A detailed summary of Corporate Strategy and Growth including summaries of all videos, articles, book chapters, and lectures. Includes the following articles: Bowman, C. and V. Ambrosini (2003). How the resource-based and dynamic capability views of the firm inform corporate-level strategy. British...
CORPORATE STRATEGY AND
GROWTH
SESSION 1: SELECTION AND SYNERGY
MAIN TAKEAWAYS
- 4 synergy types driven by similarity for resources and need for modification
- Similarity is not black/white- essentially evert resource is different thus consider the purpose
- Modification increases competitive potential
- Dynamic capabilities central in creating synergy à notably through modification
VIDEO 1: CORPORATE STRATEGY
- In general, corporate strategist deal with specific and unique issues that help organizations become more than the
sum of their parts and derive more value from the portfolio of businesses it is compost of
CORPORATE VS BUSINESS STRATEGY
BUSINESS STRATEGY
- Decisions about how we compete in a business
- About creating competitive advantage
- Competitors are main rivals in the industry
CORPORATE STRATEGY
- Decisions in which businesses we compete – the main selection-
- About creating corporate advantage
·A corporate advantage exists when owning a set of businesses leads to more value and higher returns when
those businesses are not owned by one organization
- Competitors are those that can assemble same portfolio
CORPORATE STRATEGY ACTS ALONG TWO MECHANISMS
SELECTION MECHANISM
- Portfolio assembly
- Decisions about in which businesses to be active
Selection
- Decisions about which businesses to jointly own
SYNERGY MECHANISM
- Business modification
- Decisions about inter-business activities
- Decisions about which businesses to jointly operate
- Traditionally, corporate strategy is functioned mainly as a selection Synergy
mechanism, nowadays, corporate strategy is much more and increasingly
viewed as a synergy mechanism
VARIANCE DECOMPOSITION
- Variance decomposition studies explain which
percentage of firm performance can be
attributed to industry, business, and corporate
effects
- Later country effects are added as multinational
corporates operates businesses internationally,
and thus also experience specific country effects
- Over time, variance decomposition studies have
shown that corporate effects vis-à-vis business
and industry effects generally have become
larger in explaining firm performance – most likely as a result of more synergy driven decisions
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CORPORATE STRATEGY
- The way a company creates value through the configuration and
coordination of its multi-business activities (Collis & Montgomery, 1998)
- Companies decide which businesses they control and how these
businesses create competitive advantage
- To create a value synergy, they coordinate the resources of those
businesses
- To create an implement synergy, they need to use an organisation that
facilitates such synergy and value
CONCLUSION
- Corporate strategy differs from business strategy in that it seeks to enhance the value of all businesses in a company
together, for that organizations select in which businesses they will be active and how they will align them to create
synergies. To make that happen an implementation and organizational structure is needed that provides for the
acquired coordination
VIDEO 2: THEMES
TWO MECHANISMS
SELECTION MECHANISM
- As a selection mechanism, corporate strategy mainly shapes:
- Boundaries of the firm
- Level of diversification
SYNERGY MECHANISM
- As a synergy mechanism, corporate strategy mainly shapes:
- Synergies between businesses
- Innovation
FOUR AREAS OF ATTENTION
AREA OF ATTENTION 1: BOUNDARIES
- In looking for corporate advantage, corporate strategists effectively determine the boundaries of an organization
- By selecting businesses in which they are active, corporate strategists also need to decide which business units to
own and which not- “What activities do we do internally within the organizational boundaries, and which not?”
- Thus, boundary decisions also inform how the corporate portfolio of other businesses looks like
- what does a firm own and what now?
- what constitutes the corporate portfolio of businesses?
- organic vs inorganic + make-or-buy decisions
AREA OF ATTENTION 2: DIVERSIFICATION
- corporate strategists also determine the level of diversification
- What activities need to be done in each business?
- Traditionally shaped by product-market-combinations; currently more by business models (what/who/how)
- single businesses vs multiple businesses
- level of relatedness of businesses
AREA OF ATTENTION 3: SYNERGY
- Looking for synergy advantages, corporate strategists consider the resources used by each business à specifically
the complementarity of the resources of each business
- Level of complementarity of business resources
- Bringing business resources together
- Accessing external resources through acquisitions and alliances – organic vs inorganic growth decisions
AREA OF ATTENTION 4: INNOVATION
- Innovation opportunities reside within a company and through integrating the knowledge from different domains
- integrating corporate-wide knowledge resources – type of synergy
- Organizing and coordinating R&D
- Accessing external knowledge sources
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CONCLUSION
- The four areas also influence one another. What businesses an organization owns, influences the level of
diversification, the relatedness of the diversification shapes synergy potential and innovation potential. Organizations
seeking innovation or synergy advantage through knowledge and resources, may consider acquiring a business
performing activities related to its own activities. Such consideration may also involve decisions to divest the business
that is more remote from core operations and lacks opportunities to create corporate advantage and synergy
advantage.
VIDEO 3: SYNERGY
SYNERGY TEST
CORPORATE ADVANTAGE TEST
- The corporate advantage test assesses whether owning the value of
businesses A and B is higher, then the standalone value of the businesses,
while the synergy tests assesses whether modifying these businesses by
integrating their activities, enhances their value
MAIN SYNERGY APPROACHES
- organizations seeking to manage business alignment, and create fit and synergy do so in two main broad ways
COST REDUCING SYNERGIES
- economies of scale
- subadditive
- 2+2=3 (less costs)
REVENUE ENHANCING SYNERGIES
- superadditive
- 2+2=5 (increase in revenue)
SYNERGY OPERATORS – 4C
- the degree to which resources are
similar tells us if they are cost reducing
or revenue enhancing
- Dissimilar resources drive revenue
enhancing synergies
- Similar resources drive cost reducing
synergies
- Modification generally enhances the
competition potential of a synergy
COMBINATION
- similar resources and low modification
of resources required
- cost reduction
CONNECTION
- dissimilar resources and low
modification of resources required
- Revenue enhancing
CONSOLIDATION
- high modification of resources required and similar resources
- Cost reduction
CUSTOMIZATION
- high modification of resources required and dissimilar resources
- Revenue enhancing
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ARTICLE 1: HOW THE RESOURCE-BASED AND THE DYNAMIC CAPABILITY VIEWS OF
THE FIRM INFORM CORPORATE-LEVEL STRATEGY
INTRODUCTION
- The paper explores whether the resource-based view (RBV) primarily informs our understanding of competitive
strategy or corporate strategy
- It conclude that RBV applies in essence to competitive, rather than corporate strategy. It provides insights into
strategy issues at the level of the strategic business unit (SBU) or individual firm
- However, there are grounds for extending the perspective to address corporate-level concerns- the evolutionary
version of the resource-based view, the ‘dynamic capability view’ - capability building- provides valuable insights into
how SBU and corporate level activity can create new resources
CORPORATE STRATEGY
- The paper builds upon the statement that RBV is not primarily about corporate strategy
THE RESOURCE-BASED VIEW OF THE FIRM AND COMPETITIVE STRATEGY
- RBV examines the link between the internal characteristics of a firm and firm performance
CORE PRINCIPLES
- An organization can be regarded as a bundle of resources
- Resources that are simultaneously valuable, rare, imperfectly imitable, and non-substitutable, are a firm’s main source
of sustainable competitive advantage
- RBV locates the source of superior profitability inside the firm
- Rents accrue to the resources controlled by the firm that meet the VRIN conditions – leading to super normal profits
when captured by the firm rather than by resource suppliers
VALUABLE
- A resource is valuable to the firm if it generates rents that can be captured by the firm
- Resources can enable a firm to be lower cost than rival firms, or they may enable the firm to differentiate its products
or services à thus through shifts in demand, resources can become redundant irrespective of any deliberate
management activity, and through inappropriate management interventions resources can be destroyed
- Resources can also cease being valuable as rent generators through competitor imitation or substitution
RARE
- 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.
- As implied such a resource is not commonly found across other competing firms
- The V and R criteria are about the identification of resources at a point in time. The next two VRIN criteria address the
sustainability of the rent streams flowing from these resources. They are the two main ex-post limits to competition
INIMITABLE
- 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
- These mechanisms protect the organization’s resources from imitation and preserve the stream of rents accruing to
them. Judging imitability requires insight into the nature of the resource, and how it was created
NON-SUBSTITUTABLE
- A resource is said to be non-substitutable if it cannot be easily replaced by another resource that delivers the same
effect
- Assessing substitutability requires an understanding of the use value of the resource - this implies that the role the
resource plays in the value-creation process needs to be well understood
- It is only then that it may be possible to discern alternative or substitute ways in which the effect could be achieved.
SUB-CONCLUSION
- Resources that pass the VRIN test are involved in delivering competitive advantage to the firm, by either delivering
competitive advantage to the firm, by either delivering product advantage perceived by customers or they confer
process advantages that result in lower unit costs
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THE DYNAMIC CAPABILITY APPROACH AND CORPORATE STRATEGY
- Dynamic capability approach 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 – may involve processes of coordination, replication, learning, and reconfiguration
- Dynamic capabilities are built rather than bought and are embedded in the organization
SIX MODES OF CORPORATE RESOURCE CREATION
- reconfiguration of support activities, reconfiguration of core processes, leverage of core processes, encouraged
learning, provoked learning, and creative integration
RECONFIGURATION PROCESSES
- Reconfiguration processes transform and recombine assets and resources
- Common form is consolidation, where similar activities are centralized and rationalized, offering a cost advantage on
SBUs using these resources
- two forms of reconfiguration:
1. Consolidation of support activities
2. Reconfiguration to achieve economies of scale in core processes across SBUs
LEVERAGING EXISTING RESOURCES
- The center can assist in resource creation by leveraging existing resources which can be done by extending the scope
of the resource into other SBUs or market domains à replication
- Example: center may directly control a strong brnad that could be extended across a wider range of products
- The role of the center is to identify the nature of the resources, to 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
- Resource leverage is a form of related diversification
- An existing resource can be leveraged in two ways
1. the application or scope of the resource is extended into other domains of the corporation
2. the resource is replicated
LEARNING
- Learning is 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
· establishing dialogue across SBUs
· funding R&D at SBU level
- two learning strategies:
1. operates through a supportive culture
2. provokes resource creation through tough controls
INTEGRATION
- concerns the firm’s ability to coordinate and integrate its resources and assets
- it relates to the ”ways in which the components are integrated and linked together into a coherent whole”
- Coordination and integration processes are the main sources of process and product innovation – involve combining
resources in new ways to later the firm’s resource base
- This process may lie within single SBUs, but the center can drive resource creation by recognizing where the
congruencies and complementarities exist across the corporation, by encouraging SBUs to pool their skills and
resources with those of other SBUs teams or encouragement of cross-divisional linkages
DESIGN PARAMETERS
- exploration of the structures and processes that would need to be in place in order for the center to develiver each of
these modes
- SBU strategic autonomy, SBU similarity, coordination across levels, coordination between SBUs, performance
measures and SBU orientation
SBU STRATEGIC AUTONOMY
- This parameter refers to the scope and discretion the SBU executives enjoy in determining aspects of SBU strategy
- Can be viewed as a continuum of autonomy
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