Corporate Strategy: Past, Present, and Future

This essay reflects on the development of corporate strategy as a field of research, seeking to accomplish three main objectives. First, I position corporate strategy within the broader field of strategy research. I argue that because corporate strategy addresses the conceptually distinct question of how managers set and oversee the scope of their firms, scholars in this domain require a unique organizing framework for analyzing it. Second, I offer such a framework, which disaggregates the different topics and phenomena that corporate strategy scholars study into three categories: intra-organizational, inter-organizational, and extra-organizational. Third, I use this framework to lay out an agenda for future research in corporate strategy, as well as some ideas for linking research more closely to practice and policy-making. Given the significance of corporate strategy from academic, practical, and regulatory standpoints, my hope is that this essay will chart a productive course forward for scholars, practitioners, and policy-makers alike. Forthcoming, Strategic Management Review This essay is based on the Emerging Scholar Award talk that I gave at the 2017 Strategic Management Society Annual Meeting. I am very thankful to Michael Leiblein and Jeff Reuer for inviting me to turn my speech into this essay, and for their input and support throughout the process of doing so. I thank an anonymous reviewer, Raffi Amit, Dan Levinthal, and Harbir Singh for helpful comments on earlier versions of this essay. I also wish to acknowledge, with deep gratitude, the scholars who have shaped and guided me over the course of my career: Raffi Amit, Rich Bettis, Dick Caves, Laurence Capron, Alfonso Gambardella, Tony Goméz-Ibañez, Connie Helfat, Dan Levinthal, Anita McGahan, John Meyer, Cynthia Montgomery, Lori Rosenkopf, Nancy Rothbard, Harbir Singh, and Belén Villalonga. Corporate Strategy: Past, Present, and Future Emilie R. Feldman 2 INTRODUCTION Corporate strategy is a subject of major academic significance and practitioner importance in the modern business environment. From an academic standpoint, one of Rumelt, Schendel, and Teece’s (1991, 1994) four canonical questions in strategy research gets at the heart of this topic: “What is the function of or value added by the headquarters unit in a multi-business firm?...Or, what limits the scope of the firm?” (Rumelt et al., 1994: 44). These questions date back at least to Chandler’s (1962) seminal work, in which he argued that the administrative structures within four large corporations (General Motors, Sears, Standard Oil of New Jersey, and DuPont) adapted to accommodate and promote the growth and development of these multi-business organizations. Since then, scholars in strategy and corporate finance have spent decades seeking to understand how corporate structures and the managers that oversee them can add value to or destroy value in their constituent businesses. However, as Rumelt et al. (1994: 3) note, the multi-business firm is a research topic that belongs more to strategy than to any other field of study, since “in such organizations there is a level of management activity that deals with integrating the various divisions or businesses that make up the firm.” From a practitioner perspective, moreover, corporate scope decisions, such as mergers and acquisitions, alliances, and divestitures, have the potential to create or destroy enormous amounts of shareholder value, to significantly impact operating performance for better or for worse, and to impose major organizational consequences on companies. As such, these kinds of decisions are often key discussion points in top management team meetings and in corporate boardrooms. Oftentimes, however, the outcomes of the corporate strategy decisions that companies make fall far short of expectations,1 or worse, fail to solve the underlying problems that motivated them in 1 One well-cited piece of conventional wisdom that supports this point is the remark that two-thirds of M&A fail to create value for the companies that undertake those deals. Corporate Strategy: Past, Present, and Future Emilie R. Feldman 3 the first place, at least in part because those underlying “wicked” problems are poorly-structured, if they are even articulated at all (Camillus, 2008; Baer, Dirks, and Nickerson, 2013; Nickerson and Argyres, 2018; Csaszar, 2018). Perhaps in consequence, entire industries, such as management consulting and investment banking, have been built around demand for advice on whether, when, and how to execute corporate strategy transactions, as well as how to manage their financial and organizational implementation and consequences. Additionally, most business schools offer at least one (and very often more than one) course on corporate strategy, mergers and acquisitions, or both. This suggests that there is clearly demand for research insights and content on corporate strategy among the current and next generations of strategy and management practitioners. The clear importance of corporate strategy to researchers and practitioners alike is reflected in the prevalence of publications on this topic. Figure 1 and Table 1 present a Web of Science analysis of the relative share of publications in the Strategic Management Journal, the top journal in the field of strategy, whose titles contain at least one keyword (or variant thereof) relating to corporate strategy.2 While there is much year-to-year cyclicality in the relative prevalence of publications on corporate strategy topics, overall, there is a clear upwards trend in the research attention that is paid to them. Indeed, the average percentage of corporate strategy-related articles went from about 10% in the 1980-1989 decade to nearly 40% in the years since then. -----Figure 1 and Table 1 here----Drawing on the foregoing discussion and analysis, this essay seeks to accomplish three main goals. First, given Rumelt et al.’s (1994) arguments about the importance of corporate strategy as a research topic, I seek to provide some insights about how corporate strategy fits into the field of strategy. Second, given the unique features that I am able to surface in the core 2 These keywords (presented with their variants) are the following: diversifi*, merg*, acqui*, M&A, divest*, asset sale, spinoff, spin-off, selloff, sell-off, scope, firm boundar*, corporate strategy, corporate scope, ally, or alliance*. Corporate Strategy: Past, Present, and Future Emilie R. Feldman 4 questions that animate research in corporate strategy, I present a three-part framework aimed at organizing the different topics and phenomena that corporate strategy scholars study. This framework is especially important in view of the consistently strong and growing representation of corporate strategy as a domain for research inquiry, as well as the need to add greater structure to the problems that corporate strategy seeks to address and more rigor to the decision-making processes that guide the selection and implementation of solutions to these problems. Third, and further to the previous points, I use my framework to lay out an agenda for some productive directions that research in corporate strategy might take, as well as some ideas for linking corporate strategy research more closely to practice and policy-making. WHAT IS CORPORATE STRATEGY? Research in strategy is fundamentally concerned with explaining what enables firms to enjoy sustainable performance advantages over their competitors. One of the most important debates in this field emerged between scholars rooted in the tradition of industrial organization economics (IO) and scholars involved in the development of the resource-based view of the firm (RBV). For the IO-oriented scholars, Bain’s structure-conduct-performance paradigm (Bain, 1956) informed the idea that industry structure and firms’ (or businesses’) positions therein are key determinants of their relative performance (Porter, 1979, 1980). By comparison, for scholars coming from the RBV tradition, differences in performance are driven by the idiosyncratic and inimitable resources and capabilities that companies have at their disposal (Penrose, 1959; Rumelt, 1974, 1982; Wernerfelt, 1984; Barney, 1986; Dierickx and Cool, 1989). The tension between these two perspectives was reflected in a series of variance decomposition studies, in which scholars from the IO tradition tended to find evidence of a more significant industry effect than a business unit effect on firm performance (Schmalensee, 1985; Wernerfelt and Montgomery, 1988; Corporate Strategy: Past, Present, and Future Emilie R. Feldman 5 McGahan and Porter, 1997), while scholars from the RBV tradition tended to find evidence of a more significant business unit effect than an industry effect on firm performance (Rumelt, 1991; Bowman and Helfat, 2001; Adner and Helfat, 2003). In some sense, this early debate between scholars rooted in the IO and RBV perspectives divided the field of strategy into two parts, competitive strategy and corporate strategy, which focus on distinct core questions. On the one hand, research in competitive strategy is animated around analyzing how markets, resources, technologies, and organization might explain differences in firm performance. Various theories were applied and frameworks were developed to address how these kinds of factors influence firm performance (Caves and Porter, 1977; Porter, 1980; Ghemawat, 1991, 1997; Brandenburger and Stuart, 1996, 2007; Lippman and Rumelt, 2003). On the other hand, however, research in corporate strategy seeks to address a different core question: how do managers set and oversee the scope of their firms—that is, how do managers determine which businesses belong within their firms and which do not, what transactions (like M&A, alliances, or divestitures) do they undertake to achieve that scope, how do they allocate resources among their constituent businesses, and how do they co