Estrategia Corporativa

Corporate strategy, the overall plan for a diversified company, is both the darling and the stepchild of contemporary management practice—the darling because CEOs have been obsessed with di-versification since the early 1960s, the stepchild because almost no consensus exists about what corporate strategy is, much less about how a company should formulate it.

A diversified company has two levels of strategy: business unit strategy and corporate strategy. Competitive strategy concerns how to create competitive advantage in each of the businesses in which a company competes. Corporate strategy concerns two different questions: what businesses the cor¬poration should be in and how the corporate office should manage the array of business units.

Corporate strategy is what makes the corporate whole add up to more than the sum of its business unit parts.

The track record of corporate strategies has been dismal. I stud¬ied the diversification records of 33 large, prestigious U.S. com¬panies over the 1950-1986 period and found that most of them had divested many more acquisitions than they had kept. The corporate strategies of most companies have dissipated instead of created shareholder value.

The need to rethink corporate strategy could hardly be more urgent. By taking over companies and breaking them up, corporate raiders thrive on failed corporate strategy. Fueled by junk bond financing and growing acceptability, raiders can expose any com¬pany to takeover, no matter how large or blue chip.

Recognizing past diversification mistakes, some companies have initiated large-scale restructuring programs. Others have done nothing at all. Whatever the response, the strategic questions per¬sist. Those who have restructured must decide what to do next to avoid repeating the past; those who have done nothing must awake to their vulnerability. To survive, companies must understand what good corporate strategy is.

Concepts of Corporate Strategy

My study has helped me identify four concepts of corporate strategy that have been put into practice-portfolio management, restructuring, transferring skills, and sharing activities. While the concepts are not always mutually exclusive, each rests on a differ¬ent mechanism by which the corporation creates shareholder value and each requires the diversified company to manage and organize itself in a different way. The first two require no connections among business units; the second two depend on them. While all four concepts of strategy have succeeded under the right circumstances, today some make more sense than others. Ignoring any of the concepts is perhaps the quickest road to failure.

PORTFOLIO MANAGEMENT

The concept of corporate strategy most in use is portfolio man¬agement, which is based primarily on diversification through ac¬quisition. The corporation acquires sound, attractive companies with competent managers who agree to stay on. While acquired units do not have to be in the same industries as existing units, the best portfolio managers generally limit their range of businesses in some way, in part to limit the specific expertise needed by top management.

The acquired units are autonomous, and the teams that run them are compensated according to unit results. The corporation sup¬plies capital and works with each to infuse it with professional management techniques. At the same time, top management pro¬vides objective and dispassionate review of business unit results. Portfolio managers categorize units by potential and regularly transfer resources from units that generate cash to those with high potential and cash needs.

In a portfolio strategy, the corporation seeks to create share¬holder value in a number of ways. It uses its expertise and analyt¬ical resources to spot attractive acquisition candidates that the individual shareholder could not. The company provides capital on favorable terms that reflect corporate wide fund-raising ability. It introduces professional management skills and discipline. Finally, it provides high-quality review and coaching, unencumbered by conventional wisdom or emotional attachments to the business.

The logic of the portfolio management concept rests on a number of vital assumptions. If a company’s diversification plan is to meet the attractiveness and cost-of-entry tests, it must find good but undervalued companies. Acquired companies must be truly under¬valued because the parent does little for the new unit once it is acquired. To meet the better-off test, the benefits the corporation provides must yield a significant competitive advantage to acquired units. The style of operating through highly autonomous business units must both develop sound business strategies and motivate managers.

In most countries, the days when portfolio management was a valid concept of corporate strategy are past. In the face of increas¬ingly well-developed capital markets, attractive companies with good managements show up on everyone’s computer screen and attract top dollar in terms of acquisition premium. Simply contrib¬uting capital isn’t contributing much. A sound strategy can easily be funded; small to medium-size companies don’t need a munifi¬cent parent.

Other benefits have also eroded. Large companies no longer corner the market for professional management skills; in fact, more and more observers believe managers cannot necessarily run any-thing in the absence of industry-specific knowledge and experience. Another supposed advantage of the portfolio management con¬cept—dispassionate review—rests on similarly shaky ground since the added value of review alone is questionable in

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