Corporate strategy is a companywide plan to choose and develop particular markets in which to compete while improving the various divisions or units of the business. There are two major components of corporate strategy:
- Diversification means expanding the market area or moving into new industries.
- Vertical integration refers to when a company expands into areas previously covered by suppliers.
Examples of Strategies
An example of vertical integration is when a company manufactures products it previously purchased from suppliers. Professor Scott Gallagher of James Madison University cites the Ford Motor Company as a prime example of a company that carried out vertical integration as corporate strategy. Gallagher writes that not only did Ford manufacture its own parts, but the company also mined the raw materials from its own mines and processed these in its own steel mills.
In today’s business world, outsourcing has replaced vertical integration in many companies' corporate strategies. Diversification remains common and is implemented in various internal forms, depending on the company. Wal-Mart offering one-hour photo services, Microsoft developing operating systems and applications for competitors, and Johnson & Johnson acquiring dozens of companies in other industries are all examples of employing diversification as corporate strategy.
Not all corporate strategies are successful, even those from otherwise profitable companies. For example, McDonald's, the largest fast-food chain in the world, hit some bumps in the road to increasing profits by attempting a menu expansion. During CEO Don Thompson's 31 months at the helm, the company went 13 consecutive months without growth in domestic sales, and its stock gained a mere 0.3 percent. During that same period, the stock of Chipotle Mexican Grill, a fast-food chain competitor, gained approximately 90 percent.
McDonald's Chief Brand Officer Steve Easterbrook was chosen in 2015 to replace Thompson as CEO. Easterbrook plans to implement a strategy of streamlining. The company removed eight items from what Bloomberg Business called its "overly crowded menu" after Thompson's departure in an effort to "speed up service."
Failure Followed by Huge Success
Sometimes corporate strategies considered failures can lead to future successes. Consider Apple's first attempt at a hand-held computer, called the Newton. The company worked on this product from 1987 until 1998 and spent $500 million on its development. It was a flop. Compare that with the phenomenal success of the more recent iPhone, the world's best-selling smartphone in 2014. Apple reported the largest ever quarterly profits by a public company -- $18 billion, in 2014.
Developing a corporate strategy for your business involves objectively assessing your company's strengths and weaknesses, determining where you want the business to go and carrying out plans to achieve your goals.