Trading off between Value Creation and Value Appropriation: The Financial Implications of Shifts in Strategic Emphasis

Firms allocate their limited resources between two fundamental processes of creating value (i.e., innovating, producing, and delivering products to the market) and appropriating value (i.e., extracting profits in the marketplace). Although both value creation and value appropriation are required for achieving sustained competitive advantage, a firm has significant latitude in deciding the extent to which it emphasizes one over the other. What effect does strategic emphasis (i.e., emphasis on value creation versus value appropriation) have on firm's financial performance? The authors address this issue by examining the effect that shifts in strategic emphasis have on stock return. They find that the stock…