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“What Is the Theory of Your Firm?” by Zenger Essay

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Updated: Aug 7th, 2020

Central Theme

In the article, Zenger explores the problem that is rarely addressed in business school curricula. Instead of focusing on competitiveness and rivals, a company should explore and invest more in its ability to grow and create value. The author argues that it is not as crucial for a leader to sustain a competitive advantage; instead, the leader should focus on the new ways that can help them create value. To explain how a company can create value, Zenger provides a solution: the corporate theory. It should not be seen as a strategy, but, rather, as a set of strategies that can stimulate growth in value.

One of the major examples that can support the importance of corporate theory is Disney’s period of rising, decline, and successful rise again during several decades of the XX century. While the founder of the Disney Company had a clear and coherent theory that helped him create and enhance value, after Walt’s death Disney had to experience a serious decline in its business: revenues from films reduced, Disneyland had welcomed much fewer visitors, character licensing slipped as well. However, the company’s success depended on its connections between different products (comic books, toys, music, a theme park, and, of course, films). Since the company has shifted away from its primary product – animation – all other branches experienced a decline as well. New management, specifically Michael Eisner, had brought the desired turnaround: the company focused on investment into animation, which eventually resulted in infamous animated movies The Lion King and Beauty and the Beast. Disney’s revenues began to rose, and so did the company’s share in box offices and the popularity of Disney theme parks. Thus, corporate theory was implemented and led to growing success. The decline/rise scheme repeated several times in Disney’s history, but the original theory provided by Walt Disney was applied successfully again and again. According to Zenger, this is an example of “posthumous leadership”.

The corporate theory can be implemented only if one considers the three crucial “sights” as well: foresight, insight, and cross-sight. It might be clear that foresight examines those strategies and actions that can be valuable in the future. However, it should be neither too generic nor too widely shared, because both of these options will bring little profit to the company. Identifying the assets at the right time can result in increased value.

The insight suggests that the implemented corporate theory needs to be very company-specific; otherwise, those rivals that own identical assets can copy your strategic actions. Identification of unique and rare assets that are also company-specific can be the key ones (e.g. Disney’s timeless characters).

The last “sight”, i.e. the cross-sight implies that a company should understand what assets can be pursued and how they can be combined with the existing ones resulting in value. Shortly, while foresight focuses on future actions, insight examines the assets that exist in the company, and cross-sight evaluates how different assets can complement each other.

It should also be noted that not all companies are capable of successfully engaging corporate theory. As an example, Zenger provides the history of AT&T: after the first decline, the company was not able to understand what additional strategies needed to be engaged. Moreover, the company also did not evaluate any future trends and actions that could have been exploited in favor of AT&T. Thus, the lack of any “sight” led to unsuccessful management.

Critical Analysis

This theory provides an excellent example of how a manager should develop strategies and what implications exist for this or that strategy. Moreover, this theory has the potential to be helpful to new entrepreneurs and managers who are not yet able to understand the importance of synergetic actions and assets within a single company. This theory provides a fresh view of market competitions and competitors themselves; instead of battling them, Zenger argues a company has to focus on other aspects.

Although it is tempting to believe that poorly run companies are the potential horn of plenty for experienced managers, it is not necessarily so. The importance of competitive advantage should not be diminished. First, it ensures that the market will not be flooded by-products from the same manufacturer. Poor choice brings a little pleasure to customers. Second, lack of competitive advantage and the company’s self-centrism have to be approached with caution: all companies need to understand that staying flexible is an advantage these days. With the fast-paced technology of the XXI century, any corporation needs to remain quick and adjustable. Otherwise, even its uniqueness might not save it from failure.

However, the theory’s strengths should not be overseen. It is indeed crucial for any company to think first and act later. Thinking first implies creating a detailed plan, with a careful review of all strategies that one wants to implement. The three insights, proposed by the author, will help the strategist understand what aspects need more recognition and what ideas should be abandoned. Developing a model that is based on the existing information and theory is a step that could have saved thousands of companies.

In my opinion, even if a leader is not planning to turn this theory into practice, they should at least follow the author’s advice to develop a model of the landscape that surrounds the company. This approach can indicate many options and limitations that the corporation can use in its favor.

Main Takeaways

To ensure that the company can continue to create value without focusing too extensively on the competitive advantage, Zenger suggests that managers of corporations should rely on corporate theory. According to the author, this theory can indicate which strategies are more efficient and needed for the company at a given period. To broaden the manager’s perspective, Zenger suggests using three “sights”: foresight, insight, and cross-sight. Combined, these “sights” can help the manager assume that strategies will be relevant in the company’s nearest future, what unique assets and resources the company possess, and how assets and resources outside the company can be combined with the inner ones.

As the author states, it is not the competitive advantage that is the problem, but rather the company’s ability to transform its business in a way that it can produce value even in the highly overcrowded markets. Thus, being successful does not mean being quick or competitive, but rather thoughtful and unique. Many companies do not focus on their ability to create value via core and side assets, which eventually leads to reduced value and decline. Therefore, the company’s unique resources, assets, and capabilities need to be taken into consideration to create a valuable business. Lack of a coherent theory can result in losses and setbacks.

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IvyPanda. (2020, August 7). "What Is the Theory of Your Firm?" by Zenger. Retrieved from https://ivypanda.com/essays/what-is-the-theory-of-your-firm-by-zenger/

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""What Is the Theory of Your Firm?" by Zenger." IvyPanda, 7 Aug. 2020, ivypanda.com/essays/what-is-the-theory-of-your-firm-by-zenger/.

1. IvyPanda. ""What Is the Theory of Your Firm?" by Zenger." August 7, 2020. https://ivypanda.com/essays/what-is-the-theory-of-your-firm-by-zenger/.


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IvyPanda. ""What Is the Theory of Your Firm?" by Zenger." August 7, 2020. https://ivypanda.com/essays/what-is-the-theory-of-your-firm-by-zenger/.

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IvyPanda. 2020. ""What Is the Theory of Your Firm?" by Zenger." August 7, 2020. https://ivypanda.com/essays/what-is-the-theory-of-your-firm-by-zenger/.

References

IvyPanda. (2020) '"What Is the Theory of Your Firm?" by Zenger'. 7 August.

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