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Corporate Spheres of Influence

July 15, 2004 | Richard A. D'Aveni | Strategy

Traditional models for developing and managing corporate portfolios are based on financial frameworks, business synergies or leveraging core competencies into related businesses. In this article, the author goes beyond those traditional approaches and offers an alternative — the corporate sphere of influence. Like nations, says the author, companies build spheres of influence that protect their cores, project their power outward to weaken rivals and prepare the way for future moves. By recognizing the strategic purpose of each part of the portfolio, the sphere of influence model focuses attention on the company’s overall strategy, including how it wants to structure the division of product and geographic markets in an industry, which threats it will address or ignore, and how the company’s portfolio enhances or detracts from its competitive or alliance strategy.

Thinking in terms of building a sphere of influence forces managers to draw together corporate- and business-level strategic analyses that are often treated as separate. The corporate-level concern about where to fight and the business-level concern about with whom and how to fight are brought together into a coherent view.

In this article, the author defines the components of a sphere of influence and explains how senior executives can use his framework to assess their company’s current sphere and map their desired one. Then he offers examples of how companies have managed their spheres.

He draws examples from a wide range of industries and companies, including Microsoft, Procter & ; Gamble, Johnson & ; Johnson, Anheuser-Busch, Nokia, Harley-Davidson and Mexican cement company CEMEX.

For an extended discussion of how companies can leverage their spheres of influence to support their overall grand strategy, see “The Balance of Power,” by Richard D’Aveni (MIT Sloan Management Review 45, no. 4 [2004]: 46a-46i).

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