Strategic Thinking by Betz Frederick;

Author:Betz, Frederick;
Language: eng
Format: epub
Publisher: Emerald Publishing Limited
Published: 2015-12-24T00:00:00+00:00

Strategic Firm Model

A diversified firm can use profits from sales by its businesses to grow capital and provide corporate level resources. The diversified firm has responsibility for seeing that its businesses are well managed for profits from their businesses to continue to fuel corporate prosperity. A strategic firm model provides a perspective for optimizing both short-term resources and long-term capital appreciation – by rationalizing sales and profit utilization.

Because this perspective on the totality of the corporation is focused upon optimizing resources and capital, diversification strategy dominates in the strategic policies set. A strategic firm model of a company is a useful perspective to use in viewing the totality of a multi-business firm when diversification strategy is to be the dominant strategic policy.

The earlier strategic business, enterprise, learning, and innovation models are appropriate only for describing a single-business company. If a company has more than one business, then a firm-level strategic model is necessary to capture a firm’s totality, as opposed to the totalities of each of its businesses. A strategic firm model needs to conceive of a firm as a strategic unity, even though the firm may be composed of a portfolio of businesses. And a strategic firm model must emphasize the optimization of financial valuation strategy in order to increase the stock-market valuation of the firm and return-on-investment of shareholders.

An example of a successful use of a strategic firm model in the 1980s was in the Japanese firm NEC. C. K. Prahalad and Gary Hamel compared NEC in 1990 to a similar U.S. firm of the time, GTE: “Consider the last ten years of GTE and NEC. In the early 1980s, GTE was well positioned to become a major player in the evolving information technology industry … . In 1980, GTE’s sales were $9.98 billion … . NEC, in contrast, was much smaller, at $3.8 billion … Yet look at the positions of GTE and NEC in 1988. GTE’s 1988 sales were $16.46 billion, and NEC’s sales were considerable higher at $21.89 billion” (Prahalad and Hamel, 1990).

But it was more than the relative levels of their sales that changed. NEC had emerged as a world leader in the information technologies, whereas GTE had not: “GTE has, in effect, become a telephone operating company with a position in defense and lighting products … . NEC has emerged as the world leader in semiconductors and as a first-tier player in telecommunications products and computers. It has consolidated its position in mainframe computers … . NEC is the only company in the world to be in the top five in revenue in telecommunications, semiconductors, and mainframes. Why did these two companies, starting with comparable business portfolios, perform so differently? Largely because NEC conceived of itself in terms of ‘core competencies’ and GTE did not” (Prahalad & Hamel, 1990).

Prahalad and Hamel viewed the differences as arising from NEC’s superior strategic capability. NEC created a corporate level committee to plan core corporate technical competencies and to oversee the development of core products for the businesses of the firm.

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