Global Strategy, centralization-decentralization debate part ii only[cvg 08]
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Global Strategy, centralization-decentralization debate part ii only[cvg 08]






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  • (from What is Strategy, Porter 1996, p 4.)TQM: OE focused since the 1980’s Japan on improving thingsBaldrige Quality Award, six sigma, Two reasons why these OE tactics are ineffective: 1) Competition for efficiency raises the bar for everyone. 2) The more benchmarking and improvements (KPI’s) they do, the more ALL companies begin to look alike. This means that companies become copycats, giving away all the value to the customers and retaining little profit margin for themselves. The curve moves outward and customers benefit. Price wars.Frequent mergers prove this thinking: economize, reduce costs, improve scale, etc. Companies buy each other due to stock performance pressure because they have no other ideas. No unique competitive strategy.Lets take a look at a good example…. The Moving vcomp[any,
  • Use container company versus old trucking company.

Global Strategy, centralization-decentralization debate part ii only[cvg 08] Global Strategy, centralization-decentralization debate part ii only[cvg 08] Presentation Transcript

  • Global StrategyCritical Concepts in Global Strategy II
    Steve Varela
  • Rate of Change is AcceleratingCompetition is Everywhere
    Many have seen Firms “Restructure” and “Downsize”
    Many firms have tried “Re-Engineering”
    Problem: There are Diminishing Returns on Operational Effectiveness.
    You can’t… “Save your way to Success”
    Successful Firms do Not Just Over-Execute, i.e. Japanese Firms 1970-1980’s
    they also Out Think and Out Innovate their Peers
  • Productivity Frontier
    Value Created
    Left: What value you provide
    Bottom: At what cost
    Constantly moving outward..
    New technologies
    New management approaches
    This cannot continue indefinitely…
  • Operational Effectiveness ≠ Strategy
    Operational Effectiveness
    Strategic Positioning
    Higher Quality
    Higher Speed
    Higher Productivity
    Lower Defects
    Lower Costs
    Lower Inventory
    “Performing similar activities better than rivals”
    Perform differentactivities than competitors
    Perform similar activities in different ways
    “Choosing a different set of activities to deliver a unique mix of value”
    100’s of activities required to create, produce, sell and deliver products/services.
    A firm can outperform its competitors only if it can establish a difference that it can preserve.
  • Moving Company
  • It Continues with ‘Fit’
    Fit as Consistency
    Are the resources internally consistent (match)
    Avoid Resource Acquisition and Management Inconsistencies
    Wal*Mart focuses primarily on those activities and resources that contribute to its position of cost advantage
    Dell Computer specializes in those activities that contribute to its cycle time, operations cost and price advantages
  • Fit as Reinforcing
    Do resources in one area reinforce resources in another area to build competitive advantages?
    Location facilities reinforce distribution skills
    Information processing resources complement inventory control
    Location and Distribution along with IT skills reinforce inventory management competencies
    Classic WalMart Example:
  • Fit as Optimizing: Are resources assembled where they exploit naturally occurring competitive benefits?
    SW Airlines: Exclusive use of 737’s
    Maintenance (Cheaper), Parts (Cheaper)
    Flight Crew Training/Availability (Cheaper)
    Airport gate options , more flexible
    Airport gate crews, more flexibility, backup
    Food Catering: Simple Box
    = Lower costs system wide, each decision is related and benefits spread to other processes/costs.
    Low Cost Structure allows them to attack markets by bringing down prices through greater utilization/efficiency of resource set.
  • Management Tactics:
    Focus attention on Key resources that possess a majority of desirable characteristics
    I.e. Low Imitability, High Transferability)
    Deploy resources that conform to strategy, eliminate those that don't “Fit”.
    Rethink Value Contribution / Process
    GE’s “Work Out” Program
  • Questions?
  • Contradictory Forces in Global Competition
    Global firms are faced with a clear set of Contradictory Forces:
    The need for Global Rationalization
    Scale and Scope Economies on a global basis
    The need for Local Responsiveness
    Adaption to local governments, markets, standards and tastes
  • Factors Favoring Global Rationalization
    Asset Intensity: more capital needs (eats) more volume
    Global Competitors: expansion, don’t be left out – fear
    Global Customers (if you cant supply me everywhere, you cant anywhere)
    Global Suppliers: enabler, since supply is global, you can purchase globally also
    Technology Intensity (R&D): Needs to be spread around the world; economics
    Universal Needs, Preferences, Tastes
    Real needs (washing machines, cellular phones, internet)
    Created needs (McDonalds, Coca Cola, Starbucks in Brazil, China)
  • Factors Favoring Local Responsiveness
    Unique local needs, preferences, service
    Government Intervention, Licensing
    Industry Standards (sizes, protocols)
    Lack of Global Competitors (open door)
    Limited Economy of Scale Opportunities
    Locally Specific Marketing Tastes
    Marginal Incremental Benefit to Economies of Scale
  • The Contradictory Forces
    Need for Global Rationalization
    High Costs, Centralized, Big Factories, Heavy Costs
    Komatsu (high need) Phillips Electronics
    Need for Local Responsiveness
    Decentralized, market driven, power in local markets.
    Locally tailored products, little need for collaboration
  • Caterpillar & Komatsu
  • The Contradictory Forces (cont)
    Most Firms are on one side or the other
    Boeing (high centralized)iPhone(more local)
    A note on acquisitions
    Work better in Local Responsive Organization, Just a name change.
    Global/Centralized firms find employees/tacit knowledge rarely moves to HQ.
  • Popular Strategic Approaches
    Need for Global Rationalization
    “Global Firms” need massive economies of scale
    Customers accept a standard product
    Boeing (high need) Phillips Electronics (low need)
    Need for Local Responsiveness
    “Multi-Domestic” firms offer locally tailored products
    Benefits of local responsiveness outweigh the inefficiencies
  • Broad International Strategy Types
    High Global Rationalization
    Tight, hierarchical integrated chain of activities that span multiple markets
    Production is standardized across all countries – same platforms
    Global scale economies are stressed
    Company will have one approach to markets irrespective of country location
    Operation's are integrated within a region
    Regional decision making for production/marketing and sales functions
    Country differences within region are downplayed
    Company may have several regional strategies
    High degree of responsiveness to national markets
    National subsidiaries enjoy a high degree of autonomy
    Efficiency emphasized on country by country basis
    Company will have multiple “Country Strategies”
    High Local Responsiveness
  • Questions???
  • Strategy Types x Organizational Structure
    Organizational Structure should be constructed to facilitate the Strategy…
  • Broad Organizational Structures
    Globally Integrated
    Centralized: R&D, Production, Marketing, Planning, Resource mgmt, HRM, and Finance
    Regional/Local: Sales & Distribution
    Centralized: HQ, Finance Controls and Portfolio & Core R&D
    Decentralized: Product Choices, Sourcing, Production, Marketing, Sales and HRM, R&D
    Centralized: HQ, Finance Controls and Portfolio Choice
    Decentralized: Product Choices, Sourcing, Production, Marketing, Sales, R&D and HRM
    Centralized: R&D, Production, Mktg., Planning, Resource Mgmt, HRM.
    Local: ??? Depends: Product Priority or Market Priority.
  • Some Characteristics of Successful Global Firms
    Coordinated World Strategy
    Global Organization and Management
    Global Management of Cash Flows
    Global Resource Mgmt & Allocation
    Focus on Core Competencies
    Global Transfer of Learning
  • Coordinated World Strategy
    In global industry, more firms coordinate their activities on a worldwide bases
    3 or 4 bosses, both product and geographic markets
    Results on a 3 or 4 dimensional matrix within the company
    Strategy and Tactics must be consistent to each other AND across all major product and geographic markets
    The Strategic position of a global firm in a single geographic market may be substantially determined by the firms overall global position
    May be defensive
    Strategy may dominate, easy economic decision.
    L.M. Ericcson: all employees speak English because it is difficult to find good international talent willing to learn to speak Swedish.
  • Global Organization and Management
    Build and sustain a global organization structure
    Create formal reasons to think globally (meetings, events, awards)
    Track your competition on a global basis
    Encourage Communication across formal boundaries
    Good ideas can originate almost anywhere
    Cycle time also applies to implementation of new ideas
    Reinforce the need for Cultural Awareness and Sensitivity
    You need to understand all significant markets and players
    A successful multicultural team can be a competitive advantage
  • Global Management of Cash Flows
    Build and Sustain Global Cost Advantage
    Scale, Scope or Experience Advantages
    Low (total) Cost Locations
    Build and Sustain Profit Sanctuaries or Market Fortresses
    Geographic Region
    Home Country
    Strategically coordinate international cash flows
    International Cross Subsidiaries
    Minimize tax Obligations
  • Global Resource Allocation: Tie Resource Allocation to Strategic Goals
    Will expenditure further firms broad corporate goals?
    You need to send consistent signals over time
    Continually re-calibrate environment/goals/behavior combination
    Don’t Rely solely on Financial Returns
    Need time to build profit sanctuaries
    May need presence in a specific geographic center of research
    Some manufacturing flexibility is important; Hedge currency flow with capital assets
    To offset government or FX pressures
    To learn techniques or processes from others
    Define Human Resources Broadly (Globally)
    Human resources should flow through organization
    Cultural Biases will emerge,
    Long term planning is essential here
  • Focus on Core Competence
    Core competence at the heart and soul of a firm
    Consist of collective organizational learning in a critical area
    Core products, business units and end products flow from them
    Few firms will have more than a few of these such competencies
    Traditionally originate from Asia
    Honda Engines, Canon Imaging
    Dominating an area of core competence may offer unforeseen benefits
    Should lead to domination of core products
    May shape evolution of applications and end markets
    Get in or Start the Standards Body and you are: Google / Bill Gates / Garmin (GPS)
  • Global Transfer of Learning
    Organizations Learn: Basic Principle of Core Competence
    Local Knowledge Bases within the firm are real assets
    Measurement systems do not capture them (I.e income statement, balance sheet)
    Knowledge, like money has Velocity
    The more the user gets it, the greater the effect
    Unlike physical assets, use may enhance this asset
    A global firm needs to transfer learning from around the world
    Real economies of scope are possible
    Cycle Time is important here also
    Learning's from Brazil must flow to Mexico, Thailand, US, Japan… Otherwise, What’s the advantage of being Global?
  • Symptoms of Successful Globalization
    Debates with managers from other countries
    Fewer total basic products
    More variants on basic products
    More worldwide products
    Foreign exchange rates are often an issue
    Global managers must understand the idea of FX risk
    Increased interaction with managers from other countries
    Increased travel time; more time in field
    More discussion about customers, competitors, technology and suppliers with counterparts in other countries
    Multiple reporting relationships
    Life in the 21st Century…
  • Questions???
  • Summary
    Fit: it’s the unique way we put together our resources to deliver our product/service
    Global / Local Strategic Choices'
    People are incentivized to collaborate, share knowledge across firm 24x7, continuously…
  • Recent News, Quotes & Organization Examples
  • A Simplified View of Distributing Autonomy
    Corporate Headquarters
    Regional Centers
    National Units
    World Product
    • Strength of globalization drivers
    Regionally based or Adapted product
    • Product characteristics
    Regional Strategy
    National Strategy
    Nation based or adapted product
    • Strategic positioning vs. operational implementation
  • Global BusinessManagement
    Commercial OperationsWestern Hemisphere
    Commercial OperationsEastern Hemisphere
    Responsible for alltrade marketing andsales in North Americaand Latin America
    Responsible for alltrade marketing andsales in Europe, Asia,Africa, Oceania
    Responsible worldwidefor all product lines:
    • Manufacturing
    • R&D
    • Strategic Marketing
  • “I want my business in Brazil to be run by Brazilians, the business in Japan by Japanese, the German operation by the Germans…”
    Senior VP, Dow Chemical Company
  • “From the early 1950s through the late 1970s, Caterpillar placed thousands of employees abroad. As a result, five out of six top managers have had international experience and are well equipped to deal with global competition.
    Recently, however, there has been a marked reduction in the use of expatriates. How will the future generations of Caterpillar managers gain the expertise that is, and will continue to be, a key factor in the company’s competitive success?”
    Lee Morgan
    Retired CEO and Chairman
    Caterpillar Corporation