INSEAD
Ph.D. Program 2007
Corporate Strategy
Faculty: Laurence Capron, Harry Barkema, Bruce Kogut, Sid Winter
Assistant: Carole Guillard (tel. 4494)
Course Description
This doctoral seminar deals with the major streams of research on Corporate Strategy.
In this seminar, we will discuss fundamental issues in firm’s corporate strategy such
as relationship between diversification and firm performance, drivers of
diversification (industry, resource, TMT-based factors), modes of corporate
diversification (organic growth versus acquired growth), and firm strategies in market
for resources and firms.
Expectations and Grading
Class format
The course will be taught using a seminar style. This means each student must take
responsibility for the success of the class. Students must be prepared by reading all
the assigned materials. However, simply reading the assigned materials is not enough
–students must also evaluate this material, critique it, analyze how it fits with other
literatures and other readings.
A discussion leader will be designated for each required reading each session. The
discussion leader will generally be assigned two papers per session. The discussion
leader will prepare a report discussing the major hypotheses, findings, contributions
and limitations, and hand it out to the professor and colleagues the day of class
(maximum 2 pages single-spaced). The discussion leader is also welcome to use
computer presentation if needed. The discussion leader should also be prepared to
lead a 10-minute class discussion of the paper.
Note that class format might change across the different instructors.
A final paper has to be prepared and handed in one week after your final class. This
is your opportunity to exercise your creative thinking. It should contain a review of
the literature on a specific topic and derive a set of original research questions and/or
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empirically testable hypotheses. If your study develops hypotheses, please discuss the
research design necessary for testing them (sample, measures, analytical methods).
Alternatively, an empirical investigation of a corporate strategy question can be the
focus of the paper.
The grade of the course will be determined by your class participation (50 percent)
and your final exam (50 percent).
Class Participation
• Sessions 1-4
• Sessions 5-6
• Sessions 7-8
• Sessions 9-10
Final Paper
Total
Faculty
Laurence Capron
Harry Barkema
Bruce Kogut
Sid Winter
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Weight
20 points
10 points
10 points
10 points
50 points
100 points
Classes and Readings
1. Corporate Diversification- Traditional Strategic Management Research
Faculty: Laurence Capron (16 March)
Required
Teece, D. 1982. Towards an economic theory of the multiproduct firm. Journal of
Economic Behavior and Organization, 3: 39-63.
Rumelt, R.P.1982. Diversification strategy and profitability. Strategic Management
Journal, 3: 359-369.
Montgomery, C. 1994. Corporate Diversification. Journal of Economic Perspectives,
8: 163-178.
Markides, C. C. And P.J. Williamson. 1994. Related diversification, core
competences and corporate performance. Strategic Management Journal, 15: 149165.
Prahalad C.K, and R.A. Bettis. 1986. The dominant logic: A new linkage between
diversity and performance. Strategic Management Journal, 7: 485-501.
Amihud, Y. and B. Lev. 1981. Risk reduction as a managerial motive for
conglomerate mergers. Bell Journal of Economics. 12: 605-617.
Lane, P.J., Canella, A. And M. Lubatkin. 1998. Agency problems as antecedents to
unrelated diversification: Amihud and Lev reconsidered. Strategic Management
Journal. 19: 555-578.
Seth, A. 1990. Source of value creation in acquisitions: A re-examination of
performance issues. Strategic Management Journal, 11:99-115.
Reread
Penrose, Edith T. 1980. The Theory of the Growth of the Firm, Ch. 1, 2 & 5. White
Plains, NY: M. E. Sharpe, Inc. (originally published in 1959)
Chandler, A.. 1990. Scale and Scope. The dynamics of industrial capitalism.
Cambridge. Harvard/Belknap Press.
Gimeno, J. and C.Y. Woo. 1996. Hypercompetition in a multimarket environment:
The role of strategic similarity and multimarket contact in competitive de-escalation.
Organization Science 7(3): 322-341..
Recommended: Practionners’ readings
Porter, M. 1987. From competitive advantage to corporate strategy. Harvard Business
Review. May-June, 43-59.
Hamel, G. and C.K. Prahalad. 1990. The core competence of the corporation.
Harvard Business Review. May-June 1990, 79-91.
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Goold, M. And K. Luchs. Why diversify? Four decades of management thinking.
Academy of Management Executive.
2. Direction, Timing and Modes of Corporate Diversification
Faculty: Laurence Capron (20 March)
Required
Helfat, C. E. And M. B. Lieberman. 2002. The birth of capabilities: Market entry and
the importance of pre-history. Industrial and Corporate Change. 11(4): 725-760.
Helfat, C.E., M. Peteraf. 2003. The dynamic-resource-based view: Capability
lifecycles. Strategic Management Journal. 24(10): 997-1010.
Chatterjee, S. and B. 1991. Wernerfelt. The link between resources and type of
diversification: theory and evidence. Strategic Management Journal, 12: 33-48.
Silverman, B. 1999. Technological resources and the direction of corporate
diversification: Toward an integration of the resource-based view and transaction cost
economics. Management Science. 45: 1109-1125.
Stuart, T. E. & Podolny, J. M. 1996. Local search and the evolution of technological
capabilities. Strategic Management Journal. 17 (Evolutionary Perspectives on
Strategy Supplement): 21-38.
Rosenkopf, L., A. Nerkar. 2001. Beyond local search: Boundary-spanning,
exploration, and impact in the optical disc industry. Strategic Management Journal.
22: 287-306.
Hennart, J.F., Y., Park. 1993. Greenfield vs. acquisition: The strategy of Japanese
investors in the United States. Management Science. 39: 1054-1070
Capron, L. and W. Mitchell. 2007. How capability gap and internal friction affect the
selection and effectiveness of modes of acquiring new capabilities. Under second
round at Organization Science.
Reread
Nelson, R. R. & Winter, S. G. 1982. An Evolutionary Theory of Economic Change,
Cambridge, MA: Belknap Press
Eisenhardt, K.M. and J. Martin. 2000. Dynamic capabilities: What are they? Strategic
Management Journal. 21:1105-1121.
Mitchell, W. 1989. Whether and when? Probability and timing of incumbents’s entry
into emerging industrial subfields. Administrative Science Quarterly. 34:208-230.
Recommended: Practitionners’ readings
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Barney, J. 1999. How a firm’s capabilities affect boundary decisions. Sloan
Management Review. 40(3): 137-145.
3. Resource redeployment within and across firms
Required
Faculty: Laurence Capron (30 March)
Helfat, C. 1994. Evolutionary trajectories in petroleum firm R&R. Management
Science. 40:1720-1747.
Farjoun, M. 1994. Beyond industry boundaries: Human expertise, diversification and
resource-related industry groups. Organization Science, 5: 185-199.
Anand, J. and H. Singh. 1997. Asset redeployment, acquisitions and corporate
strategy in declining industries. Strategic Management Journal. 18: 99-118.
Capron, L., Dussauge, P. and W. Mitchell. 1998. Resource redeployment following
horizontal acquisitions in Europe and North America, 1988-1992. Strategic
Management Journal. 19(7): 631-663.
Capron, L. 1999. The long-term performance of horizontal acquisitions. Strategic
Management Journal. 20: 987-1018.
Mowery, D. C., Oxley, J.E. and B.S. Silverman. 1996. Strategic alliances and
interfirm knowledge transfer. Strategic Management Journal. 19: 461-488.
Dussauge, P., Garrette, B. and W. Mitchell. 2000. Learning from competing partners:
Outcomes and durations of scale and link alliances in Europe, North America and
Asia. Strategic Management Journal. 21: 99-126.
Menon, T., J. Pfeffer. 2003. Valuing internal vs. external knowledge: Explaining the
preference for outsiders. Management Science. 49(4):497-514.
Reread.
Kogut, B., U. Zander. 1992. Knowledge of the firm, combinative capabilities, and the
replication of technology. Organazation Science 3:383-397.
Kogut, B., U. Zander.1996. What firms do? Coordination, identity and learning.
Organazation Science. 7:502-518.
4. Trading resources and resources : Frictions, competition & economic returns
Faculty: Laurence Capron (6 April)
Required
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Valuation issues in trading resources
Reuer J, Shen JC. 2004. Sequential divestiture through initial public offerings. Journal of
Economic Behavior and Organization, 54: 249-226.
Sanders WMG, Boivie S. 2004. Sorting things out: Valuation of new firms in uncertain
markets. Strategic Management Journal. 25: 167-186.
Capron, L. and J.C. Shen. 2007. Acquisition of private versus public firms: Private
Information, target selection and acquirer returns. Strategic Management Journal,
Forthcoming.
Value creation and value capture in market for corporate control
Barney, J. 1988. Returns to bidding firms in mergers and acquisitions: Reconsidering
the relatedness hypothesis. Strategic Management Journal. 9:71-78.
Capron, L. and N. Pistre. 2002. When Do Acquirers Earn Abnormal Returns?
Strategic Management Journal, 23(9): 781-794.
Strategizing in the market for resources
John, A. M. 2003. Strategizing by firms in the presence of markets for resources.
Industrial and Corporate Change. 12: 1157-1193.
Ziedonis, R. H. 2004. Don’t Fence Me In: Fragmented Markets for Technology and
the Patent Acquisition Strategies of Firms. Management Science, 50(6): 804.
Capron, L. and O. Chatain. 2007. Competitors’ Resource-Oriented Strategies: Acting
upon Competitors’ Resources through Interventions in Factor Markets and Political
Markets. Academy of Management Review. Forthcoming.
Reread
Barney, J.B. 1986. Strategic factor markets: Expectations, luck and business strategy.
Management Science. 32(10): 1231-1241.
Dierick, I. and K. Cool. 1989. Asset stock accumulation and competitive advantage.
Management Science. 35: 1504-1511
Brandenburger, A. and G. Stuart. 1996. Value-based business strategy. Journal of
Economics and Management Strategy, 5:5-24.
5a. Micro-foundations of diversification and growth
Faculty: Harry Barkema (April 18)
Wiersema, M.F. and K. Bantel, 1992, Top management team demography and
corporate strategic change, Academy of Management Journal, 35, 91-121.
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Boeker W. 1997. Executive migration and strategic change: The effect of top manager
movement on product market entry. Administrative Science Quarterly 42: 231-236.
Bigley, G.A. and Wiersema, 2002, M.F., New CEOs and corporate strategic
refocusing: How experience as heir apparent influences the use of power,
Administrative Science Quarterly, 707-727.
Barkema and Shyrkov, 2007, Does Top Management Team Diversity Promote or
Hamper Foreign Expansion? Strategic Management Journal, June issue.
5. b Corporate renewal: Longitudinal perspectives
Vermeulen, F. & Barkema, H. G. 2001. Learning through acquisitions. Academy of
Management Journal, 44: 457-476.
Chang, Sea Jin, 1996, An evolutionary perspective on diversification and corporate
restructuring: Entry, exit, and economic performance during 1981-89, Strategic
Management Journal, 17 (8): 587-611.
Barkema, Harry G. and Mario M.P. Schijven, Towards unlocking the full potential of
acquisitions: The role of organizational restructuring, working paper, Tilburg
University.
Recommended Readings
Haspeslagh, P. C. & Jemison, D. B. 1991. Managing acquisitions: Creating value
through corporate renewal. New York, NY: Free Press.
Barkema HG, Vermeulen F. 1998. International expansion through start-up or
acquisition: A learning perspective. Academy of Management Journal 41: 7-26.
Finkelstein, S. and Hambrick, DC, 1996, Strategic Leadership: Top executives and
their effects on organizations, Minneapolis/St. Paul West.
6. Learning to diversify and to grow: opportunities, mechanisms, and pitfalls
Faculty: Harry Barkema (April 23)
Levitt, Barbara, and James G. March, “Organizational Learning” Annual Review of
Sociology, vol. 14, 1988, 319-340.
Barkema HG, Bell JHJ, Pennings JM. 1996. Foreign entry, cultural barriers, and
learning. Strategic Management Journal 17: 151-166.
Haleblian, J. & Finkelstein, S. 1999. The influence of organizational acquisition
experience on acquisition performance: A behavioral learning perspective.
Administrative Science Quarterly, 44: 29-57.
Hayward, M. L. A. 2002. When do firms learn from their acquisition experience?
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Evidence from 1990-1995. Strategic Management Journal, 23: 21-39.
Nadolska, A. & Barkema, H., Learning to internationalise: The pace and success of
foreign acquisitions, Working paper, Tilburg University.
Haleblian, J., Kim J.Y., and Rajagopalan, N, 2006, The influence of acquisition
experience and performance on acquisition behavior: Evidence for the US commercial
banking Industry, Academy of Management Journal, 49, 357-370.
Zollo, M. & Singh, H. 2004. Deliberate learning in corporate acquisitions: Post
acquisition strategies and integration capability in US bank mergers. Strategic
Management Journal, 25: 1233-1256.
Kale, Dyer, and Singh, 2002, Alliance capability, stock market responses, and longterm alliance success, the role of the alliance function, Strategic Management
Journal, 23, 747-767.
Vermeulen, F. & Barkema, H. G. 2002. Pace, rhythm, and scope: Process dependence
in building a profitable multinational corporation. Strategic Management Journal, 23:
637-653.
Recommended Readings
Pennings, J.M., Barkema, H. and Douma, S. Organizational learning and
diversification, Academy of Management Journal, 37, 608-640.
Barkema, H.G., Shenkar, O., Vermeulen, F., and Bell, J.H.J. (1997) ‘Working abroad,
working with others: how firms learn to operate in international joint ventures’,
Academy of Management Journal, 40: 426-442
7. Diversification Discount Reconsidered: Financial and Institutional Views
Faculty: Bruce Kogut (TBA)
Our aim is to set up the data on the discount, why it varies by time and by country.
We will look at possible methods that have tried to determine this. I will distribute
later the paper by Ron and Peter on the discount for their explanation. There are two
optional readings. I would like if you would choose one of them and if you would
write a one page summary; you may do this in a group (ideally two groups, one for
each paper) and then distribute prior to class.
A. History, or why context may matter.
Hubbard, Glenn and Darius Palia, 1999, “A Reexamination of the
Conglomerate Merger Wave in the 1960s: An Internal Capital Markets
View, Journal of Finance, 54: 1131-1152.
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Davis, Gerald, Kristina Diekmann, and Catherine Tinsley, 1994, “The
Decline and Fall of the Conglomerate Firm in the 1980s: The
Deinstitutionalization of an Organizational Form,” American
Sociological Review, 59: 547-570.
B. Other countries, or why context may matter.
Lins, Karl and Henri Servaes, 1999, “International Evidence on the
Value of Corporate Diversification”, Journal of Finance, 44: 22152239.
Tarun Khanna and Krishna Palepu, “Is Group Affiliation Profitable in
Emerging Markets? An Analysis of Diversified Indian Business
Groups,” Journal of Finance, 2000, 55(2):867-91.
Review La Porta et al. on legal institutions and read:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=318940
C. Is there a diversification discount?
Villalonga, Belen, 2004, “Diversification Discount or Premium? New
Evidence from the Business Information Tracking Series,” Journal of
finance, 49: ADD IN PAGES.
Villalonga, Belen (presiding), Research Roundtable Discussion: The
Diversification Discount, HBS
Questions:
1. How could Hubbard and Palia have found this result given all
we know about relatedness?
2. The Davis article suggests waves. Do you think the evidence
speaks against conglomerates? In view of the Zuckerman
article, do you think we know for sure what the evidence says?
3. The Lins/Servaes and Khanna/Palepu articles suggests the
institutional context matters.
a. Is this consistent with the Hubbard/Palia argument on
market inefficiencies?
b. Are there other reasons why firms may be organized
differently across countries? This may be a good time
to review the Dyas and Thanheiser studies, compared
against Rumelt for the US.
4. Why did Belen find what she found? Do you agree with this
finding?
For your own reading:
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Milgrom, Paul and John Roberts, “Bargaining Costs, Influence Costs, and the
Organization of Economic Activity,” in Perspectives on Positive Political
Economy, eds. James Alt and Kenneth Shepsle, Cambridge: Cambridge
University, 1990.
Wulf, Julie, "Do CEOs in Mergers Trade Power for Premium? Evidence from
'Mergers of Equals'." Journal of Law, Economics and Organization, Volume
20, Number 1, Spring, 2004
8. Diversification, Relatedness and Corporate Coherence
Faculty: Sid Winter
David Teece, Richard Rumelt, Giovanni Dosi and Sidney Winter, “Understanding
Corporate Coherence: Theory and Evidence,” Journal of Economic Behavior and
Organization, Vol. 23 (January 1994), pp. 1-30.
Reprinted in M. Casson, ed., The Theory of the Firm, Elgar 1996, pp. 501-530; also in
R. Langlois, P. Robertson and T.F-L. Yu, eds., Alternative Theories of the Firm,
Elgar 2003, pp.
.
Note: The originally published version should NOT be used as the source for this
article because it is badly flawed by typos and other errors. The preferred source is
the Elgar 2003 collection.
David J. Bryce and Sidney G. Winter, “A General Relatedness Index.” Working
Paper, Center for Economic Studies, U.S. Bureau of the Census, 2007.
John Sutton, “The Variance of Firm Growth Rates: The Scaling Puzzle,” Working
Paper, London School of Economics.
9. Firm Growth, Diversification and the “Geroski Problem”
Faculty: Sid Winter
John Sutton, “Gibrat’s Legacy,” Journal of Economic Literature, Vol. 35 (1997), pp.
40-59.
Paul Geroski, “Firm Growth in Theory and Practice,” in N. Foss and V. Mahnke, eds.,
Competence, Governance and Entrepreneurship, Oxford U.P. 2000.
Constance Helfat, et. al., “Firm Growth and Dynamic Capabilities,” Chapter 7 in
Dynamic Capabilities: Understanding Strategic Change in Organizations,
Blackwell 2007.
George Baker, “Beatrice: A Study in the Creation and Destruction of Value,” Journal
of Finance, Vol. 47 (1992), pp. 1081-1119.
10. Diversification and Diversity: History, Structure, and Institutions
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Faculty: Bruce Kogut
This session aims at familiarizing us with simulations and ideas of complexity.
The first part reviews some classics on complexity. The second part
summarizes some of the ideas you have covered already. (There is not space to
include the papers on modularity.) We will look at two approaches to
modeling emergence. The Watts-Strogatz paper analyzes static models. Keep
in mind that their definition of a cluster is the mirror image of Burt’s structural
hole; when Burt SH is .3, WS cluster is .7; both measures range from (0,1).
The NK model is agent based model. We want to pay attention to the
definition of the topologies; this is the heart of the Watts-Strogatz paper. The
paper by Walker and myself is the first social science application and includes
a simulation bootstrapping from data. Section B asks us to think about time
and the number of events in simulation, as well as of space. The reading by
Kirman is a friendly version of a wonderful research stream; Kirman is at the
CNRS in Marseille. It is included because I like fish, and it illustrates the
ideas of micro and macro structures. The final part is a debate in sociology,
which we will review, and then ask what complexity adds if anything to this
perpective.
A. Some background on complexity: rules to outcomes
Herbert Simon, 1969, “The Science of the Complexity”, chapter in The
Science of the Artificial, MIT Press.
Schellling model:
http://www.sscnet.ucla.edu/geog/gessler/borland/segregation.htm. You may
need to download JAVA if you don’t have this. Or you can get the idea
looking at the page.
B. What might be general explanations for diversity and diversification?
B1. Stochastic explanations:
Robert L.Axtell, 2001, “Zipf Distribution of U.S. firm Sizes”, Science, Vol.
293: 1918-1820.
B2. Technology Determines Explanations:
Westhoff, F. H., Yarbrough, B. V., & Yarbrough, R. M. (1996). Complexity,
organization, and Stuart Kauffman's The Origins of Order. Journal of
Economic Behavior & Organization, 29(1), 1-25.
Review: Levinthal, D. A. (1997). Adaptation on rugged landscapes.
Management Science, 43(8), 934-950.
B3. Generative Rules Determines Diversity
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D.J. Watts and S. H. Strogatz. "Collective Dynamics of 'Small-World'
Networks", Nature 393:440-442 (1998).
Kogut, Bruce and Walker, Gordon. 2001. The Small World of Germany and
the Durability of National Networks, American Sociological Review, 66:317335. (Focus on the simulation)
Kirman, Alan, “Market Organization and Individual Behavior”, Evidence
from Fish Markets, Networks and Markets by Rauch and Casella,”
C. Sociological and contextual explanations for change: Why the 1990s were not the
1960s: Structural and Cultural Explanations, or why some people do not like network
approaches.
Gerald F.Davis; Mark S.Mizruchi. 1999, “The Money Center Cannot Hold:
Commercial Banks in the US system of Corporate Governance”.
Administrative Science Quaterly. Vol. 44, No 2 , 215-239.
Neil Fligstein. 1987, “The intraorganizational Power Struggle: Rise of Finance
Personnel to Top Leadership in Large Corporations, 1919-1979”. American
Sociological Review, Vol.52, No 1, 44-58.
Neil Fligstein. 1995, “Networks of Power or the Finance Conception of
Control? Comment on Palmer, Barber, Zhou, and Soysal”. American
Sociological Review, Vol. 60, 500-503.
Donald Palmer: Brad M. Barber; Xueguang Zhou; Yasemin Soysal. 1995.
“The Friendly and Predatory Acquisition of large U.S Corporations in the
1960s. The Other Contested Terrain”. American Sociological Review. Vol.60,
No. 4, 469-499.
Donald Palmer; Brad M. Barber; Xueguang Zhou. 1995. “The Finance
Conception of Control—“The Theory That Ate New York?” Reply to
Fligstein”. American Sociological Review, Vol. 60, No. 4, 504-508.
Questions:
1. Under what conditions would stochastic growth generate
diversification?
2. What is an NK model an example of technological determinism? Does
the Nelson, Rumelt, Teece, Winter article also assume a technological
determinism?
3. Why was Watts’ analysis of topologies important?
4. Why is there a bend in the simulation (see graph) in the paper by
Kogut and Walker?
5. What might we learn about diversification from Kirman’s analysis by
analogy?
6. Everyone loves networks, except for a lot of people. Fligstein has
argued that firms grow organically or by acquisition in reference to
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conceptions of control, as embodied in laws and in the power of
functions. He does not like the Palmer article. What is your position?
Is there an implication for diversification?
7. Return to the Davis and Mizruchi article. Thinking about rules, what
might then explain the change in structure?
For more reading (not required and not to be distributed):
(highly recommended to aficionados), Watts, Duncan, 2004,,The 'New'
Science of Networks, Annual Review of Sociology,
Power Law Distributions in Real and Virtual Worlds,
http://www.isoc.org/inet2000/cdproceedings/2a/2a_2.htm
Graph Theory in Practice, Part II,
http://www.sigmaxi.org/amsci/issues/comsci00/compsci2000-03.pdf
Emily M. Jin, Michelle Girvan, and M. E. J. Newman, 2001, “The
Structure of Growing Social Networks,” Santa Fe Institute Working
paper, http://netec.mcc.ac.uk/WoPEc/data/Papers/wopsafiwp01-06032.html
Robert Axelrod, 1997, Advancing the Art of Simulation in the Social
Sciences, in Simulating Social Phenomena, ed. Rosario Conte, Rainer
Hegselmann, and Pietro Terna, Berlin: Springer.
You can find an updated version at:
http://www.commerce.uct.ac.za/Economics/Courses/ECO425X/2004/
Notes/AdvancingArtSim2003.pdf
Kogut, B., 2000, “The network as knowledge: Generative rules and the
emergence of structure” Strategic Management Journal, 21: 405-425
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