Corporate strategy and growth
Session 1 : Corporate strategy, selection, and synergy
Puranam, P. and B. Vanneste (2016). Corporate strategy: Tools for analysis and
decision-making. Cambridge: Cambridge University Press, chapters 1 & 2.
Chapter 1
Corporate strategy refers to the strategy that multi-business corporations use to compete as a collection
of multiple businesses. It is qualitatively different from strategy for a single business firm, or "business
strategy."
Corporate strategy deals with specific and unique issues that help organizations to derive more value
from their portfolio of businesses
Difference between corporate strategy and business strategy
Business strategy :
• Decisions about how we compete in a business
• Decisions about creating sustainable competitive advantage
• Competitors are main rivals in the same industry
Corporate strategy :
• Decisions about which business we compete with
• Decisions about creating corporate advantage
• Competitors are those who can assemble similar portfolios
Single versus multiple businesses
Business strategy involves a single business, whereas corporate . strategy involves multiple businesses
Businesses
It’s useful to think of a business as uniquely identified in terms of its business model.
A business model comprises the set of choices about customers, products, and value chain activities.
"who/what/how" choices: who are the customers, what are we selling them, and how do we produce
what we are selling and get it into the hands of the customers?
Two businesses are different if their business models differ from each other on at least one of these
dimensions.
1
CORPORATE STRATEGY AND GROWTH – MANON OTTEN
,Industries
Are usually distinguished from each other in terms of low cross-price elasticity of demand. A price
change within one industry has negligible effects on the demand for goods in the other industry
à Thus a corporation may have multiple businesses within the same industry
Competitive advantage versus corporate advantage
The goal of business strategy is to maximize the net present value (NPV) of a business : At the most basic
level, this is achieved by ensuring that your buyers are willing to pay more for the outputs of a business
than what your suppliers are willing to sell the inputs to you for.
You have a competitive advantage over a competitor when your difference between buyers' WTP
(Willingness to pay) and suppliers' WTS (Willingness to sell) is greater than your competitor's difference.
Therefore, one might think that the goal of corporate strategy is to individually maximize the NPV of
each of the businesses in the corporation. However, this is incorrect.
Corporate advantage only exists if the collection of businesses owned together is somehow more
valuable (i.e., generates higher total NPV) than the sum of values of individual businesses owned in
isolation from each other.
2
CORPORATE STRATEGY AND GROWTH – MANON OTTEN
,Corporate strategy matters, over and above business strategy, and matters at least as much as the
analysis of industry competition. No business within a multi-business corporation can consider its
strategic analysis complete without understanding its role within the overall corporate strategy of the
parent.
Differences between competitors
The competition for a corporate strategist is different from that for a business strategist.
For a business strategist, the competition is anyone who can influence a business' cost or revenues
adversely. This includes direct rivals, but also buyers, suppliers, potential entrants, and companies that
sell substitutes.
For a corporate strategist, the competition is anyone who can assemble a similar portfolio of
businesses. We distinguish between two types of such competitors: (1) investors (e.g., mutual funds) but
because investors have cash flow bat no decision rights, their main strategy is portfolio assembly and (2)
other corporate strategists .
If an investor can replicate the portfolio of businesses that a corporate strategist controls, then
corporate advantage exists relative to this investor only if the corporate strategist can extract synergies
Chapter 2
In Chapter 1, we stated that the goal of the corporate strategist is to pursue corporate advantage - to
create more value from jointly owning a portfolio of businesses than the sum of their values when they
are owned independently. When investors have equivalent investment opportunities, the threshold for
the extent of corporate advantage that a corporate strategist must create is higher, and can only be met
through synergies. In chapter 2, we describe a systematic approach to analyzing synergies.
Corporate strategy acts along two mechanisms
A selection mechanism à Portfolio assembly
3
CORPORATE STRATEGY AND GROWTH – MANON OTTEN
, Decisions about in which businesses to be active
Decisions about which businesses to jointly own
In the selection mechanism, corporate strategy mainly shapes : (1) Boundaries of the firm, (2) level of
diversification
(1) Boundaries : Which business to own and which not à Determines the portfolio of businesses
The boundaries of a firm are thus also shaped by organic vs inorganic decisions (which resources
do we build ourselves vs which resources do we get externally ) and make-or-buy decisions (
which products do we build ourselves and which ones do we buy externally)
(2) Diversification : What activities need to be done in each businesses (business models), level of
relatedness between businesses
A synergy mechanism à Business modification, integration, and coordination
Decisions about inter-business activities
Decisions about which businesses to jointly operate
In the synergy mechanism, corporate strategy mainly shapes : (1) Synergies between business, (2)
Innovation
(1) Synergies : Level of complementarity between resources, bringing business resources together
(2) Innovation : Integrating corporate-wide knowledge resources, organizing and coordinating R&D,
Accessing external knowledge
When does a synergy exist ?
4
CORPORATE STRATEGY AND GROWTH – MANON OTTEN
Session 1 : Corporate strategy, selection, and synergy
Puranam, P. and B. Vanneste (2016). Corporate strategy: Tools for analysis and
decision-making. Cambridge: Cambridge University Press, chapters 1 & 2.
Chapter 1
Corporate strategy refers to the strategy that multi-business corporations use to compete as a collection
of multiple businesses. It is qualitatively different from strategy for a single business firm, or "business
strategy."
Corporate strategy deals with specific and unique issues that help organizations to derive more value
from their portfolio of businesses
Difference between corporate strategy and business strategy
Business strategy :
• Decisions about how we compete in a business
• Decisions about creating sustainable competitive advantage
• Competitors are main rivals in the same industry
Corporate strategy :
• Decisions about which business we compete with
• Decisions about creating corporate advantage
• Competitors are those who can assemble similar portfolios
Single versus multiple businesses
Business strategy involves a single business, whereas corporate . strategy involves multiple businesses
Businesses
It’s useful to think of a business as uniquely identified in terms of its business model.
A business model comprises the set of choices about customers, products, and value chain activities.
"who/what/how" choices: who are the customers, what are we selling them, and how do we produce
what we are selling and get it into the hands of the customers?
Two businesses are different if their business models differ from each other on at least one of these
dimensions.
1
CORPORATE STRATEGY AND GROWTH – MANON OTTEN
,Industries
Are usually distinguished from each other in terms of low cross-price elasticity of demand. A price
change within one industry has negligible effects on the demand for goods in the other industry
à Thus a corporation may have multiple businesses within the same industry
Competitive advantage versus corporate advantage
The goal of business strategy is to maximize the net present value (NPV) of a business : At the most basic
level, this is achieved by ensuring that your buyers are willing to pay more for the outputs of a business
than what your suppliers are willing to sell the inputs to you for.
You have a competitive advantage over a competitor when your difference between buyers' WTP
(Willingness to pay) and suppliers' WTS (Willingness to sell) is greater than your competitor's difference.
Therefore, one might think that the goal of corporate strategy is to individually maximize the NPV of
each of the businesses in the corporation. However, this is incorrect.
Corporate advantage only exists if the collection of businesses owned together is somehow more
valuable (i.e., generates higher total NPV) than the sum of values of individual businesses owned in
isolation from each other.
2
CORPORATE STRATEGY AND GROWTH – MANON OTTEN
,Corporate strategy matters, over and above business strategy, and matters at least as much as the
analysis of industry competition. No business within a multi-business corporation can consider its
strategic analysis complete without understanding its role within the overall corporate strategy of the
parent.
Differences between competitors
The competition for a corporate strategist is different from that for a business strategist.
For a business strategist, the competition is anyone who can influence a business' cost or revenues
adversely. This includes direct rivals, but also buyers, suppliers, potential entrants, and companies that
sell substitutes.
For a corporate strategist, the competition is anyone who can assemble a similar portfolio of
businesses. We distinguish between two types of such competitors: (1) investors (e.g., mutual funds) but
because investors have cash flow bat no decision rights, their main strategy is portfolio assembly and (2)
other corporate strategists .
If an investor can replicate the portfolio of businesses that a corporate strategist controls, then
corporate advantage exists relative to this investor only if the corporate strategist can extract synergies
Chapter 2
In Chapter 1, we stated that the goal of the corporate strategist is to pursue corporate advantage - to
create more value from jointly owning a portfolio of businesses than the sum of their values when they
are owned independently. When investors have equivalent investment opportunities, the threshold for
the extent of corporate advantage that a corporate strategist must create is higher, and can only be met
through synergies. In chapter 2, we describe a systematic approach to analyzing synergies.
Corporate strategy acts along two mechanisms
A selection mechanism à Portfolio assembly
3
CORPORATE STRATEGY AND GROWTH – MANON OTTEN
, Decisions about in which businesses to be active
Decisions about which businesses to jointly own
In the selection mechanism, corporate strategy mainly shapes : (1) Boundaries of the firm, (2) level of
diversification
(1) Boundaries : Which business to own and which not à Determines the portfolio of businesses
The boundaries of a firm are thus also shaped by organic vs inorganic decisions (which resources
do we build ourselves vs which resources do we get externally ) and make-or-buy decisions (
which products do we build ourselves and which ones do we buy externally)
(2) Diversification : What activities need to be done in each businesses (business models), level of
relatedness between businesses
A synergy mechanism à Business modification, integration, and coordination
Decisions about inter-business activities
Decisions about which businesses to jointly operate
In the synergy mechanism, corporate strategy mainly shapes : (1) Synergies between business, (2)
Innovation
(1) Synergies : Level of complementarity between resources, bringing business resources together
(2) Innovation : Integrating corporate-wide knowledge resources, organizing and coordinating R&D,
Accessing external knowledge
When does a synergy exist ?
4
CORPORATE STRATEGY AND GROWTH – MANON OTTEN
