Corporate Strategic Direction

Corporate strategic direction is defined in different ways. In some corporations, it takes the form of a corporate creed, or code of conduct, that defines perspectives from the viewpoint of different stakeholders. At other corporations, policy statements provide guidelines for implementing strategy. In still others, corporate direction is outlined in terms of objective statements. However expressed, corporate direction consists of broad statements that represent a company's position on various matters and serve as an input in defining objectives and in formulating strategy at lower echelons in the organization.

A company can reasonably expect to achieve a leadership position or superior financial results only when it has purposefully laid out its strategic direction. Every outstanding corporate success is based on a direction that differentiates the firm's approach from that of others. Specifically, strategic direction helps in

1. Identifying what "fits" and what needs the company is well suited to meet. 2 Analyzing potential synergies.

3. Undertaking risks that simply cannot be justified on a project basis (e.g., willingness to pay for what might appear, on a purely financial basis, to be a premium for acquisition).

4. Providing the ability to act fast (presence of strategic direction not only helps in adequately and quickly scanning opportunities in the environment but capitalizing on them without waiting).

5. Focusing the search for opportunities and options more clearly.

To illustrate the point, consider the corporate direction of Dow Chemical Company, which has persisted for more than 60 years.2 Herbert Dow founded and built Dow Chemical on one fundamental and energizing idea: start with a cheap and basic raw material; then develop the soundest, lowest-cost process possible. This idea, or direction, defined certain imperatives Dow has pursued consistently over time:

Corporate Strategic Direction: An Example

1. First, don't copy or license anyone else's process. In other words, as Dow himself put it, "Don't make a product unless you can find a better way to do it."

2. Second, build large, vertically integrated complexes to achieve maximum economies of scale; that is, maintain cost leadership by building the most technologically advanced facilities in the industry.

3. Third, locate near and tie up abundant sources of cheap raw materials.

4. Fourth, build in bad times as well as good. In other words, become the large-volume supplier for the long pull and preempt competitors from coming in. Be there, in place, when the demand develops.

5. Fifth, maintain a strong cash flow so that the corporation can pursue its vision.

Over the years, Dow has consistently acted in concert with this direction, or vision. It has built enormous, vertically integrated complexes at Midland, Michigan; Freeport, Texas; Rotterdam, Holland; and the Louisiana Gulf Coast. And it has pursued with almost fanatical consistency the obtaining of secure, low-cost sources of raw materials.

Strategic Direction and Organizational Perspectives. Pursuing this direction has, in turn, mandated certain human and organizational characteristics of the company and its leadership. For example, Dow has been characterized as a company whose management shows "exceptional willingness to take sweeping but carefully thought out gambles."3 The company has had to make leaps of faith about the pace and direction of future market and technological developments. Sometimes, as in the case of shale oil, these have taken a very long time to materialize. Other times, these leaps of faith have resulted in failure. But as Ben Branch, a top Dow executive for many years, was fond of saying, "Dow encourages well-intentioned failure."

To balance this willingness to take large risks, the company has had to maintain an extraordinary degree of organizational flexibility to give it the ability to respond quickly to unexpected changes. For example, "Dow places little emphasis on, and does not publish, organization charts, preferring to define areas of broad responsibility without rigid compartments. Its informal style has given the company the flexibility to react quickly to change."4

Changing the Strategic Direction. Over the years, Dow's direction has had to expand to accommodate a changing world, its own growth, and expanding horizons of opportunity. The expansion of its direction, or vision, has included, for example:

1. Recognition of the opportunities and the need to diversify downstream into higher-value-added, technologically more sophisticated intermediate and end-use products, with the concomitant requirement for greater technical selling capability after World War II.

2. The opportunity and the imperative to expand abroad. In fact, Herbert Dow's core vision may have initially been retarded expansion abroad, since raw material availability was not as good in Europe or in Japan as it was in the United States and since it was harder to achieve comparable economies of scale.

3. The need to reorganize and decentralize foreign operations, setting them up on a semiautonomous basis to give them room for growth and flexibility.

But throughout its history, Dow's leadership has consistently held to a guiding concept that perhaps has been best articulated as this: "In this business, it's who's there with the vision, the money, and the guts to seize an opportunity."5

In the 1980s, Xerox Corporation faced the task of redefining its strategic direction in response to a new technological era. There were three different schools of thought within the company. One school believed it should stick to its core competency—copying—and that paper would be there for a long time. Another view, held by a smaller group, felt Xerox ought to quickly transform itself into a systems company. Based on its leading-edge technology at Palo Alto Research Center, this view suggested getting out of the paper world as quickly as possible. A third school of thought said that the company should finesse the differences and focus on being "the" office company. After all, it was reasoned, the company had a worldwide direct sales force that reached into almost every office around the world; it could sell anything through that direct sales force.

Looking carefully at the future, the company concluded that paper would not go away, but that its use would change. The creation, storage, and communication of documents will increasingly be in electronic form; however, for many years, people will prefer the paper document display to the electronic document display. They will print out their electronic documents closer to their end use and then throw them away, thereby making paper a transient display medium. Xerox chose to bridge the gap between the paper and electronic world. The strategic direction was defined to not remain the copier company, but to become the document company.6

Corporate Strategic Direction and Strategy Development. What can be concluded from this brief history of Dow Chemical's corporate direction? First, it seems clear that, for more than 50 years, all of Dow's major strategic and operating decisions have been amazingly consistent. They have been consistent because they have been firmly grounded in some basic beliefs about where and how to compete. The direction has evidently made it easier to make the always difficult and risky long-term/short-term decisions, such as investing in research for the long haul or aggressively tying up sources of raw materials.

This direction, or vision, has also driven Dow to be aggressive in generating the cash required to make risky investments possible. Most important, top management seems never to have eschewed its leadership role in favor of becoming merely stewards of a highly successful enterprise. They have been constantly aware of the need to question and reshape Dow's direction, while maintaining those elements that have been instrumental in achieving the company's long-term competitive success. Dow illustrates that corporate direction gives coherence to a wide range of apparently unrelated decisions, serving as the crucial link among them.

Corporate Strategic Direction and Marketing Strategy

Without exception, the corporate direction of all successful companies is based not only on a clear notion of the markets in which they compete but also on specific concepts of how they can sustain an economically attractive position in those markets. Their direction is grounded in deep understanding of industry and competitive dynamics and company capabilities and potential. Corporate direction should focus in general on continually strengthening the company's economic or market position, or both, in some substantial way. For example, Dow was not immobilized by existing industry relationships, current market shares, or its past shortcomings. It sought and found new ways to influence industry dynamics in its favor. Corporate direction should foster creative thinking about realistic and achievable options, driving product, service and new business decisions. Its impact can actually be measured in the marketplace. In other words, in addition to having thought through the questions of where and how to compete, top management should also make realistic judgments about (a) the capital and human resources that are required to compete and where they should come from, (b) the changes in the corporation's functional and cultural biases that must be accomplished, (c) the unique contributions that are required of the corporation (top management and staff) to support pursuit of the new direction by the SBUs, and (d) a guiding notion of the timing or pace of change within which the corporation should realistically move toward the new vision.

Mentioned below is the strategic direction of a number of companies:7

Merck

• Corporate social responsibility

• Unequivocal excellence in all aspects of the company

• Science-based innovation

• Honesty and integrity

• Profit, but profit from work that benefits humanity

Nordstrom

• Service to the customer above all else

• Hard work and individual productivity

• Never being satisfied

• Excellence in reputation; being part of something special

Philip Morris

• The right to freedom of choice

• Winning—beating others in a good fight

• Encouraging individual initiative

• Opportunity based on merit; no one is entitled to anything

• Hard work and continuous self-improvement

Sony

• Elevation of the Japanese culture and national status

• Being a pioneer—not following others; doing the impossible

• Encouraging individual ability and creativity

Walt Disney

• No cynicism

• Nurturing and promulgation of "wholesome American values"

• Creativity, dreams, and imagination

• Fanatical attention to consistency and detail

• Preservation and control of the Disney magic

Formulating Corporate Strategic Direction

Specific Statements about Corporate Strategic Direction

As can be noted, strategic direction is not an abstruse construct based on the inspiration of a solitary genius. It is a hard-nosed, practical concept based on the thorough understanding of the dynamics of industries, markets, and competition and of the potential of the corporation for influencing and exploiting these dynamics. It is only rarely the result of a flash of insight; much more often it is the product of deep and disciplined analysis.

Strategic direction frequently starts out fuzzy and is refined through a messy process of trial and error. It generally emerges in its full clarity only when it is well on its way to being realized. Likewise, changes in corporate direction occur by a long process and in stages.

Changing an established direction is much more difficult than starting from scratch because one must overcome inherited biases and set norms of behavior. Change is effected through a sequence of steps. First, a need for change is recognized. Second, awareness of the need for change is built throughout the organization by commissioning study groups, staff, or consultants to examine problems, options, contingencies, or opportunities posed by the sensed need. Third, broad support for the change is sought through unstructured discussions, probing of positions, definition of differences of opinion, and so on, among executives. Fourth, pockets of commitment are created by building necessary skills or technologies within the organization, testing options, and taking opportunities to make decisions to build support. Fifth, a clear focus is established, either by creating an ad hoc committee to formulate a position or by expressing in written form the specific direction that the CEO desires. Sixth, a definite commitment to change is obtained by designating someone to champion the goal and be accountable for its accomplishment. Finally, after the organization arrives at the new direction, efforts are made to be sensitive to the need for further change in direction, if necessary.

Many companies make specific statements to designate their direction. Usually these statements are made around such aspects as target customers and markets, principal products or services, geographic domain, core technologies, concern for survival, growth and profitability, company philosophy, company self-concept, and desired public image. Some companies make only brief statements of strategic direction (sometimes labeled corporate objectives); others elaborate on each aspect in detail. Avon products expressed its strategic direction rather briefly: "to be the company that best understands and satisfies the product, service and self-fulfillment needs of women globally."8 IBM defines its direction, which it calls principles, separately for each functional area. For example, in the area of marketing, the IBM principle is: "The marketplace is the driving force behind everything we do." In technology, it is "at our core, we are a technology company with an overriding commitment to quality."9 Apple Computer states its direction five years into the future with detailed statements under the following headings: corporate concept, internal growth, external growth, sales goal, financial, planning for growth and performance, management and personnel, corporate citizenship, and stockholders and financial community. Exhibit 8-1 shows the strategic direction of the Hewlett-Packard Corporation. As can be noted, this company defines its strategic perspective through brief statements.

No matter how corporate strategic direction is defined, it should meet the following criteria. First, it should present the firm's perspectives in a way that enables progress to be measured. Second, the strategic direction should differentiate the company from others. Third, strategic direction should define the business that the company wants to be in, not necessarily the business that it is in. Fourth, it should be relevant to all the firm's stakeholders. Finally, strategic direction should be exciting and inspiring, motivating people at the helm.10

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