Corporate Level and Business Level Strategy - Essay Example

Management 5th April, Review of a Reading: Chapter 4: Corporate Level and Business Level Strategy This paper is a review paper on the assigned reading. The review evaluates and analysis the assigned reading; in the review of the reading, I have given a critical opinion on the effectiveness of the article in conveying the intended meaning. The following is the review of the provided reading. The author of this reading starts by distinguishing Strategic management from other functional courses in business; the author says that, unlike the courses in the functional areas of business like marketing and finance, strategic management takes perspective of a whole business organization. For this reason, the author says that, the concept of designing strategy for a business organization must address the whole business organization. Consequently, the author says that, strategy in business must be formulated at three independent levels, i.e. corporate level, business level, and functional level. A critical analysis of this view by the author shows that the author’s conception of strategic management is right. This is because strategic management affects all facets of a business organization unlike other areas of business. The author of this reading defines strategic management as the process of creating interdependent activities that will enable an organization to compete successfully. The author goes on to say that, for most business organizations, creating the interdependent activities is the difficult part. An evaluation of this view shows that author’s views on this point are true. This is because harmonizing various portfolios of a business organization to operate with synergy is quite a challenging task; it normally requires skills in management and leadership to create such synergy in an organization with different portfolios. Levels of Strategy In the assigned reading, the author discusses in details the corporate Level Strategy and the scope of corporate level strategy. According to the author, corporate level strategy sets the overall direction for the whole Company. The author recognizes specific tasks and questions to that are unique to corporate level strategy. Expressed as questions, the author argues that the scope of corporate level strategy is: In how many industries should we compete? How should resources be allocated across our portfolio of business? What synergy exists across our portfolio of businesses? What overseas markets are promising? To explain further the actual meaning of corporate level of strategy, the author explains in details the meaning of each of the four questions; the author uses a concrete case of the Pepsi Company to demonstrate how the four questions of corporate level strategy are applied in actual situation. The author begins by explaining how the Coca-Cola Company has applied the first question in its operations. According to the author, in 1970s, the Pepsi Company was operating in just two industries, i.e. the soft drinks and the snacks industries. In 1977 the senior executives of Pepsi Company changed answer to the first question (how many industries should we compete?), through purchasing the Pizza Hut Company. With the Purchase of Pizza Hut Company, the Pepsi Company started competing in three industries. According to the author, there are two main reasons why the Pepsi Corporation purchased the Pizza Hut Company. First, investment in the restaurant business by the Pepsi Company constituted forward vertical integration. This is because the fast food chains would serve only Pepsi beverages, thus enabling the Pepsi Company to sell many beverages. Secondly, the corporate level managers at Pepsi Company recognized the potential growth of the fast food industry in the mid-1970s. Having explained the meaning of the first question on the scope of the corporate level of strategy formulation, let author explains the meaning of the second question of the scope of corporate level of strategy formulation. According to the author, the second question seeks the answer to the question of how resources of a business organization should be allocated across the portfolios of a business organization. This question is particularly important considering the fact that every business organization has limited resources. For this reason, therefore, corporate level managers should be prudent when they allocate resources to the different portfolios of a business organization. According to the author, this fact shows that the corporate level managers sometimes face real dilemma formulating corporate level strategy. In explaining the third meaning of the third question of the scope of the corporate level strategy, the author argues that the third question of the scope of the corporate level strategy demands that there should be synergy in the operations of various units or portfolios of a business corporation. According to the author, synergy occurs in a business organization when the whole is greater than the parts, i.e. when the corporation is greater than the sum of its portfolios. The author goes on to argue that synergy is achieved in a business organization when the corporate level managers of the organization find ways for the business units to cooperate and share resources. Using the example of Pepsi Company, the author argues that, selling Pepsi beverages in the Pepsi Company restaurants is an example of synergy in the operations of various units of a corporation. In explaining the meaning of the fourth question of the scope of the corporate level strategy, the author argues that the fourth question of the scope of corporate level strategy demand that corporate level managers of a business organization should look for opportunities for overseas expansion. According to the author, in business management, overseas expansions are considered part of the corporate level strategy. Using the example of the Pepsi Company, the author argues that international expansion is an obvious part of the Pepsi Company’s success. To explain more the meaning of corporate level strategy formulation, the author explains Pepsi Company’s decision to sell its entire food business unit in 1997. According to the author, the Pepsi’s decision to sell its entire food unit was surprising because the food unit contribute more than half of all the profits made by the Pepsi Company. According to the Author, Pepsi Company’s decision to sell its entire food unit was a corporate strategy of diversification. The Pepsi Company sold its food unit because of lack of synergy between the unit and the other units of the Company. According to the author, in reference to business organizations, diversification refers to the process of investing businesses or in assets of other industries. The author argues that, the main aim of diversification is to spread risks across industries. The author recognizes two types of diversifications in corporate level strategy, i.e. the concentric diversification and the conglomerate diversification; concentric diversification refers to the investment by a Company to an industry that is related to its core business; on the other hand, conglomerate diversification refers to the investment by a Company to an industry that is unrelated to its core business. A critical evaluation of this reading shows that the author did a good job in explaining corporate level of strategy formulation. There are three main reasons why I believe that this reading is effective in conveying the intended message. First, the author begins by explaining Strategic Management as a business course and distinguishing it from other areas of business study. The author’s introduction, therefore, sets the stage, in a very effective way, for his discussion of corporate level strategy formulation; the introduction helps the either to relate corporate level strategy formulation with the whole subject of Strategic Management. Secondly, the author’s ideas in the article are based on sound reasoning and are not fallacious; for instance, the author’s definition of Strategic management is based on experts’ views on the meaning of strategic management. Lastly, the author uses concrete examples of Pepsi Company in explaining his views on corporate level of strategy formulation. For this reason, this reading is quite effective in conveying the intended message. Read More