What Is Corporate Strategy ?

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Corporate-level strategy is focused mainly on the decisions over the scope of the firm's activities, mainly: product scope, geographical scope, and vertical scope. One of the myths of corporate-level strategy is that strategy formulation can be separated from implementation—that strategy is constructed first, then the appropriate management and organizational structure is selected afterwards. Unfortunately, this will result in a poorly designed strategy since it does not take into account the conditions under which it will be implemented. For this reason it needs to be recognized that strategy and structure are interdependent on each other. Basically, as Tom Peters said, "Strategy is structure." To understand corporate-level strategy, one must first observe the transformation of the corporation over time. Firms first came to exist because they were more efficient in organizing production than were market contracts between individual workers. From the early 19th century through the present, a significant evolution of the corporation has taken place. Early in the 1800s, companies took on a very simple structure. They usually had one owner, took place in only local markets, and used very slow means of transportation. The strategic focus of these simple corporations was on specialization and focus on local markets. Here only "word of mouth" was needed to command employees. By the late 1800s companies had transformed into more of a functional organizational structure. With the introduction of the railroad system and telegraphs, firms strategically expanded both geographically and vertically, and could now increase their product lines offered. These corporations now had a distinction between line and staff, and accounting systems. Then early in the 20th century firms moved to a more divisional structure with excess capacity in distribution and the growth of financial institutions and world trade. At this point many fledgling corporations changed strategy towards product and multinational diversification. To put it simply, as Mintzberg says, organizational structure is nothing more than the way labor is divided into certain tasks (specialization), and how these tasks are coordinated. The optimal degree of specialization is critical, since the more specialized the workers are divided, the more coordination is needed. However, coordination between talented employees is usually the separating point between mediocre corporations from the great ones. Unless individuals can coordinate their efforts, it doesn't matter how great their individual specialized skills are. This is prevalent in the sports area. The New York Yankees consistently put the highest payroll cost of what many consider the most talented group of players in Major League Baseball on the playing field, but have failed to win a World Series in the past four seasons. One could speculate that since the club has the best and highest paid players in the game they will automatically win a championship every year, but when you look at the coordination issue, it makes perfect sense why they do not. The Yankees players are constantly bickering with themselves and management, thus damaging the critical coordination of their individual talents. To improve this coordination, the text offers four mechanisms: price, rules and directives, mutual agreements, and routines. Corporations usually incorporate this specialization and coordination into an actual organizational design such as a self-organizing team or hierarchy. However, with the reduced numbers of interactions required, and its loose-coupled nature, that hierarchy is the preferred structure. Hierarchies have a distinct flow of power and supervision from one level to the next. Hierarchies are also most associated with bureaucracy in structure. A bureaucracy is a highly mechanized form of organizational structure that specialize labor systematically and coordinates those components through...
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