It is only when long held conventional thinking is shaken that we can begin to reconstruct our view with more effective strategies. Last week, I discussed the first two of the corporate strategy avenues that were conceptualized by Michael Porter, a leading voice in the world of strategic management. These first two were the most conventional portfolio management and restructuring; the most common corporate strategies worldwide. In his article published in the Harvard Business Review, Michael Porter argues that are two more concepts of corporate strategy that are “the best avenues of value creation.” These two are transferring skills and sharing activities. Why are these strategies the more effective path to adding shareholder value?
To first answer this question, we must start with a strong foundation. That foundation is the value chain of a corporation consisting of primary and secondary activities. Transferring activities is about the interrelationships between businesses. One of the ways to better understand the relationship is through a company’s value chain. With the value chain as the basis of strategy crafting, a corporation can better understand the similarities of business units. When value chains are similar, knowledge can be transferred from one unit to another. Learning is then made into a competitive advantage. With this concept executed, a corporation moves more swiftly down the learning curve.
When the similarities are discovered, a corporation can then begin to connect differing business units. Sharing activities is the linking of value chain activities between businesses. This is a step beyond transferring skills in that it uses the activities that have been transferred and related to gain advantages such as economies of scale. Examples of activities that can be transferred can include anything from technology innovation to advanced human resources systems. Results of this concept are often the reduction of the cost and competition of business units in a corporation.
The findings of the four concepts were published in the 1980s. With the rapid advancement of capital markets, it seems inevitable that these findings will, in a way, expire. Instead, these concepts are timeless truths about corporations that can be applied now. It is unfortunate that corporations today still cling tightly to traditional strategy thinking and continue down the route of portfolio management and restructuring solely as means to creating shareholder value. The transferring of skills and sharing activities seem to be such simple concepts of corporate strategy and, in a way, they are. Nevertheless, these two are less common then of the four.
Sharing won’t just benefit the business units but the corporation as a whole and the shareholders. The concepts are proof that thinking out of the box and investing time to integrate and share activities and skills can be one of the strongest strategies in even the most advanced economies. I predict that as corporations advance globally, transferring skills and sharing activities will become more and more commonly selected and implemented corporate strategies. They are, after all, vital to a corporation’s success.