MIT Sloan Management Review

Corporate Strategy, International Business

 

Corporate Spheres of Influence

By Richard A. D'Aveni

July 15, 2004

The design of a corporate portfolio should be based primarily on its strategic intent and desired competitive impact, that is, on how a select set of market positions builds a platform for growth while influencing the behavior of rivals and the structure of the industry.

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Johnson & Johnson, a company that is almost synonymous with baby care products, doesn’t have its own brand of diapers for babies. Procter &Gamble Co., known for its soaps and shampoos, doesn’t offer a major baby shampoo. These companies appear to be missing obvious ways to leverage their manufacturing, branding and other core competencies through extensions into synergistic areas. What could they be thinking?

These gaps suggest that there may be a deeper logic to building strong portfolios than simply leveraging competencies or assembling related businesses. It appears that Procter & Gamble (P&G) and Johnson & Johnson (J&J) may have established a standoff — similar to the nuclear age concept of “mutually assured destruction” — in which they implicitly agree to stay out of certain of each other’s markets to avoid direct confrontation and to devote their energies to battles on other fronts. P&G can devote more attention to confronting Unilever and Kimberly-Clark. J&J can concentrate on more profitable battles over medical equipment and hospital supplies rather than fight in consumer products.

While these moves may not make sense from the logic of leveraging the competencies of the organization, they may reveal a deeper strategic logic for designing portfolios and establishing a balance of power in an industry. For P&G and J&J, that strategic logic is, in short, that each has tacitly established its “sphere of... To read the complete article, login or sign-up using the form below.

 
 

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