Corporate and business level Strategies
Besides the different tools to assess the competition there are different ways to approach competitive strategy development as part of their corporate and business level objectives. As firms try to compete in complex environments they try to find the strategy that will provide them with the greatest opportunity to maintain their competitive advantage. For many years there was debate on whether the firm's strategy (Porter, 1980) or its technology( Whittington,1991) would provide the firm with the greatest advantage. However because of information technology, the barriers have been greatly reduced. Both customers and competitors are more knowledgeable have greater access to information and resources. "The changes in the market place have firms focusing on their strategy and direction.The first strategy that firms need to identify is the corporate strategy that allows them to leverage their resources in the world market. Corporate strategies can be to be the most innovative, have the highest level of quality, or most efficient operations, as well as others. For example, the introduction of cellar telephones, helped to make customers more mobile. These resulted in the need to increase the range for the signal and thus the need for satellites. Now firms like Spring and AT&T look to develop strategies that offer 4D technology. The competitive advantages that must be found are those that are imperfectly imitable and non-substitutable. Several management theorists (including: Porter, 1980; Kotler, 1994; and Miles and Snow, 1978) looked at how to select the appropriate strategy based on a firm's competitive position.
With all these choices in strategy, the question for most managers is how to choose the "right" strategy.The corporate strategy focuses on what markets to server and what products to offer. However a new aspect to corporate strategy development is the global strategy of the firm. Traditionally firms choose to follow either an International, Global, Multi-National or Transnational Strategy.
Using both analytical tools and information about the competitive position of the firm and the product-life cycle the firm can make sound choices. They look at how to allocate resources in the global business environment. These strategies can be:
- A firm following an International strategy has a domestically centralized manufacturing, R&D, and corporate planning operations. It will export products utilizing a decentralized marketing operation. They offer a global product with different promotional, pricing, and distribution mixes. Caterpillar Tractor follows an international strategy.
- A firm following a Global strategy has domestically centralized corporate and marketing operations, but decentralized manufacturing and R&D. The offer a global product, relying on efficiencies and technology acquired from global resources. Ford Motor company traditionally follows a global strategy.
- A firm following a Multi-National strategy has a domestically centralized corporate planning operations. Their marketing, manufacturing, and R&D, are all decentralized. They offer "local" products that provide maximum utility to the market that they are sold in: produced, designed, and marketed locally. Proctor and Gamble, like many of the consumer products firms, follow a multi-national strategy.
- A firm following a Transnational strategy is often a diversified firm, serving multiple markets, with multiple product technologies. There are typically conglomerates, that need to serve their global businesses with different strategies. A Transnational Strategy, is one in which the firm will have a centralized corporate planning operations, but each of its businesses will following the best global-market strategy based on the environment in which it exists. Thus, a firm like GE will follow a global strategy for their Turbine business, an international strategy for their plastic and silicone business, and a multinational strategy for their electronics business.
Once a firm identifies its corporate and global-market strategy, it can then use portfolio analysis to decide on which markets it should invest, and which it should consolidate. With information from a situational analysis the firm can formulate its corporate strategies. The situational analysis should include a competitive and customer buying behavior analysis. Since customers and competitors vary by SBU, firms may have a separate Business level strategy for each SBU .
Porter recommends that firms evaluate their resources and select a competitive strategy that is either a cost based strategy; a differentiation strategy; or a focus strategy. These strategies because they focus on the competitive environment become the business level strategies (ie you may have a different one for each sbu). The objective to the cost-based and differentiation strategies are to increase selective demand by expanding the served market or by acquiring the competitors customers. Cost-based strategies are frequently recommend, when a customer sees little differentiation in the competitors products. If a firm can gain a technical advantage, they will often choose to follow a differentiation strategy, based on perceived attributes of selected customer segments. The focus strategy is primarily selected to retain demand within a firm's current customer base by focusing on a single customer rather than a customer segment. An example of a firm following a focus strategy is Amazon Books. Through information technology, they keep detailed customer records to ensure complete customer satisfaction and repeat sales.
Miles and Snow, on the other hand, describe competitive strategies as following one of four strategic orientations: the prospector, the defender, the analyzer, and the reactor. Like Porter these strategies are based on the resources of the firm, and the competitive market environment. A prospector attempts to create both primary and selective demand by expanding the customer base by attracting nonusers; and increasing the rate of purchase among current users. Reactors will try to increase selective demand by reacting to the competition and trying to acquire their customers. While the analyzer will increase selective demand by maintaining satisfaction; and offering complementary products, before reacting to changes in specific market segments. Further more Miles and Snow recognize the importance of defending current market share, in addition to expanding demand for the firm's products. If you have a competitor they will likely be trying to increase their selective demand by trying to acquire your customers.
Last modified: Monday, July 17, 2017, 4:14 PM ESC MBA Program