Effect of corporate strategy on firm performance

January 2, 2023

Effect of corporate strategy on firm performance

TMCG’s strategy practice (business and corporate) helps clients to improve performance. Corporate strategy concerns questions about which portfolio of industries a company must compete in to be successful. Corporate strategy outlines the overall goals and objectives of the company and the actions and resources needed to achieve those goals. The scope and variation in the deployment/distribution of firm assets, sales, employment, capital budget, or other indexes of firm resources among the range of existing industries is key to implementing a successful corporate strategy. In many developed economies, multinational and industrial companies participate in several industries. The choice/selection of the plausible corporate strategy that enables the realization of corporate goals and objectives is painstakingly formulated and implemented. It is not a simple set of actions undertaken by top managers who must contend with their specialized subunits’ varied and conflicting demands. Studies in academia and management consultancies found sufficient evidence that corporate strategy contributes to improvements in profitability differences among firms.

  There are several strategies for achieving a diversified firm’s long-term objectives. The strategies are classified in a variety of ways, but four common ones are:  

Growth Strategies

• a) Concentration strategies/Concentrated Growth
  • i) Market penetration, ii) Market development, iii) Product development
• b) Integration strategies.
  • i) Horizontal and ii) Vertical integration
• c) Diversification strategies
  • i) Concentric diversification, ii) Horizontal diversification, and iii) Conglomerate diversification
  • Stability/Neutral Strategies:

 

Stability/Neutral Strategies: Pursue any of the growth strategies in moderation

It dictates that the company keep doing what it has been doing to maintain its competitive position. Firms most likely to pursue a stability strategy are:

• Small, privately owned firms
• Large, dominant firms; and
• Heavily regulated firms

 

Decline or Defensive Strategies

– Short-run reactions to poor management or to unexpected environmental events, such as competitors’ actions; they are appropriate when a firm needs to regroup to improve efficiency after a period of fast growth, when long-run growth and profit opportunities are unavailable in an industry, during periods of economic uncertainty, or when other opportunities are simply more attractive than those pursued. Strategies for a planned decline include

• a) Retrenchment /turnaround

– means falling back and regrouping

• b) Divestiture
• c) Harvest

 

Exit/Closure Strategies

– Involves closing the firm. The primary exit/closure strategies are:

• a) liquidation and
• b)bankruptcy.

 

Strategy Change Grid

  Each of the corporate strategies is derived from changing one or more of five key elements:

• product
• market,
• industry,
• industry level, and
• technology