communication. Along with the analysis of the skills, the firms needs to analyze the external environment, whether the market is ready to accept the change or not. The outcomes of restructurings may not bring positive outcomes, so it is important for a firm to develop alternative strategies to face the challenges. If a firm has the potential to tackle the unexpected challenges properly, then it can accept any uncertain change.

Conclusion

The present study clearly describes the importance of corporate strategy and its components. The four components of corporate strategy are shown, and the approaches based on the components are also discussed. Each approach comprises of advantages and disadvantages. It depends on a firm how to extract the best out of an approach to enhance the business outcomes. The self-selected approach in the study is a part of corporate strategy, and the advantages and disadvantages of the approach are also discussed. The recommendations show how the approaches can be best utilized by addressing the challenges.

References

Broderick, D., 2017. Project Portfolio Management: 5 Benefits And 5 Common Mistakes. [online] BrightWork.com. Available at: <https://www.brightwork.com/blog/project-portfolio-management-5-benefits-and-5-common-mistakes> [Accessed 10 November 2020].

Corporate Finance Institute, 2020. Corporate Strategy – Learn The 4 Pillars Of Corporate Strategy. [online] Corporate Finance Institute. Available at: <https://corporatefinanceinstitute.com/resources/knowledge/strategy/corporate-strategy/> [Accessed 10 November 2020].

Horwath, R., 2018. Strategic Differentiation: Making Trade-Offs That Create Customer Value. [online] ChiefExecutive.net. Available at: <https://chiefexecutive.net/strategic-differentiation-making-trade-offs-that-create-customer-value/> [Accessed 10 November 2020].

McMullen, A., 2019. Advantages & Disadvantages Of Restructuring. [online] Small Business – Chron.com. Available at: <https://smallbusiness.chron.com/advantages-disadvantages-restructuring-39914.html> [Accessed 10 November 2020].

Nyanchama, V., 2018. Differentiation Strategy Definition, Pros And Cons. [online] Tuko.co.ke – Kenya news. Available at: <https://www.tuko.co.ke/288257-differentiation-strategy-definition-pros-cons.html> [Accessed 10 November 2020].

TheZeroBoss.com, 2018. Advantages And Disadvantages Of Project Portfolio Management – Thezeroboss.Com. [online] TheZeroBoss.com. Available at: <http://thezeroboss.com/advantages-disadvantages-project-portfolio-management/> [Accessed 10 November 2020].

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