CORPORATE STRATEGY: A WRITTEN REPORT

Submitted by: GASCON, Marc Racelis 04.29.2011

Submitted to: Dr. Mabel Liza Cagadoc BSBA022

Opening Case: SONY INTERNATIONAL Adapted from: Guth (2003)

Chairman Idei and SONY’s Quest for Diversification
The development of technology has continued to revolutionize the media industry, among many other facets of everyday living.
However, prior to the recent rise and predominance of interactive programmes headlined by the likes of YouTube and Facebook or even
TMZ and Apple, media content producers have sought but struggled to merge their companies with content distribution firms, hoping to
maximize returns by controlling outlets for their content.
For example, the executives at organizations like Bertelsmann AG, Vivendi Universal, and AOL (which all have multiple but disjointed
media and content outlet business units in publishing, movies, cable TV, and Internet sites) have not been as successful as the execs at the
abovementioned multimedia giants. But despite the failure of Bertelsmann’s Chairman Middelhoff, Vivendi’s Chairman Messier, and
AOL’s Chairman Levin, it was Sony International’s Chairman Nobuyuki Idei who still undauntedly pursued the once-elusive convergence
of music, movies, games, and communications in all forms.

Mr. Idei argued that Sony’s unique advantage over other media behemoths was that it makes the actual electronic devices (such as
televisions, cameras, computers, gaming consoles, mobile phones, and portable gadgets for music plus other personal uses) that deliver
the kind of content that Sony monopolizes. Across its personal device divisions, Sony has achieved competitive advantage in its consumer
electronics businesses. Now, Sony is seeking competitive advantage across its electronic devices, software, and content divisions.
As Sony’s chairman, Idei has made significant strides in building a company where user content meshes with the electronics. Many
Sony gadgets have intertwined functions: the Walkman’s are no longer just stand-alone tape players, but can also download music from
the Internet; the Clié personal digital assistants come with cameras; the CoCoonHome videorecorders can be programmed from a
celfone. Sony has succeeded and exceeded many strategic expectations, to the point that business experts testify that, “in terms of building
networked products, no company has come so far as Sony,” according to an analyst at Tokyo’s West LB Securities named Lee Kun Soo.
But inside the Sony family, there remains the major challenge: Sony’s acquisition of Columbia Pictures in the late 1980s brought the
struggle between hardware and software copyrights, which means that new technological advances are likely to make that struggle even
more intense in the coming years. In response, chairman Idei maintains that by 2005, the broadband telecommunications infrastructure
meshed with user content products (music, video, and games software) will be in place, allowing the company to reap the benefits of the
convergence of media and technology. The number of high-speed Internet and mobile phone connections is exploding. Sony’s Memory
Stick is now embedded in most of its new products, making it possible for users to easily swap data between cameras, computers, and
PDAs. One-third, or nearly 1,200 of Sony’s movies through Columbia Pictures, have been digitized, allowing these content to be used on
many different hardware devices that are compatible with the Sony technology.

In this era of increasingly indistinguishable electronics, preserving Sony’s corporate brand is paramount. “People don’t just buy for
economic reasons,” Chairman Idei said. “When you touch a product, you should feel something.” However, to accomplish this
diversification strategy, the integration necessary between divisions has led to some changes in the Sony company’s leadership. Mr. Idei
added: “The necessity for such bridge-building led to the recent ouster of Sony Music’s longtime leader Tommy Mottola, whose
unwillingness to confer with the rest of Sony on a new business model forced the change to an outsider, NBC television executive Andrew
Lack.”
Thus, implementing the related diversification strategy and vision of Chairman Idei has not been without difficulties. Furthermore, any
strategy of any company has to create value over and above the value created by the other companies involved in an industry. To this
point in time, although the corporate-level strategy has been fairly successful for Sony, the fast-changing technologies and constant-
shifting consumer mindsets continue to test the plans of Chairman Idei and his team.

INTRODUCTION
At present, the environment we exist in is highly dynamic and quick-changing, rendering it very difficult for any
contemporary business enterprise to boom let alone operate successfully. Given innumerable uncertainties, threats, and
constraints, it is but inevitable for the many members of the corporate world to be under great pressures, trying to find out the
ways and means for survival. Under such circumstances, the realistic attack would be to make the best use of strategic
management principles that can help the corporate-level management to not just explore the possible opportunities but to also
concurrently achieve an optimum level of efficiency by minimizing expected and unexpected threats to the business. Hence,
CORPORATE STRATEGY is an imperative for every organization, especially since it offers several benefits to the
different stakeholders.

Page | 1
 To begin with, it would be auspicious for the purposes of this written report to revisit the meaning of the term strategy.
Taking root in the language fueled by histories of warfare, the concept of STRATEGY in business has been borrowed from
military tactics. Originating in the Greek terms ‘stratos’ [which roughly translates to “field, spread out like a structure”] and
‘agos’ [which roughly translates to “leader”], the original rough definition of “strategy” was to think ahead in order to counter
the movements of the enemy forces (Thompson & Strickland, 2003). Alas, in the modern era, the keyword strategy has
become widely used in other domains such as in sports and academics, just to name a few.
Generally speaking, a strategy is narrowly defined as a set of key decisions designed to meet a set of targets. Conversely,
in the domain of business, a strategy points to the accomplishment of enterprise goals and/or the broad program of action
involving the deployment of resources towards attaining comprehensive organizational objective/s (Pettigrew et al., 2002).
Still in the business sense, Johnson & Scholes (2006) define strategy as “the basic long-term direction and scope of an
organization” (Johnson & Scholes, 2006, 120). In other words, the strategy of a business organization refers to a
comprehensive master plan stating how the organization will achieve its duty or long-term goals.
Narrowing it down a bit further, it is in the field of Management where STRATEGY involves the appropriate
configuration of resources within a challenging environment in order to meet the needs of markets and to fulfill stakeholder
expectations (Bennett, 1999). Additionally, this entails the consistent patterns in organizational decision-making in order to
deliver a unique mix of value and quality in the global arena. As such, strategies are plans that must change frequently, in light
of the plans of competitors as well as in adaptation to the constantly evolving market’s conditions.
In corporations ranging from small-scale to large-scale, there are at least three to four levels of management. Said levels,
usually taking the form of a hierarchical pyramid, signify which among the several components of a firm is/are generally
responsible for developing the many puzzle-like pieces of a company’s overall strategy. And as depicted in Figure 1 found
below, at the very tip of these levels of management is CORPORATE STRATEGY.

Figure 1: The Strategy Pyramid [Adapted from: Pettigrew et al. (2002)]

Corporate Strategy is the top-most level mainly in the sense that it is the one with the broadest scope albeit with the
longest time horizon (Pettigrew et al., 2002). This means that as the operation of an enterprise becomes larger and more
diverse, more points of initiative plus more time is required to develop a Corporate Strategy. Also, more managers and
employees with relevant strategy-making role are required to coordinate at all the other levels of management.

Ultimately, the several aspects of Corporate Strategy are challenging, not only for large firms but also for small local
enterprises. That is because strategies exist at many differing levels in any organization, from the overall business (or group of
businesses) down to the individuals working in it.

Page | 2
 WHAT IS CORPORATE STRATEGY?
Corporate Strategy is defined by Thompson & Strickland (2003) as the overarching program of actions that apply to all
parts of the diversified firm, giving an overall direction to the organization through visions, missions, systems, and culture,
under which are the business-level strategies, functional-level strategies, and operating-level strategies. It is embodied by a
collection of strategic initiatives devised by managers and key employees up and down the whole organizational hierarchy,
and is concerned with the overall purpose and scope of the business to meet stakeholder expectations. It answers questions
such as “which line of businesses should we be in?” and “how does being in these businesses create synergy and/or add to the
competitive advantage of the corporation as a whole?”
As visualized in Figure 2 below, the 10-Planets Model of Johnson & Scholes (2006) said that corporate-level strategy
specifies the coordinated actions conceptualized and taken by a business firm in order to gain a competitive advantage in a
society and environment that vary from time to time. By configuring or redirecting the resources of the company towards a
group of different business units where the company can create values and successfully attain goals related to profitability
and trust, effective Corporate Strategy helps the firm in competing in several industries and product markets. A corporate-
level strategy’s value is ultimately determined by the degree to which the businesses in the company’s portfolio are worth
more under the management of the company when they would be under any other ownership. Thus, a well-executed
Corporate Strategy creates, across all business units, aggregate returns that exceed what those returns would be without the
strategy, and contributes to the firm’s competitiveness plus its ability to earn above-average returns.

Figure 2: The 10-Planets Model of Corporate-level Strategy [Adapted from: Johnson & Scholes (2006)]

In the current global environment, top executives should view their firm’s business units as a portfolio of core capabilities
when they and their management teams select new business ventures and decide how to manage these investments. As
shared in this written report’s sample Opening Case, the international firm headed by Nobuyuki Idei is best known for its
consumer electronics market where it seeks to create interrelatedness between many business units. Sony, under the
management of Mr. Idei, seeks to have integration across its media businesses through the kind of corporate-level strategy
known as DIVERSIFICATION [to be discussed in further detail in the later parts of this written report]. This Corporate
Strategy allows the company to use its core competencies to pursue opportunities in the external environment, that is, the user
information sharing-driven world. But as the Sony case illustrates, corporate-level strategies also have an effect on the
behavior of organizations, revealing for example that strategic choices regarding any part of the company are loaded with
uncertainty and no real guarantee of exact success.

Page | 3
 Figure 3: The Corporate Strategy Cycle [Adapted from: Bennett (1999)]

Heavily influenced by investors as well as other stakeholders, Bennett (1999) stated that CORPORATE STRATEGY
is an ongoing cycle undertaken to guide decision-making all throughout the business. It is the kind of plan that is usually
explicitly conveyed in an organization’s ‘Vision-Mission Statement’.

Figure 4: The Corporate Strategy Cycle [Taken from: The Philippine Women’s University website (2011)]

Across time, studying the Corporate Strategy of different organizations would reveal common patterns of overall
directions. For example, there was a time when soft-drink giant Coca Cola expanded its reach by buying into wine-producing
business units. Such is an example of a direction towards DIVERSIFICATION, which is defined as a primary corporate-
level strategy that concerns “how managers buy, create, and sell different businesses to match skills and strengths with
opportunities presented to the firm” (Pettigrew et al., 2002, 240). Successful diversification should reduce variability in the
firm’s profitability, meaning that earnings are generated from majority if not all the purchased business units. But in the case
of Coca Cola, the diversification strategy was not entirely successful that the company had to refocus on a single operation:
sticking to what it knows AND does best, which is making sodas in can and in bottles.

There are other types of corporate-level strategies, and they are presented in the next page of this written report as a three-
column chart. In this way, the pros and the cons of each Corporate Strategy type can be seen at one glance. In addition to that,
the definition of terms related to each corporate-level strategy can also be noted.

Page | 4
 THREE-COLUMN CHART FEATURING DIFFERENT CORPORATE-LEVEL STRATEGIES
[adapted from all the References, as synthesized by Gascon (2011)]
CORPORATE STRATEGY ADVANTAGES DISADVANTAGES
DIVERSIFICATION CREATES VALUE through… INVOLVES BUREAUCRATIC COSTS
-multibusiness strategy of through…
simultaneously competing with 1. Acquiring and Restructuring 1. number of businesses
many diff. product markets & 2. transferring skills 2. coordination among businesses
industry environments 3. economies of scope (a.k.a. the lowering the
average costs for a firm associated with
Kinds: producing two or more product/service
(a) related diversif. types)
-venturing into a new business
activity/ies linked to company’s
existing activity with one or more
commonality in the value chain
(b) unrelated diversif.
-the new business activity/ies linked
to the company has very little to
zero commonality in the company’s
original value-creation process
VERTICAL INTEGRATION PROFITABILITY through increased INEFFICIENCIES through increased
-a strategy whereby the company EFFICIENCY BUREAUCRATIC COSTS
either moves UP or DOWN the 1. Limits the entry of new competition into a 1. Can raise rates related to production and
typical raw-material-to-consumer particular industry operating expenses
production chain 2. Facilitates investments in 2. Can inhibit strategic flexibility (a.k.a. the
specialized assets (a.k.a. exclusive ability to match requirements of fast-changing
Kinds: equipment and/or unduplicated technical technologies by making changes such as in the
(a) backward integ. / upstream expertise) that enhance efficiency suppliers or the distribution system
-company produces its own inputs
(b) forward integ. / downstream
3. Protects product quality so the 3. Can raise the risks when supply-demand
-company disposes of its own firm becomes a differentiated player in its conditions are unpredictable/unstable
outputs core business
4. Allows improved scheduling and
tighter coordination of business processes,
enabling faster response to sudden changes
in supply-demand conditions
COOPERATIVE RELATIONS 1. Helps foster credibility, a believable 1. Can lead company to become heavily
-a.k.a. long-term contracting or commitment to support the development dependent on an inefficient partner organization
strategic alliances of a long-term relationship between 2. Can discourage company from competing with
-an arrangement in which one companies other organizations in the marketplace
company agrees to supply another, 2. Helps maintain market discipline, able to 3. Can lead company to lack the incentive to be
as the other company agrees to apply negotiation skills cost-efficient
continue purchasing from that
supplier in a commitment to seek
jointly ways of lowering the costs or
raising the quality of inputs into both
companies’ value-creation process
STRATEGIC OUTSOURCING 1. Enables company to reduce its own costs 1. Can lead company to loses ability to
-a strategy that is the opposite of 2. Enables company to better learn from the outsourced activity AND the
Vertical Integration differentiate its final product opportunity to transform that activity into a
-a process whereby the company 3. Enables company to focus limited distinctive competence of the company
hands over its certain human/financial/physical resources on 2. Can make company too dependent upon
activities/responsibilities to an further strengthening its core competencies a particular supplier/distributor
independent organization outside the 4. Enables company to be more flexible by 3. Can make company go too far in outsourcing
company being responsive to changing market value-creation activities that are central to the
conditions maintenance of competitive advantage
4. Can lead company to lose control over
the future development of a competency to the

Page | 5
 point that its performance might ultimately
decline

Closing Case: ECHOSTAR and SBC Adapted from: Guth (2003)

Telecommunication versus Cable Firms: Alliances in response to Rivalry
Demand for broadband Internet connections has surged in the United States, and telephone companies have scrambled to maintain
pace with the cable companies as they respond to the demand. In our Internet-driven age, phone companies and satellite TV providers
have started formed corporate-level alliances, allowing them to respond effectively to cable company offerings in communications. The
alliance between satellite television corporation EchoStar Communications and leading homephone organization SBC, for example, will
allow customers to sign up for as many as five services: local, long distance, and cellular phone services plus satellite TV and broadband
services. Their newly formed SBC DISH Network should please customers, who will receive a singular billing statement for several
diverse services rolled into one.

The phone companies are relative latecomers to broadband. Cable operators, which in the 1990s invested heavily in expanding and
modernizing their networks, dominate the market. Comcast, the biggest provider in the USA, had 4.1 million subscribers at the end of
March 2003, far ahead of the leading phone companies—SBC Communications with 2.5 million, Verizon Wireless with 1.8 million, and
BellSouth with 1.1 million.
Offering broadband also allowed the cable companies to offer phone service (once regulatory agencies allowed it) through cable,
something they have aggressively pursued. In 2003, cable operators had registered over three million phone customers, often offering
discounts if a customer subscribed to more than one service (cable TV, phone line, broadband Internet). In response to the competition,
phone companies all over the world have begun sealing partnerships to better contend with the cable companies’ aggressive moves into
phone service.
SBC Communications has agreed to partner up with EchoStar Communications Corp., which originally single-handedly offers satellite
TV services called the Dish Network. Under the corporate-level plan by SBC, starting early 2004 the phone company’s customers will be
able to sign up for EchoStar TV services by calling SBC sales representatives. Interested customers could subscribe to at most five joint
SBC-EchoStar services consolidated on one SBC bill. Said partner companies intended to brand their service as SBC DISH Network. In
return, SBC will invest $500 million in EchoStar’s convertible debt. Likewise, another phone company Qwest is building a similar
alliance with DirecTV, another satellite TV provider.

This EchoStar-SBC alliance builds on the idea of “bundling,” which is the practice of selling diverse kinds of services under a single-
package billing, which tech critics declared is the future of telecommunications. As SoundView Technology Group analyst Michael Bowen
said, “You’ll see more and more bundled deals as phone companies seek to defend themselves in a fight to stay relevant in a wireless
Internet connection world.”Bundling services, like bundled products at the supermarket, is more profitable for the telecoms companies
than giving each customer a single service. This is because bundling creates switching expenses for the customer. When customers use
multiple services, it becomes increasingly difficult to compare-contrast with other offerings from rival institutions, so customers tend to
stay put in one bundle offer.
SBC is also announcing deals with other tech companies in attempts to expand its planned broadband package, such as their
personalized Yahoo! SBC service subscription. Under the terms of this deal, SBC will pay Yahoo an estimated $5 a month for each
subscriber; Yahoo in return will give SBC an undisclosed percentage of any premium services the SBC subscribers purchase beyond the
basic bundle service, like expanded email storage or real-time stock quotes.

This kind of competition response alliances between phone companies and TV as well as Internet service providers have not only
allowed them to respond to cable companies’ strategic moves into phone services, but have also allowed struggling firms from an
endangered industry to diversify the services they offer.

REFERENCES

Bennett, R. (1999). Corporate strategy (2nd ed.). New York, USA: McGraw Hill.
Guth, R. (2003). “Sony: The complete entertainer?” The Economist, March 1, 62-64. Retrieved on April 27, 2011, from
http://www.theeconomist.com.
Guth, R. (2003). “SBC-EchoStar deal allows satellite TV in your phone bill.” The Wall Street Journal Online, July 22, page
B. Retrieved on April 27, 2011, from http://www.wsj.com.
Harrison, (n.d.). Chapter 9: Corporate Strategy—Vertical Integration, Diversification, and Strategic Alliance. pp.278-311.
Johnson, G. & Scholes, K. (2006). Exploring corporate strategy: Text and cases (7th ed.). New Jersey, USA: FT Prentice
Hall.

Page | 6
Pettigrew, A., Thomas, H. & Whittington, R. (2002). The handbook of strategy and management. England, UK: SAGE.
Thompson, L. & Strickland, R. (2003). Strategic management: concepts and cases. New Delhi, India: McGraw Hill.

Page | 7