Week 6 - Corporate Strategy

• Problems Studying Diversification:

  1. Endogeneity
  2. Survival Bias
  3. Causality
• Rumelt (1974); Strategy, Structure, and Economic Performance

  Strategy is a determinant of structure

  Specialisation: characterised the proportion of firm revenues attributable to its largest discrete activity Relatedness: Proportion of revenues attributable to the largest group of similar activities

  Diversifying into a common core skill saw highest profitability

  Diversification into unrelated businesses saw lowest
• Rumelt (1982); Diversification Strategy and Profitability

  1. Firms who are less diverse will tend to have larger average market shares
  2. Firms exhibiting larger clusters of related businesses will be those who have developed unusually productive core factors
• Banner (2007); The incumbent discount


  Stock Market reactions to diversification announcements

  • The greater the departure from existing industry category, the worse the stock market reaction
  • Diversification effect on firm value
• Hayward and Hambrick (1997); Explaining the premiums paid for large acquisitions


  CEO Hubris explained a lot of the premiums:

  Statistical significance to:

  1. Recent Media Praise
  2. Measures of CEO self-importance
  3. Recent performance
• Selznick, 1957

  ‘Leadership in Administration’ 


  Leaders set goals

  They must account for:

  1. Internal state of policy
  2. External expectations
• Selznick (1957) - Leadership


  The role of leaders within organisations:

  1. Institutionalism
  2. Overcoming uncertainty
  3. Values and Ideals
  4. Social responsibility
  5. Organisational culture
  6. Authority and power; earned by trust and integrity
• The Design School by Henry Mintzberg’s Strategy Safari (2002)?


  Strategy formation as a process of conception.

  ‘Establish fit’ is the motto of the design school

  Attain a fit between internal competences and external possibilities

  SWOT analysis
• Herbert Simon (1947)

  Administrative Behaviour

  Bounded Rationality: Heuristics, limited available information, limited cognitive ability.

  Strategy is opportunistic, driven by opportunities rather than planned intensions

  Realized vs Intended strategy is different

  Satisficing: Key decision-making strategy