Aligning Corporate and Business Strategy: Managing the Balance
How can multi-business firms balance the need for corporate alignment with the flexibility required by individual business units? This article explores one of the most enduring challenges in corporate strategy: integrating diverse businesses to create synergies while still allowing each unit to adapt to its own market conditions and competitive environment.
There is a general pressure on firms to grow, and as they grow, they have a number of directions in which they can expand. From a business strategy perspective, they can grow in the same line of business through market penetration, market development, or product development. Firms can also venture into other lines of business through horizontal integration (i.e. merging or acquiring businesses within or without the industry) or vertical integration (i.e. merging or acquiring businesses; backwards: suppliers; or forward: buyers). By entering new lines of business, they become multi-business firms (e.g. groups and conglomerates), which, above business strategy challenges, have two specific corporate strategy challenges. First, deciding what businesses should be a part of the organisation. Second, how to ensure the incorporated businesses contribute to the greater good of the whole firm.
In this study, one such challenge, studied for decades, is explored: balancing corporate strategy integration with business strategy differentiation. Multi-business firms need to integrate and align the incorporated businesses to leverage synergies. However, “too tight” alignment may create difficulties for individual businesses to respond to changes in their unique environments. Conclusively, in corporate strategy formulation, firms need to account for alignment from a corporate strategy perspective and less alignment from a business strategy perspective.
Taking such opposing approaches into account in strategy formulation is challenging, as goals and activities on corporate and business strategy levels might be anything but mutually exclusive. In addition, theories guiding practice in managing this difficult balance are underdeveloped. What alignment actually encompasses in practice and the potential risks thereof are sparsely covered. Consequently, this study explores how executives and strategists can understand and manage alignment between corporate and business-level strategy.
This study expands our theoretical understanding of strategy and alignment. Practically, it offers organisations guidance in balancing corporate and business strategy-level requirements. To make such contributions, the process of translating the corporate strategy of one multi-business firm into business strategies for the 11 business units incorporated is studied.
Find the article in Journal of Business Strategy.