“Creating Corporate Advantage”
By David J. Collis & Cynthia A. Montgomery
This article on creating corporate advantage could be considered a literature review and an empirical piece. The authors take their existing knowledge of corporate advantages, apply it to three multibusiness companies and their strategies, and ultimately answer the question “how can you tell if your company is really more than the sum of its parts?” As most multibusiness companies are nothing more than the sum of their parts, many corporate executives face pressures to add value to these parts. It is not the lack of trying to create this value, rather it’s the struggle to define and understand what is important ...view middle of the document...
The authors then looked at a company called Newell, an old-line manufacturer of brass curtains. This company originally had no real strategy but then developed this tagline, “Build on what we do best.” This was written to focus on the hardware and do-it-yourself market. From this, Newell made their first non-drapery acquisition followed by seventy-five more within the next three decades. By 1997, Newell had come up with an articulated strategy that helped them reach nearly $3 billion in sales and ranked twenty-second on the list of Fortune 500 companies.
Today, Newell offers a wide range of products from hair barrettes to office products. They pride themselves on relationships with discount retailers, efficient high-volume manufacturing, and superior service. Why did Newel’s strategy work? For a couple reasons, with the first being the right balance of resources and businesses. They first identified the firm’s corporate capabilities. From this they decided not to enter markets requiring skills they do not possess or acquire businesses whose dominant distribution channel is outside of discount retailing. Instead, they acquired subpar performers, which in turn increased their operating margins. In addition, they must decide what kinds of coordination and control must be provided to effectively use these resources. To transfer the critical resources across the firm, they moved managers across business levels and held president meetings.
Control systems and the corporate office are also important elements to consider. There are two types of control systems: operating and financial. Without the appropriate control system they may lose the ability to develop a strategic direction. Newell has one single system that is tailored to all of their businesses, focusing on thirty operating variables critical to success. Their corporate office culture is consistent with their strategy in that they maintain the expectation that Newell will be the leader in serving the needs of discount retailers. By preserving high-level relationships throughout the company and with customers, as well as maintaining a low corporate charge of only 2% sales, Newell has created an advantage in their competing market.
To monitor and control the performance of your subordinates and business units a company should emphasize on financial control or operating control, not both. When deciding a company much look at the nature of their businesses. Financial control is typically more appropriate for industries that are mature, stable industries for discrete business units, not in a fast-moving industry with high levels of uncertainty. Where as, operating control uses quantitative and qualitative assessments that require more interaction between corporate and business unit managers. Choosing the correct form of monitoring solely depends on the degree of fit with the company’s set of resources and businesses.
For a corporation to establish itself into a new market they need to focus...