Three Essays on Strategic Capital Allocation

Internal capital allocation is both economically important: $640 billion in the U.S. annually) and critical to firm strategy. Yet since Bower\u27s 1986 book, the topic has been largely ignored in the strategy literature. My dissertation comprises three essays that begin to fill this gap by examining the strategic implications of resource allocation behavior and outcomes. The first essay, Do Firms Really Allocate Capital So Inefficiently?, tackles the prevailing conclusion that the bulk of capital allocation is inefficient. I define an alternative: strategic) definition of efficiency and demonstrate not only that managers are more than twice as efficient as prior literature suggests, but also that strategic capital allocation affects firm value. The second essay, Chasing their Tails: Why Do Firms Subsidize Underperforming Segments?, examines why multidivisional firms delay the exit decision by cross-subsidizing their underperforming business units. I conclude first that these cross-subsidizing investments appear to be motivated by anticipated synergies between the units. However, I also demonstrate these synergies are illusive because they don\u27t enhance market value. The third essay, Corporate Investment and Managerial Foresight, investigates the ability of some firms to make unique investment decisions that enhance future value. I find that managerial characteristics, in particular a tendency to be overconfident, is associated with managerial foresight

Strategic Actions in a Platform Context: What Should Facebook Do Next?

This teaching case highlights the complex and unique strategic issues facing social media platform companies, using Facebook as the primary, motivating example. The case centers on the breach of trust that occurred when Cambridge Analytica acquired user data from 87 million Facebook accounts and then attempted to sway the 2016 U.S. Presidential election. The student is immersed in the context of Cambridge Analytica’s violation of user trust and asked to consider the key strategic issues confronting Facebook executives and the company’s ubiquitous platform. Economic concepts of a technology platform, such as network effects, switching costs, and lock-in, as well as overall platform strategy, are considered. Meanwhile, the technological concepts of designing a social media platform that engenders trust – one that balances the conflict between privacy and personalization – are stressed. An optional exercise on the functionality of application programming interfaces (APIs) is also provided. The target courses for the case include Information Systems Strategy, Digital and Social Media Strategy, and Managing Information Systems, at both the undergraduate and graduate levels. While the incidents surrounding Facebook and Cambridge Analytica have become politicized, the teaching case here focuses on the interaction of information systems and business strategy, not directly on the political atmosphere