Horizontal Strategy for a Business
Issue on Corporate Strategy for Diversified Firm:
(1) selection of industries to compete in
(2) how the strategies of the business unit should be coordinated
HORIZONTAL STRATEGY – coordinates the goals and strategies of related business units; should exist in the group, sector and corporate level; bottom-up H strategy rarely happens (the B unit managers have the resources and influence interrelationships)
Emerging new pattern of competition – among clusters of related B units
Why H strategy? – Horizontal strategy should be explicit in order to identify, reinforce, and extend interrelationships. Other reasons for this strategy as follows:
• B units value interrelationships differently and not agree to pursue them – some units might conclude that the costs of interrelationship outweigh their value; mostly, the large and currently successful units are the most resistant to pursuing this relationship
• B unit strategies will evolve in ways that weaken interrelationships – If left on their own, the units might formulate inconsistent directions that will make interrelationships even more difficult to achieve.
• Independent Pricing and investment decisions may erode firm position
• B Units might go outside to form alliances to achieve interrelationships available internally – some managers favor dealing with external parties and take full control over the relationship instead of accepting compromises to work with sister units.
• B units may ignore key potential competitors or the true significance of existing competitors – independent competitor analyses could be narrow in perspective
• Transfer of know-how among generically similar B unit will not occur
Steps to Formulating Horizontal Strategy
(1) Identify all tangible interrelationships – examine value chains of each business unit for actual and possible opportunities for sharing
(2) Trace tangible interrelationships outside the boundaries of the firm – each value activity should be probed
(1) selection of industries to compete in
(2) how the strategies of the business unit should be coordinated
HORIZONTAL STRATEGY – coordinates the goals and strategies of related business units; should exist in the group, sector and corporate level; bottom-up H strategy rarely happens (the B unit managers have the resources and influence interrelationships)
Emerging new pattern of competition – among clusters of related B units
Why H strategy? – Horizontal strategy should be explicit in order to identify, reinforce, and extend interrelationships. Other reasons for this strategy as follows:
• B units value interrelationships differently and not agree to pursue them – some units might conclude that the costs of interrelationship outweigh their value; mostly, the large and currently successful units are the most resistant to pursuing this relationship
• B unit strategies will evolve in ways that weaken interrelationships – If left on their own, the units might formulate inconsistent directions that will make interrelationships even more difficult to achieve.
• Independent Pricing and investment decisions may erode firm position
• B Units might go outside to form alliances to achieve interrelationships available internally – some managers favor dealing with external parties and take full control over the relationship instead of accepting compromises to work with sister units.
• B units may ignore key potential competitors or the true significance of existing competitors – independent competitor analyses could be narrow in perspective
• Transfer of know-how among generically similar B unit will not occur
Steps to Formulating Horizontal Strategy
(1) Identify all tangible interrelationships – examine value chains of each business unit for actual and possible opportunities for sharing
(2) Trace tangible interrelationships outside the boundaries of the firm – each value activity should be probed