Modern Corporations as Purposive Economic Systems

This chapter lays out the salient characteristics of a modern corporation that formulates and implements dynamic strategy. The dynamic strategy of such a modern corporation is encoded in the spatial and temporal variety of economic activities that are elemental to its value-creating economic activity system. The modern corporation, which is conceptualized as a profit-seeking firm with bounded rationality, is featured as a purposive economic activity system that exists to create value for its customers and other stakeholders. The profit-seeking firm conceives and performs various economic activities within its boundary. It collaborates and competes with other profit-seeking firms to create and capture value either nested within or dispersed across various competitive enterprise systems (CES) within a dynamic market economy. It executes two distinct types of value-creating economic actions with an intent to improve long-run profits—those taken under conditions of risk (‘strategic actions’) and uncertainty (‘entrepreneurial actions’) respectively. All economic actions which contribute to the firm’s economic profits, by definition, contribute to its enterprise value. The profit-seeking firm is explained as a portfolio of competences and a portfolio of strategic assets respectively wherein the portfolio of competences (strategic assets) determines the set of potential (realized) strategic actions. At any time, the enterprise value is the sum of future economic profits discounted at the enterprise’s cost of capital and reflects the value of the firm’s fixed assets as well as intangibles.