Corporate Strategy: What Is It and How To Do It (With Examples)

In this article, we will dive deeper into the topic of corporate strategy. Note that when we talk about “corporate strategy” we mean it in the same way that it is used by McKinsey, Bain, and BCG (see links for each firm's perspective on corporate strategy). Across all three firms, corporate strategy typically refers to the overall portfolio strategy that a diversified company can employ, whereas business level strategy refers to how you create and sustain a competitive advantage within a certain industry.

To learn more, take a look at our post on the three levels of strategy. You can also read this excellent article by Michael Porter on the distinction between corporate and business-level strategy.

Corporate strategy in a nutshell

A diversified company is made up of a number of distinct businesses (or business units) as well as a corporate headquarter. These parts together form an enterprise.

Corporate strategy, in a nutshell, has one single purpose: ensuring that the whole equals more than the sum of its parts.

In other words, the goal of a corporate strategy is to create a roadmap for sustained value creation across its entire portfolio. This means both enabling each business to fulfill its strategic potential and deciding where, when, and how to shift the entire portfolio in a new direction.

What is corporate level business strategy?

Corporate strategy goes by various names, such as portfolio strategy, organizational strategy, or simply company strategy.

In a standard organizational structure, business units (also called strategic business units) function as semi-autonomous entities, each focusing on its own markets, customer segments, and value propositions. These units collectively constitute the corporation and are coordinated by a central corporate head office. The degree of coordination depends on the type of corporate strategy you choose (see the section on Examples of corporate strategy further down).

Renowned strategy scholar Michael Porter defines corporate strategy as…

A diversified company has two levels of strategy: business unit (or competitive) strategy and corporate (or companywide) strategy. Competitive strategy concerns how to create competitive advantage in each of the businesses in which a company competes. Corporate strategy concerns two different questions: what businesses the corporation should be in and how the corporate office should manage the array of business units.

Corporate strategy is what makes the corporate whole add up to more than the sum of its business unit parts.

The corporate strategy serves as the all-encompassing strategy for the entire organization. It establishes boundaries and provides guidance for the strategies of individual business units. In addition, it allocates and coordinates resources across the group to both enable each strategic business unit to reach its full strategic potential, and to add or divest new businesses that will bring the entire organization to the next step of growth. Finally, a corporate strategy also lays out how to communicate to external stakeholders, especially with public companies where TSR and stock price are important factors.

Ideally, the corporate strategy comprises a set of objectives and actions designed to empower the group to generate value that exceeds the cumulative impact of its individual components.

The primary objective of a corporate strategy is to formulate a roadmap for consistently generating value throughout its entire portfolio.

How to create a corporate strategy

There are five main elements of creating a corporate strategy:

1. Vision and ambition: Setting a unified vision, ambition, and overall goals for your organization that will act as guiding stars for the rest of your choices.
2. Portfolio choices: Decide which businesses you should and should not be in going forward, as well as understand the strategic potential and path to achieve it for each business.
3. Resource allocation: Allocating resources (capital and time) across business units in accordance with your portfolio map to enable your overall portfolio to achieve its strategic potential and ultimate aims.
4. Parenting choices: Maximizing the advantages that come from being a group by creating and achieving synergies, implementing productive cultures, leveraging brand assets, etc.
5. Overall roadmap: Laying out the overall roadmap to achieve a sustained competitive advantage and superior value generation across the entire portfolio.

1. Establish a cohesive vision and shared ambition

First, your corporate strategy must state the overall mission, vision, and purpose of the organization. This serves to unify the organization and act as a directional tool when making choices on things like potential acquisitions, overall strategy, where to double-down on investments and innovations etc.

A good example of a corporate mission and purpose is Unilever. Even though they are a multinational conglomerate with over 400 brands in their portfolio, they still manage to articulate a unified purpose - “to make sustainable living commonplace” - that guides their strategy overall and the choices made on a day-to-day basis in each business unit and team.

In addition to a mission, vision, and purpose, the corporate strategy should also lay out some more tangible ambitions in terms of a target portfolio and qualitative and quantitative goals. 
The quantitative goals are often externally or market-driven (depending if you are a public company) and should define what good looks like for the organization and thereby define what the full value creation potential is thought to be.
The qualitative goals are often more internally or company-driven and should articulate the key elements of the target portfolio as well as align and energize internal and external stakeholders.

When setting a unified vision and ambition in your corporate strategy ask yourself:

• What is our purpose as a company?
• What is the broader mission and vision we want to fulfill as a company?
• What is the level of value creation we should target (in terms of traditional or triple bottom-line and/or shareholder value)?

2. Navigate and decide on portfolio options

Second, your corporate strategy should include a review of your company’s entire portfolio of business units (or products/brands, depending on the way it is set up).

A portfolio review allows the organization to decide what to focus on, which industries and markets to compete in, how to diversify the company’s portfolio of products and services, etc. In its essence, the portfolio review allows you to identify the businesses or assets with the highest strategic potential, both stand-alone and as a part of the group, and their path to achieving this full potential.

In practice, the portfolio review means making difficult choices on where to acquire, divest, and transform the portfolio, and importantly, how to allocate resources at a high level across business units (i.e., which businesses do you invest in for innovation and growth versus which businesses should be optimized for efficiency and cash-maximization). Allocating resources is an element in itself (covered in the next section), but the portfolio review lays out the guide to which businesses or assets should receive resources.

To do a portfolio review, you need to have sufficient strategic insight into each business unit to understand their current potential, future opportunities or threats, and how to tackle them. 
The strategic insight often comes from the business unit strategy, and the portfolio overview is then created in a matrix with one axis looking at the BU’s current ability-to-win or growth (internal) and the other axis looking at the BU’s market conditions and changes (external) (BCG’s Growth-Share matrix) and McKinsey’s GE matrix) are classic examples of a portfolio tool).

When making portfolio choices in your corporate strategy, ask yourself:

• How attractive is each business or asset in our portfolio, and are they achieving their full potential?
• Is the market for each business strong or weak, improving or declining?
  Is there an opportunity to strengthen the competitive position of each business?
• Is there an opportunity to expand our competitive position with acquisitions?
• Are we the best owners of each business, or should we divest?
• What is our target portfolio of businesses or assets, and what is required for us to achieve that target?

3. Make hard financial decisions

The third element of a corporate strategy is allocating resources, more specifically, making financial decisions on where and when to invest in new acquisitions or businesses, how to balance investments versus shareholder returns, how to allocate resources across different business units or product lines, etc.

In general, there are three main areas of financial choices for public companies:

A. Capital structure

The capital structure refers to the combination of debt and equity within a company. While diving deep into this subject is beyond our scope here, at the corporate strategy level, it is crucial to determine the funding allocation across the portfolio and establish financial guardrails for that funding. Factors such as shareholder payout requirements, preferred leverage levels, and risk tolerance often shape decisions in this regard.

B. Capital deployment

After establishing the allocated funding and corresponding guardrails, the corporate strategy must distribute this funding among portfolio businesses based on the outcomes of the portfolio review. This usually involves investments and acquisitions in businesses or assets with significant strategic potential, while simultaneously reducing costs through efficiency improvements and other optimizations in businesses that are closer to realizing their full potential.

C. Capital markets communication

For public companies or those with external stakeholders such as VC funds, the final aspect of your financial strategy involves encapsulating your various decisions within a compelling narrative. This narrative should align strategically with your overall strategy, ideally contributing to an increase in your external value.

When allocating resources in your corporate strategy ask yourself:

• What is our optimal capital structure both in terms of internal and external risk tolerance and stakeholder requirements?
• How much headroom do we have to fund our portfolio growth toward our desired state, and which constraints or guardrails do we need to put in place?
• How should we divide our limited resources to maximize our portfolio potential (and how should we communicate it internally to avoid loss of motivation in some areas)?
• Are our financial choices consistent and cohesive in a way that makes it easy for us to communicate in a compelling story? If we experience difficulty in crafting our story, should we revisit some of our choices?

4. Leverage the advantage of being a group

The fourth crucial element of an effective corporate strategy focuses on how the corporate entity can optimize the performance of each business unit, aiming to achieve a collective impact greater than the sum of the individual parts. The role or form that the corporate parent should take to achieve this needs to be considered in three main areas:

Best Portfolio Operator:
The portfolio operator aspect refers to the way the corporate parent can utilize the portfolio to create synergies that maximize the value creation across business units. This can be both across different value chain(s) and fostering collaboration between business units.

Ask yourself:

• How can the corporate parent facilitate collaboration among business units and portfolio companies?
• What synergies can be harnessed to enhance overall performance?
• In what ways can costs be shared for mutual benefit?
• Which customers offer opportunities for cross-linkage?
• Which capabilities can be shared effectively and efficiently?

Best Owner:
The best owner aspect refers to the corporate capabilities to capture value across current businesses and actively develop the portfolio through the integration of new businesses and shedding old assets. This can be in the form of both management and operating capabilities, as well as proprietary assets like brand or technology.

Ask yourself:

• How can the corporate parent add distinctive value to the development and management of the portfolio?
• What strategies can be employed to capture and allocate value effectively across diverse businesses, elevating the entire portfolio?
• What acquisitions and divestments should be considered to optimize the organization's overall value creation?

Best Culture Champion:
The best culture champion aspect refers to the ability of the corporate parent to create a shared mission and alignment across the portfolio and instill values and behaviors that serve to energize and mobilize talent across the organization.

Ask yourself:

• How can the corporate parent generate enthusiasm and mobilize latent talent throughout the organization?
• What values and principles should be instilled to foster a positive and productive organizational culture?
• Which individuals should be recruited to lead each business unit, steering them towards a shared path of value creation?

5. Lay out the path to achieving the full potential

The final component of a corporate strategy involves outlining a comprehensive roadmap for continuous value creation. The level of detail in this roadmap may vary depending on the extent of the corporate parent's involvement in each business unit strategy. However, a commonly recognized framework for such roadmaps is to divide them into three time horizons: short-term, medium-term, and long-term.

Different consulting houses use different terminologies for these horizons. BCG calls it Funding The Journey (short-term) and Winning in the Medium Term (medium-term) when talking about Digital Transformations. McKinsey has their famous Three Horizons of Growth that are similarly divided into the short-, medium-, and long-term. And Bain talks about Quick Hits, the 3-5 Year Plan, and Next-stage Thinking when discussing corporate strategy.

Common to all of them is the general concept of dividing your roadmap into a) immediate opportunities, b) bigger opportunities that need more work to realize, and c) long-term, transformational initiatives and ideas.

The first horizon a) is most often focused on quick wins or low-hanging fruit that can save cash or quickly increase revenues within existing products and services. These cash-generating initiatives help fund the bigger, longer-term initiatives.

The second horizon b) is most often centered around big opportunities to increase the enterprise value, e.g., through bigger innovations to products or business models. These opportunities typically need a time scale of 3-7 years before the return on investment becomes positive.

The third horizon c) is where you find the truly transformative opportunities and initiatives that will (if done right) future-proof the company beyond the foreseeable next few years. These opportunities can range from complete transformations of the corporate portfolio and overall purpose and business to a potential exit or handover strategy.

Every opportunity should be broken down into initiatives and actions, and then assembled into a coherent roadmap. The level of granularity in this roadmap tends to diminish as the timeline extends further into the future.

Depending on how the corporate parent is organized compared to business units, the roadmap will include more or less concrete elements for each business. It is important, however, that the corporate office sum up the efforts across portfolios and make sure any shared resources are not overextended.

When creating your corporate strategy roadmap, ask yourself:

• What is the prioritized list of initiatives that will help us achieve our ambition?
• What are our no-regret moves that can help our current businesses achieve their strategic potential?
• What are our must-do bold moves to help us in our next stage of growth?
• Is our roadmap cohesive across our portfolio?
• Do we have the right management structure to ensure we can actually carry out this roadmap and be agile enough to adapt when we need to?

Corporate strategy examples

There are many examples of corporate strategies. The most relevant way that we have come across to classify corporate strategy is the four-quadrant matrix approach by Donald Sull, Stefano Turconi, Charles Sull, and James Yoder in their MIT Sloan Management Review article “Four Logics of Corporate Strategy.”

Here, the they divide corporate strategy into four archetypes depending on the degree of connection between the business units and the corporate parent and the degree of connection between the business units themselves. This results in four types of corporate strategy:

1. The portfolio strategy (low corporate-BU connection and low BU-BU connection):
   In a portfolio corporate strategy, the corporate parent primarily decides which businesses to enter and exit and how to allocate resources (if there are any shared) across these businesses. The business units themselves act independently of both corporate and the other units.
   This type of strategy is typically used by more traditional conglomerates like GE and Tata Group, as well as private equity firms such as KKR & Co. and The Blackstone Group.
    
2. The leverage strategy (high corporate-BU connection, low BU-BU connection):
   The leverage corporate strategy is useful when the corporate parent has some strong assets like brand, procurement power, or expertise, but each individual business unit within the portfolio does not need to rely on the others. 
   In this case, the corporate strategy centers on how to best deploy those assets into each business and translate that to a competitive strategy in general, as well as how to expand the portfolio with new business units. The individual businesses typically don’t have their own stand-alone strategies but focus on local tactics.
   Examples of a corporate strategy are typically franchises like McDonald’s or Trader Joe’s, where each individual McDonald’s is strongly dependent on the corporate assets but almost completely independent from the other stores. 
    
3. The federal strategy (low corporate-BU connection, high BU-BU connection):
   The "federal" logic involves loose confederations of businesses collaborating to pass business between them, jointly lobby regulators, or share best practices, all without a dominant corporate parent. In this case, there is typically next to no corporate strategy but, instead, rules and norms governing the interaction between business units.
   Examples of a federal corporate strategy include Star Alliance in airlines and The Leading Hotels of the World in lodging.
    
4. The integrative strategy (high corporate-BU connection, high BU-BU connection):
   The integrative corporate strategy characterizes companies where business units depend on both corporate assets and each other for success. For instance, Walt Disney's theme parks, movie studios, consumer products, and children’s television divisions leverage the company’s iconic brands and characters to enhance customers’ willingness to pay. They generate revenues through cross-promotion and selling each other’s products.
   The integrative corporate strategy is perhaps one of the most comprehensive and involves both how to best deploy assets and resources across the portfolio, how to facilitate collaboration between business units, and of course how to expand and develop the overall portfolio. Each business unit has its own strategy but this is closely linked to the corporate strategy.

Typical mistakes when creating a corporate strategy

A solid corporate strategy can lift the entire organization and each business unit up, and is integral to creating sustained competitive advantage as a whole.

However, it is an often overlooked discipline (see e.g., this article from McKinsey), and there are many mistakes that can be made along the way.

Here, we’ve gathered some of the most common mistakes we’ve seen:

• Peanut-butter approach to resource allocation:
  Way too often, companies fall into the trap of spreading available funds thinly and somewhat evenly across their entire portfolio instead of making hard decisions on where to invest heavily and where to cut ruthlessly. 
  It can be challenging to have a conversation with each business head or manager, and it seems easier in the moment to just allocate in a “fair” way. Similarly it can feel less risky to give every business unit enough to avoid tough times and protect downside. But by not making hard choices and investing in high potential upside, your company runs the risk of falling behind.
   
• Expecting every business unit to follow the same strategy process and KPI structure:
  Another common mistake in corporate strategy planning and organizational structures is to assume every business should follow the same strategy process and be measured on similar KPIs. Although this can seem like a meta-conversation, the strategy process and type of KPIs you impose on each BU can have a profound effect on the outputs. For example, suppose you have a business with high strategic potential and the need for continuous innovation to achieve that potential. In that case, it will be detrimental to require the leadership of that business to come up with detailed five-year plans or to measure them on bottom-line cost savings. Innovation is inherently unpredictable and requires plans and KPIs that can accommodate the needed mistakes and bumps in a business model that is still finding its feet.
  Conversely, it makes no sense to measure a stable cash cow business on the amount of new ideas or R&D. Instead, here, you would want to capitalize on the fact that these businesses are typically quite stable and make 10-year strategy plans that emphasize efficiency and maintaining market shares.
  Becoming a truly excellent corporate strategist requires you to juggle these different business needs.
   
• Biased towards existing assets you own vs. those you should own:
  We’ve also seen a (often unconscious) bias towards existing businesses or assets rather than thinking in terms of the highest potential target portfolio. This locks companies into a too narrow box defined by the limits on existing businesses, and the corporate strategy becomes a game of micro-optimizing each BU.
  Instead, you should think of yourself in terms of the “owner” or “parent” and ask yourself how you can become the best owner for the portfolio overall and your stakeholders. This means setting an ambitious target portfolio, looking not just at the existing businesses but also the blank spaces in-between, and setting up a corporate process to integrate new acquisitions in ways that don’t stifle their potential or detract from the value they were originally meant to bring to the portfolio (look up examples like the Disney-Pixar merger for how to succeed in this regard). 

• Expecting the future to be a linear continuation of today:
  A fourth common mistake is being too narrow-minded in your projection of future scenarios and expecting the future to be some predictable version of today. It’s not a problem basing your most likely future scenario on a linear projection of your business today, but you need to also include scenarios where the industries your businesses play in are disrupted by e.g. technology or otherwise fundamentally changed. In other words, you must include not just an assessment of your current market landscape but also a deeper understanding of shifts in your industry ecosystems.
   
• Basing decisions on managers, not potential:
  We have sometimes also seen corporate strategies driven more by current reporting structures and incentive schemes than true business potentials and boundaries. It’s inherently human for managers and heads of businesses to want to protect their own turfs. Still, the overall portfolio will sometimes benefit from a structural shake-up to allow an area to reach its full strategic potential. It’s the job of the corporate strategy to recognize and enable this path to its full potential without being constrained by incremental management plans or current reporting structures.
   
• Seeing M&A as the end, not the means:
  Finally, we often see the M&A arm of a corporate strategy treated almost as an end in itself, resulting in deal fever and a single-deal perspective. M&A should always be a way to increase the organization's overall value, which means you must view it as a multi-step, long-term journey focusing on acquiring the right assets at the right valuation for your company.

However, if you’re aware of these common mistakes and make sure to include the five core components listed above, you’re well on your way to creating a solid corporate strategy.