How can you tell if your company is really more than the sum of its partsl
CREATING CORPORATE ADVANTAGE
BY DAVID J. COLLIS AND CYNTHIA A. MONTGOMERY
OST MULTIBUSINESS COMPANIES ARE
the sum of their parts and nothing more. ^ Although executives have become more sophisticated in their understanding of what it takes to achieve competitive advantage at the level of individual businesses, when it comes to creating corporate advantage across multiple businesses, the news is far less encouraging. True, corporate executives face mounting pressure from their boards and from capital markets to add value. To date, however, that pressure has had the greatest impact on corporate strategy in pathological companies such as ITT, where the destruction of value was so great that it had to be stopped.
ARTWORK BY JEFFREY FISHER
CREATING CORPORATE ADVANTAGE
What has slipped under the radar are those companies-the majority, we would argue-that don't destroy value at the corporate level, but neither do they create it. That failure is not for lack of trying. Indeed, in many of the 50 companies we studied during a sixyear research project, corporate executives were struggling to create viable corporate strategies. Some were working on their core competencies, others were restructuring their corporate portfolios, and still others were building learning organizations. In each case, executives were focusing on individual elements of corporate strategy: resources, businesses, or organization. What was missing was the insight that turns those elements into an integrated whole. That insight is the essence of corporate advantage - the way a company creates value through the configuration and coordination of its multibusincss activities. Ultimately, it is Vk^hat differentiates truly great corporate strategies from the merely adequate.
THE TRIANGLE OF CORPORATE STRATEGY
Choices Along The Resource Continuum
An outstanding corporate strategy is not a random collection of individual building blocks but a carefully constructed system of interdependent parts. More than a powerful idea, it actively directs executives' decisions about the resources the corporation will develop, the businesses the corporation will compete in, and the organization that will make it all come to life. But there's more to it than that: in a great corporate strategy, all of these elements are aligned with one another. That alignment is driven by the nature of the firm^'s resources - its special assets, skills, and capabilities. The firm's resources are the unifying thread, the element that ultimately determines the others. (See the exhibit "The Triangle of Corporate Strategy.") The resources that provide the basis for corporate advantage range along a continuum - from the highly specialized at one end to the very general at the other. Sharp Corporation, the Japanese electronics company, has specialized technological David J. Collis is a visiting associate professor at Yale University's School of Management in New Haven, Connecticut. Cynthia A. Montgomery is the John G. McLean Professor of Business Administration at the Harvard Business School in Boston, Massachusetts. They are the authors of the textbook Corporate Strategy, Resources and the Scope of the Firm (Irwin, 1997) and "Competing on Resources" (HBR July-August 1995). 72
Great corporate strategies come in the first instance from strength in each side of the triangle: high-quaiity rather than pedestrian resources, strong market positions in attractive industries, and an efficient administrative organization. But true corporate advantage requires a tight fit at each angle as well. When a company's resources are critical to the success of its businesses, the result is competitive advantage. When the organization is configured to leverage those resources into the businesses, synergy can be captured and coordination...
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