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1 Student First Name: Khyati Student Surname: Desai Copyright subsists in all papers and content posted on this site. Further copying or distribution by any means without prior permission is prohibited, except for the purposes of non-commercial private study or research, as defined in the Copyright, Designs and Patents Act 1988, or as otherwise authorised by statute. To obtain permission, please contact the author of the relevant paper in the first instance or with details of your request. 1

2 Corporate strategy, superior performance and long term value creation - illuminating the linkages by integrating inside -out and outside in approaches in complex, turbulent and uncertain environments. INTRODUCTION 1 Some uncertainty regarding the links between corporate strategy and performance is both inevitable and frustrating, while at the same time is necessary and beneficial Corporate strategy and value creation exist in a symbiotic relationship. This research proposal aims to understand and research this relationship in more depth. The burgeoning complexity of offerings, insufficient models and research has resulted in a paradox of 21 st century economy- Top management has more options that yield less value and more theories and less action. This raises a question whether we are on the cusp of a new economy and corporate system with features different from those we now take for granted? - is something which needs to be investigated. During the 1980s, top executives were judged on their ability to restructure, de-clutter, and delayer their corporations. In the 1990s- 2000s, they were judged on their ability to identify, cultivate, and exploit the core competencies that make growth possible. ( 2 Core Competence of the corporation, 1990). The current and the future times are characterised by an era of high 1 Potter N, New Perspectives of the Corporate Role in Strategy making process, Working paper Birmignham Business School Prahalad, C., Hamel, G The Core Competences of the corporation. Harvard Business Review 68(3):

3 tech information economy, complexity and hyper competition. It demands more research on the role and scope of corporate strategy in terms of value creation through, configuration, coordination and direction. There are certain rudimentary questions to be addressed by the chief executives and corporate strategists of the company, what business the company is in and why and what should be the organizational philosophy, structure and process which will result in superior corporate performance. Although there are tools, models and processes provided in the corporate strategy research, however there exists a conundrum and a lack of coherency enough to enrich the top management. This research will be an attempt to take a step forward in this direction. It is an effort to approach the field innovatively and intelligently by analysing and critically evaluating the Theory of Core Competence of the corporation, Resource based view of the firm and various corporate parenting frameworks enriched by dominant logic philosophy and challenged by - the modern concepts of peripheral vision and minding and managing the chaos. It will then try to build a framework by integrating all these aspects with a perspective of developing effective corporate strategy in environments characterised by high level of turbulence, dynamism, complexity and uncertainty. RESEARCH AIMS/OBJECTIVES This research aims to produce a model to strike a credible balance between the inside out theory (portfolio theory, parenting models, core competence, dominant logic, resource based 3

4 view) and the outside in theory(complexity, peripheral vision, edge of chaos) as both these theories are important for long term value creation by the companies. This research will also throw light on aspects of dominant logic What is the gamut of dominant logic, to what extent it helps in value creation and how can it act as a obstructer to the peripheral vision. It will also discuss about the unlearning curve of dominant logic. It will throw light on the key competencies and the strategic leadership needed to implement this proposed holistic corporate strategy. The research seeks to explore and answer the question as to how can Corporate strategy process be designed effectively which maintains a balance so as to maximize both Fitness; that is, adaptation to the current environment, and evolvability; that is, ability to adapt to a changing environment and/or to seek out new viable environments? Apart from this the research will also intend to study and try to resolve the following questions.? 1. In case of diversified multi-business firm how will the centre achieve parenting advantage, what are the shortfalls of the current parenting models and how to bridge the gap? 2. Should organisation have a vision or is vision a blinder to the limits of horizon the corporate management sees? 3. The resource based view of the firm claims the firm to be a bundle of resources and 4

5 capabilities which is to be made fit to its environment to achieve competitive advantage whereas the complexity theory claims that the organisation is a complex adaptive system which has a property of self organisation. How to resolve this dilemma in strategy making process? 4. What is the strategic leadership in formulating corporate strategy needed to tackle the challenges of causal ambiguity, complexity, turbulence and uncertainty? LITERATURE REVIEW Scrolling back the corporate strategy literature history pages- (Porter, 1987, From Competitive advantage to corporate strategy) had suggested four concepts of corporate strategy that have been put into practice-portfolio management, restructuring, transferring skills, and sharing activities. These are not mutually exclusive but together responsible for creating and enhancing shareholder value. Porter s theory also underpins that core business forms the basis for corporate strategy. The parenting matrix developed by Michael Goold and Andrew Campbell (known as 3 The Ashridge Model of Corporate Parenting) bring to light the concept of parental advantage and has advocated the dimensions of Fit and Feel for effective value added corporate parenting. They have dissected the businesses as heartland business- core business, Ballast business- stable independent businesses, Value trap business- attractive high value consuming businesses, Alien business- candidates for divesting. This model is more relevant for the corporate objective of value addition however it is also inclined more towards the 3 Johnson G, Scholes K, Whittington R. Exploring Corporate Strategy, 7 th edition,

6 inside-out theory and needs more refinement. In their article The Core Competence of the Corporation (HBR, 1990), Prahalad and Gary Hamel dismiss the portfolio perspective as a viable approach to corporate strategy. According to their view, the primacy of the Strategic Business Unit was clearly an anachronism. Hamel and Prahalad argue that a corporation should be built around a core of shared competences. They suggested that companies should start the strategy process insideout and concentrate on business around shared technical or operating competencies and should develop structures and processes to enhance and nurture their core competencies. This model has a few challenges, first is that the empirical evidence suggests that there are some very successful companies whose multiple businesses have disjoint core competencies and yet work out very well (ABB, General Electric Hanson etc). The second challenge is that having known the theory base of core competencies- how to define the capabilities and crystallise the core capabilities. The primary task of top management is reinventing the industries and regenerating strategies, not engineering processes (Prahlad and Hamel, 1994, 21) There is a growing concern and doubt among strategy researchers on whether and how Corporate strategy impacts performance.( 4 A number of studies starting with Rumelt (1991), including Carrol (1993) and Hoskisson et al. (1993) have identified those effects specific to individual businesses explain the largest portion of business-level profitability, 4 Ray. S, Chittoor, R, Re- evaluating the concept of dominant logic- an exploratory study of an Indian Business group, working paper series Indian Institute of Management, Calcutta,

7 followed by much smaller industry effects suggesting negligible effects of corporate strategy on corporate performance. This has given rise to a growing speculation as to whether the large amount of research, teaching and consulting related to corporate strategy is a waste of time. However Bowman and Helfat (2001) support the argument that corporate strategy indeed matters in superior corporate performance. The authors cited four conceptual streams operant conditioning, paradigms, cognitive biases and pattern recognition to explain the process by which dominant logic evolves. In their retrospective on the original article, Bettis and Prahalad (1995) elaborate further on their understanding of dominant logic. They propose that it is like an information filter (like the intelligence level of person), which filters out information that does not fit with the dominant logic as irrelevant. The logic is an emergent property of complex adaptive systems. In a recent article, Prahalad (2004) focused on the negative implications of dominant logic and argued that the current dominant logic of value creation could act as a severe limitation in finding new innovative approaches of value creation.. To consider how organisations survive in increasingly dynamic environments, leading scholars have introduced the concept of patching (Brown and Eisenhardt, 1998; Eisenhardt and Brown, 1999; Galunic and Eisenhardt, 2001; Helfat and Eisenhardt, 2004). Kauffman (1995) first introduced patching as a means of solving complex problems. RESEARCH STRATEGY AND METHODOLOGY I will be mainly focussing on diversified multi-business firms to understand how the dominant coalition adds value, what drives their corporate strategy moves, whether the 7

8 literature concepts and models are actually endorsed by the organisation and if so to what extent,what are the gaps in the current literature and models and how that can be bridged with this research. This will be mainly done by carrying out extensive literature review and empirical analysis of the organisations sampled. The main research methodology would be longitudinal case study analysis. I will extract a sample of diversified multi-business firm and study its growth and corporate strategy over the period of around 7-9 years.. I intend to carry out a success and failure of analysis of the sample organisations. I will design a pro-forma with various variables (critical success factors) of the parent and its subsidiaries/ divisions and try to understand the rationale behind successful and failed moves of the organisation. This analysis will be based mainly inside out i.e. more impetus will be given to firms core competencies and capabilities to understand the synergies. Once this is established I will then include and integrate the environmental effects incorporating the outside- in concept i.e.- complexity, peripheral vision and turbulence and present conclusions as to how can a company get parenting advantage making corporate strategy a key link to superior corporate performance leading to organisational advantage. The analysis of the research will be largely qualitative; however there would be bits of indirect quantitative research when mapping the financial information of the company. An inductive approach will be used in order to develop theory as a result of the research findings, although there will be an element of deduction in that the structure of the research will be built on the academic literature. I may also use case studies as research technique. The data sources will be a combination of primary and secondary including - detailed literature reviews from books, journals, news papers, published information, analyst s comments, and companies past annual reports, business cases written about the companies and websites. I would also like to explore options about contacting the company and conducting some interviews if given opportunity.. 8

9 BIBILIOGRAPHY 1. Prahalad, C., Bettis, R The Dominant Logic: A New Linkage between Diversity and Performance. Strategic Management Journal 7: Prahalad, C., Hamel, G The Core Competences of the corporation. Harvard BusinessReview 68(3): R.A. Bettis and C.K. Prahalad, The Dominant Logic: retrospective and extension,strategic Management Journal, 16(1), 5-14, Campbell. A, Goold.M, Alexander.M, Corporate Strategy: The quest for parenting advantage, Harvard business review (reprint), March-April Burgelman R. A, Grove A.S, Managing Strategic Dynamics for Corporate Longevity, working paper- Stanford Graduate School of Business, Prahlad C. K., The Blinders of Dominant Logic, Long Range planning , Haeckel S. H, Peripheral vision- Sensing and acting on weak signals, making noise out of Apparent Noise: The need for a new managerial framework, Long Range planning 37(2004) Caldart A., Ricart J.E, Corporate Strategy Revisited: A View from Complexity Theory, Working paper 528- University of Navarra, IESE Business School, Brown, S., Eisenhardt, K Competing on the edge: strategy as structured chaos. BostonMA: Harvard Business School Press. 9

10 10. Eisenhardt, K., Brown, S Patching. Restitching business portfolios in dynamic markets. Harvard Business Review 77(3):