Strategy Formulation: Corporate Strategy – Summary

Corporate strategy is primarily about the choice of direction for the firm as a whole. It deals with three key issues that a corporation faces:

1.       1. The firm’s overall orientation toward growth, stability or retrenchment

2.       2. The industries or markets in which the firm competes through its products and business units

3.       3. The manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and business units. This issues are dealt with through directional strategy, portofolio analysid and corporate parenting.

Managers must constantly examine their corporation’s entire portofolio of products, businesss and opportunities as if they were planningto reinvest all of its capital. One example in Cummins, Inc. Management realized at the time that the global appetite for power was growing far faster than local power grids could provide, especially in the fast growing developing countries. Unfortunately, power generation unit, cut costs, and reorganized the division around product lines rather than territories. Over the next four years, sales of the company’s power generators, ranging from portables for RVs to house sized machines for factories, more than tripled to $3 billion – 20% of the company’s total sales. Cummins achived second place, behind Caterpillar, in the global power generator market. Management decided to grow horizontally by building plants in China and India and making small home generators to sell through mass merchandisers.