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Corporate Theory and Its Role in Zenger’s Article Essay

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Updated: Aug 7th, 2020

Central Theme

In his article, Zenger suggests a new approach to designing business strategies. The need for a new approach is justified by the fact that the traditional understanding of strategic planning, and the practices associated with it, led to a situation in which strategy and growth came into conflict. So-called “sustained success” companies are those dedicated to their strategies, thus ensuring stability but not growing, which in turn reduces the interest of investors. In other words, many businesses fail to move forward despite having a strategic plan. Zenger argues that the primary reason for this situation lies in the concept of strategy as positioning. This concept implies that the main goal of the strategic approach is to target certain markets or certain parts of certain markets and position products and services in a way that provides the business with a competitive advantage. Also, the value/cost trade-off (i.e. whether a business should strive for higher quality at a similar price or for reasonable quality at a lower price) is considered a necessary strategic choice. The article’s author challenges these common understandings.

Zenger’s recommendations are based on the assumption that the capacity of strategic planning is somewhat exaggerated. It is argued that, from inside their operations, companies hardly ever have a comprehensive view of what is going on in the market, especially its latent and hidden developments. Thus, strategic planning is often forced to rely on assumptions to an unacceptable extent. That is why the author suggests that businesses should instead focus on creating a corporate theory. This theoretical approach entails closely examining both the internal capabilities and external opportunities of a business. The goal is to match the business’s available resources and specific characteristics with the needs of the identified market in a more educated manner by taking a theoretical approach to value creation.

The importance of having a corporate theory may be overlooked by businesses for several reasons. For example, the very word “theory” suggests something detached from actual circumstances and operating within the framework of ideal or unrealistic conditions. In a sense, “theoretical” is an antonym for “practical,” which can make businesses approach theories with suspicion. However, Zenger explains that a corporate theory is not something abstract—on the contrary, it should be specific to every business. A good theory identifies what a company has or what it can do that is distinctive, thus ensuring effective value creation. The theoretical approach allows management to refocus away from internal operations and production and toward an exploration of the market in search of hidden demand. A corporate theory thus functions as a “treasure map” for businesses.

The central idea throughout the article is that the potential for success is not found within the companies themselves but in the market. Zenger argues that the most successful businesses are not necessarily those that invent something but rather those who find the right application. For example, Apple was not the first company to produce a music player or a smartphone, but it was the company that transformed those inventions into something that everyone wanted and needed. The article’s author shows how such value creation is possible through the design and use of an appropriate corporate theory.

Critical Analysis

Zenger’s article is well structured and formatted. Summaries, quotes, and text boxes with examples make it easier to understand the author’s ideas. By providing many examples of companies that have demonstrated good corporate theories as well as those that have demonstrated poor ones, Zenger supports his ideas and builds a strong argument.

However, from my own perspective, I would say that Zenger did not tell me anything new. I did not find his concept of corporate theories unique in terms of understanding how businesses grow, develop, and succeed. For example, Zenger argues that a good corporate theory is designed through foresight, insight, and cross-site (see Main Takeaways below). However, the importance of predicting market developments, analyzing operations, and learning about the industry and competitors had been considered important aspects of strategic planning long before the article was published. I do not understand why Zenger believes that companies that do have strategic planning but do not have corporate theories will stop growing. I think it is basically a difference in terminology—what Zenger calls a “corporate theory” has actually already been incorporated by many researchers, practitioners, and learners, including me, into the notion of strategic planning.

Main Takeaways

What business practitioners should learn from Zenger’s article is how successful corporate theories are developed and applied. In this regard, Zenger argues that a good corporate theory is guided by what he calls “three strategic sights”: foresight, insight, and cross-sight.

The concept of foresight means that the theoretical approach to doing business should incorporate prediction. Indeed, no planning is possible without an idea of what is coming, and strategic planning should take into consideration the way many things will develop in the future, including upcoming innovations, social factors affecting demand, technological progress, industry developments, and competitors’ pursuits. In the modern world, the successful prediction is complicated by the rapid rate of development. However, it has been established that successful businesses are not simply dedicated to keeping their products and services as good as they were before. Instead, successful businesses are those that strive to foresee how they will need to change under the circumstances of the evolving market.

The second concept, insight, refers to the ability of businesses to clearly define their current assets and activities. As explained above, corporate theories should be specific to each business, and the most critical component of designing such theories is a profound understanding of what the company does and what it is capable of. Insight includes identifying the industry that a business is in and evaluating the business against its competitors for the sake of detecting distinct features. This comparison is necessary because it is the distinct features that are capable of providing new opportunities for development and driving companies toward creating new value. A lack of insight is a risk of overlooking such features.

Cross-sight is to work toward broadening the capabilities of businesses by finding additional opportunities. Upon identifying its valuable assets (insight), a company should think about the assets that it can gain and combine with existing ones to address the needs of the market. It is important to understand that it is not always good for businesses to expand mechanically (i.e. produce more items in larger numbers). Instead, it is beneficial to analyze, for example, what a company can produce in addition to what is produces currently (i.e. products that existing customers might be also interested in given their interest in current products).

The three sights show that to avoid falling behind in today’s world, businesses need to look ahead (foresight), look inside (insight), and look around (cross-sight). According to Zenger, analysis and prediction underlie the formation of a corporate theory that will ensure growth and success.

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IvyPanda. (2020, August 7). Corporate Theory and Its Role in Zenger's Article. Retrieved from https://ivypanda.com/essays/corporate-theory-and-its-role-in-zengers-article/

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"Corporate Theory and Its Role in Zenger's Article." IvyPanda, 7 Aug. 2020, ivypanda.com/essays/corporate-theory-and-its-role-in-zengers-article/.

1. IvyPanda. "Corporate Theory and Its Role in Zenger's Article." August 7, 2020. https://ivypanda.com/essays/corporate-theory-and-its-role-in-zengers-article/.


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IvyPanda. "Corporate Theory and Its Role in Zenger's Article." August 7, 2020. https://ivypanda.com/essays/corporate-theory-and-its-role-in-zengers-article/.

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IvyPanda. 2020. "Corporate Theory and Its Role in Zenger's Article." August 7, 2020. https://ivypanda.com/essays/corporate-theory-and-its-role-in-zengers-article/.

References

IvyPanda. (2020) 'Corporate Theory and Its Role in Zenger's Article'. 7 August.

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