Corporate Strategy & Organisation Design
SUMMARY
ARTICLES
Corporate Strategy & Organisation Design
MSc Business Administration: Strategy
University of Amsterdam
2019/2020
1
, Corporate Strategy & Organisation Design
Week 1
Mahoney, J. T., & Pandian, J. R. (1992). The resource-based view within the conversation of strategic
management.
Raisch, S., & Von Krogh, G. (2007). Navigating a path to smart growth.
Snoeren, P. (2018) The limits to profitable growth rate.
Amihud, Y., & Lev, B. (1981). Risk Reduction as a Managerial Motive for Conglomerate Mergers.
Wan, W. P., Hoskisson, R. E., Short, J. C., & Yiu, D. W. (2011). Resource-Based Theory and Corporate
Diversification.
Montgomery, C.A. 1994. Corporate diversification.
Week 2
Barney, J.B and Hesterly, W. 1996. Organizational Economics.
Williamson, O.E. (1999). Strategy Research: Governance and Competence Perspectives.
Hansmann, H. 1988. Ownership of the Firm.
Fama & Jensen, 1983. Separation of Ownership and Control.
Fama & Jensen, 1983. Agency Problems and Residual Claims.
Week 3
Hansmann, H. 1988. Ownership of the Firm.
Jensen, M.C. 2002. Value Maximization, Stakeholder Theory, and the Corporate Objective Function.
Jones, J.M. 1995. Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics.
Vishwanathan, P., van Oosterhout, H., Heugens, P. P., Duran, P., & van Essen, M. 2019. Strategic CSR: A
concept building meta-analysis.
Week 4
Laamanen T, Keil T. 2008. Performance of serial acquirers: toward an acquisition program perspective.
Barkema, H. G., & Schijven, M. (2008). Toward Unlocking The Full Potential of Acquisitions: The Role of
Organizational Restructuring.
Dyer, J.H. and Singh, H. 1998. Cooperative Strategy and Sources of Interorganizational Competitive
Advantage.
Dyer, J.H., Kale, P. and Singh, H. 2001. How To Make Strategic Alliances Work.
Capron, L., & Mitchell, W. (2010). Finding the right path.
Week 5
Leiblein, M. 2003. The choice of organizational governance form and performance: Predictions from
transaction cost, resource-based, and real options theories.
Gilley, K. M. and Rasheed, A. 2000. Making more by doing less: An analysis of outsourcing and its effects
on firm performance.
Nooteboom. B. 2004. Governance and competence: How can they be combined?
Husted, B.W., and Folger, R. 2004. Fairness and transaction costs: The contribution of organizational
justice theory to an integrative model of economic organization.
Mahnke, V. 2001. The process of vertical dis-integration: An evolutionary perspective on outsourcing.
Langfield-Smith, K., and Smith, D. 2003. Management control systems and trust in outsourcing
relationships.
Week 6
Mintzberg, H. 1979. The Structuring of Organizations. Englewood Cliffs, NJ: Prentice-Hall.
Galbraith, J. R. 1971. Matrix organization designs – How to combine functional and project forms.
Chandler, A.D. 1991. The functions of the HQ unit in the multibusiness firm.Bartlett C.A. and Ghoshal, S.
1993. Beyond the M-Form: Towards a managerial theory of the firm.
Soda, G., & Zaheer, A. 2012. A network perspective on organizational architecture: performance effects of
the interplay of formal and informal organization.
2
, Corporate Strategy & Organisation Design
Week 1 | Growth and Corporate Strategy: Diversification
ARTICLES ON ‘THE DRIVING FACTOR GROWTH’
Raisch S. & Von Krogh G. (2007). Navigating a Path to Smart Growth.
Fundamental question: how fast should a firm grow?
There’s a need to grow to remain competitive while growing brings managerial challenges (and significant
costs). This article proposes a growth corridor that allows managers to determine how quickly their
companies can safely grow. Companies that grew within the limits of the corridor outperformed their
competition while their peers did not. The corridor provides a minimum and maximum:
Minimum growth
Growth has many advantages and thus is a good indicator for a firm’s health and success. Influencing
factors on a firm’s minimum growth rate:
- competitive growth = a company has to defend its competitive position.
- shareholder growth expectations = meeting the expectations of shareholder is rewarding.
- productivity growth = when companies learn over time they become more productive.
Maximum growth
Since too much growth can overburden the company’s ability to manage and control, and it can outstrip
financing capabilities. Three determining factors of a company’s maximum growth rate are:
- financial limits = ‘sustainable growth rate’: the maximum annual sales increase that a business can
achieve without im- pairing target ratios for debt, return on working capital and dividend payouts. Most
influential for large companies.
- managerial limits = growth rate can be constrained by difficulties in finding and integrating new
management.
- market limits = the only way to achieve above-market growth in an industry is capturing market share
from rivals. The market thus limits growth.
Smart growth
Characteristics of smart growers:
- culture oriented to the long term
- set and maintain realistic targets
- pursue growth in sales and in profits simultaneously
Three sub-optimal growth situations which all contain important lessons in growing from these positions:
- cash-starved companies = lack financial muscle to grow with the market: characteristic is having a
sustainable growth rate below competitive growth rate. Low average returns to shareholders. Two
possible behaviors:
- attempt to grow market rate by risking bankruptcy
- agree to sell less by risking just postponing failure
Companies that moved successfully out of this position
followed two steps:
- increase cashflow and profitability by refocusing on
core business, selling off noncore assets and taking
steps to improve operational efficiency -> increased
sustainable growth rate.
- gained right to grow back onze sustainable growth
rate exceeds competitive growth rate -> investments
to generate new growth
- growth laggards = have the financial muscle to grow
3
, Corporate Strategy & Organisation Design
with the market, however sales increases fall behind the competitive growth rate leading to continuous
erosion of their market share. This is due to the ingrained resistance to change, to renew and restructure
themselves.
Companies that overcome intertia and return to smart growth often have pursued large-scale innovation
initiatives. Investments in innovation often have to be coupled with fundamental changes in corporate
culture.
- companies experiencing excessive growth = managed to outgrow the competition, but grew faster
than financial limits could reach, leading to organization complexity. Moving back to smart growth often
included relying on stabilization programs:
- etrenchment activities: selling off assets, restructuring debt and cutting costs
- simultaneously adjust growth strategies by moving from aggressive acquisitions to more moderate
organic growth
- adjust organization to increase corporate control and integrate various businesses
Smart growth needs to be within a company’s growth corridor. By defining the growth corridor, companies
gain an important benchmark for what they realistically can accomplish. As events unfold, a company’s
actual growth rate may be higher or lower than the bounds set by the corridor. However, a continued
disparity between actual growth and the growth corridor should prompt managers to take whatever steps
are needed to maintain the internal balance.
________________________________________________________________________________________________________________
Snoeren, P. (2018). The Limits to Profitable Growth.
Established theory suggests that growth improves performance until managers cannot combine their day-
to-day activities with coordinating growth and further growth reduces performance. This implies an
inverted U-shaped relationship between growth rate and profit where the inflection point represents the
limits to profitable growth. This study contributes to the resource-based view (RBV).
RQ1: Is the relationship between firm growth rate and profit inverted-U shaped?
Two main mechanisms imply an inverted U-shaped relationship between growth rate and profits (inflection
point = limit to profitable growth):
- input increase effect = as firms increase their inputs, they move along the production curve and
increase their profits. Growth increases inputs that improve performance with decreasing marginal
returns as firms move along the production function.
- efficiency loss effect = as firms grow, firms gradually lose
efficiency up until a point where adjustment costs overtake
the gains of growth. Growth is not just a change in size, but a
process that involves planning, coordination, and integration.
The Penrose effect shows that growth in one period negatively
correlates with growth in the next period.
Results:
- show that the effect of employee growth rate on profit
(measured as EBIT) is inverse-U shaped so that an optimum
exists after which a marginal increase in the rate of growth
decreases profit.
- limits for an average firm occur at about thirty-seven percent
growth, which is reached by thirty percent of the firms in the
sample at least one year that they are in the sample (which is
on average seven years).
After excluding the input increase effect, firms still see minor
gains for growth at small growth rates. This indicates that the
process of growth has aspects that are inherently positive for
firms above and beyond the change in size, suggesting that
another mechanism is at play that future research can uncover.
4
SUMMARY
ARTICLES
Corporate Strategy & Organisation Design
MSc Business Administration: Strategy
University of Amsterdam
2019/2020
1
, Corporate Strategy & Organisation Design
Week 1
Mahoney, J. T., & Pandian, J. R. (1992). The resource-based view within the conversation of strategic
management.
Raisch, S., & Von Krogh, G. (2007). Navigating a path to smart growth.
Snoeren, P. (2018) The limits to profitable growth rate.
Amihud, Y., & Lev, B. (1981). Risk Reduction as a Managerial Motive for Conglomerate Mergers.
Wan, W. P., Hoskisson, R. E., Short, J. C., & Yiu, D. W. (2011). Resource-Based Theory and Corporate
Diversification.
Montgomery, C.A. 1994. Corporate diversification.
Week 2
Barney, J.B and Hesterly, W. 1996. Organizational Economics.
Williamson, O.E. (1999). Strategy Research: Governance and Competence Perspectives.
Hansmann, H. 1988. Ownership of the Firm.
Fama & Jensen, 1983. Separation of Ownership and Control.
Fama & Jensen, 1983. Agency Problems and Residual Claims.
Week 3
Hansmann, H. 1988. Ownership of the Firm.
Jensen, M.C. 2002. Value Maximization, Stakeholder Theory, and the Corporate Objective Function.
Jones, J.M. 1995. Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics.
Vishwanathan, P., van Oosterhout, H., Heugens, P. P., Duran, P., & van Essen, M. 2019. Strategic CSR: A
concept building meta-analysis.
Week 4
Laamanen T, Keil T. 2008. Performance of serial acquirers: toward an acquisition program perspective.
Barkema, H. G., & Schijven, M. (2008). Toward Unlocking The Full Potential of Acquisitions: The Role of
Organizational Restructuring.
Dyer, J.H. and Singh, H. 1998. Cooperative Strategy and Sources of Interorganizational Competitive
Advantage.
Dyer, J.H., Kale, P. and Singh, H. 2001. How To Make Strategic Alliances Work.
Capron, L., & Mitchell, W. (2010). Finding the right path.
Week 5
Leiblein, M. 2003. The choice of organizational governance form and performance: Predictions from
transaction cost, resource-based, and real options theories.
Gilley, K. M. and Rasheed, A. 2000. Making more by doing less: An analysis of outsourcing and its effects
on firm performance.
Nooteboom. B. 2004. Governance and competence: How can they be combined?
Husted, B.W., and Folger, R. 2004. Fairness and transaction costs: The contribution of organizational
justice theory to an integrative model of economic organization.
Mahnke, V. 2001. The process of vertical dis-integration: An evolutionary perspective on outsourcing.
Langfield-Smith, K., and Smith, D. 2003. Management control systems and trust in outsourcing
relationships.
Week 6
Mintzberg, H. 1979. The Structuring of Organizations. Englewood Cliffs, NJ: Prentice-Hall.
Galbraith, J. R. 1971. Matrix organization designs – How to combine functional and project forms.
Chandler, A.D. 1991. The functions of the HQ unit in the multibusiness firm.Bartlett C.A. and Ghoshal, S.
1993. Beyond the M-Form: Towards a managerial theory of the firm.
Soda, G., & Zaheer, A. 2012. A network perspective on organizational architecture: performance effects of
the interplay of formal and informal organization.
2
, Corporate Strategy & Organisation Design
Week 1 | Growth and Corporate Strategy: Diversification
ARTICLES ON ‘THE DRIVING FACTOR GROWTH’
Raisch S. & Von Krogh G. (2007). Navigating a Path to Smart Growth.
Fundamental question: how fast should a firm grow?
There’s a need to grow to remain competitive while growing brings managerial challenges (and significant
costs). This article proposes a growth corridor that allows managers to determine how quickly their
companies can safely grow. Companies that grew within the limits of the corridor outperformed their
competition while their peers did not. The corridor provides a minimum and maximum:
Minimum growth
Growth has many advantages and thus is a good indicator for a firm’s health and success. Influencing
factors on a firm’s minimum growth rate:
- competitive growth = a company has to defend its competitive position.
- shareholder growth expectations = meeting the expectations of shareholder is rewarding.
- productivity growth = when companies learn over time they become more productive.
Maximum growth
Since too much growth can overburden the company’s ability to manage and control, and it can outstrip
financing capabilities. Three determining factors of a company’s maximum growth rate are:
- financial limits = ‘sustainable growth rate’: the maximum annual sales increase that a business can
achieve without im- pairing target ratios for debt, return on working capital and dividend payouts. Most
influential for large companies.
- managerial limits = growth rate can be constrained by difficulties in finding and integrating new
management.
- market limits = the only way to achieve above-market growth in an industry is capturing market share
from rivals. The market thus limits growth.
Smart growth
Characteristics of smart growers:
- culture oriented to the long term
- set and maintain realistic targets
- pursue growth in sales and in profits simultaneously
Three sub-optimal growth situations which all contain important lessons in growing from these positions:
- cash-starved companies = lack financial muscle to grow with the market: characteristic is having a
sustainable growth rate below competitive growth rate. Low average returns to shareholders. Two
possible behaviors:
- attempt to grow market rate by risking bankruptcy
- agree to sell less by risking just postponing failure
Companies that moved successfully out of this position
followed two steps:
- increase cashflow and profitability by refocusing on
core business, selling off noncore assets and taking
steps to improve operational efficiency -> increased
sustainable growth rate.
- gained right to grow back onze sustainable growth
rate exceeds competitive growth rate -> investments
to generate new growth
- growth laggards = have the financial muscle to grow
3
, Corporate Strategy & Organisation Design
with the market, however sales increases fall behind the competitive growth rate leading to continuous
erosion of their market share. This is due to the ingrained resistance to change, to renew and restructure
themselves.
Companies that overcome intertia and return to smart growth often have pursued large-scale innovation
initiatives. Investments in innovation often have to be coupled with fundamental changes in corporate
culture.
- companies experiencing excessive growth = managed to outgrow the competition, but grew faster
than financial limits could reach, leading to organization complexity. Moving back to smart growth often
included relying on stabilization programs:
- etrenchment activities: selling off assets, restructuring debt and cutting costs
- simultaneously adjust growth strategies by moving from aggressive acquisitions to more moderate
organic growth
- adjust organization to increase corporate control and integrate various businesses
Smart growth needs to be within a company’s growth corridor. By defining the growth corridor, companies
gain an important benchmark for what they realistically can accomplish. As events unfold, a company’s
actual growth rate may be higher or lower than the bounds set by the corridor. However, a continued
disparity between actual growth and the growth corridor should prompt managers to take whatever steps
are needed to maintain the internal balance.
________________________________________________________________________________________________________________
Snoeren, P. (2018). The Limits to Profitable Growth.
Established theory suggests that growth improves performance until managers cannot combine their day-
to-day activities with coordinating growth and further growth reduces performance. This implies an
inverted U-shaped relationship between growth rate and profit where the inflection point represents the
limits to profitable growth. This study contributes to the resource-based view (RBV).
RQ1: Is the relationship between firm growth rate and profit inverted-U shaped?
Two main mechanisms imply an inverted U-shaped relationship between growth rate and profits (inflection
point = limit to profitable growth):
- input increase effect = as firms increase their inputs, they move along the production curve and
increase their profits. Growth increases inputs that improve performance with decreasing marginal
returns as firms move along the production function.
- efficiency loss effect = as firms grow, firms gradually lose
efficiency up until a point where adjustment costs overtake
the gains of growth. Growth is not just a change in size, but a
process that involves planning, coordination, and integration.
The Penrose effect shows that growth in one period negatively
correlates with growth in the next period.
Results:
- show that the effect of employee growth rate on profit
(measured as EBIT) is inverse-U shaped so that an optimum
exists after which a marginal increase in the rate of growth
decreases profit.
- limits for an average firm occur at about thirty-seven percent
growth, which is reached by thirty percent of the firms in the
sample at least one year that they are in the sample (which is
on average seven years).
After excluding the input increase effect, firms still see minor
gains for growth at small growth rates. This indicates that the
process of growth has aspects that are inherently positive for
firms above and beyond the change in size, suggesting that
another mechanism is at play that future research can uncover.
4
