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Corporate Strategy and Growth - Summary Session 1-9
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Corporate Strategy and GrowthSummary Sessions 1-9: Videos, Articles and Lecture Notes per Session
,TABLE OF CONTENTS
1. CORPORATE STRATEGY: SELECTION AND SYNERGY ..........................................................................................................................4
1.1. VIDEOS .................................................................................................................................................................... 4
1.1.1. VIDEO 1 – CORPORATE STRATEGY ........................................................................................................................................ 4
1.1.2. VIDEO 2 – THEMES........................................................................................................................................................... 5
1.1.3. VIDEO 3 – SYNERGY.......................................................................................................................................................... 6
1.2. ARTICLES .................................................................................................................................................................. 8
1.2.1. ARTICLE 1 – 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.................................................................................... 8
1.2.2. ARTICLE 2 – COLLIS, D.J. AND C.A. MONTGOMERY (1998). CREATING CORPORATE ADVANTAGE. HARVARD BUSINESS REVIEW, 76 (3): 70-
83. 15
1.3. LECTURE NOTES ....................................................................................................................................................... 19
2. DIVERSIFICATION AND DIVESTMENT .............................................................................................................................................. 21
2.1. VIDEOS .................................................................................................................................................................. 21
2.1.1. VIDEO 1 – DIVERSIFICATION ............................................................................................................................................. 21
2.1.2. VIDEO 2 – DIVESTITURES ................................................................................................................................................. 21
2.2. ARTICLES ................................................................................................................................................................ 23
2.2.1. ARTICLE 1 - DIVESTITURE: STRATEGY’S MISSING LINK ............................................................................................................. 23
2.2.2. ARTICLE 2 – SYNERGY, COORDINATION COSTS AND DIVERSIFICATION CHOICES ............................................................................ 26
2.3. LECTURE NOTES ....................................................................................................................................................... 28
3. THE ROLE OF ORGANIZATION IN CORPORATE STRATEGY ............................................................................................................... 31
3.1. VIDEOS .................................................................................................................................................................. 31
3.1.1. VIDEO 1 – IMPLEMENTATION ............................................................................................................................................ 31
3.1.2. VIDEO 2 – FUNDAMENTS/PRINCIPLES OF ORGANIZATION........................................................................................................ 32
3.2. ARTICLES ................................................................................................................................................................ 34
3.2.1. ARTICLE 1 – CROSS, R., P. GRAY, S. CUNNINGHAM, M. SHOWERS AND R.J. THOMAS (2010). THE COLLABORATIVE ORGANIZATION: HOW
TO MAKE EMPLOYEE NETWORKS REALLY WORK. SLOAN MANAGEMENT REVIEW, 52 (1): 83-90. ..................................................................... 34
3.2.2. ARTICLE 2 – HANSEN, M.T. (2002). KNOWLEDGE NETWORKS: EXPLAINING EFFECTIVE KNOWLEDGE TRANSFER IN MULTIUNIT COMPANIES,
ORGANIZATION SCIENCE, 13 (3): 232-248. ........................................................................................................................................ 36
3.2.3. ARTICLE 3 – KARIM, S. AND A. KAUL (2015). STRUCTURAL RECOMBINATION AND INNOVATION: UNLOCKING INTRAORGANIZATIONAL
KNOWLEDGE SYNERGY THROUGH STRUCTURAL CHANGE. ORGANIZATION SCIENCE, 26 (2): 439-455. ............................................................... 39
3.3. LECTURE NOTES ....................................................................................................................................................... 43
4. CREATING VALUE EXTERNALLY: CHOOSING BETWEEN ALLIANCES AND ACQUISITIONS................................................................... 49
4.1. VIDEOS .................................................................................................................................................................. 49
4.1.1. VIDEO 1 – ALLIANCE & ACQUISITION DEFINITIONS ................................................................................................................ 49
4.1.2. VIDEO 2 – RESOURCE ACCESS: ORGANIC VS. INORGANIC ........................................................................................................ 49
4.1.3. VIDEO 3 – VALUE CREATION LOGICS .................................................................................................................................. 50
4.1.4. VIDEO 4 – GOVERNANCE STRUCTURES ................................................................................................................................ 51
4.2. ARTICLES ................................................................................................................................................................ 53
4.2.1. ARTICLE 1 – DYER, J.H., P. KALE AND H. SINGH. (2004). WHEN TO ALLY AND WHEN TO ACQUIRE? HARVARD BUSINESS REVIEW, 82,
(7/8): 108-115. .......................................................................................................................................................................... 53
4.2.2. ARTICLE 2 – DYER, J.H., H. SINGH AND W.S. HESTERLY (2018). THE RELATIONAL VIEW REVISITED: A DYNAMIC PERSPECTIVE ON VALUE
CREATION AND VALUE CAPTURE. STRATEGIC MANAGEMENT JOURNAL, 39 (4): 3140-3162........................................................................... 55
4.2.3. ARTICLE 3 – HOFFMANN W.H. AND W. SCHAPER-RINKEL. (2001). ACQUIRE OR ALLY? – A STRATEGY FRAMEWORK FOR DECIDING
BETWEEN ACQUISITION AND COOPERATION. MANAGEMENT INTERNATIONAL REVIEW, 41 (2): 131-159. .......................................................... 63
4.3. LECTURE NOTES ....................................................................................................................................................... 70
5. TARGET SELECTION ........................................................................................................................................................................ 76
2
,5.1. VIDEOS .................................................................................................................................................................. 76
5.1.1. VIDEO 1 – ACQUISITION MOTIVES ..................................................................................................................................... 76
5.1.2. VIDEO 2 – DUE DILIGENCE ............................................................................................................................................... 77
4.1.3. VIDEO 3 – STRATEGIC AND ORGANIZATIONAL FIT .................................................................................................................. 79
5.2. ARTICLES ................................................................................................................................................................ 80
5.2.1. ARTICLE 1 – AHAMMAD, M.F. AND K. W. GLAISTER. (2013). THE PRE-ACQUISITION EVALUATION OF TARGET FIRMS AND CROSS BORDER
ACQUISITION PERFORMANCE. INTERNATIONAL BUSINESS REVIEW, 22: 894-904. ......................................................................................... 80
5.2.2. ARTICLE 2 – CULLINN, G., J-M. LE ROUX AND R-M. WEDDIGEN. (2004). WHEN TO WALK AWAY FROM A DEAL. HARVARD BUSINESS
REVIEW, 82 (4): 97-104. ............................................................................................................................................................... 82
5.2.3. ARTICLE 3 – KAUL, A. AND B. WU. (2016). A CAPABILITIES-BASED PERSPECTIVE ON TARGET SELECTION IN ACQUISITIONS. STRATEGIC
MANAGEMENT JOURNAL, 37 (7): 1220-1239. ................................................................................................................................... 84
5.3. LECTURE NOTES ....................................................................................................................................................... 87
6. SKILLS SESSION: PORTFOLIO ANALYSIS ........................................................................................................................................... 91
6.1. SUMMARY BOOK: CAMPBELL, A., M. GOOLD AND M. ALEXANDER (2014). STRATEGY FOR THE CORPORATE LEVEL: WHERE TO INVEST,
WHAT TO CUT BACK AND HOW TO GROW, CHAPTERS 3-5. ............................................................................................................. 91
6.1.1. CHAPTER 3 – HOW TO FIND GOOD BUSINESSES AND AVOID BAD BUSINESSES ............................................................................. 91
6.1.2. CHAPTER 4 – HOW TO MAKE BUSINESSES MORE SUCCESSFUL ................................................................................................. 95
6.1.3. CHAPTER 5 – HOW TO BUY LOW AND SELL HIGH .................................................................................................................. 99
6.2. LECTURE NOTES ..................................................................................................................................................... 102
7. POST-ACQUISITION INTEGRATION ............................................................................................................................................... 104
7.1. VIDEOS ................................................................................................................................................................ 104
7.1.1. VIDEO 1 – PMI INTEGRATION FRAMEWORKS ..................................................................................................................... 104
7.1.2. VIDEO 2 – PMI STRATEGIES ........................................................................................................................................... 105
7.2. ARTICLES .............................................................................................................................................................. 106
7.2.1. ARTICLE 1 – BAUER, F. AND K. MATZLER (2014). ANTECEDENTS OF M&A SUCCESS: THE ROLE OF STRATEGIC COMPLEMENTARITY,
CULTURAL FIT, AND DEGREE AND SPEED OF INTEGRATION. STRATEGIC MANAGEMENT JOURNAL, 35 (2): 269-291. ........................................... 106
7.2.2. ARTICLE 2 – KALE, P., H. SINGH AND A.P. RAMAN (2009). DON’T INTEGRATE YOUR ACQUISITIONS, PARTNER WITH THEM. HARVARD
BUSINESS REVIEW, 87 (12): 109-115. ............................................................................................................................................ 110
7.2.3. ARTICLE 3 – STEIGENBERGER, N. (2017). THE CHALLENGE OF INTEGRATION: A REVIEW OF THE M&A INTEGRATION LITERATURE,
INTERNATIONAL JOURNAL OF MANAGEMENT REVIEWS, 19 (4): 408-431................................................................................................ 113
7.3. LECTURE NOTES ..................................................................................................................................................... 117
8. SKILLS SESSION: VALUATION IN CORPORATE DEVELOPMENT ....................................................................................................... 120
8.1. VIDEOS ................................................................................................................................................................ 120
8.1.1. VIDEO 1 – VALUATION INTRO ......................................................................................................................................... 120
8.2. ARTICLES .............................................................................................................................................................. 126
8.2.1. ARTICLE 1 – BROTHERSON, W.T., K.M. EADES, R.S. HARRIS AND R.C. HIGGINS (2013). “BEST PRACTICES” IN ESTIMATING THE COST OF
CAPITAL: AN UPDATE. JOURNAL OF APPLIED FINANCE, 23 (1): 15-33. .................................................................................................... 126
8.2.2. ARTICLE 2 – BROTHERSON, W.T., K.M. EADES, R.S. HARRIS AND R.C. HIGGINS (2014). COMPANY VALUATION IN MERGERS AND
ACQUISITIONS: HOW IS DISCOUNTED CASH FLOW APPLIED BY LEADING PRACTITIONERS? JOURNAL OF APPLIED FINANCE, 24 (2), 43-51.................. 130
8.3. LECTURE NOTES ..................................................................................................................................................... 133
9. GUEST LECTURE – ARJAN GROEN, EY ............................................................................................................................................ 137
3
,1. Corporate Strategy: Selection and Synergy
1.1. Videos
1.1.1. Video 1 – Corporate Strategy
Business strategy: decisions about how to compete in a business, creating competitive
advantage. Competitors are main rivals in the industry.
Corporate strategy: decisions about in which businesses we compete, creating corporate
advantage. Seeks to enhance the value of all businesses of a company together. Competitors
are those that can assemble the same portfolio.
Two mechanisms:
- A selection mechanism – portfolio assembly;
o Decisions about in which businesses to be active;
o Decisions about which businesses to jointly own.
- A synergy mechanism – business modification;
o Decisions about inter-business activities;
o Decisions about which business to jointly operate.
These mechanisms can be plotted along two axes of a matrix:
- Vertical axis: jointly own;
- Horizontal axis: jointly operate.
Corporate advantage: more value can be created
from owning both. An investor could bring the same
businesses together with the same call.
Traditionally, corporate strategy functioned mainly as
a selection mechanism. Nowadays, corporate
strategy is much more and increasingly viewed as a
synergy mechanism.
Variance decomposition studies: explain which percentage of firm performance can be
attributed to industry, business and corporate effects.
4
,Even though studies used different methods and samples, corporate effects vis-à-vis business
and industry have become larger in explaining firm performance, most likely due to synergy
driven decisions.
Corporate strategy: the way in which a company
creates value through the coordination and
configuration of its multi-business activities.
Companies decide which businesses they control
and how they create competitive advantage.
1.1.2. Video 2 – Themes
Corporate strategy functions along two mechanisms:
- Selection mechanism;
o Shape boundaries of firms and the level of diversification.
- Synergy mechanism;
o Focus on synergies between businesses and units and innovation.
Corporate strategy shapes firm boundaries. By selecting in which
businesses to be active, strategists must also decide what and what
not the firm will own. What constitutes the corporate portfolio of
businesses? The boundaries of a firm are also shaped by organic
and inorganic growth decisions: which resources will we own
ourselves? And which ones will be obtained externally?
Corporate strategy shapes diversification. Traditionally shaped by
product-market-combinations, currently more by business models
(what/who/how).
- Single business vs. multiple businesses;
- Level of relatedness of business.
Corporate strategy shapes synergies. The level of complementarity
of business resources must be considered, as well as how to bring
business resources together. Accessing external resources can be
done through acquisitions and alliances; organic versus inorganic
growth decisions.
Corporate strategy shapes innovation. Integrate corporate-wide
knowledge resources to create new products and services that
cannot be developed without corporate strategy. Furthermore,
organization and coordination of R&D creates synergies too.
Corporate strategy also involves the decision on how to design
knowledge networks.
Corporate strategy decisions must be made based on consideration of all these four areas.
5
,1.1.3. Video 3 – Synergy
Synergy creation and corporate advantage strongly relate. This video focuses on the main
ways in which synergies are created. First, consider the synergy test vs. the corporate
advantage test:
The corporate advantage test assesses whether the net present
value of owning the two businesses is higher than the standalone
value of the two businesses, whereas the synergy test assesses
whether modifying the businesses by combining and integrating
their activities enhances the value. These two dimensions lead
to the following matrix à
Organizations seeking to manage business alignment and create
fit and synergy do so in two main broad ways:
- Cost reducing synergies;
o Goal: create economies of scale and scope.
o Sub-additive, the costs will be lower together (2+2=3)
- Revenue enhancing synergies;
o Goal: create more revenues together.
o Super-additive (2+2=5)
Synergy Operators (4C)
Two dimensions:
- Similarity of resources;
- Modification of resources required. Often resources can’t be combined without
modification.
Four operators:
- Combination:
o No modification needed, similar resources.
o Example: two manufacture facilities that make use of the same inputs but
source it from different suppliers and could use the same supplier instead.
- Connection:
o No modification needed, dissimilar resources.
o Example: Gas stations with supermarket facilities.
- Consolidation:
o Integrate similar resources that need to be modified.
o Example: combination of two manufacturing facilities leads to reduction in the
workforce.
6
, - Customization:
o Modification of dissimilar resources that need to be modified.
o Example: business operating a plant and another business that needs that plant
to produce a certain product. Most likely, the plant and the product features
may need to be altered slightly.
In general, the degree to which the resources are similar determine whether synergies are
cost reducing or revenue enhancing:
- Dissimilar: resource creation synergies.
- Similar: cost reducing.
Modification increased competitive advantage: customization usually requires a rival to
develop a new product, plant and so on. This increases competitive advantage as it becomes
more difficult to imitate the resources.
7
,1.2. Articles
1.2.1. Article 1 – 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.
This article focuses on corporate strategy within confines of the resource-based view (RBV)
and the dynamic capability view (DCV).
The Resource-Based View of The Firm and Competitive Strategy
RBV should be regarded as a theory of competitive strategy. RBV examines the link between
the internal characteristics of a firm and firm performance (VRIN resources). They lead to
rents, that in turn lead to supernormal profits when captured by the firm rather than by
resource suppliers.
- Valuable: resources that generate rents that can be captured by the firm (resources
that are not creating rent are assets). Generate rents through:
o Lowering costs;
o Differentiating products and services.
- Rare: resources that are relatively scarce, generating either superior margins or
superior sales volumes from an equivalent cost base to competitors.
- Inimitable: resources that are hard to replicate.
o Causal ambiguity;
o Information asymmetries;
o Social complexity.
- Non-substitutable: resources that cannot be easily replaced by another resource that
delivers the same effect.
The ‘valuable’ and ‘rare’ criteria are about the identification of resources at a point of time.
Judgements about inimitability and non-substitutability require foresight and an
understanding of how the particular resource was created. They are the two main ex-post
limits to competition.
Resources that pass the VRIN test are involved in delivering competitive advantage to the firm
by either delivering product advantages perceived by customers or they confer process
advantages that result in lower unit costs.
RBV is a static theory, concentrating on identifying resources at one point in time and
addresses how these resources may have been created. DCV focuses attention on the firm’s
ability to renew its resources in line with changes in its environment.
The Dynamic Capability Approach and Corporate Strategy
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 center.
8
,The DCV focuses attention on the firm’s ability to renew its resources in line with changes in
its environment.
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, are embedded in the organization and are
likely to be path-depended resources. Not only SBUs, but also the center may possess
resources. There may be a possible blurring between SBU-level competitive strategy and
corporate level strategy. Because of causal ambiguity we cannot be certain that particular
activities that the center engages will result in the creation of true VRIN resources.
1. Reconfiguration Processes
Reconfiguration processes transform and recombine assets and resources. Two common
forms of reconfiguration:
- Consolidation of support activities:
o Often occurs after an acquisition or merger.
o Resource creation at the center.
- Reconfiguration to achieve scale economies in core processes:
o SBUs to allow one SBU to exploit economies of scale and scope, which other
SBUs can benefit from.
o Confers advantage on the SBUs, even though the resource is controlled and
managed at the center.
o The activity must be capable of being decoupled from other operational
processes at SBU level.
§ Decoupled activities could be finance functions or public relations. The
more operationally integrated the consolidated activity, the more
blurred the distinction between corporate and SBU levels.
Both consolidation of support activities and reconfiguration to achieve scale economies in the
core processes have different implications for the design of the corporate structure.
2. Leveraging existing resources
The center can assist in resource creation by leveraging existing resources by extending the
scope of the resource into other SBUs or market domains: replication. The resource can be
extended at low costs, lower than those required by an individual SBU.
Leverage: special know-how possessed by an individual or a group, which in its current setting
generates rents for an SBU, could be transferred to another SBU, or newly acquired activities
could be located alongside the resource to benefit from it.
The role of the center is to identify the nature of the resource, recognize new opportunities
where the resource may confer advantage and to implement the necessary organizational
changes, or create the conditions whereby the resource can be transferred.
9
, à Where to leverage resources? Resource leverage is a form of related diversification, but
the term ‘related’ may not pertain to the traditional notions of products and markets. There
may be an advantage across a range of SBUs operating in quite different markets.
à Which processes/know-how to leverage? Sometimes the acquiring firm may impose
inferior systems on the acquired firm. An existing resource may be leveraged in two ways:
either the application or scope of the resource is extended into other domains of the
corporation, or the resource is replicated. In order for replication to occur the resource must
be capable of being understood, thus it cannot be causally ambiguous to managers inside the
corporation (although it would still be ambiguous to those external to the firm).
3. Learning
Learning: a process by which repetition and experimentation enable tasks to be performed
better and quicker.
The center 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.
However, a different governance regime may provoke learning within SBUs, rather than
support or encourage learning.
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.
Thus, two learning strategies, both driven from the center, which may result in the creation of
new resources:
- One that operates through a supportive culture;
- One that provokes resource creation through tough controls.
4. Integration
Integration: a type of dynamic capability that concerns the firm’s ability to coordinate and
integrate its resources and assets. Relates to ‘the ways in which the components are
integrated and linked together into a coherent whole’. It can also be about integrating
resources from external sources.
Integration processes and coordination are the main sources of process and product
innovation. They involve combining resources in new ways to alter the firm’s resource base.
Integration can lie within single SBUs, but the center can also drive resource creation by:
- Recognizing where the congruencies and complementarities exist across the
corporation and across the corporation and its clients;
- Encouraging SBUs to pool their skills and resources with those of other SBUs teams;
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