Corporate Level Strategy
323038-M-6
2021/2022
SESSION 1
Corporate Strategy: Past, present and future - Feldman
● Corporate strategy related to the Resource-Based-View (RBV) perspective. It studies how
managers set and oversee the scope of their firms - how do managers determine which
businesses belong within their firms and which do not. What transactions (M&A, alliances
etc.) do they undertake to achieve that scope, how do they allocate resources among
businesses and how to coordinate or promote interdependencies across businesses.
● Corporate strategy is different from competitive strategy, which tries to analyze how markets,
resources, technologies and organizations might explain differences in performance
● Feldman says corporate strategy is made of three components:
○ Managers coordinate resources within the boundaries of their firms
(intra-organizational)
■ About how resources are used and deployed within the boundaries of the
firms
○ Managers coordinate relationship with other companies across the boundaries of their
firms (inter-organizational)
■ About developing intra-organizational routines and learning from other firms
○ Managers decide which businesses belong within the boundaries of their firms and
which ones do not (extra-organizational)
■ About whether to implement M&A, divestitures or more.
In Class Notes
Corporate strategy, what is it about?
● New business and entry mode choices
● How to coordinate the various businesses in business portfolio
● Creation of synergies between various businesses to achieve competitive advantage [A+B] >
[A] + [B]
● So basically it is about where to compete, how to organize everything to reach benefits
Corporate strategy different from business strategy
Unit of analysis Choices Type of
advantage
Business Single business Choices Competitive ex: GE’s
strategy unit confined to a strategy strategy in
single market medical devices
Corporate The firm as a Choices about Corporate ex: GE’s
strategy whole multimarket advantage strategy in
(whole business activities medical devices
portfolio) but also in
aircraft engines,
appliances etc.
1
,Corporate growth trap
● We usually think the larger the firm, the better the performance - wrong, there is no systematic
link between the size and profits of a multi-business firm
● Corporate growth aims at increasing corporate profits and profitability, not at increasing
corporate sales per se.
96*9
The cost of corporate growth
● The gains from the corporate expansion must offset the associated costs
○ 1. Expansion costs: any type of growth is extremely costly
○ 2. Coordination costs: managing a big firm is extremely difficult, due to motivation,
coordination, logistics problems, diluted managerial attention, reduced control etc.
○ Expansion performance = new business profits (revenues - costs) + synergies gains
([A+B] > [A] + [B]) + expansion one-off costs + coordination costs
Once a firm decides to expand (corporate growth), there are certain things the firm need to consider:
● 1. Which new assets - Which expansion moves? Where?
○ Where to expand?
■ Expand same business in
the same industry:
example Apple selling
MacBook
■ Expand business in a new
industry: example Apple
selling iPhones
■ Expand to the suppliers
and buyers business:
● example Apple
having AppleStores (for buyers’ side)
● example: Beat Electronics (vertical integration)
○ Expansion moves types:
■ Business development (expand in same industry)
● More of extant resources
■ Horizontal expansion (expanding in new industry)
● Combining extant resources with new resources
● Varying levels of relatedness (close vs distant)
■ Vertical expansion (VE) (vertical integration)
● Internal production of resources formerly obtained on the market
from specialized firms
● Forward vs backward vertical integration
■ Examples:
2
, ● 2. How to obtain them - Which expansion modes? How?
Build Blend Buy
● Greenfields ● Alliances & JVs ● Mergers &
● Corporate ● Equity sharing Acquisitions
venture ● Technology ● Technology
● Internal partnerships licensing
development ● Franchising
● Exports
○ Corporate expansion matrix
Same Upstream or Different Expansion
business Downstream business moves =
activity where?
Build Business Vertical Horizontal
development integration expansion
Blend
Buy
Expansion modes = how?
● 3. How to create corporate value from these assets - Which corporate benefits? Why?
Which growth strategy (=9 options) for what kind of corporate benefits (=3 options?)
3
, ● Logics for corporate growth
Expansion moves Business Horizontal Vertical expansion
(row)/Sources for development expansion
synergies (column)
Decreased input Increased bargaining -Increased Access to cheaper
costs power in input bargaining power on inputs (over market
suppliers suppliers of shared transactions):
inputs -Raw material
components
-Financial resources
Decreased Scale economies ( Scope economies ( -Technical
production cost Fixed cost offsetting Fixed costs integration-based
productive offsetting on shared economies
resources) productive -Also, information
resources) based scale
Tangible: Machines economies
Intangible: Skills
Increased revenues Increased market -Higher prices: -Reputational effects
power on output increase market in downstream areas
buyers power or WTP
integration and
reputation
● Examples of logistic:
Business Horizontal Vertical expansion
development expansion
Decreased input 1999: Acquisition of 1930 Unilever: -Total’s expansion
costs Nissan by Renault merger Lever from all distribution
(Sample supplier) Brothers (soap) + into oil exploration
margarine Unie (cheaper internal
(margarine) - same inputs)
suppliers -Private equity firms
etc (access to fin.
resources)
Decreased Acquisition of KraftHeinz -Samsung from chip
production cost Skoda by VW (some (combination of to phone (
engines, chassis) logistics - same integration tech
tangibles) economes
- Zara vertical
expansion (
information scale
economies)
4
323038-M-6
2021/2022
SESSION 1
Corporate Strategy: Past, present and future - Feldman
● Corporate strategy related to the Resource-Based-View (RBV) perspective. It studies how
managers set and oversee the scope of their firms - how do managers determine which
businesses belong within their firms and which do not. What transactions (M&A, alliances
etc.) do they undertake to achieve that scope, how do they allocate resources among
businesses and how to coordinate or promote interdependencies across businesses.
● Corporate strategy is different from competitive strategy, which tries to analyze how markets,
resources, technologies and organizations might explain differences in performance
● Feldman says corporate strategy is made of three components:
○ Managers coordinate resources within the boundaries of their firms
(intra-organizational)
■ About how resources are used and deployed within the boundaries of the
firms
○ Managers coordinate relationship with other companies across the boundaries of their
firms (inter-organizational)
■ About developing intra-organizational routines and learning from other firms
○ Managers decide which businesses belong within the boundaries of their firms and
which ones do not (extra-organizational)
■ About whether to implement M&A, divestitures or more.
In Class Notes
Corporate strategy, what is it about?
● New business and entry mode choices
● How to coordinate the various businesses in business portfolio
● Creation of synergies between various businesses to achieve competitive advantage [A+B] >
[A] + [B]
● So basically it is about where to compete, how to organize everything to reach benefits
Corporate strategy different from business strategy
Unit of analysis Choices Type of
advantage
Business Single business Choices Competitive ex: GE’s
strategy unit confined to a strategy strategy in
single market medical devices
Corporate The firm as a Choices about Corporate ex: GE’s
strategy whole multimarket advantage strategy in
(whole business activities medical devices
portfolio) but also in
aircraft engines,
appliances etc.
1
,Corporate growth trap
● We usually think the larger the firm, the better the performance - wrong, there is no systematic
link between the size and profits of a multi-business firm
● Corporate growth aims at increasing corporate profits and profitability, not at increasing
corporate sales per se.
96*9
The cost of corporate growth
● The gains from the corporate expansion must offset the associated costs
○ 1. Expansion costs: any type of growth is extremely costly
○ 2. Coordination costs: managing a big firm is extremely difficult, due to motivation,
coordination, logistics problems, diluted managerial attention, reduced control etc.
○ Expansion performance = new business profits (revenues - costs) + synergies gains
([A+B] > [A] + [B]) + expansion one-off costs + coordination costs
Once a firm decides to expand (corporate growth), there are certain things the firm need to consider:
● 1. Which new assets - Which expansion moves? Where?
○ Where to expand?
■ Expand same business in
the same industry:
example Apple selling
MacBook
■ Expand business in a new
industry: example Apple
selling iPhones
■ Expand to the suppliers
and buyers business:
● example Apple
having AppleStores (for buyers’ side)
● example: Beat Electronics (vertical integration)
○ Expansion moves types:
■ Business development (expand in same industry)
● More of extant resources
■ Horizontal expansion (expanding in new industry)
● Combining extant resources with new resources
● Varying levels of relatedness (close vs distant)
■ Vertical expansion (VE) (vertical integration)
● Internal production of resources formerly obtained on the market
from specialized firms
● Forward vs backward vertical integration
■ Examples:
2
, ● 2. How to obtain them - Which expansion modes? How?
Build Blend Buy
● Greenfields ● Alliances & JVs ● Mergers &
● Corporate ● Equity sharing Acquisitions
venture ● Technology ● Technology
● Internal partnerships licensing
development ● Franchising
● Exports
○ Corporate expansion matrix
Same Upstream or Different Expansion
business Downstream business moves =
activity where?
Build Business Vertical Horizontal
development integration expansion
Blend
Buy
Expansion modes = how?
● 3. How to create corporate value from these assets - Which corporate benefits? Why?
Which growth strategy (=9 options) for what kind of corporate benefits (=3 options?)
3
, ● Logics for corporate growth
Expansion moves Business Horizontal Vertical expansion
(row)/Sources for development expansion
synergies (column)
Decreased input Increased bargaining -Increased Access to cheaper
costs power in input bargaining power on inputs (over market
suppliers suppliers of shared transactions):
inputs -Raw material
components
-Financial resources
Decreased Scale economies ( Scope economies ( -Technical
production cost Fixed cost offsetting Fixed costs integration-based
productive offsetting on shared economies
resources) productive -Also, information
resources) based scale
Tangible: Machines economies
Intangible: Skills
Increased revenues Increased market -Higher prices: -Reputational effects
power on output increase market in downstream areas
buyers power or WTP
integration and
reputation
● Examples of logistic:
Business Horizontal Vertical expansion
development expansion
Decreased input 1999: Acquisition of 1930 Unilever: -Total’s expansion
costs Nissan by Renault merger Lever from all distribution
(Sample supplier) Brothers (soap) + into oil exploration
margarine Unie (cheaper internal
(margarine) - same inputs)
suppliers -Private equity firms
etc (access to fin.
resources)
Decreased Acquisition of KraftHeinz -Samsung from chip
production cost Skoda by VW (some (combination of to phone (
engines, chassis) logistics - same integration tech
tangibles) economes
- Zara vertical
expansion (
information scale
economies)
4
