Strategy and Structure: Corporate Restructuring and the Scope and Characteristics of Sunk Costs

Abstract

Most studies of industrial restructuring and regional adjustment are focused upon the local consequences or causes of restructuring. Few studies are focused upon corporate strategy, an essential ingredient for a better understanding of the motive forces behind restructuring. This paper is an attempt to redress the balance, beginning with the relationship between structure (the inherited configuration of production) and strategy (the design and implementation of restructuring). As part of this analysis, three types of strategy are distinguished: structure-dependent, structure-limited, and structure-focused strategies. To appreciate better the connection between the choice of strategy and corporate form, a series of models of corporate control are developed that distinguish between ownership and management. These preliminary arguments are then used to analyse the scope of sunk costs—that portion of fixed costs which are non-recoverable. To illustrate the scope of the framework used, recent examples of restructuring from northeast Asia and North America are interpreted in the light of the analytical model.