Note: page numbers followed by f refer to figures.
acquisitions
capital markets’ responses to, 49, 60–62
control trap in integration, 110–111
forcing of changes at Disney, 25
General Dynamics’s leveraging of sell option, 59–60
Kraft’s acquisition of Cadbury, 73–74
maintaining employee motivation, 109–110
market response to AT&T’s, 39, 40
Mittal’s corporate theory and, 46, 47
reliance on markets versus choosing integration, 115–116
restructuring of Monsanto using, 66–67
results of General Mills’, 55–57
Apple
decentralized structure, 164
Jobs’s loyalty to his theory, 36–37
bundled-services strategy results, 40–41
difficulty in finding effective theory, 38–39
maximum value retained in, 54
risk in estimating value of synergies, 54–55
winner’s curse and, 50–51
Built to Last (Collins and Porras), 8
centralize or decentralize decision
common value auctions, 50–51
competitive advantage
business strategy and, 1–2
difficulty of sustaining value creation, 7–9
flaws in dynamic strategy school of thought, 9–10
folly of random experimentation, 10–11
growth expectations’ role in valuing companies, 6–7
limits to, for Southwest, 4, 5
limits to, for Walmart, 3–4, 5
skepticism of as central strategy, 9
sustained value creation and, 2, 5–6
complementarity and value creation, 31
contracts and collaborative relationships, 134–135
corporate theory
acquisitions at Mittal and, 46, 47
aligning with organizational design, 153–154
Apple’s success due to, 34–37
basis of strategic value creation, 19–20
brilliance of Disney’s (see Disney)
capacity to help overcome biases, 68
capacity to spot bargains, 69
characteristics of good theory, 2–3, 12–13
concept of strategy as position, 1–2
flaws in General Mills’, 65–67
forms of sight integral to, 42–43
key elements’ relationships, 28–29, 32
limits to competitive advantage, 3–6
mistakes made by AT&T (see AT&T)
corporate theory concept and, 31–32
postbreakup theories of AT&T, 39, 40
in Walt Disney’s corporate theory, 31–32
founding and early history, 21
identification of potential new core assets, 27–28
problem of supplier providing critical components, 106–107
return to original corporate theory, 25–26
scramble to reclaim dominance in animation, 27
shift away from original corporate theory, 24–25
synergistic connections outlined by Walt Disney, 21–24
theory of value creation envisioned by Walt Disney, 21, 23–24, 28
threats from hostile acquisition, 25
electronic procurement auctions, 122–123
external relationships
arm’s-length procurement, 127, 128
collaborative exchange relations, 131–132
corporate investment in IT and, 122
defining scope of control required by an exchange, 130–132
determining difficulty of specifying desired results, 132–133
determining uniqueness of solution, 131–132
determining owner of knowledge, 129–131
development of collaborative relationships by US firms, 120–122
dynamic patterns typical in, 136–138
electronic procurement auctions, 122–123
P&G’s use of IT to generate innovation, 124–126
past parts-sourcing strategy of US auto companies, 118–119
potentially negative outcomes of, 136
question of how best to engage suppliers, 127–128
risk of demotivating external parties, 129–130
shifting between suppliers, 132
summary of factors in choosing, 133
use of crowdsourcing platforms, 125, 126
use of outside parties to solve innovation problems, 123–124
foresight
corporate theory concept and, 29–30, 32
Jobs’s theory for Apple, 34
post-breakup theories of AT&T, 39, 40
of Walt Disney’s corporate theory, 30
Good to Great (Collins), 8
centralization and decentralization at, 146–148, 157
consistency in performance dimensions, 148
firm structure prior to 1980s, 145
market response to repeated restructuring, 148–149
In Search of Excellence (Peters and Waterman), 7
corporate theory concept and, 30–31, 32
Jobs’s theory for Apple, 34–35
post-breakup theories of AT&T, 39, 40
in Walt Disney’s corporate theory, 30–31
Lean Startup concept, 170
“lemons” problem
challenge for managers, 80–81
strategic choices for responding to, 88–93
challenge when suppliers require guaranteed future returns, 104
confidence implied by decision to outsource, 102–103
control trap in integration, 110–111
cost of using market to reshape incentives, 103–104
costs imposed by social comparisons, 112–113
costs of a reliance on markets versus integration, 115–116
dilemmas inherent in either decision, 99–100, 101
dynamic patterns in make-or-buy choice, 113–115
impediments to replicating market incentives, 111–113
markets’ effect on outside agents, 102
need to maintain employee motivation after integration, 109–110
outsourcing mistake by IBM, 100–101
problem of explaining path to value creation, 104
rationale for pursuing integration, 108–110
reasons markets fail, 103
supplier control of critical assets and, 107–108
supplier holdup of investments and, 105–108
supplier provision of critical components and, 106–107
vertical integration mistake by Curtis Publishing, 100
when markets and contracts fail to provide necessary incentives, 108
wisdom in choice to outsource, 102–103
Mittal Steel
consequences of deviation from theory, 47
synergy-based success, 55
Monsanto
analysts’ valuations of, 82–84
payoff for staying true to theory, 67–68
net present value (NPV), 64–65
organizational design
aligning with corporate theory, 153–154
benefits of shifting, 156
change in leadership at 3M and, 162–163
consequences of inconsistent choices, 152–154
counterproductiveness of multitasking and, 149–150
dynamic design through structural change, 157, 160
dynamic design using sequenced initiatives, 160–162
firms’ propensity to switch between two types of CEOs, 163–165
maintaining motivation amid changing metrics, 151–152
patterns of initiatives at Danaher, 161–162
sequenced initiatives at GE, 160–162
performance-based incentives, 112–113
Pershing Square Capital, 73
Pissarides, Christopher, 48
private equity funding, 91–93
private-value auctions, 51–53
regional Bell operating companies (RBOCs), 38, 39
Searle Corporation, 66, 67
strategic direction setting
analysts’ issuing of buy recommendations, 87
analysts’ preference for firms easy to analyze, 82–84, 87–89
capital markets’ perspective of investor efficiency, 76
capital markets’ skill in evaluating strategic choices, 74–75
conflicts over Kraft’s acquisition of Cadbury, 72–74, 77
“lemons” problem applied to corporate theories, 78–79, 80–81
“lemons” problem response options, 89–93
market valuations during dot-com boom, 79–80
private equity and avoiding analyst bias, 91–93
problem of managers’ agency, 72, 75, 76
securities analysts’ tasks, 86
strategic perspective of managers’ efficiency, 77
tensions between managers and investors, 71–72
trade-off between quality and ease of assessment, 84–86, 89
challenge of persuading others, 173–175
constructing theories of value that reveal problems, 170–172
crafting language to explain theory, 174–175
framed in terms of value creation, 168–169
key tasks of strategic leaders, 169–170
leader’s role at all company levels, 167–168
navigating organizational dynamics, 176–177
prioritizing available paths and, 176
problem of relying on rapid experimentation, 170
using organizational design as tool, 177
value in having theory to guide company, 172
Telecommunications Act (1966), 39
Tri Town Precision Plastics, 109
advantage of having unique corporate theory, 62–63
auctions, common value, 50–51
auctions, private-value, 51–53
capital markets’ response to acquisitions, 49, 60–62
corporate theories’ capacity to help overcome biases, 68
corporate theories’ capacity to spot bargains, 69
difficulty in accurately determining NPV, 64–65
flaws in General Mills’ corporate theory, 56–57
General Mills’ acquisition plan and, 55–56
history of Mittal steel and, 45–47, 55
impediments to discovering underpriced assets, 49
leveraging of non-unique synergies by General Dynamics, 59
Monsanto’s theory-guided investments, 65–67
post–Cold War defense industry status, 58
process of comparatively evaluating investments, 63–64
search for assets and capabilities in matching market, 47–49
theory-guided investment benefits, 62–63, 65, 68
value-creating benefits of selling, 58–59, 60
value creations through ownership of unique assets, 27
value creation
AT&T’s lack of good theory of, 41–42
basis of strategic, 19–20
challenge of sustaining, 5–9
competitive advantage and, 2
Jobs’s corporate theory and, 34–37
matching markets concept and, 48–49
strategic leadership framed in terms of, 168–173
Walt Disney’s corporate theory and, 21, 22f, 23, 26, 28