Differentiation Through Corporate Strategy

Normally when we discuss strategic differentiation, we focus on marketplace differentiation. The best companies are typically those that can identify a distinctive niche, and then fulfill the needs and expectations of customers in that market. In virtually every industry, you can find a company or organization that is noteworthy because they stand out in some (usually positive) way. However, it also is important for organizations to differentiate themselves through corporate strategy. Corporate strategy sits above marketplace strategy in the organizational hierarchy. For a retail company, for example, marketplace strategy addresses how the company is going to be different and unique within the retail space.

Corporate Strategy is a little less clear. It takes a broader view and addresses how an organization will allocate its resources. Forward-thinking executives apply the principle of strategic differentiation in a new way – by not only considering how to distinguish themselves from a market standpoint, but also determining how their investment opportunities and decisions can make them unique.

Here are a few basic considerations for executives:

  • Revisit your corporate strategy from the standpoint of differentiating capital allocation.
  • Look at your business as if it were an investment portfolio. Does it contain investments that you want to invest your hard-earned resources in, or should you do something else with those resources?
  • Be clear on whose job it is to think about the corporate strategy.

Leaders should carefully consider their approach when using corporate strategy as a point of differentiation. For example, would you invest the same amount of dollars in retail as you do corporate audit? Of course not: retail is what generates revenue, so you’re going to give retail a larger share of your limited resources. You only invest what is necessary for audit because that is not what brings home the bacon.

Many of the companies we work with are large companies and multinationals with more than one product. A company like Apple sells many products: iPhones, iPads, computers, AirPods, music, streaming TV, and so forth. From a corporate strategy viewpoint, these executives have millions or billions of dollars available to invest in products and services. They cannot just spread those funds equally across all the business units like peanut butter.

Making these types of allocation decisions mean shifting the organization’s perspective so executives look at corporate strategy from a differentiation angle. That means creating processes that enable executives to look at available capital and decide how to best allocate it in a differentiated way.

A good example can be found with one of our current clients, a huge company with numerous business units. They have begun looking at their business units as if they were a venture capital firm and evaluating each one as if they are part of that portfolio. They ask themselves, “Is this business unit a stock or investment that I would want to buy, hold, or sell?”

  • If they determine the business unit is one they would buy on the open market, they allocate more money to it. There may be some risk expanding the unit, but they see a good chance the gamble will pay off. A similar option is enhancing the unit by buying a new business and adding it to the portfolio.
  • Other units may be considered maintenance businesses. They have the potential to pay dividends over the long run but need little additional capital.
  • Some businesses may no longer align with corporate strategy or ROI targets. They may decide to sell the business and invest the proceeds in more favorable opportunities.

Organizationally, the next question becomes: who can think about the entire portfolio without a conflicting interest? Who can really understand the best way to make those differentiated investments?

Business unit leaders are often responsible for one investment (aka business unit) within a company’s portfolio. Are they the best people to consider the overall issue of capital allocation for differentiation?  Probably not, because they have a self-interest. They would probably review the various alternatives and decide, “I absolutely deserve more investment than others. Why would we ever go do something to compete against me?” At the end of the day, what seems best for their unit drives their recommendations.

Another client that is developing this approach has several executives who have run business units for many years. These executives have deep industry knowledge, yet they are also tied to their businesses. The corporation has encouraged them to act strategically, but they seldom think beyond their own units. The only person really considering the big picture was the CEO.

Eventually the organization decided they needed more involvement in that process. They have begun taking some executives out of the business units and essentially created an investment committee. They were told their job is to look at the overall business and decide where the organization can best allocate its resources and capital. The group may decide the best investment is a long-shot R&D project that could create a huge return. They could recommend investing more in a current business with favorable growth potential. The committee may suggest going into the market to buy a new company or sell an existing business. Whatever the committee decides will go forward as a group decision.

None of those business unit leaders previously had the independence to think beyond their own backyard. Now the organization has structured the business so these executives focus on the corporate strategy – not just their familiar business unit strategies.

Every organization is different, so the challenges and the solutions are not the same for everyone. However, we have found some organizations simply do not put the level of emphasis on corporate strategy that is needed to operate at a higher level. Looking at differentiation from a corporate strategy standpoint can address that challenge.

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