Corporate strategy begins with an understanding of the current state of the firm. The state of a company can be defined in multiple ways and Universal Strategy’s3 corporate framework uses leader, obsolete, stressed, and distressed. This framework is based on three questions:

1. What is the corporate health scale that we are using?
2. What are the possible corporate states a company can be in?
3. Where on the scale is each corporate state positioned?

Once the state of the firm is understood, a corporate strategy can start to be developed based on one of four categories.

Measuring Corporate State
The problem of looking at the position of a company is not new and there are many models available. One widely used model is the SWOT analysis. SWOT splits the corporate measurement scale into two dimensions:

1. The internal characteristics of the company.
2. The external business environment.
   

SWOT simply has two values for each dimension: positive or negative. The resulting four values, two for each dimension, are defined below.

SWOT Definition

• Strengths: Positive internal characteristics of the company.
• Weaknesses: Negative internal characteristics of the company.
• Opportunities: Positive external business environment.
• Threats: Negative external business environment.

The name SWOT is simply an acronym of the first letters of these four values. The values are intentionally not specifically defined further as the use of SWOT analysis, predominantly to drive strategy, is high level. Depending on the context, some examples are:

• Internal characteristics: product adoption rates, cost efficiencies, scale, human capital, efficient processes.
• External business environment: consumer tastes, technological disruption, legislation/regulation, interest rates.
  

Corporate State Definitions

• Successful: Things are going well internally and externally and all indications are that this will continue.
  
• Obsolete: There is nothing internally wrong with the company, but the external world has changed.
  
• Stressed: There is an internal issue with the company but the external world is positive.
  
• Distressed: Both the company and the external environment are stressed.
  

These definitions automatically lead to a natural classification system.

Classifying Corporate Strategy
Expanding on the terms defined so far there is a natural extension to the standard characterisation of the corporate state that is critical for the formulation of strategy:

• Strengths - Opportunities: How can the company exploit opportunities to its advantage and create barriers of entry to competitors, creating a sustainable leadership position?
• Strengths - Threats: How can a company use its strengths to defend itself against external threats and to further increase its competitive advantage, transitioning into a leadership position?
• Weaknesses - Opportunities: How can a company use the external opportunities to compensate for its internal weakness and redefine itself, transforming into a leadership position?
• Weaknesses - Threat: How can the company minimise its weaknesses to avoid the external threats and use external threats to strengthen its competitive position, turning itself around  into a leadership position?

In this context, there are four strategies that can be defined:

• Innovate: The current state of the company is known, it is in a relatively strong position, the market is positive, and the target state is unknown. The company needs to innovate to maintain its leadership position.
• Transition: The current state of the company is known, it is in a relatively strong position, the market is negative, and the target state is an extension of the current state to a known new corporate state. It needs to transition its product / service offerings to meet the challenges of the market.
  
• Transform: The current state of the company is known, it is in a relatively weak position, the market is positive, and the target state is not known.
• Turnaround: The current state of the company is weak and unclear, the market is negative, and the target state is unknown.

Strategy Classification Matrix