In order for businesses to continue being forward-thinking, successful, and competitive in their sector, corporate development is essential. The development of long-term strategies is necessary for successful growth. Participating in corporate strategy at work will be easy if you have a solid understanding of corporate development.
In this article, I will examine corporate development, explain its role, and explore some of the most significant strategies for your company’s expansion.
Key Points
- Increasing an organization’s level of success is the main objective of corporate development.
- It can have a variety of goals, including raising sales, expanding the company, forming alliances with other businesses, and increasing profitability.
- Every department of a firm, including sales, marketing, manufacturing, accounting, finance, human resources, product development, and vendor management, can be impacted by the business development process.
- Leaders in corporate development and their teams require a variety of soft skills like communication skills for them to implement it.
- The three major kinds of corporate development models are the centralized model, the decentralized model, and the hybrid model
What is Corporate Development?
Corporate development is the term used to describe a team of experts whose job it is to create and carry out business growth strategies. This entails forming alliances, reorganizing departments, enhancing output, and entering new markets. Corporate development is essential for your business to succeed. Therefore, for it to remain competitive, your business needs to have highly qualified development teams.
What does corporate development do?
Corporate development is the department inside a corporation in charge of making strategic choices and carrying out sourcing-related activities, such as collaborations, financings, mergers, acquisitions, and divestitures. Your company needs a corporate development team to investigate new markets and seek chances to generate shareholder value. They also work with the CEO and other members of the executive team.
Furthermore, the goal of corporate development is to carry out deals that will strengthen the business’s position against competitors and increase shareholder value. This includes helping your business locate possible acquisition targets, settling on terms, and overseeing integration following a purchase. They will also try to obtain funds to support these deals and preserve ties with important parties, including partners, lenders, and shareholders.
To function efficiently as a corporate development team, you must possess strong communication abilities because you will be interacting with people from a variety of functions. As a business strategist, you need to efficiently receive and analyze information or data, which will be beneficial. Together with other business divisions, you will form a corporate development team.
To put it briefly, they are in charge of negotiating agreements that support an organization in achieving its strategic goals.
Why is corporate development important?
Corporate development is essential for your business to survive in the long term. Development teams will assist your company in sustaining its competitive edge, enhancing internal performance, and increasing long-term earnings. Skilled developers may assist a company in growing into new markets, acquiring rival companies, reaching a larger market with their products and services, and boosting revenue and worth.
Businesses can look to external and internal corporate development and we look at them below:
Internal roles of corporate development
Development professionals are responsible for both internal and external duties, depending on whether they need to be focused on within or outside of a business. Among the duties involved in internal development are:
- locating and closing gaps in a business’s offering of goods and services
- putting tactics into practice to inspire workers and raise output
- employing and organizing personnel and HR resources effectively
External roles of corporate development
Among the duties for external development are:
- searching for possible alliances and business partners
- finding companies to buy
- keeping an eye on competitors and the market
Types of Corporate Development Teams
There are three primary categories of growth strategies, each of which has a distinct organizational structure for the team. Note that every kind of corporate development team has benefits and drawbacks. The most typical kinds of development teams are listed below:
#1. Centralized model
Under the centralized approach, teams operate centrally within your organization to gain a thorough understanding of its structure and operations. Development teams can now more easily organize deals with other firms around the company’s portfolio and have more time to identify potential risks and opportunities.
Furthermore, centralized development teams collaborate with other departments within the organization to carry out business functions, such as working with support teams during the acquisition of a new firm. This model is the most popular form of development strategy used by organizations worldwide.
#2. Decentralized model
A decentralized development model indicates that a company lacks a dedicated development staff. Rather, as needed, businesses confer with development experts. For instance, when you are thinking about making a new acquisition or restructuring, it helps you hire experts from outside the organization or from different departments.
However, it is the least used business development model. It is less expensive than hiring teams on a project-by-project basis, but it also generally results in less efficient work than hiring full-time development specialists.
Read Also: DECENTRALIZED ORGANIZATIONAL STRUCTURE: Meaning And Advantages
#3. Hybrid model
This is a smaller team that uses a variety of internal and external resources to complete development operations. For instance, a hybrid development team may continue to create and implement a growth strategy internally while contracting out specific work to consultants or independent contractors. The hybrid model works with a centralized and decentralized approach to enable your business to respond quickly while still adapting to the demands of specific projects.
Types of Corporate Development Strategies
Corporate development experts use a variety of tactics to help businesses achieve their expansion objectives. The following list includes a few of the most popular development tactics they can use to help your business:
#1. Mergers and acquisitions
Through Mergers and Acquisitions, you can buy out smaller businesses to end competition and obtain a company’s income, clientele, and cash flow. It is simply when businesses integrate a new, smaller one into an existing, larger one.
Your business will need a team of development experts with expertise in risk management, financial modeling, and negotiating for mergers and acquisitions.
Another important component of most business development strategies is making sure your firm provides the most value to its owners. The corporate development team tries to make your investors happy with their investment. It helps you increase the market value of your stock and the business’s overall worth.
Even though they may also have strong opinions on an organization’s ethics, shareholders are generally concerned with profits and returns.
#3. Partnerships
When two or more companies form strategic relationships with other corporations, they can both benefit from each other’s dominant market positions. When two or more businesses collaborate, manufacturing capacity can be increased without raising expenses.
For example, in 2016, Uber’s partnership with Spotify let passengers play their Spotify playlists whenever they took a ride. This partnership encouraged Uber riders to subscribe to Spotify Premium.
In my view, this is a better option than buying or merging with another business to form a partnership. You will need a corporate development team to help you bargain for terms and conditions that will benefit you and your partners.
#4. Build alliances
An alliance is a form of cooperation where two businesses agree to share resources, assets, and expertise. Alliances can benefit two or more businesses, especially when new businesses team up with more seasoned businesses to acquire experience and credibility. Note that even alliances are not partnerships because these businesses are still competitors.
For example, in 1999, Renault, Nissan, and Mitsubishi came together to form an alliance that was called the Renault-Nissan-Mitsubishi Alliance. This alliance was to allow these automobile manufacturing giants to share technologies, experiences, and innovations for the future of the automobile industry. Beneficially, this alliance led to the development of electric vehicles and their expansion into new markets.
In this case, your development teams will look for appropriate businesses that can form effective alliances with you and discuss the conditions and objectives.
Read more on the best Alliances in business in this article: Strategic Alliance: Types & Examples in 2023
#5. Equity carve-outs and divestitures
Equity carve-outs and divestitures will help your business manage its capital more efficiently by getting rid of unnecessary assets.
For example, in 2009, the company General Electric (GE), a multinational conglomerate, decided to carve out its subsidiary, NBC Universal. The aim of this was to allow GE to unlock the value of NBC Universal and provide it with more independence in the media industry. They did this by allowing investors to buy shares of NBC Universal through an initial public offering (IPO). The benefit of this move was to allow NBC Universal to operate as a separate entity that maintains its connection to its parent company, GE.
Your corporate development team needs extensive experience with financial modeling and business valuation techniques to implement this development strategy. Therefore, they must consider account returns, historical earnings, discount cash flow valuation, asset valuation, and other factors.
How do companies measure the success of development strategies?
Corporate development teams measure the effectiveness of their strategies using a range of measures. These metrics help to assess a team’s performance and they include:
#1. Return on investment (ROI):
This is the amount of net profit generated over time by a business relative to its expenses. Many businesses value a strong return on investment since it is essential to the success of the business.
Read Also: 4 Strategies For Maximizing ROI With Google Ads
#2. Net present value (NPV):
You can measure this by comparing the value of cash inflows to the current value of cash outflows. When the value of cash inflows is higher than the value of cash outflows, you have a positive NPV.
Read Also: NPV: Meaning & How to Calculate It
#3. Revenue increase:
This shows that a company’s income has increased.
Read Also: How to Calculate Revenue In Business Accounting (Steps and Examples)
#4. Synergetic effect:
This is when you compare the value of the newly formed entity to the total value of the entities when they were independent. If the value of the newly formed entity is higher than the value of the separate entities, then you have a positive synergetic effect.
For example, companies A and B come together to form AB.
- AB is valued at $5 million
- If A and B are valued at $1 million and $2 million, respectively, then you have a positive synergistic effect.
Note that this is an effective measure in Mergers and Acquisitions
#5. Employee turnover rates:
If development strategies are successful, employee turnover rates will be low. To know more about employee retention, please read this article; EMPLOYEE RETENTION RATE: How to Calculate It and Things You Must Know
#6. Customer retention rate:
Teams that successfully execute development strategies should see growth in their customer retention rates. This means that the business can keep its existing customers and attract new, loyal ones.
Read Also: CUSTOMER RETENTION: Definition, Strategies, Rate, Formulae & Importance
Corporate Development Strategy Templates
Click on the image below to get your corporate development strategy templates:
What is a corporate strategy?
A corporate strategy is a long-term strategy for an organization’s expansion and improvement. It helps you lay down your business goals and shows you how to accomplish them. A corporate strategy team is worried about how your business can successfully provide its clients with certain products, services, or market niches with value.
With the help of a good corporate strategist, your business can achieve short-term and long-term projects, develop financial viability, and meet its objectives.
Differences between corporate development and corporate strategy
Even though “corporate strategy” and “corporate development” are sometimes used interchangeably, they are still different. Corporate strategy includes the aims and objectives that direct the process of making decisions. Corporate development, on the other hand, is in charge of carrying out that plan through partnerships, joint ventures, and mergers and acquisitions.
One way to sum up the relationship between corporate strategy and development is this: corporate strategy establishes the company’s goals, while corporate development determines how to get there.
Is corporate development the same as M&A?
Corporate development refers to opportunities for the company through actions such as mergers and acquisitions (M&A), Note that M&A is just one part of corporate development.
What is the role of corporate development?
Your firm needs corporate development to design and implement creative ideas that will enable it to capitalize on its competitive edge and, as a result, enhance the company’s operational and financial performance.
Is corporate development the same as strategy?
No, corporate development is not the same as corporate strategy. While corporate strategy describes how to reach those objectives, corporate development is concentrated on the actions that add value to the organization over time. However, even though they are different, they are still connected fields of management.
Is corporate development part of finance?
No, corporate development is not part of finance. Corporate development is concerned with the strategic aspect of the deal, while the finance department manages the financial and transactional aspects.
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