Evaluating Corporate Strategy: Steps for Analyzing Diverse Companies

Whatever strategies are a diverse company chooses from for strengthening its position and performance, they should be properly analyzed and evaluated.

Some systematic procedures need to be followed so that call. Managers can assess the potential and present caliber of the various business units under the corporate umbrella.

Search analysis and evaluation would help them decide what strategic action they should take in order to improve the strategies of their business.

Steps for Analyzing Diverse Companies

Strategic analysis of diverse companies involves several steps. a manager needs to follow these steps while evaluating the strategies of their companies.

1. Identifying the present corporate strategy

The strategy makers’ first task in strategy evaluation of a diversified company is to clearly understand the present strategy and business makeup of the company.

For this purpose, they examine the extent of related or unrelated diversification, the scope of operations from domestic to multinational to global, moves to add new businesses, moves to divest weak/unattractive business-units, moves to. boost performance of key business-units moves to strengthen existing business positions, the extent of cross-business strategic fit benefits, resource allocation priorities among different business-units, etc.

2. Evaluating industry attractiveness

It is necessary for the strategists to evaluate the attractiveness of each industry in which a company’s businesses are being carried on. Such evaluation should focus on the following:

• Attractiveness of all industries relevant to the company’s businesses to determine each industry’s prospects for growth and profitability, competitive conditions and market opportunities, and the extent of matching company’s capabilities with industry’s technology/resource requirements;
• Each industry’s attractiveness relative to the others in order to estimate the ranking of the industries from most attractive to least attractive; and
• Attractiveness of all industries as a group to determine how appealing the mix of industries is.

3. Evaluating the competitive strengths of the business units

The strategy makers need to evaluate the strength and competitive position of each business-unit under a diversified company to determine the strongest and weakest units.

Strategists usually consider such factors as relative market share, ability to compete on cost, ability to strongly negotiate with the key suppliers and customers, technology and innovation capabilities, matching of unit’s competencies with industry key success factors, and profitability relative to competitors.

The competitive strengths of a diversified company are usually measured against the above- mentioned measures/factors.

4. Strategic-fit analysis

The strategy-makers in a diversified company determine the potential for the competitive advantage of value chain relationships. They also examine the strategic-fit among the existing business- units.

From this analysis, they can understand whether a unit has a valuable strategic-fit with other businesses. If it is found that good strategic fits exist among the business-units, the strategy-makers can conclude that the company has a competitive advantage potential.

5. Resource-fit analysis

This analysis is done to determine the extent of matching of a unit’s resource strengths with the resource requirements of its present business lineup.

Resource-fit exists when business-units add to a company’s resource strengths financially or strategically, and when a company has adequate resources to support the resource requirements of all business-units as a group.

6. Ranking business-units

At this step, strategy-makers evaluate the business-units on the basis of performance prospects. They look into sales growth, profit growth, contribution to company earnings, return on investment, cash flow generation, etc.

Usually, strong business-units in attractive industries have better prospects than weak businesses in unattractive industries. Business-units (subsidiaries) with bright performance prospects are good candidates for corporate resource-support.

7. Determining priority for resource allocation

This step involves ranking the business subsidiaries in terms of priority for resource allocation. Strategy-makers need to determine which business-units should have top priority for corporate resource-support, and which ones should get low priority.

Then they should determine the basic strategic approached that need to be undertaken for each unit.

The alternative approaches, as suggested by Thompson and Strickland, may be invest-and-grow (aggressive expansion), fortify-and-defend (protect current position by strengthening and adding resource capabilities in new areas), overhaul and reposition (make major competitive strategy changes to move the business into a different and ultimately stronger industry position), or harvest-and-divest.

8. Formulating a corporate strategy

Using the information gathered at the previous steps, strategy- makers can now proceed toward formulating (or crafting) corporate strategies. Their strategic moves would aim at improving the overall performance of the diversified company.

Based on relevant information and personal judgments, the strategists may consider divestment for certain units, making new acquisitions, restructuring the portfolio, staying with existing units, or alter the pattern of corporate resource allocation.

Conclusion

Our discussions on the strategy formulation issues are expected to provide a clear insight into the complicated aspects of strategy ­making.

However, even a well-formulated strategy would be useless if it is not well-executed. Thus, managers must give careful attention to the implementation of strategies.

The upcoming chapters deal with strategy implementation, followed by strategy- related performance evaluation and control.