Corporate strategy

Business-level strategy asks how to win in a single market. Corporate strategy asks a harder question: which markets the firm should be in at all, and what owning them together adds.

Corporate strategy is the set of choices about the scope of the firm: which businesses it competes in, how it enters or exits them, and how the corporate centre creates value across the portfolio beyond what the businesses would achieve alone. It is the strategy of the multi-business firm.

The parenting test

The decisive question is whether the corporate centre is worth its cost. A head office consumes resources and imposes overhead, so it must add more value to its businesses than a different owner would, or it is destroying value by holding them together. This is sometimes called the parenting advantage: the centre earns its keep only if it is the best possible owner of each business.

Sources of corporate value

A centre can add value in a few genuine ways: by sharing resources or capabilities across businesses, by transferring skills between them, by allocating capital better than the market would, or by providing governance that lifts performance. Where none of these applies, diversification is usually a way of spreading mediocrity, and conglomerates often trade at a discount precisely because investors doubt the centre adds anything.

The pull toward sprawl

Corporate strategy is constantly threatened by the appetite to grow for its own sake. Acquisitions flatter the ego and the revenue line while quietly diluting focus and returns. The discipline of good corporate strategy is as much about what to sell, spin off, or never buy as about what to acquire.

The honest corporate-strategy question is uncomfortable for any head office to ask of itself: would each of our businesses be worth more under a different owner? If the answer is yes, the strategy is subtracting value, however busy the centre looks.