Strategic Management: A View from INSEAD
Somewhere between setting the goals of an organization and deploying the tactics for implementing them comes the activity of strategic management. It is fundamentally about allocating, growing and/or acquiring the resources to make sure that a company achieves its objectives. As a leading international business school, with many Executive Education programs for senior managers, INSEAD places a great deal of research and teaching emphasis on strategic management. Here is a view from one INSEAD professor on the topic…
Internal or external resources?
Professor Laurence Capron directs INSEAD’s program on merger and acquisition strategy: M&As and Corporate Strategy and is one of the school’s leading researchers in the field of strategic management. In ‘Finding the Right Path’, a Harvard Business Review article, co-written last year with Will Mitchell of Duke University, she argues that firms which rely on a single path to growth – whether developing internal resources, acquiring new resources through M&A activity or relying on licensing and joint ventures – do not thrive to the same extent as those which combine several paths.
The first question to ask, she claims, is: “Do you already have relevant resources?” If so, it makes sense to develop them internally, whatever business you’re in. Whether you want to develop new drugs or new technology, if you have the R&D capability, it’s faster and more cost-effective to do the work internally. If not, say Capron and Mitchell, it’s time to look outside, starting with the possibility of a purchase contract or an alliance – and asking a second question: “Do you and your provider have a shared understanding of value?”
The meaning of value
According to Capron and Mitchell, watertight legal contracts are not enough. They cite the example of pharmaceutical company, Eli Lilly, which has created an Office of Alliance Management to understand when partnerships that go beyond simple purchasing contracts make sense. Partnerships can be stand-alone joint ventures or full cross-site collaborative relationships.
However, say Capron and Mitchell, “alliances are most effective when relatively few people and organizational units from each party need to work together to coordinate the joint activities.” For example, General Electric and French company, Snecma, have a successful long-term aircraft venture, CFM, that relies largely on independent activities by the two partners. By contrast, Renault and Volvo attempted a very broad integration of their development and marketing activities, while remaining independent companies… and failed.
From partnership to merger or acquisition
Sometimes, however, licensing or alliances are not an option. In such cases, it’s time to consider a merger or acquisition. But, insist Capron and Mitchell, this is a complex option, requiring many financial and managerial resources, which shouldn’t be undertaken lightly. Indeed, they say, a certain ruthlessness is required for success: “Firms using M&A regularly must be disciplined about selling off the resources they do not need, lest they become overloaded with excess baggage.”
Even if M&As are used regularly, conclude Capron and Mitchell, they should not preclude the development of internal resources or partnerships. Their research, which includes a 10-year, global study of 162 telecom companies, is conclusive. In the long-term, the more methods of resource development an organization uses, the better the business results.
To obtain the best results for your organization and to learn more about strategic management, you could consider enrolling on INSEAD’s Executive Education program on merger and acquisition strategy: M&As and Corporate Strategy, directed by Professor Laurence Capron.