WELCOME

PRESENTATION ON
Michael Porter, From Competitive Advantage to Corporate Strategy, Harvard
Business Review
Group- 03
Md. Sumon Mattuber 1925
Md. Samir Mahmud - 1926
Md. Jahidul Islam - 1932
Md. Farukuzzaman - 1956
Mithu Chandra Naha - 1958
Md. Muntasir Mamun - 1959
Pradip Saha - 1963
Program: MBA
Batch: 60 (B)

Introduction
Corporate strategy, the overall plan for a diversified
company, is both the darling and the stepchild of
contemporary management practicethe darling
because CEOs have been obsessed with diversification
since the early 1960s, the stepchild because almost no
consensus exists about what corporate strategy is,
much less about how a company should formulate it.
Porter first paints a sobering picture of corporate
strategy, then (1) an essential test to help
practitioners evaluate acquisition candidates, and (2) a
typology or framework for classifying four approaches
to corporate strategy. Finally he closed with an action
plan to aid companies in choosing or implementing
corporate strategy.

Competitive VS Corporate
Strategy
A diversified company has two levels of strategy:
Business Level Strategy: It is concerned with how a
company can gain a competitive advantage through a
distinctive way of competing.
Corporate Strategy: It refers to the overall strategy
for a diversified company. It concerns 2 different
questions:
What business the corporation should be in?
How the corporate office should manage the various
business units?

Premises of Corporate Strategy

Any successful corporation strategy is build on a number of
premises.
1.Competition occurs at the business unit level:
Diversified companies do not compete, only their business
units do.
2.Diversification adds and constraints to business
units: Hidden costs and constraints are very important
and subtle for a business. These costs and constraints can
be reduced but not entirely eliminated.
3.Shareholders can easily diversify themselves:
They can diversity their own portfolios of stocks by
selecting those that best match their preferences and risk
profits.

Passing the Essential Tests

The attractiveness test. The industries chosen for
diversification must be structurally attractive or
capable of being made attractive.
2. The cost-of-entry test. The cost of entry must not
capitalize all the future profits.
3. The better-off test. Either the new unit must gain
competitive advantage from its link with the
corporation or vice versa.

How attractive is an Industry

Industry with high return.
Diversification cant create value for shareholders, unless
have favorable structure.
If not, should consider restructuring of the firm.
Poor industry structure can lead to unhappy diversification.
Example: Dutch shells unsuccessful acquisition like Billiton
(Mining), Bechtel (Power generation).

Dont rush into fast growing industries;

Mistook early growth for long term potential.
Example: Video Games, Personal Computers, Robotics.

Cost of Entry Test

If cost of entry > expected returns= no shareholder value
If the acquirer beats market prices, not reflecting the
prospects= pressure will create
Example: Philip Morris acquires 7- up (4 times the book
value).

More attractive an industry, more the cost of entry.

Better-off test
Corporation should bring in competitive
advantage to the new unit or vice versa.
If the benefit is one-time, it is best to sell the unit
once got the benefits; as does not add value to
shareholders.
Example: Baxter Travenol and American Hospitality
Supply.

Concepts of Corporate Strategy

Major reasons for Diversification failures:
Failure to address the 3 test
Lack of Clearness in the concept of corporate strategy.
Poor Implementation of the Strategies.
4 Major Concepts of Corporate Strategy are:
1. Portfolio management
2. Restructuring

3. Transferring skills
4. Sharing of activities

Requires No Connection among

Business Units
To
create
value
through
Companys each autonomous units
Depends on connection among
Business Units
Exploits the relationship between
Business

Portfolio Management
Acquire sound, attractive companies with competent
managers who are stay.
Companies acquired needs to be autonomous and
should be compensated based on its results.
Requires good but undervalued companies.
But, the success of this is a Past Thing.
More complex nature of portfolio, difficult to manage;
For Example:
Gulf Western.
Sara Lee.

Restructuring
Underdeveloped, sick, or threatened organization or
industries on the threshold of significant change.
Parent intervenes frequently changing the management
team, shifting strategy or infusing the company with
new technology.
Business is sold when parent is no longer adding value.
Some Restructuring companies:
Hanson Trust, Loews & BTR
When well implemented, it passes all 3 tests
Major Pitfall- Companies find it difficult to divest once
restructured.

Transferring Skills
Knowledge about how to perform activities is transferred
among the units.
Characterized by units with similar buyers, channels, value
activities or the same strategic concept.
Example: A toiletries business unit, can give the marketing
skills, positioning concepts, promotion techniques to a cough
syrup business unit.
Expertise must be a meaningful score of competitive
advantage.
Companies which diversified using this concept;

Sharing Activities
Leads to lowering costs or rising differentiation.
Must involve activities that are significant to competitive
advantage and costs outweighed by benefits.
Business units collaboration is encouraged and reinforced.
Example:
Uses
common
physical
Distribution system and sales
force in both paper towels and
disposable diapers.
Shared
Procurement
and
distribution system
for food
serve in all Marriott Units.
Fully Integrated Real Estate unit.

Porters Advice for Choosing a

Corporate Strategy (An Action
Program)
Identify interrelationships among existing business.
Select core businesses as foundation for strategy.
Create horizontal linkages between core businesses.
Pursue diversification that allows shared activities.
Pursue diversification that allows transfer of skills.
Pursue restructuring only if it fits existing management
skills.
Pay dividends so shareholders can diversify.

Corporate Theme- Example

NEC Corporation
Corporate Theme= C&C in 1978
Started to integrated Computers & Communications

Columbia Broadcasting System

Corporate Theme= Entertaining company
Started to diversify in toys, crafts, musical instruments, sports
teams
But, Failed miserably
None has any significant opportunity for sharing activity or
transferring skills

Conclusion
Moving from competitive advantage to corporate strategy is
the business equivalent of passing through the Bermuda
Triangle. The failure of corporate strategy reflects the fact
that most diversified companies have failed to think in terms
of how they really add value. A corporate strategy that truly
enhances the competitive advantage of each business unit is
the best defense against the corporate raider.

Thank You