Concepts of Corporate Management Strategy Theory
Scope of Management Strategy
Adopting management strategies within companies increases corporate value. Corporate activities result in economic profit to company stakeholders, such as shareholders, employees, and important partners. Corporate strategy aims at midto long-term courses of action that maximizes the corporate value provided to stakeholders. For publicly traded companies, improvement in market capitalization will ultimately benefit the company's stakeholders. Corporate performance is often analyzed in terms of profitability ratios. However, a temporary improvement in profitability ratios may sometimes hamper future profit. For example, companies sometimes reduce the level of their investments that would otherwise positively impact future business performance, such as R&D activities. Even though this may temporarily improve profit, a measure with no prospects of improving the long-term growth of a company will not increase its market capitalization, and therefore is not an appropriate management strategy. “Midto long-term” is part of the corporate strategy definition is because it accounts for the integration of corporate activities over an extended time period.
We examine corporate strategy in more detail. Policies regarding management methodologies and midand long-term corporate direction are classified into four levels of abstraction: mission, objectives, strategies, and tactics (MOST).
The most abstract among them is “mission,” or the fundamental principles or vision of the company. The mission succinctly expresses the essence of the company. For example, Morita Akio, Sony's former Chairman, identified Sony's mission as being “a pioneer.” This mission encapsulates the management's direction that has provided the world with technologically advanced products, such as the transistor radio, Trinitron television, and Walkman. Sony believes in being a leader and does not follow other companies; its management policy has always maintained the challenge of pioneering new products.
“Objectives,” refer to specific objectives relating to the mission. Objectives are given a specific timeframe under which they need to be achieved. Large companies announce their 3–5-year management strategies called “mid-term management plans.” The objectives outlined in these plans may be, for example, to increase overseas revenues to more than 50 % of total revenues within 3 years by strengthening global businesses.
“Strategies” refer to a company's plan to achieve the objectives, and its contents detail its mid-term management plans. These strategies significantly impact overall company management, such as new product development for the Chinese market to increase overseas revenues to greater than 50 % of total revenues or the acquisition of local companies to expand local distribution channels.
“Tactics” refer to the plan to execute strategies. The creation and execution of specific plans are often left to the discretion of divisions. Expansion of local channels may be implemented by the marketing division, while new product development may be implemented by the development division. Thus, management meetings comprising the company president and division leaders typically discuss issues at a strategic level, and later share them with the rest of the company. Among Japanese corporations, global strategy is an increasingly important management strategy because overseas markets contribute to the increasing share of overall corporate revenues.