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Companies involved in more than one line of business must first formulate a corporate-level strategy. This means, in part, identifying the national markets and industries in which the company will operate. It also involves developing overall objectives for the company's different business units and specifying the role that each unit will play in reaching those objectives. The four key approaches to corporate strategy are growth, retrenchment, stability, and combination.
1. A growth strategy is designed to increase the scale or scope of a corporation's operations. Scale refers to the size of a corporation's activities, scope to the kinds of activities it performs. Yardsticks commonly used to measure growth include geographic coverage, number of business units, market share, sales revenue, and number of employees. Organic growth refers to a corporate strategy of relying on internally generated growth. For example, management at 3M strongly encourages entrepreneurial activity, often spinning off business units to nurture the best ideas and carry them to completion.
Other methods of growth include mergers and acquisitions, joint ventures, and strategic alliances. These tactics are used when companies do not wish to invest in developing certain skills internally or when other companies already do what managers are trying to achieve. Common partners in implementing these strategies include competitors, suppliers, and buyers. Corporations typically join forces with competitors to reduce competition, expand product lines, or expand geographically. A common motivation for joining forces with suppliers is to increase control over the quality, cost, and timing of inputs.
2. The exact opposite of a growth strategy is a retrenchment strategya strategy designed to reduce the scale or scope of a corporation's businesses. Corporations often cut back the scale of their operations when economic conditions worsen or competition increases. They may do so by closing factories with unused capacity and laying off workers. Corporations can also reduce the scale of their operations by laying off managers and salespeople in national markets that are not generating adequate sales revenue. Corporations reduce the scope of their activities by selling unprofitable business units or those no longer directly related to their overall aims. Weaker competitors often resort to retrenchment when national business environments grow more competitive.
3. A stability strategy is designed to guard against change. Corporations often use a stability strategy when trying to avoid either growth or retrenchment. Such corporations have typically met their stated objectives or are satisfied with what they have already accomplished. They believe that their strengths are being fully exploited and their weaknesses fully protected against. They also see the business environment as posing neither profitable opportunities nor threats. They have no interest in expanding sales, increasing profits, increasing market share, or expanding the customer base; at present, they want simply to maintain their present positions.
4. The purpose of a combination strategy is to mix growth, retrenchment, and stability strategies across a corporation's business units. For example, a corporation can invest in units that show promise, retrench in those for which less exposure is desired, and stabilize others. In fact, corporate combination strategies are quite common because international corporations rarely follow identical strategies in each of their business units.
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