Dr. Olivier Furrer e-mail: o.furrer@fm.ru.nl Corporate Strategy Dr. Olivier Furrer e-mail: o.furrer@fm.ru.nl

What is Corporate Strategy? Corporate Level Strategy What is Corporate Strategy?

Definition “Corporate strategy is the way a company creates value through the configuration and coordination of its multimarket activities.” Collis and Montgomery, 1997, p. 5

Definition “Corporate strategy is the way a company creates value through the configuration and coordination of its multimarket activities.” (Collis and Montgomery, 1997, p. 5) This definition has 3 important aspects: Value Creation as the ultimate purpose of corporate strategy. The focus on the multimarket scope of the corporation (Configuration), including its product, geographic, and vertical boundaries. The emphasis on how the firm manages the activities and businesses that lie within the corporate hierarchy (Coordination).

A Diversified Company has 2 Levels of Strategy Business Level Strategy (Competitive Strategy) How to create competitive advantage in each business in which the company competes – low cost – differentiation – integrated low cost/differentiation – focused low cost – focused differentiation Corporate Level Strategy (Company-Wide Strategy) How to create value for the corporation as a whole

Corporate Strategy Concerns 2 Key Fundamental Questions: What businesses should the corporation be in? How should the corporate office manage the array of business units? Corporate Strategy is what makes the corporate whole add up to more than the sum of it business unit parts.

A Framework for Corporate Strategy RESOURCES VISION BUSINESSES GOALS & OBJECTIVES Source: Collis and Montgomery, 1997and 2005 ROLES OF CORPORATE OFFICE STRUCTURE SYSTEMS PROCESSES CORPORATE ADVANTAGE (CA) CA = ƒ (quality of elements, internal & external consistency, mutually reinforcing) Session 0 © Furrer 2002-2012

The Need for Corporate Strategy Most industrial activity in developed countries is carried out by large corporations which compete in more than one market. In the United States, 60 percent of assets are controlled by multibusiness companies (Villalonga, 2003). In Europe, the percentage is about the same (Pedersen and Thomsen, 1997). On average these firms engaged in over 10 different lines of business. Due to the dominant role these firms play in economic activity, it is likely that most of you, regardless of your chosen career paths, will at some point either work for, advise, or compete with a multibusiness corporation.

The Need for Corporate Strategy The nature of these large corporations has undergone enormous change in the last 50 years, affecting both their scope and their structure. The merger and acquisition booms of the 1960s and 1980s extended the scope of existing multibusiness corporations. In the 1990s, capital market pressures forced every corporation to reassess its portfolio of businesses, level of overhead, and the way it coordinates and controls its multibusiness activities. New forms of corporate organization, such has the LBO partnerships of the 1980s and edge funds today, provoked a debate about the efficacy of corporate hierarchies. In addition, new institutional arrangements, such as joint ventures, strategic alliances, and franchising have come to prominence.

The Need for Corporate Strategy In response, normative prescriptions for corporate strategy have been as varied as the challenges multibusiness corporations have faced. From an emphasis on financial performances and EPS growth in the 1960s, managing the corporation as a “portfolio” of SBUs, searching for “synergy” between business units in the 1970s, to the emphasis on “free cash flow” and its corollary “shareholder value analysis” in the 1980s, recommendations (such as the strident call to break up corporate organizations or “stick to the knitting”) have pulled CEOs in many conflicting directions. Not surprisingly, only a few corporations have made it through the last 50 years intact. Of the Fortune 500 in 1955, only 244 firms were still on the list in 1980, and only 75 were on the list in 2007.

Pressure for Shareholder Value 1970s: Little Growth at any cost Weak rivals Fragmented, passive shareholders Ineffective boards 1980s: Increasing Restructuring pathological portfolios Takeover premiums increase 1990s: Intense Active shareholders Active boards Global product markets Global capital markets 2000s: Rethinking Accounting scandals Corporate governance (Sarbanes-Oxley Act) Global markets retreat What about the 2010s? Ref.: Collis and Montgomery, 2005

Introduction to the Course Organization of the Course The Tools of Corporate Strategy Content of the Course

Required Readings Furrer, Olivier (2011), Corporate Level Strategy: Theory and Applications, Routledge: London and New York. 15 academic articles 5 case studies

Course Requirements and Grading A. Text Presentations (Group) 15% Group Case (Presentation and Report) 25% Final Examination 60%

Class Organization 3 (A, B, and C) groups, 5 subgroups of 7–8 students. Lectures all together, case and text analyses in subgroups, and discussion in groups. No transfer between groups and subgroups during the semester.

Class Organization Students are expected to read the material before class and actively participate in class discussions. Presence and participation are recommended. Papers are due at the beginning of class. Plagiarism will be reported to the Exam Board. (Check Blackboard for what is meant by plagiarism)

Techniques for Learning Lectures Case Analyses Text Discussions Group Work

Principles of Text Analysis 1. Importance of the issue studied Identification of the theoretical roots of the paper Answers to the discussion questions Importance of the results and conclusion

Case Studies Key Reference Boardman, Anthony E., Daniel M. Shapiro and Aidan R. Vining (2004), “A Framework for Comprehensive Strategic Analysis,” Journal of Strategic Management Education, 1 (2): 1–36.