Corporate strategy, as outlined by Richard Koch, refers to the overarching plan and direction for a multi-business organization, focusing on where the firm should compete and what kinds of businesses it should own or enter. This type of strategy is concerned with the selection and management of a portfolio of business units, industries, or product-market segments, and the allocation of resources among them. Koch emphasizes that corporate strategy is about understanding and choosing the arenas in which a firm operates, especially in cases where multiple distinct business areas are involved.
Corporate strategy asks questions such as:
- In which markets or industries should the company operate?
- How should resources be allocated among business units?
- How should the businesses be structured to maximize overall value and competitiveness?
It focuses on creating value through synergies, developing core competencies shared across units, and ensuring that the whole organization delivers more value than the sum of its parts.
Business Unit Strategy vs. Corporate Strategy (as per Koch)
Koch stresses that, at the business unit level, strategy centers on achieving competitive advantage within a specific product-market segment or arena—by either being the lowest-cost producer or by offering a product that is markedly more attractive to customers than competitors’ offerings. In contrast, corporate strategy is about identifying and managing the “few arenas” (businesses) that generate the most value, and ensuring they work together to deliver superior results for the corporation as a whole.
“At the heart of a firm is one or more product-market segments or arenas in which it operates. If the firm operates in several arenas, one of them, or a few, will supply most or all the cash and profit the firm generates… In these few arenas, which are the intersection of the product and a similar group of customers, the firm has competitive advantage.”
— Richard Koch.
In summary, corporate strategy is about the selection and management of a portfolio of businesses to create overall value, whereas business unit strategy is about achieving and sustaining competitive advantage in a chosen market or segment. Koch’s distinction makes it clear: corporate strategy sets the direction for the whole enterprise; business unit strategy wins the battle in each chosen arena.
