Strategy analysis - Corporate strategy analysis
3 important questions on Strategy analysis - Corporate strategy analysis
Economic theory suggests that the optimal activity scope of a firms depends on
The relative transaction cost of performing a set of activitities inside the frims versus using the market mechanism
Transactions inside a organization may be less costly than market based transaction for several reasons:
Information: communication costs inside an organization are reduced because confidentiality can be protected and credibility can be assured
enforcement: the HQ can play a critical role in reducing the costs of enforcing agreements
asset sharing: organization sub units can share valuable non-trade assets such as organizational skills
enforcement: the HQ can play a critical role in reducing the costs of enforcing agreements
asset sharing: organization sub units can share valuable non-trade assets such as organizational skills
There are several potential explanations for the preceding diversification discount:
Empire building: managers want to go big instead of looking if it fits
incentive misalignment
monitoring problems
incentive misalignment
monitoring problems
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