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Corporate Strategy and Growth - Article/Book Summary
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Corporate Strategy, Ownership, and Governance - Article/Book Summary
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Corporate Strategy and GrowthSession 1 - Corporate Strategy: Introduction
Bowman, C. and V. Ambrosini (2003). How the resource-based and dynamic capability
views of the firm inform corporate-level strategy. British Journal of Management, 14
(4): 289-303.
- The resource-based view addresses issues of competitive strategy, but by integrating
some arguments from the evolutionary version, the dynamic capability view, it can be
extended to inform our understanding of corporate-level strategy.
- Corporate centres may possess resources but must display dynamic capabilities
otherwise they will destroy shareholder value.
- In essence, the RBV applies to competitive, rather than corporate strategy. It provides
insights into strategy issues at the level of the strategic business unit (SBU) or individual
firm. The evolutionary version of the resource-based view, the dynamic capability view,
provides valuable insights into how SBU and corporate-level activity can create new
resources.
- The resource-based view (RBV) examines the link between the internal characteristics
of a firm and firm performance. The core principles are that an organisation can be
regarded as a bundle of resources and that resources that are simultaneously valuable,
rare, imperfectly imitable and non-substitutable – the VRIN conditions, are a firm’s main
source of sustainable competitive advantage. This means that RBV locates the source of
superior profitability inside the firm.
- A resource is valuable to the firm if it generates rents that can be captured by the firm.
- The relative scarcity of a resource means that a firm that possesses a rare resource can
generate either superior margins or superior sales volumes from an equivalent cost
base to competitors.
- The more difficult it is for competing firms to replicate the resource, the longer-lived will
be the rent stream accruing to the resource. Inimitability results from the presence of
isolating mechanisms such as causal ambiguity, information asymmetries or social
complexity.
- A resource is said to be non-substitutable if it cannot be easily replaced by another
resource that delivers the same effect.
- The dynamic capabilities view (DCV) focuses on the capacity an organisation facing a
rapidly changing environment has to create new resources, to renew or alter its
resource mix.
Page 1 of 97
, Corporate Strategy and Growth
- The essential differences between a corporate structure and a single firm is that the
corporation typically comprises more than one line of business, and that there is usually
a distinction made between business-level (SBU) activity, and activity performed at the
centre.
- If corporate-level activity is to be valuable, it must in some way impact positively on the
profitability of the organisation. One way the corporate level can contribute is if it
performs dynamic capabilities.
- Dynamic capabilities refer to the firm’s ability to alter the resource base by creating,
integrating, recombining and releasing resources. They may involve processes of
coordination, replication, learning and reconfiguration.
- Dynamic capabilities are built rather than bought in the market, and they are embedded
in the organisation.
- Reconfiguration processes transform and recombine assets and resources. Two forms
of reconfiguration:
1. Consolidation of support activities, where the result is research creation at the centre.
2. Reconfiguration to achieve scale economies in core processes.
- The centre can assist in resource creation by leveraging existing resources. This may be
done by extending the scope of the resource into other SBUs or market domains - i.e.
replication.
- The role of the centre is to identify the nature of the resource, to recognise new
opportunities where the resource may confer advantage, and to implement the
necessary organisational changes, or create the conditions whereby the resource can
be transferred.
- Learning is a process by which repetition and experimentation enable tasks to be
performed better and quicker. Learning is a dynamic capability that obviously occurs at
all levels in the structure, but the centre can indirectly influence the learning processes
in SBUs by:
• Encouraging SBUs to devote resources to innovation
• Allowing SBUs time to explore new ideas
• Introducing into SBUs new perspectives and knowledge
• Encouraging experiments and tolerating failures
• Establishing dialogue across SBUs
• Funding R&D at SBU level
Page 2 of 97
, Corporate Strategy and Growth
- It is possible that a quite different governance regime may provoke learning within
SBUs, rather than support or encourage learning. If we bear in mind that resources exist
where firms or SBUs have a competitive advantage over rival firms, it may be that
relative advantage can be created through the elimination of organizational slack.
- Two learning strategies, both driven from the centre, which may result in the creation of
new resources:
1. One that operates through a supportive culture, and;
2. Another that provokes resource creation through tough controls.
- Integration is a type of dynamic capability that concerns the firm’s ability to coordinate
and integrate its resources and assets. The centre can drive resource creation by
recognising where the congruencies and complementarities exist across the
corporation and across the corporation and its clients, by encouraging SBUs to pool
their skills and resources with those of other SBUs teams, or by encouraging cross-
divisional linkages or interactions with clients to settle existing problems or enhance
innovation throughout the corporation.
- The basic dynamic capabilities by which firms alter their resource base into six modes of
corporate resource creation:
1. Reconfiguration of support activities
2. Reconfiguration of core processes
3. Leverage of existing resources
4. Encouraged learning
5. Provoked learning
6. Creative integration
- Design parameters that each mode would require:
• SBU strategic autonomy: the scope and discretion the SBU executives enjoy in
determining aspects of SBU strategy. This can be viewed as a continuum of autonomy.
• SBU similarity: the effectiveness of each mode of resource creation will be moderated
by the extent to which the collection of SBUs is similar.
• Coordination across levels: the degree of coordination that is necessary for the
corporate strategy to be delivered.
• Coordination between SBUs: the requirement for inter-SBU coordination is
determined by the dynamic capability mode adopted.
• Performance measures and SBU orientation: each mode of resource creation is likely
to be associated with a particular relationship between the centre and the SBUs. Central
to this relationship are the performance measures the SBU would be judged on.
Page 3 of 97
, Corporate Strategy and Growth
- In the provoked learning configuration the centre causes SBU resources to be
developed through the setting and administering of tough financial controls:
- In the encouraged learning configuration the centre would be sensitive to the need
for SBUs to invest in the creation of future assets and resources, and the performance
measures and targets set would reflect these concerns:
- In reconfiguring support activities the centre reconfigures loosely coupled support
activities, and conducts these activities on behalf of SBUs (e.g. legal, finance, estates,
PR).
Page 4 of 97
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