Summary Corporate Strategy and Growth
Module 1
HOW THE RESOURCE-BASED AND THE DYNAMIC CAPABLITY VIEWS OF THE FIRM INFORM CORPORATE-
LEVEL STRATEGY
A corporation consists of two levels of activity: 1) semi-automonous SBUs engaged in the production of
goods and services (may be related in some ways, but it’s assumed that they supply different groups of
products to different markets), and 2) the corporate centre or headquarters, which is not involved directly
in the provision of products; its role is to oversee, support or augment the primary activities of the SBUs.
The resource-based view essentially addresses issues of competitive strategy (SBUs), but by integrating
some arguments from its 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.
Resource-based view: an organization can be regarded as a bundle of resources and resources that are
simultaneously valuable (generate rent by lowering costs or increasing revenues), rare, imperfectly
imitable (due to causal ambiguity or information asymmetries) and non-substitutable are a firm’s main
source of sustainable competitive advantage. V and R determine rent at a point in time, whereas I and N
determine it over time. The RBV looks at how resources were created, whereas the dynamic capability
view focuses on the capacity an organization facing a rapidly changing environment has to create new
resources, to renew or alter its resource mix. The primary ways in which the corporate centre can add value
can be explored from a DCV perspective (although SBUs may have dynamic capabilities of their own).
Dynamic capabilities refer to the firm’s ability to alter the resource base by creating, integrating,
recombining and releasing resources through processes of coordination, replication, learning and
reconfiguration. Are likely to be path dependent routines (difficult to imitate). Corporate activities that
should create assets for the corporation, and that may result in new resources:
1. Reconfiguration: transforming and recombining resources by consolidation (centralization) of support
activities and by achieving economies of scale in core processes across BUs. The activities that are
combined must be performed in similar ways across the units, and the activity must be capable of being
decoupled from other operational processes at SBU level. If SBU managers deem the corporately provided
activities as not suitable for their needs, and therefore they have to duplicate these costs at SBU level, the
centre activity is actually destroying value. – could lower SBU autonomy, increases needed coordination
across levels. The more vertical integration involved, the more there would be a need for coordination
between SBUs. Only partial profit accountability can be expected from SBUs as their autonomy is
constrained by the requirement to utilize centralized activities.
2. Leveraging: extending the scope of the resource into other SBUs or replication at low costs. E.g., strong
brand or expertise. 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. The role of the centre is to identify the
nature of the resource, 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 without diminishing its value. Targets for the leverage modes should encourage the sharing of
knowhow and the free flow of information.
3. Learning: encouraging creation of new resources (by supporting innovation, allowing time for
exploration, introducing new knowledge, encouraging experimentation, and funding R&D) and provoking
resource creation through tough performance controls that can only be achieved through the ruthless
elimination of waste activities and costs. Repetition and experimentation enable tasks to be performed
better and quicker. Provoked learning: the centre is relatively small, there is no requirement for
coordination between SBUs, relationships between the centre and SBUs will be ‘arms length’ based on
financial performance targets, and emphasis will be on short-term profit performance.
4. Integration: coordinating and integrating (linking) resources by pooling resources of different BUs and by
,encouraging cross-BU collaboration. – could lower SBU autonomy, increases needed coordination across
levels, requires ongoing coordination across collaborating SBUs
The effectiveness of each mode of resource creation will be moderated by the extent to which the
collection of SBUs is similar. Trying to combine modes is likely to cause tensions and compromises that the
centre would need to manage, since each configuration will require different organizational processes,
divisions of responsibilities, SBU and centre competences etc.
6 corporate strategies: reconfiguration of support activities; reconfiguration of core processes; leverage of
existing resources; encouraged learning; provoked learning; creative integration.
Key parameters in designing corporate structures: SBU strategic autonomy; SBU similarity; coordination
across levels; coordination between SBUs; performance measures and SBU orientation.
CREATING CORPORATE ADVANTAGE
Corporate advantage=the way a company creates value through the configuration and coordination of its
multi-business activities. Corporate strategy entails aligning 3 elements: resources, businesses, and
organization. Resources range along a continuum from highly specialized to general. A corporation’s
location on the continuum constrains the set of businesses it should compete in and limits its choices about
the design of the organization. General (specialized): wide (narrow) scope, transferring (sharing) resources
(coordination), financial (operating) control systems, and small (large) corporate office. In fast-moving
industries with high levels of uncertainty, of when units’ results are interdependent, financial control is less
suitable (out of manager’s control).
Companies often err by expanding into market segments that appear to be related existing business (in
terms of products), but are quite different (in terms of resources). Relatedness should be defined according
to resources instead of product characteristics.
Public goods can be used in several businesses simultaneously without conflict (e.g. brand name, best
practices). Can be transferred with little intervention and coordination. Challenge to develop and preserve;
who is responsible? Private goods are more difficult to manage and can lead to competition and conflicts
(e.g. sales force or manufacturing facility). Require more coordination because the use by one unit can
affect the use by another. Takes long to make agreement.
CHAPTER 1
Conglomerate=multi-business corporations where the collection of industries is so diverse that it shows
little coherence
CHAPTER 2
Economies of scope=producing different products together leads to lower average than if those products
had been produced separately.
VIDEO CORPORATE STRATEGY + THEMES
Corporate strategy acts along 2 mechanisms:
1) selection of in which businesses to be active and which businesses to jointly own (portfolio assembly).
Shapes boundaries of the firm (make-or-buy, (in)organic growth) and level of diversification
(what/who/how).
, 2) a synergy mechanism about inter-business activities and which businesses to jointly operate (business
modification). Focuses on synergies between businesses and innovation (specific type of synergy).
Complementarity of resources.
LECTURE + VIDEO SYNERGIES
Combination: 2 businesses using the same inputs for manufacturing but with different suppliers -> combine
to increase bargaining power. Acquire competitor and increase prices -> bargaining power with customers.
Connection: gas station + supermarket. Bundling, cross-selling.
Consolidation: combining 2 manufacturing facilities leads to reduction in workforce. Or requires
modification to production plant. Eliminate redundancies.
Customization: company designing product with new technology needs the production plants of another
company to produce its products. The plant needs to be modified (and product perhaps also slightly). Or
transferring best practices. Or compatibility between software and mobile phone company. High
modification increases competitive potential because it’s difficult to imitate.
Module 2
DIVESTITURE: STRATEGY’S MISSING LINK
Regularly divesting businesses (even healthy ones) ensures that remaining units reach their full potential
and that the overall company grows stronger. The proceeds can be used to invest in high-growth
opportunities. Can also be used to reshape the company (focus on different market). Companies that
actively manage their business portfolios through both acquisitions and divestitures create more
shareholder value than passive managers or managers that focus on just one of those. However, there’s a
strong bias against divestiture: most companies acquire more businesses than they sell. Additionally, most
divestitures are reactive. They are also delayed for as long as possible. This is because divestiture is seen as
a signal of weakness and failure, whereas acquisition signals strength. Resistance can occur when units are
successful, generate substantial cash flows, deliver marketplace advantages, and when there’s strong
sentimental attachment.
3 forms of costs for holding on to a unit:
1. Costs to the corporation: the stability provided by well-established, profitable businesses can dull its
desire to create new, high-growth businesses. Long-held units may provide the cash that allow a
corporation to thrive today, but can hinder it from preparing for a prosperous tomorrow. Additionally,
companies dominated by mature, low-growth businesses often develop inflexible, risk-averse cultures that
stifle innovation and make it difficult to attract entrepreneurial talent. Could also confuse investors.
Besides, long-held units can also usurp more resources than they merit; executive teams only have time to
manage a limited number of businesses. Finally, the wrong mix of businesses can confuse customers/lead
to conflicts of interest.
2. Costs to the unit: it’s rare for a parent to have the expertise required to help a business through every
stage of its life cycle (launch, growth, maturity). When a corporate parent stops adding distinct-value but
refuses to let it go, this may be harming the unit’s prospects and undermining morale.
Module 1
HOW THE RESOURCE-BASED AND THE DYNAMIC CAPABLITY VIEWS OF THE FIRM INFORM CORPORATE-
LEVEL STRATEGY
A corporation consists of two levels of activity: 1) semi-automonous SBUs engaged in the production of
goods and services (may be related in some ways, but it’s assumed that they supply different groups of
products to different markets), and 2) the corporate centre or headquarters, which is not involved directly
in the provision of products; its role is to oversee, support or augment the primary activities of the SBUs.
The resource-based view essentially addresses issues of competitive strategy (SBUs), but by integrating
some arguments from its 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.
Resource-based view: an organization can be regarded as a bundle of resources and resources that are
simultaneously valuable (generate rent by lowering costs or increasing revenues), rare, imperfectly
imitable (due to causal ambiguity or information asymmetries) and non-substitutable are a firm’s main
source of sustainable competitive advantage. V and R determine rent at a point in time, whereas I and N
determine it over time. The RBV looks at how resources were created, whereas the dynamic capability
view focuses on the capacity an organization facing a rapidly changing environment has to create new
resources, to renew or alter its resource mix. The primary ways in which the corporate centre can add value
can be explored from a DCV perspective (although SBUs may have dynamic capabilities of their own).
Dynamic capabilities refer to the firm’s ability to alter the resource base by creating, integrating,
recombining and releasing resources through processes of coordination, replication, learning and
reconfiguration. Are likely to be path dependent routines (difficult to imitate). Corporate activities that
should create assets for the corporation, and that may result in new resources:
1. Reconfiguration: transforming and recombining resources by consolidation (centralization) of support
activities and by achieving economies of scale in core processes across BUs. The activities that are
combined must be performed in similar ways across the units, and the activity must be capable of being
decoupled from other operational processes at SBU level. If SBU managers deem the corporately provided
activities as not suitable for their needs, and therefore they have to duplicate these costs at SBU level, the
centre activity is actually destroying value. – could lower SBU autonomy, increases needed coordination
across levels. The more vertical integration involved, the more there would be a need for coordination
between SBUs. Only partial profit accountability can be expected from SBUs as their autonomy is
constrained by the requirement to utilize centralized activities.
2. Leveraging: extending the scope of the resource into other SBUs or replication at low costs. E.g., strong
brand or expertise. 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. The role of the centre is to identify the
nature of the resource, 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 without diminishing its value. Targets for the leverage modes should encourage the sharing of
knowhow and the free flow of information.
3. Learning: encouraging creation of new resources (by supporting innovation, allowing time for
exploration, introducing new knowledge, encouraging experimentation, and funding R&D) and provoking
resource creation through tough performance controls that can only be achieved through the ruthless
elimination of waste activities and costs. Repetition and experimentation enable tasks to be performed
better and quicker. Provoked learning: the centre is relatively small, there is no requirement for
coordination between SBUs, relationships between the centre and SBUs will be ‘arms length’ based on
financial performance targets, and emphasis will be on short-term profit performance.
4. Integration: coordinating and integrating (linking) resources by pooling resources of different BUs and by
,encouraging cross-BU collaboration. – could lower SBU autonomy, increases needed coordination across
levels, requires ongoing coordination across collaborating SBUs
The effectiveness of each mode of resource creation will be moderated by the extent to which the
collection of SBUs is similar. Trying to combine modes is likely to cause tensions and compromises that the
centre would need to manage, since each configuration will require different organizational processes,
divisions of responsibilities, SBU and centre competences etc.
6 corporate strategies: reconfiguration of support activities; reconfiguration of core processes; leverage of
existing resources; encouraged learning; provoked learning; creative integration.
Key parameters in designing corporate structures: SBU strategic autonomy; SBU similarity; coordination
across levels; coordination between SBUs; performance measures and SBU orientation.
CREATING CORPORATE ADVANTAGE
Corporate advantage=the way a company creates value through the configuration and coordination of its
multi-business activities. Corporate strategy entails aligning 3 elements: resources, businesses, and
organization. Resources range along a continuum from highly specialized to general. A corporation’s
location on the continuum constrains the set of businesses it should compete in and limits its choices about
the design of the organization. General (specialized): wide (narrow) scope, transferring (sharing) resources
(coordination), financial (operating) control systems, and small (large) corporate office. In fast-moving
industries with high levels of uncertainty, of when units’ results are interdependent, financial control is less
suitable (out of manager’s control).
Companies often err by expanding into market segments that appear to be related existing business (in
terms of products), but are quite different (in terms of resources). Relatedness should be defined according
to resources instead of product characteristics.
Public goods can be used in several businesses simultaneously without conflict (e.g. brand name, best
practices). Can be transferred with little intervention and coordination. Challenge to develop and preserve;
who is responsible? Private goods are more difficult to manage and can lead to competition and conflicts
(e.g. sales force or manufacturing facility). Require more coordination because the use by one unit can
affect the use by another. Takes long to make agreement.
CHAPTER 1
Conglomerate=multi-business corporations where the collection of industries is so diverse that it shows
little coherence
CHAPTER 2
Economies of scope=producing different products together leads to lower average than if those products
had been produced separately.
VIDEO CORPORATE STRATEGY + THEMES
Corporate strategy acts along 2 mechanisms:
1) selection of in which businesses to be active and which businesses to jointly own (portfolio assembly).
Shapes boundaries of the firm (make-or-buy, (in)organic growth) and level of diversification
(what/who/how).
, 2) a synergy mechanism about inter-business activities and which businesses to jointly operate (business
modification). Focuses on synergies between businesses and innovation (specific type of synergy).
Complementarity of resources.
LECTURE + VIDEO SYNERGIES
Combination: 2 businesses using the same inputs for manufacturing but with different suppliers -> combine
to increase bargaining power. Acquire competitor and increase prices -> bargaining power with customers.
Connection: gas station + supermarket. Bundling, cross-selling.
Consolidation: combining 2 manufacturing facilities leads to reduction in workforce. Or requires
modification to production plant. Eliminate redundancies.
Customization: company designing product with new technology needs the production plants of another
company to produce its products. The plant needs to be modified (and product perhaps also slightly). Or
transferring best practices. Or compatibility between software and mobile phone company. High
modification increases competitive potential because it’s difficult to imitate.
Module 2
DIVESTITURE: STRATEGY’S MISSING LINK
Regularly divesting businesses (even healthy ones) ensures that remaining units reach their full potential
and that the overall company grows stronger. The proceeds can be used to invest in high-growth
opportunities. Can also be used to reshape the company (focus on different market). Companies that
actively manage their business portfolios through both acquisitions and divestitures create more
shareholder value than passive managers or managers that focus on just one of those. However, there’s a
strong bias against divestiture: most companies acquire more businesses than they sell. Additionally, most
divestitures are reactive. They are also delayed for as long as possible. This is because divestiture is seen as
a signal of weakness and failure, whereas acquisition signals strength. Resistance can occur when units are
successful, generate substantial cash flows, deliver marketplace advantages, and when there’s strong
sentimental attachment.
3 forms of costs for holding on to a unit:
1. Costs to the corporation: the stability provided by well-established, profitable businesses can dull its
desire to create new, high-growth businesses. Long-held units may provide the cash that allow a
corporation to thrive today, but can hinder it from preparing for a prosperous tomorrow. Additionally,
companies dominated by mature, low-growth businesses often develop inflexible, risk-averse cultures that
stifle innovation and make it difficult to attract entrepreneurial talent. Could also confuse investors.
Besides, long-held units can also usurp more resources than they merit; executive teams only have time to
manage a limited number of businesses. Finally, the wrong mix of businesses can confuse customers/lead
to conflicts of interest.
2. Costs to the unit: it’s rare for a parent to have the expertise required to help a business through every
stage of its life cycle (launch, growth, maturity). When a corporate parent stops adding distinct-value but
refuses to let it go, this may be harming the unit’s prospects and undermining morale.
