4. Corporate Strategy Elements
There are three Corporate Strategy Elements to learn when designing a Corporate Strategy. Remember that Corporate Strategy is the ultimate management strategy which describes where what and how you are going to perform your business. Therefore the three elements are 1) Business Domain, 2) Core Competence, and 3) Resource Allocation. Meanwhile, let’s take a look at each of the elements.
What is Business Domain?
Business Domain is to set where you are going to perform your business. The important thing to consider when designing the Business Domain is also to decide where you are NOT going to conduct your business. Each company must make sure they select the appropriate market to perform their business. Otherwise many companies expand Business Domain and as a result, weaken their management power. Under the competitive market, we are in; we must make sure to focus on Business Domain that we can maximum utilise the resources.
How To Decide Business Domain?
There are multiple factors to determine a Business Domain. Companies can choose Business Domain from the product development capability. For example, Electronic Companies will utilise their strength to create not only electronic products to manufacturers but also to other B2B industries such as automotive or healthcare and innovate electronic components. On the other hand, there are cases that companies want to respond to customer demands from the market. For example, private banks which provide service for upper class holds product line up exclusively for the wealthy people to invest in their financial assets. These companies focus on analysing the customer segment and provide a variety of goods based on client needs. As you can see from these examples, companies design Business Domain by considering strength, core competence and how that can bring value to the market.
Select Your Core Competence
The second Corporate Strategy Element is Core competence is the core capability of the company to generate particular values to the market. At the same time, your Core Competence has to be a capability that competitors are unable to replicate quickly. If they can replicate efficiently, then you lose the competitive strength you had against competitors. Sony used to be the top in global electronics market. They had the capability to innovate creative products and high electronic development resources. Once they lose the ability to innovate products, they cannot compete against companies such as Apple who holds the core competence of innovation and product development. In other words, selecting your Core Competence is to decide on what are the capabilities you would utilise to bring values to your product or services.
Five Factors to Consider in Building Core Competence
For companies to consider about what should be their Core Competence, there are five factors to consider to make the decision.
1. Low Imitability
2. Low Transferability
3. Low Substitutability
4. High Scarcity
5. High Durability
In other words, Core Competence has to be a capability which cannot be easily replicate, transfer or be substitute with other capabilities. It also has to be insufficient and durable so that you can keep the ability for given period to establish competitive strength against the players in the market.
What is Resource Allocation?
The third Corporate Strategy Element is Resource Allocation. Before we learn about Resource Allocation, what are resources? Resources are people, products or goods, finanicals and information which are the critical factors to run a business. When you design a business strategy the key point is to consider about how many resources will be allocated to which business domain. There is a particular limitation to resources, so there are restrictions on some resources you can use at the same time. You need not just to think about the success of each business but also to consider from a corporate standpoint. If you make a decision to allocate your human resources and cash to individual business without regard to the other business situations, then you can lower your management power to grow.
Alliance and Outsourcing
You might need to make the decision to utilise external resources to fulfil the needs of your business growth. Alliance is to cooperate with other companies to employ their skills, knowledge, customer network, product development so that you can fulfil client needs. Strategic Outsourcing is another way to use the external resource. If you have non-core operations which you can rely on other parties and also consider to reduce the operational cost, Strategic Outsourcing is one of the options. For example, companies will outsource human capital administration, invoicing and billing, customer service, and IT to other parties to secure the resources without investing in developing the capabilities. On the other hand, using external resources can lead to business risks such as leakage of confidential information and unable to accumulate the skills and knowledge. Business Owners and CEOs must consider these pros and cons while using these external resources.
Summary of This Topic
Business Domain, Core Competence and Resource Allocation are the three Corporate Strategy Elements. Business Domain is where you are going to perform your business. Core Competence is what you are the competence you are going to utilise to build competitive advantage. Resource Allocation is to decide, how many resources are you going to allocate to which Business Domain.