The choice of strategy is crucial for every company, since an incorrectly chosen strategy might ruin a successful project. Top management should carefully analyze the environment and select the most appropriate type of corporate strategy. In the process of developing corporate strategy, companies have to make three key decisions: on the overall orientation of the firm (whether it is towards expansion, steadiness or retrenchment), on the markets or industries where the company is going to compete, and on the type of relationship between the company and its business units (Hunger & Wheelen, 2000).
Directional strategy can be divided into three types of strategies: growth, stability and retrenchment (Hunger & Wheelen, 2000). Growth strategies can be internal (local and global expansion) and external (mergers, acquisitions and strategic alliances). In addition, growth strategies can be classified into concentration (including horizontal and vertical growth) and diversification strategies (including conglomerate and concentric diversification) (Thompson & Martin, 2005). In general, growth strategies are good when the company has potential and resources to develop further, when the environment has appropriate opportunities and financial position of the company is suitable for moving ahead.
Stability strategies are profit, no-change, and “proceed with caution” (Hunger & Wheelen, 2000). These strategies might be appropriate for small businesses, which have a special niche. However, these approaches are considered to be short-term strategies, since they in fact slowly reduce competitiveness of the company. Profit strategy should only used when the company needs to survive, and can be disruptive in the long-term perspective. For companies with weak market position, low performance and rather strong competition retrenchment strategies can be used, such as turnaround strategy, captive, sell out and bankruptcy/liquidation (Thompson & Martin, 2005). Turnaround might take place in the form of contraction or consolidation.
Portfolio analysis includes two approaches: BCG growth-share matrix and GE business screen (Hunger & Wheelen, 2000). The former method analyses industry growth rate and relative market share of the product/business unit, and allows to classify the business units or products into questionable, stars, cash cows and dogs. GE business screen method studies the relation of industry attractiveness and the company’s competitive position. For analyzing international portfolios, it is necessary to analyze the relative attractiveness of the target country as well. BCG growth-share matrix can be used to evaluate decisions and to make initial decisions. When the environment is complex, it is more reasonable to apply GE business screen method (Thompson & Martin, 2005). Both of these methods allow to consider relative success of a product or business unit regarded separately.
Corporate parenting strategy is focused on building synergies between the business units. This strategy is constructed basing on SWOTs of each business unit and the fit between these units. Types of business units, according to this strategy, are: ballast businesses, heartland businesses, edge-of-heartland businesses, value trap and alien territory businesses (Hunger & Wheelen, 2000). Using the parenting-fit matrix, it is possible to develop a horizontal corporate strategy building synergy among business units and allowing to improve competitive position of certain business units (Thompson & Martin, 2005).
Overall, top managers have to pay attention to the issues of direction, corporate parenting and portfolio analysis when developing a corporate strategy. Using the framework described above, it is possible to build a sustainable corporate strategy.
Hunger, J.D. & Wheelen, T.L. (2000). Strategic management. Prentice Hall.
Thompson, J.L. & Martin, F. (2005). Strategic management: awareness and change. Cengage Learning EMEA.