The Balance of Power

A corporate sphere of influence is not just a platform for a company’s offensive or defensive initiatives. It is the basis upon which the company builds market power over rivals so it can maneuver freely without fear of retaliation.

When orchestrating their portfolios of businesses and geographic market positions, many companies have tried, with only partial success, to develop a financial logic — transferring funds from cash generators to high-upside enterprises while divesting themselves of losing businesses. But many now recognize that these financial models do not capture the full opportunities for value creation and have looked for technological, marketing and operational synergies as well. But because such synergies are difficult to achieve, especially in complex businesses, still other companies have pursued a portfolio-building logic characterized by tight focus, leveraging a small set of competencies in a narrowly focused set of businesses to build economies of scale and market power. All these approaches, however, either ignore competitors or, at best, treat them lightly. A stick-to-your-knitting approach or a synergy-seeking strategy provides little insight into how a company’s geographic and product positioning can allow it to build power over rivals and to use this power to generate profits by dominating the competitive space.

There is a deeper logic to building strong portfolios than simply leveraging competencies or assembling related businesses, one that, while taking into consideration economies of scale and synergies, is based upon the overall strategic intent and competitive impact of a set of market positions. (See “About the Research.”) The sphere of influence is a concept borrowed from geopolitics1 and has been the subject of recent research in the management literature.2 It offers a framework for examining the strategic intent of the company’s portfolio3 and its implications for competitive strategy. A corporate sphere is a product and geographic portfolio with the power to influence where and how competitors fight within their competitive space.

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References

1. H.J. Morgenthau, “Politics Among Nations: The Struggle for Power and Peace”