Saturday, June 7, 2008

From Competitive Advantage to Corporate Strategy

By Michael E. Porter
Publisher: Harvard Business Review
Number Of Pages: 22
Publication Date: 1987-05-01
ISBN-10 / ASIN: B00005RZ1N
ISBN-13 / EAN: Binding: Digital

A study of the diversification records of 33 large U.S. companies from 1950 to 1986 shows that diversification--whether through acquisition, joint venture, or start-up--generally has not brought the competitive advantages or profitability expected. Portfolio management, restructuring, transferring skills, and sharing activities are four concepts of corporate strategy that companies most commonly use. Portfolio management no longer works very well in the United States because of its highly developed capital market. Restructuring is merely a stopgap measure that will not build shareholder value over the long term because it usually produces an unwieldy conglomerate. Companies have the best chance of being successful at diversification if they capitalize on the existing relationships between business units by having them transfer skills and share activities. McKinsey Award Winner.
Summary: A clear introduction into diversificationRating: 4
Michael E. Porter is a Professor of Business Administration at the Harvard Business School and a leading authority in the field of competition and strategic management. This article was published in the May-June 1987 of the Harvard Business Review and won the McKinsey Award for the best article that year.
"A diversified company has two levels of strategy: (1) business unit (or competitive strategy) and corporate (or companywide) strategy." Competitive strategy concerns the creation of competitive advantage in each of the businesses, corporate strategy concerns the scope and the management of the corporation. The aim of corporate strategy is 1 1=3. In this article the author reports on findings from his study into the diversification record of 35 large, U.S. companies between 1950-1986 period. The results were shocking and the author warns the reader that "any successful corporate strategy builds on a number of premises": (1) Competition occurs at the business unit level; (2) diversification inevitably adds costs and constraints to business units; and (3) shareholders can readily diversify themselves. Porter then continues by introducing three essential tests to specify the conditions under which diversification will create shareholder value: (1) The attractiveness test; (2) the cost-of-entry test; and (3) the better-off test. Each of these tests is explained and discussed in detail. Once these tests have been met, companies need a clear concept of corporate strategy to guide their diversification. According to the author, four mutually exclusive concepts of corporate strategy are put into practice. The first two concepts - portfolio management and restructuring - require no connections between business units, the other two - transferring skills and sharing activities - depend on them. "Ignoring any of the concepts is perhaps the quickest road to failure." Last but not least, Porter provides a 7-steps action program for choosing a successful corporate strategy. The author also recommends a corporate theme to ensure that the corporation creates shareholder value. The article is complemented with a summary of the data from his study and a useful table of the concepts of corporate strategy.
Great, clear article on the traps of diversification based on extensive academic evidence. The article is based upon intensive academic research. The author also provides an useful action program for those companies that aim to diversify in the near future. This article should be read by all managers and MBA-students. The author uses simple US-English.

18 comments:

Anonymous said...

Malaysia & Singapore & brunei ultimate online blogshop for wholesale
& quantity korean accessories, accessories, earstuds,
necklace, rings, bracelet, bracelet & hair add-ons.
Offer 35 % wholesale discount. Ship Worldwide
Also visit my web page ... ohiomeansjobs.com

Anonymous said...

I am actually grateful to the holder of this
website who has shared this wonderful post at at this time.
Here is my blog : the truth teller show

Anonymous said...

Excellent website you have here but I was curious if you knew
of any forums that cover the same topics talked about here?
I'd really love to be a part of online community where I can get advice from other knowledgeable people that share the same interest. If you have any suggestions, please let me know. Thanks!
Also visit my web-site ... replica Pro beats headphones by dre

Anonymous said...

First of all I would like to say great blog! I
had a quick question which I'd like to ask if you do not mind. I was interested to find out how you center yourself and clear your mind prior to writing. I've had difficulty clearing my
mind in getting my ideas out. I do take pleasure in writing but it just seems like
the first 10 to 15 minutes are wasted simply just trying to figure out how
to begin. Any suggestions or hints? Thanks!
my website - seo on site

Anonymous said...

It's really a nice and useful piece of information. I am satisfied that you just shared this helpful info with us. Please keep us up to date like this. Thanks for sharing.
My web site : DSL Anbieter

Anonymous said...

Hello i am kavin, its my first occasion to commenting anywhere, when i read this article i thought
i could also make comment due to this good paragraph.
my web site - DSL Anbieter

Anonymous said...

Great post. I'm facing many of these issues as well..

My web blog - get healthy without cigarettes
Also see my web site > electric cigarette,electric cigarettes,electric cig,electric cigs,electronic cigarette,electronic cigarettes,e cigarette,e cigarettes,electronic cig,electronic cigs,quit smoking fast,stop smoking for good,kick the smoking habit,stop lighting up,quit smoking tobacco cigarettes,stop smoking the easy way,finally quit smoking now,time to stop smoking tobacco,time to quit smoking for good,get healthy without cigarettes

Anonymous said...

I do not even know how I stopped up right here, however I thought
this put up used to be great. I do not realize who you are
however certainly you're going to a famous blogger when you are not already. Cheers!

Stop by my page :: manfrotto

Anonymous said...

I have learn some good stuff here. Definitely
value bookmarking for revisiting. I wonder how a lot effort you place to make any such great informative website.


my web site; Love Bite

Anonymous said...

I believe this is among the so much vital info for me.
And i'm glad reading your article. However wanna statement on some common issues, The website style is ideal, the articles is really excellent : D. Just right activity, cheers

Also visit my web site: Female Health Issues

Anonymous said...

I constantly spent my half an hour to read this weblog's content all the time along with a mug of coffee.

my web-site :: Botox Services Manchester

Anonymous said...

Hello There. I found your blog using msn. This is a very well written article.

I will make sure to bookmark it and come back
to read more of your useful information. Thanks for the post.
I'll certainly comeback.

my site; Spazio Kovan

Anonymous said...

Good way of describing, and nice paragraph to obtain data about my presentation subject matter, which i am going to
present in college.

my blog :: gw2 gold

Anonymous said...

Thank you for the good writeup. It in fact was a amusement account it.
Look advanced to more added agreeable from you! By the way, how can
we communicate?

Also visit my webpage http://www.jnmassage.info

Anonymous said...

Why people still make use of to read news papers when in this technological world all is accessible on
net?

Check out my weblog :: dabagirls.com

Anonymous said...

Hey very nice web site!! Guy .. Beautiful .. Wonderful .

. I'll bookmark your site and take the feeds also? I am satisfied to search out numerous useful info here within the put up, we'd
like develop extra techniques on this regard, thank you for sharing.
. . . . .

My page - http://www.cuteteenporn.net/

Anonymous said...

I like the helpful info you provide in your articles. I'll bookmark your blog and check again here regularly. I'm quite certain I'll learn plenty of new stuff right here! Good luck for the next!

my web page; http://xxx-fuck.net/

Anonymous said...

First off I want to say terrific blog! I had a quick question which I'd like to ask if you do not mind. I was curious to find out how you center yourself and clear your head before writing. I've had trouble clearing my thoughts in getting my thoughts out there.
I do enjoy writing but it just seems like the first 10 to 15 minutes are generally
wasted simply just trying to figure out how
to begin. Any suggestions or hints? Appreciate it!


Also visit my web page: www.wildpartygirls.org

Firefox 3