CSOD Study Questions (toegang: Merel, JJ, Juul, Mattie, Sophie)
, Week 1: Corporate Strategy and diversification
Question 1.1: What is a corporate strategy, and why do firms need one?
Merel + JJ Short answer
What is corporate strategy?
Corporate strategy
“Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or
goals, and defines the range of businesses the company is to pursue, the kind of economic and human organization
it is or intends to be and the nature of the economic and noneconomic contribution it intends to make to its
shareholders, employees, customers, and communities [Lecture 2,3].” (Andrews in Foss, 1997, p 52.)
Why do firms need one?
To know where to compete and to know how the business strategy of individual units should be integrated and
managed.
Compleet info
Corporate strategy is about where do we compete, in terms of products geographical and customer. We define the
boundaries? Business strategy is about how do we compete and how do we get competitive advantage
Corporate strategy
“Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or
goals, and defines the range of businesses the company is to pursue, the kind of economic and human organization it
is or intends to be and the nature of the economic and noneconomic contribution it intends to make to its shareholders,
employees, customers, and communities [Lecture 2,3].” (Andrews in Foss, 1997, p 52.)
What businesses to compete in?
How should the business strategies of the individual units be integrated and managed?
What do we need to value? How do we deliver value? How do we sustain?
The triangle of Corporate Strategy
Corporate strategy is guided by a vision of how a firm, as a whole, creates value. It is a system of interdependent parts
(not a collection of individual parts) and it must be consistent with, and capitalize on, opportunities outside the company.
These elements must be aligned and are the source of corporate advantage! What are the design choices?
Corporate strategy exists of 3 premises:
Competition occurs at the business level
Being part of a diversified company involves inevitable costs for business units
Shareholders can diversify directly at a lower cost
Premises of Corporate Strategy
The central issue in corporate strategy is how the corporation adds competitive value to its businesses by creating
synergies
We use corporate strategy to give direction where we are going, on how we will grow in avenue.
, Question 1.2: What are synergies? How can corporate strategy create positive or negative synergies?
Merel + JJ Short answer
The central issue in corporate strategy is how the corporation adds competitive value to its business by creating
synergies. Synergies are sharing skills and resources, or implementing transfer pricing mechanisms across subsidiaries.
This can be found by
- diversification should be limited to those business with synergy
- the corporate focus should be on exploiting core competences across different businesses
How can CS create positive or negative synergies?
In practice it can be found very difficult to gain benefits from a corporate strategy based on synergy. Porter also
acknowledges that companies find it difficult to gain synergy benefits and that the failure rate is high.
Complete info
Feldman 2021:
Synergies: sharing skills and resources; or implementing transfer pricing mechanisms across subsidiaries
Goold, 1993: How to create positive synergies
Diversification should be limited to those businesses with synergy → Synergy occurs when the performance of a
portfolio of businesses adds up to more than the sum of its parts. The concept of synergy is based in part on economies
of scale.
Transnational or horizontal or post-entrepreneurial organizations, by definition, capture many synergy benefits because
they have the organizational capabilities to manage complex interrelationships across businesses
the corporate focus should be on exploiting core competences across different businesses → this can be seen as a
particular case of synergy, with corporate value creation dependent on exploiting unique skills & capabilities across a
portfolio business
The central issue in corporate strategy is how the corporation adds competitive value to its businesses by creating
synergies.
Synergy has become virtually synonymous with corporate-level strategy.
Michael Porter views the management of interrelationships between businesses as the essence of corporate-level
strategy, arguing that without synergy a diversified company is little more than a mutual fund.
Rosabeth Moss Kanter, too, argues that the achievement of synergy is the only justification for a multi-business
company.
In a review of the literature on mergers, Friedrich Trautwein, a German academic, found that managers almost always
justified diversification moves in terms of the synergies available, and that most of the advice in the management
literature on diversification was based on the concept of realizing synergies.
In practice it can be found very difficult to gain benefits from a corporate strategy based on synergy. Porter also
acknowledges that companies find it difficult to gain synergy benefits and that the failure rate is high.
The assumption that synergy is the only rationale for a group of companies does not fit the available evidence, and this
suggests that not all corporations need to focus on constructing and managing portfolios of interrelated businesses.
Managing complex interrelationships to create synergies across business is not the only means of creating value .
