Corporate Strategy (MST014)
Complete Exam Summary
All sessions (1–11) – Theories, frameworks, tools, assigned articles and exam preparation
Radboud University – Nijmegen School of Management – 2026
Based on the lecture slides, the assigned textbook (Campbell, Whitehead, Alexander & Goold, Strategy for the
Corporate Level, 2nd ed. – “SCL”) and the assigned articles
,Contents
• Session 1: Introduction to the Corporate Strategy Course
• Session 2: Case 1 – Changing Perspectives (Climatools)
• Session 3: Corporate Growth Strategies
• Session 4: Clinic Case 2 – TenneT: An Ecosystem Perspective
• Session 5: Diversification – Where to Invest and What to Avoid
• Session 6: Charting the Uncharted
• Session 7: Acquisition versus Divestment Choices
• Session 8: Corporate Crisis
• Session 9: Corporate Guests – Academia Meets Practice
• Session 10: Dragons Den with TenneT
• Session 11: Course Wrap-Up and Exam Preparation
Session 1: Introduction to the Corporate Strategy Course
Read: Course syllabus, SCL Chapters 1 & 2.
What Is Corporate Strategy?
Definition (Montgomery & Collis, 1997; SCL Ch. 1): “Corporate strategy is the way a company creates value
through the configuration and coordination of its multimarket activities.”
• Value creation – the ultimate purpose; everything else is a means to this end.
• Configuration – the multimarket scope of the company: which product, geographic and vertical
markets it competes in.
• Coordination – how the firm manages and links its businesses together.
In short: where a company competes (configuration) and how its parts are held together (coordination),
aimed at value creation.
Typical questions corporate strategy tries to answer (Lecture slide 28):
• Why do firms exist at all, and what are “firm resources”? How can resources be developed or
acquired?
• Why do multi-product, multi-location, multi-business firms exist – and how do they create (or
destroy) value?
• What determines the boundaries of the firm, and how do we govern the firm given those
boundaries?
• How are multi-business firms actually managed?
• Does corporate strategy differ between economic up- and downturns?
Corporate Purpose, Mission, Vision and Strategy
The “playground of strategy” links four elements:
• Mission – why we’re in business (present-oriented).
• Vision – where we want to be (future-oriented).
• Strategy – the route map for getting there.
• Values – the enduring principles underpinning the above.
Corporate purpose (added more recently, Lecture slide 22): the reason a firm exists beyond profit
maximisation – “a concrete goal or objective beyond profit” (Morrison & Mota, 2021) or “solving problems
profitably, rather than profiting from problems” (Mayer, 2021). Distinguished from CSR (a peripheral moral
responsibility) and sustainability (balancing ecological/societal/political systems). The classical (shareholder-
primacy) view treats profit as the firm’s raison d’être; an emerging view sees purpose as something that can
harmonise economic and social value creation.
,Two Levels of Strategy
• Business-level (competitive) strategy – how to build advantage within one business (low cost,
differentiation, focus).
• Corporate-level strategy – how to create value for the corporation as a whole (portfolio strategy &
parenting).
Why Multi-Business Firms Exist (Ansoff, 1957)
Single-business advantages: unified focus; greater control; agility; optimised resources.
Single-business disadvantages: “all eggs in one basket”; growth stalls if the industry stagnates; high
exposure to changing customer needs or new technology; risk of a substitute making the business obsolete.
These disadvantages are essentially why firms diversify – though diversifying brings its own management
challenge (the rest of the course).
The Three Logics
Every corporate portfolio decision rests on three logics – a defensible strategy needs a position on all three,
not just one:
• Business logic – is the market attractive, and does the business have competitive advantage in it?
• Added value / parenting logic – can the parent add value beyond what the business would achieve
standalone?
• Capital markets logic – is the business priced above or below the NPV of its future cash flows?
Four Historical Schools of Thought (SCL Ch. 2)
• Professional management school – superior general-management skill applies across businesses;
underpinned the 1960s conglomerate wave (ITT, Textron) until the 1969–70s crisis exposed its limits.
• Portfolio planning school – hold a balanced mix of businesses; produced the BCG matrix (market
share x growth: stars/cash cows/question marks/dogs) and the GE/McKinsey matrix (business
strength x industry attractiveness) – ancestor of Session 5’s Business Attractiveness matrix.
• Synergy school (Ansoff; Porter; Prahalad & Hamel) – related businesses sharing skills create value
(“sticking to the knitting”; core competences).
• Capital markets school – value from buying undervalued and selling overvalued businesses
(arbitrage).
Synthesis: added-value logic = management + synergy schools; business logic = portfolio planning school;
capital markets logic = capital markets school directly.
Growth: Two Dimensions, Three Modes
• Diversification – new product markets/industries. Internationalization – new geographic markets.
• Organic growth – internal development; full control, slow.
• Acquired growth – M&A; fast, but integration risk and cost.
• Network-based growth – alliances/licensing; low investment, needs coordination.
Developed fully in Session 3 as the “Build, Buy or Ally” decision.
Parenting, Coordination and Scale/Scope
A corporate parent can’t be “all things to all its business units” – each way of adding value needs its own
capability bundle. Three parenting roles: coordinate resources within the firm; coordinate relationships
across firm boundaries; decide which businesses belong inside those boundaries.
• Scale economies – savings from producing more of the same output.
• Scope economies – savings from producing related products together.
,Renewal and the Growth Paradox (brief)
Mature organisations struggle to renew because of path dependency; they need ambidexterity to balance
explorative and exploitative learning. Four ideal renewal routes: emergent, directed, facilitated, and
transformational. The Corporate Growth Paradox: Exploration–Exploitation (optimise current revenue while
disrupting those same assets to reach new markets) and Collaboration–Competition (maximise market share
by competing, while also deeply partnering with rivals in open ecosystems). The Fireground Framework:
organisations, like buildings, usually collapse because of weaknesses that pre-date the “fire,” not because of
the fire itself.
Theoretical lenses to recognise in later readings (Lecture slide 34): Behavioral Theory of the Firm (bounded
rationality, aspiration-level adjustments, “problemistic search”); Network Theory (performance depends on
ties, brokerage, structural holes); the Resource-Based View, dynamic interpretation (capabilities are
historically embedded and can become rigid); Dynamic Capabilities Theory (sensing, seizing, reconfiguring
resources under turbulence); the Evolutionary Theory of the Firm (inertia, variation-selection-retention);
Signaling Theory (communicating quality/intent under uncertainty).
Practice Exam Questions
Q1: A conglomerate’s CEO argues that “corporate strategy is really just the sum of each business unit’s
strategy.” Using Montgomery & Collis’s definition, explain why this view misses the point of corporate
strategy.
Model answer: Corporate strategy is the way a company creates value through the configuration and
coordination of its multimarket activities – it is not the sum of individual business strategies, but decisions
about which markets/businesses the firm should be in (configuration) and how those parts are managed and
linked together (coordination) to create value the businesses couldn’t create alone. Business-level strategy
can answer “how do we win in this one market?” but only corporate strategy can answer “which businesses
should we be in, and how should the parent add value across them?”
Q2: Explain the three logics that must all support a portfolio decision. Give an example of a decision that
could pass the business logic but fail the capital markets logic.
Model answer: Business logic – is the market attractive and does the business have competitive advantage in
it? Added-value/parenting logic – can the parent add value beyond what the business would achieve
standalone? Capital markets logic – is the business priced above or below the NPV of its future cash flows?
Example: acquiring a highly attractive, well-run target in a market the parent can genuinely add value to, but
paying a price above its fair-value corridor – this passes business and added-value logic but fails capital
markets logic, since the firm overpays relative to future cash flows.
Session 2: Case 1 – Changing Perspectives (Climatools)
Read: Case outline (Brightspace). Guest: Climatools CEO Damiaan van der Heijde.
Case-based working session, not a theory lecture: real-life analysis of a resource-based corporate investment
option using Climatools. Practises the general approach to a strategy case (gather, analyse, organise
information top-down). No new examinable theory.
No dedicated practice questions for this session – it introduces no new examinable theory. An exam question
could still ask you to apply an earlier framework (e.g. Session 1’s resource-based logic) to a case-like scenario
resembling Climatools.
Session 3: Corporate Growth Strategies
Read: SCL Chapter 4, and Aalbers, McCarthy & Heimeriks (2021) and Dyer, Kale & Singh (2004).
Four Key Growth Questions
1. What is the appropriate growth target?
, 2. Where and how to look for growth? – this session’s main focus.
3. How to construct a more optimal growth portfolio?
4. How to effectively execute?
“Build/Buy/Ally” = Session 1’s three growth modes, now an active choice made with explicit criteria.
Tool 1 – Business Attractiveness Matrix (preview)
Plots industry profitability against competitive advantage (full chapter in Session 5).
Example – ASML vs. TomTom: ASML – ROI 22%, ROA 18%, margin 56%, strong innovation leadership.
TomTom – ROI 5%, ROA 3%, margin 28%, losing relevance to smartphones/apps.
Tool 2 – The Heartland Matrix (SCL Ch. 4, pp. 99–115)
Plots potential to add value (parent skills/resources) against risk of subtracting value (parent
misunderstanding the business), both as estimated % impact on NPV vs. standalone performance. Five
zones:
• Heartland (low risk, high potential) – good fit. Example: P&G in FMCG, 3M’s coatings-based
products, LVMH’s luxury brands.
• Edge of heartland (default zone for new ventures/acquisitions, hard to predict). Succeeded: HP into
computers, IBM into consulting. Failed: BA’s GO, Daimler-Chrysler.
• Ballast (low risk, low potential) – neither helps nor harms; be cautious about spending management
time here.
• Value trap (high risk, high potential) – attractive but easily damaged by interference. Example:
Elizabeth Arden.
• Alien territory (high risk, low potential) – SCL’s recommendation: sell.
Example – risk of subtracting value: Shell’s slow downstream adjustment to cleaner fuels; KPN’s slow
adaptation to mobile data/OTT. Example – potential to add value: ASML’s R&D/sales strength behind EUV
leadership; Philips’ brand/platforms enabling its pivot into HealthTech.
Tool 3 – NPV / Fair-Value Corridor (preview)
• Overvalued (above corridor) – don’t buy, consider selling.
• Undervalued (below corridor) – don’t sell, consider buying.
• In the corridor – let business and parenting logic decide instead.
A defensible growth decision should look reasonable under all three logics at once (green = buy/hold, red =
sell/avoid).
Growth Theory: Dynamic Capabilities
Dynamic capabilities: “a firm’s ability to integrate, build, and reconfigure internal and external competences
to address rapidly changing environments” (Teece, Pisano & Shuen, 1997). Diversified firms are “fertile
ground” for this, since managers must decide whether to apply capabilities across businesses. Capabilities
can be scale-free (cheap to apply elsewhere) or non-scale-free (real opportunity costs elsewhere) (Levinthal
& Wu, 2010).
Choosing How to Grow: Build, Buy, or Ally
RBV-driven entry-mode questions (from “Build, Borrow, or Buy”; Lecture slide 10): Are existing internal
resources relevant for developing the new resources targeted for growth? Do you need broad and deep
relationships with your resource provider? Could you obtain the targeted resources via an effective
relationship with a resource partner?
Make/Buy/Ally matrix (Child, Faulkner & Tallman, 2005) – strategic importance x relative competence:
• High importance + high competence -> Make.
• High importance + low/medium competence -> Ally (build competence first).
• Any competence level, low importance -> Buy regardless.
,Trade-offs across modes (Collis & Montgomery, 2005): M&A – speed, complementary assets; but cost,
integration risk, organisational clashes. Internal development – incremental, culture-compatible; but slow,
hard to recover from failure. Alliances – speed, access to assets; but limited control, risk of aiding a
competitor.
Only 24% of firms had explicitly weighed an alliance before their last acquisition (76% had not); high
performers evaluate acquisition opportunities more often than low performers (58% vs. 36% more than
once a year).
Spotlight Reading: Dyer, Kale & Singh (2004) – “When to Ally and When to Acquire”
Alliances and acquisitions are alternative strategies firms rarely weigh explicitly – “most acquisitions and
alliances fail.” The right mode depends on the synergy sought:
• Modular synergies – shared resources (economies of scope). Example: shared distribution across
product lines. Often alliance-friendly.
• Sequential synergies – value-chain linkage (output -> input). Example: a mining firm supplying a
manufacturer. Often favours acquisition (tight coordination).
• Reciprocal synergies – mutual, two-way co-creation. Example: a tech firm and a healthcare firm co-
developing a digital health product. Often favours acquisition, though integration can risk the smaller
partner’s culture/talent.
Takeaway: diagnose which synergy you’re pursuing before defaulting to “always acquire” or “always ally.”
Spotlight Reading: Aalbers, McCarthy & Heimeriks (2021) – “Market Reactions to
Acquisition Announcements”
Signaling theory (Spence, 1973): the market reacts to an acquirer’s announced motive.
• Explorative motives (technological, expansionary, learning) – riskier, punished more.
• Exploitative motives (financial, economic, strategic) – less risky, punished less.
• Firms usually announce multiple motives -> a U-shaped relationship: “pure” deals rewarded most,
“ambidextrous” (mixed) deals least.
• Relatedness of the target industry flattens this curve – related deals reduce information asymmetry,
so ambidextrous motives are punished less severely.
Main findings: motive is an important risk signal; most deals are multi-motive; the market prefers “pure”
deals; motive matters more in unrelated (high-risk) settings.
Measured via abnormal return (AR) (actual vs. expected return) and cumulative abnormal return (CAR) (AR
summed over an event window).
As background, classical M&A motivations (Angwin, 2007; Lecture slide 32) group under three headings:
finance (reducing cost of capital/tax liabilities, adjusting debt profile, asset stripping, buying “cheap”);
economics (cost reduction or market power via economies of scale/scope, bargaining power); strategy
(overcapacity reduction, collusive synergies, concentric acquisition, mutual forbearance, diversification,
acquiring capabilities/unique assets).
Endogenous vs. Exogenous Growth (brief)
Endogenous growth – internal resources/R&D. Exogenous growth – M&A/alliances (global M&A reached
$4.9tn in 2025, +40% YoY; Bain’s 2026 M&A Report cites technology disruption, post-globalisation
realignment and shifting profit pools as the drivers). Mirrors the Solow-Swan (external, random
technological growth) vs. Romer (endogenous, R&D-driven growth) debate in growth economics.
Coordination Challenges Across Growth Modes
Growing – whichever mode is chosen – raises coordination challenges for HQ (Lecture slides 43, 45–46):
• In-house growth – formal org charts often bear little resemblance to who and how work actually
gets done; the real, informal flow of work rarely matches the “prescribed flow of work.”
Complete Exam Summary
All sessions (1–11) – Theories, frameworks, tools, assigned articles and exam preparation
Radboud University – Nijmegen School of Management – 2026
Based on the lecture slides, the assigned textbook (Campbell, Whitehead, Alexander & Goold, Strategy for the
Corporate Level, 2nd ed. – “SCL”) and the assigned articles
,Contents
• Session 1: Introduction to the Corporate Strategy Course
• Session 2: Case 1 – Changing Perspectives (Climatools)
• Session 3: Corporate Growth Strategies
• Session 4: Clinic Case 2 – TenneT: An Ecosystem Perspective
• Session 5: Diversification – Where to Invest and What to Avoid
• Session 6: Charting the Uncharted
• Session 7: Acquisition versus Divestment Choices
• Session 8: Corporate Crisis
• Session 9: Corporate Guests – Academia Meets Practice
• Session 10: Dragons Den with TenneT
• Session 11: Course Wrap-Up and Exam Preparation
Session 1: Introduction to the Corporate Strategy Course
Read: Course syllabus, SCL Chapters 1 & 2.
What Is Corporate Strategy?
Definition (Montgomery & Collis, 1997; SCL Ch. 1): “Corporate strategy is the way a company creates value
through the configuration and coordination of its multimarket activities.”
• Value creation – the ultimate purpose; everything else is a means to this end.
• Configuration – the multimarket scope of the company: which product, geographic and vertical
markets it competes in.
• Coordination – how the firm manages and links its businesses together.
In short: where a company competes (configuration) and how its parts are held together (coordination),
aimed at value creation.
Typical questions corporate strategy tries to answer (Lecture slide 28):
• Why do firms exist at all, and what are “firm resources”? How can resources be developed or
acquired?
• Why do multi-product, multi-location, multi-business firms exist – and how do they create (or
destroy) value?
• What determines the boundaries of the firm, and how do we govern the firm given those
boundaries?
• How are multi-business firms actually managed?
• Does corporate strategy differ between economic up- and downturns?
Corporate Purpose, Mission, Vision and Strategy
The “playground of strategy” links four elements:
• Mission – why we’re in business (present-oriented).
• Vision – where we want to be (future-oriented).
• Strategy – the route map for getting there.
• Values – the enduring principles underpinning the above.
Corporate purpose (added more recently, Lecture slide 22): the reason a firm exists beyond profit
maximisation – “a concrete goal or objective beyond profit” (Morrison & Mota, 2021) or “solving problems
profitably, rather than profiting from problems” (Mayer, 2021). Distinguished from CSR (a peripheral moral
responsibility) and sustainability (balancing ecological/societal/political systems). The classical (shareholder-
primacy) view treats profit as the firm’s raison d’être; an emerging view sees purpose as something that can
harmonise economic and social value creation.
,Two Levels of Strategy
• Business-level (competitive) strategy – how to build advantage within one business (low cost,
differentiation, focus).
• Corporate-level strategy – how to create value for the corporation as a whole (portfolio strategy &
parenting).
Why Multi-Business Firms Exist (Ansoff, 1957)
Single-business advantages: unified focus; greater control; agility; optimised resources.
Single-business disadvantages: “all eggs in one basket”; growth stalls if the industry stagnates; high
exposure to changing customer needs or new technology; risk of a substitute making the business obsolete.
These disadvantages are essentially why firms diversify – though diversifying brings its own management
challenge (the rest of the course).
The Three Logics
Every corporate portfolio decision rests on three logics – a defensible strategy needs a position on all three,
not just one:
• Business logic – is the market attractive, and does the business have competitive advantage in it?
• Added value / parenting logic – can the parent add value beyond what the business would achieve
standalone?
• Capital markets logic – is the business priced above or below the NPV of its future cash flows?
Four Historical Schools of Thought (SCL Ch. 2)
• Professional management school – superior general-management skill applies across businesses;
underpinned the 1960s conglomerate wave (ITT, Textron) until the 1969–70s crisis exposed its limits.
• Portfolio planning school – hold a balanced mix of businesses; produced the BCG matrix (market
share x growth: stars/cash cows/question marks/dogs) and the GE/McKinsey matrix (business
strength x industry attractiveness) – ancestor of Session 5’s Business Attractiveness matrix.
• Synergy school (Ansoff; Porter; Prahalad & Hamel) – related businesses sharing skills create value
(“sticking to the knitting”; core competences).
• Capital markets school – value from buying undervalued and selling overvalued businesses
(arbitrage).
Synthesis: added-value logic = management + synergy schools; business logic = portfolio planning school;
capital markets logic = capital markets school directly.
Growth: Two Dimensions, Three Modes
• Diversification – new product markets/industries. Internationalization – new geographic markets.
• Organic growth – internal development; full control, slow.
• Acquired growth – M&A; fast, but integration risk and cost.
• Network-based growth – alliances/licensing; low investment, needs coordination.
Developed fully in Session 3 as the “Build, Buy or Ally” decision.
Parenting, Coordination and Scale/Scope
A corporate parent can’t be “all things to all its business units” – each way of adding value needs its own
capability bundle. Three parenting roles: coordinate resources within the firm; coordinate relationships
across firm boundaries; decide which businesses belong inside those boundaries.
• Scale economies – savings from producing more of the same output.
• Scope economies – savings from producing related products together.
,Renewal and the Growth Paradox (brief)
Mature organisations struggle to renew because of path dependency; they need ambidexterity to balance
explorative and exploitative learning. Four ideal renewal routes: emergent, directed, facilitated, and
transformational. The Corporate Growth Paradox: Exploration–Exploitation (optimise current revenue while
disrupting those same assets to reach new markets) and Collaboration–Competition (maximise market share
by competing, while also deeply partnering with rivals in open ecosystems). The Fireground Framework:
organisations, like buildings, usually collapse because of weaknesses that pre-date the “fire,” not because of
the fire itself.
Theoretical lenses to recognise in later readings (Lecture slide 34): Behavioral Theory of the Firm (bounded
rationality, aspiration-level adjustments, “problemistic search”); Network Theory (performance depends on
ties, brokerage, structural holes); the Resource-Based View, dynamic interpretation (capabilities are
historically embedded and can become rigid); Dynamic Capabilities Theory (sensing, seizing, reconfiguring
resources under turbulence); the Evolutionary Theory of the Firm (inertia, variation-selection-retention);
Signaling Theory (communicating quality/intent under uncertainty).
Practice Exam Questions
Q1: A conglomerate’s CEO argues that “corporate strategy is really just the sum of each business unit’s
strategy.” Using Montgomery & Collis’s definition, explain why this view misses the point of corporate
strategy.
Model answer: Corporate strategy is the way a company creates value through the configuration and
coordination of its multimarket activities – it is not the sum of individual business strategies, but decisions
about which markets/businesses the firm should be in (configuration) and how those parts are managed and
linked together (coordination) to create value the businesses couldn’t create alone. Business-level strategy
can answer “how do we win in this one market?” but only corporate strategy can answer “which businesses
should we be in, and how should the parent add value across them?”
Q2: Explain the three logics that must all support a portfolio decision. Give an example of a decision that
could pass the business logic but fail the capital markets logic.
Model answer: Business logic – is the market attractive and does the business have competitive advantage in
it? Added-value/parenting logic – can the parent add value beyond what the business would achieve
standalone? Capital markets logic – is the business priced above or below the NPV of its future cash flows?
Example: acquiring a highly attractive, well-run target in a market the parent can genuinely add value to, but
paying a price above its fair-value corridor – this passes business and added-value logic but fails capital
markets logic, since the firm overpays relative to future cash flows.
Session 2: Case 1 – Changing Perspectives (Climatools)
Read: Case outline (Brightspace). Guest: Climatools CEO Damiaan van der Heijde.
Case-based working session, not a theory lecture: real-life analysis of a resource-based corporate investment
option using Climatools. Practises the general approach to a strategy case (gather, analyse, organise
information top-down). No new examinable theory.
No dedicated practice questions for this session – it introduces no new examinable theory. An exam question
could still ask you to apply an earlier framework (e.g. Session 1’s resource-based logic) to a case-like scenario
resembling Climatools.
Session 3: Corporate Growth Strategies
Read: SCL Chapter 4, and Aalbers, McCarthy & Heimeriks (2021) and Dyer, Kale & Singh (2004).
Four Key Growth Questions
1. What is the appropriate growth target?
, 2. Where and how to look for growth? – this session’s main focus.
3. How to construct a more optimal growth portfolio?
4. How to effectively execute?
“Build/Buy/Ally” = Session 1’s three growth modes, now an active choice made with explicit criteria.
Tool 1 – Business Attractiveness Matrix (preview)
Plots industry profitability against competitive advantage (full chapter in Session 5).
Example – ASML vs. TomTom: ASML – ROI 22%, ROA 18%, margin 56%, strong innovation leadership.
TomTom – ROI 5%, ROA 3%, margin 28%, losing relevance to smartphones/apps.
Tool 2 – The Heartland Matrix (SCL Ch. 4, pp. 99–115)
Plots potential to add value (parent skills/resources) against risk of subtracting value (parent
misunderstanding the business), both as estimated % impact on NPV vs. standalone performance. Five
zones:
• Heartland (low risk, high potential) – good fit. Example: P&G in FMCG, 3M’s coatings-based
products, LVMH’s luxury brands.
• Edge of heartland (default zone for new ventures/acquisitions, hard to predict). Succeeded: HP into
computers, IBM into consulting. Failed: BA’s GO, Daimler-Chrysler.
• Ballast (low risk, low potential) – neither helps nor harms; be cautious about spending management
time here.
• Value trap (high risk, high potential) – attractive but easily damaged by interference. Example:
Elizabeth Arden.
• Alien territory (high risk, low potential) – SCL’s recommendation: sell.
Example – risk of subtracting value: Shell’s slow downstream adjustment to cleaner fuels; KPN’s slow
adaptation to mobile data/OTT. Example – potential to add value: ASML’s R&D/sales strength behind EUV
leadership; Philips’ brand/platforms enabling its pivot into HealthTech.
Tool 3 – NPV / Fair-Value Corridor (preview)
• Overvalued (above corridor) – don’t buy, consider selling.
• Undervalued (below corridor) – don’t sell, consider buying.
• In the corridor – let business and parenting logic decide instead.
A defensible growth decision should look reasonable under all three logics at once (green = buy/hold, red =
sell/avoid).
Growth Theory: Dynamic Capabilities
Dynamic capabilities: “a firm’s ability to integrate, build, and reconfigure internal and external competences
to address rapidly changing environments” (Teece, Pisano & Shuen, 1997). Diversified firms are “fertile
ground” for this, since managers must decide whether to apply capabilities across businesses. Capabilities
can be scale-free (cheap to apply elsewhere) or non-scale-free (real opportunity costs elsewhere) (Levinthal
& Wu, 2010).
Choosing How to Grow: Build, Buy, or Ally
RBV-driven entry-mode questions (from “Build, Borrow, or Buy”; Lecture slide 10): Are existing internal
resources relevant for developing the new resources targeted for growth? Do you need broad and deep
relationships with your resource provider? Could you obtain the targeted resources via an effective
relationship with a resource partner?
Make/Buy/Ally matrix (Child, Faulkner & Tallman, 2005) – strategic importance x relative competence:
• High importance + high competence -> Make.
• High importance + low/medium competence -> Ally (build competence first).
• Any competence level, low importance -> Buy regardless.
,Trade-offs across modes (Collis & Montgomery, 2005): M&A – speed, complementary assets; but cost,
integration risk, organisational clashes. Internal development – incremental, culture-compatible; but slow,
hard to recover from failure. Alliances – speed, access to assets; but limited control, risk of aiding a
competitor.
Only 24% of firms had explicitly weighed an alliance before their last acquisition (76% had not); high
performers evaluate acquisition opportunities more often than low performers (58% vs. 36% more than
once a year).
Spotlight Reading: Dyer, Kale & Singh (2004) – “When to Ally and When to Acquire”
Alliances and acquisitions are alternative strategies firms rarely weigh explicitly – “most acquisitions and
alliances fail.” The right mode depends on the synergy sought:
• Modular synergies – shared resources (economies of scope). Example: shared distribution across
product lines. Often alliance-friendly.
• Sequential synergies – value-chain linkage (output -> input). Example: a mining firm supplying a
manufacturer. Often favours acquisition (tight coordination).
• Reciprocal synergies – mutual, two-way co-creation. Example: a tech firm and a healthcare firm co-
developing a digital health product. Often favours acquisition, though integration can risk the smaller
partner’s culture/talent.
Takeaway: diagnose which synergy you’re pursuing before defaulting to “always acquire” or “always ally.”
Spotlight Reading: Aalbers, McCarthy & Heimeriks (2021) – “Market Reactions to
Acquisition Announcements”
Signaling theory (Spence, 1973): the market reacts to an acquirer’s announced motive.
• Explorative motives (technological, expansionary, learning) – riskier, punished more.
• Exploitative motives (financial, economic, strategic) – less risky, punished less.
• Firms usually announce multiple motives -> a U-shaped relationship: “pure” deals rewarded most,
“ambidextrous” (mixed) deals least.
• Relatedness of the target industry flattens this curve – related deals reduce information asymmetry,
so ambidextrous motives are punished less severely.
Main findings: motive is an important risk signal; most deals are multi-motive; the market prefers “pure”
deals; motive matters more in unrelated (high-risk) settings.
Measured via abnormal return (AR) (actual vs. expected return) and cumulative abnormal return (CAR) (AR
summed over an event window).
As background, classical M&A motivations (Angwin, 2007; Lecture slide 32) group under three headings:
finance (reducing cost of capital/tax liabilities, adjusting debt profile, asset stripping, buying “cheap”);
economics (cost reduction or market power via economies of scale/scope, bargaining power); strategy
(overcapacity reduction, collusive synergies, concentric acquisition, mutual forbearance, diversification,
acquiring capabilities/unique assets).
Endogenous vs. Exogenous Growth (brief)
Endogenous growth – internal resources/R&D. Exogenous growth – M&A/alliances (global M&A reached
$4.9tn in 2025, +40% YoY; Bain’s 2026 M&A Report cites technology disruption, post-globalisation
realignment and shifting profit pools as the drivers). Mirrors the Solow-Swan (external, random
technological growth) vs. Romer (endogenous, R&D-driven growth) debate in growth economics.
Coordination Challenges Across Growth Modes
Growing – whichever mode is chosen – raises coordination challenges for HQ (Lecture slides 43, 45–46):
• In-house growth – formal org charts often bear little resemblance to who and how work actually
gets done; the real, informal flow of work rarely matches the “prescribed flow of work.”
