Corporate Strategy and Growth
Session 1: Corporate Strategy - Introduction
- Corporate strategy is not only a matter of selecting in which markets a firm is active,
but increasingly a quest for synergy.
- Synergy has been often regarded with quite some skepticism; most successful firms,
however, derive much value added from synergies, which is shaped by their portfolio of
businesses.
- With industries converging, corporate strategists play a big role in driving innovation.
- Markets become more and more international and competition emerges increasingly
from rivals from foreign countries.
- Organisations - small and big, profit and non-profit, internal and domestic - active in
alliance increasingly form new collaborations with organisations to create opportunities
for growth and competitive advantage in their businesses. Organisations also more
often choose acquisitions.
- On a global scale, corporate growth is experiencing:
• Increased value
• Increased importance
• Substantial problems (high failure rate)
- Variance decomposition studies explain which percentage of firm performance can
be attributed to, typically, industry, business and corporate effects. Over time, variance
decomposition studies have shown that corporate effects vis-a-vis business and industry
effects generally have become larger in explaining firm performance. This is because
synergy has become more important. Successful companies have become more keen
on seeking synergy. Corporate strategy is really driven by creating synergies.
- Corporate strategy:
• Decisions about in which businesses we compete
• About creating corporate advantage
• Competitors are those that can assemble same portfolio
- Business strategy:
• Decisions about in how we compete in a business
• About creating competitive advantage
• Competitors are main rivals in the industry
- Traditionally, corporate strategy was concerned with the decision of in which markets to
compete - corporate strategy was a selection mechanism, for domain selection.
Page 1 of 75
, Corporate Strategy and Growth
Nowadays, corporate strategy is much more and increasingly viewed as a synergy
mechanism.
- As a selection mechanism, corporate strategy shapes the boundaries of a firm and the
level of diversification.
- As a synergy mechanism, corporate strategy shapes synergies between businesses
and innovation.
- Corporate strategy shapes firm boundaries:
• What does the firm own and what not?
• What constitutes the corporate portfolio of businesses?
• Make-or-buy decisions
• In picture:
- Corporate strategy shapes diversification:
• Single business vs. multiple businesses
• Level of relatedness of businesses
• Traditionally firms were shaped by product-market-combinations; currently they are
more shaped by business models (what/where/who)
• In picture:
Page 2 of 75
, Corporate Strategy and Growth
- Corporate strategy shapes synergies:
• Level of complementarity of business resources
• Bringing business resources together (to add more value by what looking happen in
other businesses)
• If businesses are unrelated, the amount of synergies are likely to be a lot less
• In picture:
- Corporate strategy shapes innovation:
• Integrating corporate-wide knowledge resources
• Organising and coordinating R&D
• Accessing external knowledge sources
• In picture:
Page 3 of 75
, Corporate Strategy and Growth
- Corporate strategy is the way a company creates value through the configuration and
coordination of its multi-business activities:
- To hold the potential of sustained competitive advantage, a firm resource must have
four attributes (VRIN): it must be valuable, it must be rare among a firm's current and
potential competitors, it must be imperfectly imitable, and therefore cannot be
strategically equivalent substitutes.
- Each business of a corporation depends on a set of resources for its competitive
advantage, and whether it is able to do so depends on the VRIN criteria:
1. Value
• If it is able to generate rents
• When resource meets market demand
2. Rareness
• If it is not commonly found among rivals
• Leading to superior rents
(V & R determine rent generating potential at a point in time)
3. Inimitability
• If it is difficult to replicate due to causal ambiguity, information asymmetries, and
social complexity
• Requires understanding of nature and history
4. Non-substitutability
• If it cannot be easily replicated
• Requires understanding of the use value
(I & N determine rent generating potential over time)
Page 4 of 75
Session 1: Corporate Strategy - Introduction
- Corporate strategy is not only a matter of selecting in which markets a firm is active,
but increasingly a quest for synergy.
- Synergy has been often regarded with quite some skepticism; most successful firms,
however, derive much value added from synergies, which is shaped by their portfolio of
businesses.
- With industries converging, corporate strategists play a big role in driving innovation.
- Markets become more and more international and competition emerges increasingly
from rivals from foreign countries.
- Organisations - small and big, profit and non-profit, internal and domestic - active in
alliance increasingly form new collaborations with organisations to create opportunities
for growth and competitive advantage in their businesses. Organisations also more
often choose acquisitions.
- On a global scale, corporate growth is experiencing:
• Increased value
• Increased importance
• Substantial problems (high failure rate)
- Variance decomposition studies explain which percentage of firm performance can
be attributed to, typically, industry, business and corporate effects. Over time, variance
decomposition studies have shown that corporate effects vis-a-vis business and industry
effects generally have become larger in explaining firm performance. This is because
synergy has become more important. Successful companies have become more keen
on seeking synergy. Corporate strategy is really driven by creating synergies.
- Corporate strategy:
• Decisions about in which businesses we compete
• About creating corporate advantage
• Competitors are those that can assemble same portfolio
- Business strategy:
• Decisions about in how we compete in a business
• About creating competitive advantage
• Competitors are main rivals in the industry
- Traditionally, corporate strategy was concerned with the decision of in which markets to
compete - corporate strategy was a selection mechanism, for domain selection.
Page 1 of 75
, Corporate Strategy and Growth
Nowadays, corporate strategy is much more and increasingly viewed as a synergy
mechanism.
- As a selection mechanism, corporate strategy shapes the boundaries of a firm and the
level of diversification.
- As a synergy mechanism, corporate strategy shapes synergies between businesses
and innovation.
- Corporate strategy shapes firm boundaries:
• What does the firm own and what not?
• What constitutes the corporate portfolio of businesses?
• Make-or-buy decisions
• In picture:
- Corporate strategy shapes diversification:
• Single business vs. multiple businesses
• Level of relatedness of businesses
• Traditionally firms were shaped by product-market-combinations; currently they are
more shaped by business models (what/where/who)
• In picture:
Page 2 of 75
, Corporate Strategy and Growth
- Corporate strategy shapes synergies:
• Level of complementarity of business resources
• Bringing business resources together (to add more value by what looking happen in
other businesses)
• If businesses are unrelated, the amount of synergies are likely to be a lot less
• In picture:
- Corporate strategy shapes innovation:
• Integrating corporate-wide knowledge resources
• Organising and coordinating R&D
• Accessing external knowledge sources
• In picture:
Page 3 of 75
, Corporate Strategy and Growth
- Corporate strategy is the way a company creates value through the configuration and
coordination of its multi-business activities:
- To hold the potential of sustained competitive advantage, a firm resource must have
four attributes (VRIN): it must be valuable, it must be rare among a firm's current and
potential competitors, it must be imperfectly imitable, and therefore cannot be
strategically equivalent substitutes.
- Each business of a corporation depends on a set of resources for its competitive
advantage, and whether it is able to do so depends on the VRIN criteria:
1. Value
• If it is able to generate rents
• When resource meets market demand
2. Rareness
• If it is not commonly found among rivals
• Leading to superior rents
(V & R determine rent generating potential at a point in time)
3. Inimitability
• If it is difficult to replicate due to causal ambiguity, information asymmetries, and
social complexity
• Requires understanding of nature and history
4. Non-substitutability
• If it cannot be easily replicated
• Requires understanding of the use value
(I & N determine rent generating potential over time)
Page 4 of 75
