Chapter  Thirteen Implementing Strategy in Companies That Compete Across Industries and Countries
“ It is not the strongest of the species that will survive, not the most intelligent, but the  ones most responsive to cha...
Managing Corporate Strategy  Through the Multidivisional Structure <ul><li>The Multidivisional Structure </li></ul><ul><ul...
Multidivisional Structure Figure 13.1
Advantages of a  Multidivisional Structure <ul><li>Enhanced corporate financial control </li></ul><ul><ul><li>Profitabilit...
Problems in Implementing a Multidivisional Structure <ul><li>Establishing the divisional-corporate authority relationship ...
Unrelated Diversification <ul><li>Operates as a ‘portfolio’ of independent businesses </li></ul><ul><ul><li>Divisions have...
Vertical Integration <ul><li>Bureaucratic costs are more complex and  expensive than unrelated diversification. </li></ul>...
Related Diversification <ul><li>Gains derived from the transfer, sharing, or leveraging across divisions </li></ul><ul><ul...
Corporate Strategy and  Structure and Control Table 13.1
Implementing Strategy  Across Countries <ul><li>Localization Strategy </li></ul><ul><ul><li>Local responsiveness  </li></u...
Global Strategy/Structure Relationships Table 13.2
“ Global managers have  exceptionally open minds.  They respect how different countries do things.” - Percy Barnevik © Roy...
Implementing a  Localization Strategy <ul><li>Value creation activities duplicated in every region or country of operation...
Global-Area Structure Figure 13.2
Implementing an  International Strategy <ul><li>Foreign sales organizations added to existing structure using the same con...
Global Division Structure Figure 13.3
Implementing a Global Standardization Strategy <ul><li>Product-group headquarters created to coordinate the activities of ...
Global Product-Group Structure Figure 13.4
Implementing a  Transnational Strategy <ul><li>Decentralized control provides flexibility for local issues. </li></ul><ul>...
Global-Matrix Structure Figure 13.5
Entry Mode and Implementation <ul><li>Internal new venturing </li></ul><ul><li>The internal venturing process needs to giv...
Implementation at General Mills
The Role of Information Technology <ul><li>IT provides a common software platform  that can make it less problematic for  ...
IT, the Internet, and Outsourcing <ul><li>IT and strategy implementation </li></ul><ul><ul><li>Knowledge leveraging throug...
“ The best way to  predict the future  is to create it  yourself.” - Peter Drucker © RoyaltyFree/ Harnet/Hanzon/ Getty Ima...
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  1. 1. Chapter Thirteen Implementing Strategy in Companies That Compete Across Industries and Countries
  2. 2. “ It is not the strongest of the species that will survive, not the most intelligent, but the ones most responsive to change.” - Charles Darwin © RoyaltyFree/ Harnet/Hanzon/ Getty Images
  3. 3. Managing Corporate Strategy Through the Multidivisional Structure <ul><li>The Multidivisional Structure </li></ul><ul><ul><li>Divisions </li></ul></ul><ul><ul><ul><li>Responsible for day-to-day operations </li></ul></ul></ul><ul><ul><ul><li>Self-contained – with a full set of value-chain functions </li></ul></ul></ul><ul><ul><ul><li>May share value-chain functions with other divisions </li></ul></ul></ul><ul><ul><li>Corporate headquarters staff </li></ul></ul><ul><ul><ul><li>Monitor divisional activities </li></ul></ul></ul><ul><ul><ul><li>Exercise financial control over each division </li></ul></ul></ul><ul><ul><ul><li>Strategic responsibilities </li></ul></ul></ul>Addresses the problems and economizes the costs of managing the handoffs between value-chain functions across industries. A company competing across industries and countries confronts a new set of problems and has to make a new series of organizational design decisions for a global and multinational business.
  4. 4. Multidivisional Structure Figure 13.1
  5. 5. Advantages of a Multidivisional Structure <ul><li>Enhanced corporate financial control </li></ul><ul><ul><li>Profitability of divisions is clearly visible </li></ul></ul><ul><ul><li>Corporate office acts as the ‘investor’ – channeling funds to high-yield uses </li></ul></ul><ul><li>Enhanced strategic control </li></ul><ul><ul><li>Frees corporate managers from business-level responsibilities </li></ul></ul><ul><ul><li>Corporate managers can deal with the wider strategic issues </li></ul></ul><ul><li>Growth </li></ul><ul><ul><li>Overcomes organizational limit to its growth </li></ul></ul><ul><li>Stronger pursuit of internal efficiency </li></ul><ul><ul><li>Can compare one division against another </li></ul></ul><ul><ul><li>In a better position to identify inefficiencies that result in bureaucratic costs </li></ul></ul>Research suggests that large companies that adopt a multidivisional structure outperform those that retain the functional structure:
  6. 6. Problems in Implementing a Multidivisional Structure <ul><li>Establishing the divisional-corporate authority relationship </li></ul><ul><ul><li>How much authority should be centralized to corporate </li></ul></ul><ul><ul><li>How much should be decentralized to the divisions </li></ul></ul><ul><li>Distortion of information </li></ul><ul><ul><li>Short-run ROIC versus investments in the future </li></ul></ul><ul><li>Competition for resources </li></ul><ul><ul><li>Divisions actively competing for financial and other resources may reduce interdivisional cooperation </li></ul></ul><ul><li>Transfer pricing </li></ul><ul><ul><li>Need to properly design incentive and control systems </li></ul></ul><ul><li>Short-term R&D focus </li></ul><ul><ul><li>Must control incentives to assure that both short- and long-term goals are met </li></ul></ul><ul><li>Duplication of functional resources </li></ul><ul><ul><li>Determine which functions to centralize and decentralize to minimize duplication </li></ul></ul>
  7. 7. Unrelated Diversification <ul><li>Operates as a ‘portfolio’ of independent businesses </li></ul><ul><ul><li>Divisions have considerable autonomy </li></ul></ul><ul><ul><li>No integration among divisions is necessary </li></ul></ul><ul><ul><li>Businesses bought & sold as conditions change </li></ul></ul><ul><ul><li>Idea of ‘corporate culture’ is meaningless </li></ul></ul><ul><li>No exchanges or linkages among divisions </li></ul><ul><ul><li>Easiest and cheapest strategy to manage </li></ul></ul><ul><ul><li>Lowest level of bureaucratic costs </li></ul></ul><ul><li>Controls to evaluate divisional performance easily and accurately </li></ul><ul><ul><li>Each division evaluated by output controls, e.g. ROIC </li></ul></ul><ul><ul><li>Sophisticated accounting controls </li></ul></ul>For unrelated diversification, the multibusiness model is based on general managerial capabilities in entrepreneurship, organizational design, or strategy.
  8. 8. Vertical Integration <ul><li>Bureaucratic costs are more complex and expensive than unrelated diversification. </li></ul><ul><li>Multidivisional structure provides necessary controls to achieve benefits from the control of resource transfers. </li></ul><ul><li>Must strike balance between centralized and decentralized control. </li></ul><ul><li>Divisions must have input regarding resource transfer. </li></ul><ul><li>Integration is managed through a combination of corporate and divisional controls. </li></ul>The vertically integrated company requires the centralized control – in order to achieve the benefits from the sequential flow of resources from one division to the next.
  9. 9. Related Diversification <ul><li>Gains derived from the transfer, sharing, or leveraging across divisions </li></ul><ul><ul><li> R&D knowledge  Industry information  Customer bases </li></ul></ul><ul><li>Output control difficult as businesses share resources </li></ul><ul><ul><li>Not easy to measure performance of individual divisions </li></ul></ul><ul><li>Integration and control at divisional level required </li></ul><ul><li>Incentives and rewards for cooperation necessary </li></ul>Principle benefits of related diversification come from transferring, sharing, or leveraging functional resources or skills and some exchange of distinctive competencies across divisions. High bureaucratic costs The aim is to design structure and control systems to maximize strategic benefits while economizing on costs.
  10. 10. Corporate Strategy and Structure and Control Table 13.1
  11. 11. Implementing Strategy Across Countries <ul><li>Localization Strategy </li></ul><ul><ul><li>Local responsiveness </li></ul></ul><ul><ul><li>Decentralized control in each country it operates </li></ul></ul><ul><li>International strategy </li></ul><ul><ul><li>Centralized R&D and marketing in home country </li></ul></ul><ul><ul><li>Other value creation functions are decentralized </li></ul></ul><ul><li>Global standardization strategy </li></ul><ul><ul><li>Oriented toward cost reductions </li></ul></ul><ul><ul><li>Centralized functions at optimal global location </li></ul></ul><ul><li>Transnational strategy </li></ul><ul><ul><li>Local responsiveness and cost reduction </li></ul></ul><ul><ul><li>Select best global location to achieve these objectives </li></ul></ul>Need to coordinate and integrate global value-chain activities increases as company moves from a localization  to an international  to a global  to a transnational strategy
  12. 12. Global Strategy/Structure Relationships Table 13.2
  13. 13. “ Global managers have exceptionally open minds. They respect how different countries do things.” - Percy Barnevik © RoyaltyFree/ Stockdisc/ Getty Images
  14. 14. Implementing a Localization Strategy <ul><li>Value creation activities duplicated in every region or country of operation </li></ul><ul><li>Decentralized authority in each overseas division </li></ul><ul><li>Managers at global headquarters evaluate performance of overseas divisions </li></ul><ul><li>No integrating mechanisms needed </li></ul><ul><li>No global organizational culture </li></ul><ul><li>Duplication of specialist activities raises costs </li></ul>Companies using a localization strategy lose many of the benefits of operating globally. A company pursuing a localization strategy generally operates with a global area structure, establishing overseas divisions in regions or countries:
  15. 15. Global-Area Structure Figure 13.2
  16. 16. Implementing an International Strategy <ul><li>Foreign sales organizations added to existing structure using the same control system </li></ul><ul><li>Product customization is minimal </li></ul><ul><li>Subsidiary handles local sales and distribution </li></ul><ul><li>System of behavior controls set up to keep the home office informed </li></ul><ul><li>Global divisions coordinate the flow of different products across different countries </li></ul>A company shifts to an international strategy when it decides to sell domestically made products in markets abroad. This arrangement of tasks and roles reduces the transaction of managing handoffs across countries and world regions.
  17. 17. Global Division Structure Figure 13.3
  18. 18. Implementing a Global Standardization Strategy <ul><li>Product-group headquarters created to coordinate the activities of home and overseas operations </li></ul><ul><li>Product-group structure allows managers to decide how to best pursue global standardization strategy </li></ul><ul><li>Problems of coordinating and integrating global activities across product divisions </li></ul><ul><li>Structure must lower bureaucratic costs and provide central control </li></ul>Company locates its manufacturing and other value-chain activities at the global location that will allow it to increase efficiency, quality, and innovation using a global product-group structure. Focus is on centralized control by product group. This makes it difficult for different product divisions to trade information an knowledge.
  19. 19. Global Product-Group Structure Figure 13.4
  20. 20. Implementing a Transnational Strategy <ul><li>Decentralized control provides flexibility for local issues. </li></ul><ul><li>Product and corporate managers at headquarters have centralized control to coordinate company activities on global level. </li></ul><ul><li>Knowledge and experience can be transferred to create value with the ‘matrix-in-the-mind’. </li></ul><ul><li>Global corporate culture is created. </li></ul><ul><li>IT integration mechanisms provide coordination. </li></ul>Many companies implemented a global-matrix structure to simultaneously lower their global cost structures and differentiate their activities. The task of integrating and controlling a global-matrix structure can be a difficult task.
  21. 21. Global-Matrix Structure Figure 13.5
  22. 22. Entry Mode and Implementation <ul><li>Internal new venturing </li></ul><ul><li>The internal venturing process needs to give new-venture manages the autonomy and motivation they need to develop new products. </li></ul><ul><li>Joint venturing </li></ul><ul><li>Allocating authority and responsibility is the first major implementation issue when companies share resources to collaborate on the development of a new business model to compete in a new market or industry. </li></ul><ul><li>Mergers and acquisitions </li></ul><ul><li>The profitability of mergers and acquisitions depends on the structure and control systems that companies adopt to integrate and manage them. </li></ul>Altering business models and strategies by finding new ways to use resources and capabilities to create value.
  23. 23. Implementation at General Mills
  24. 24. The Role of Information Technology <ul><li>IT provides a common software platform that can make it less problematic for divisions to share information. </li></ul><ul><li>IT facilitates output and financial controls. </li></ul><ul><li>IT helps corporate managers react more quickly because of higher-quality, more timely information. </li></ul><ul><li>IT makes it easier to decentralize control to divisional managers, but react quickly if necessary. </li></ul><ul><li>IT makes it difficult to distort information because of standardized information. </li></ul><ul><li>IT eases the transfer pricing problem. </li></ul>IT is having increasingly important effects on the way multibusiness companies implement their strategies:
  25. 25. IT, the Internet, and Outsourcing <ul><li>IT and strategy implementation </li></ul><ul><ul><li>Knowledge leveraging through IT to achieve low costs and differentiation </li></ul></ul><ul><ul><li>Flattening the organization - moving toward decentralization and integration through IT </li></ul></ul><ul><ul><li>Virtual organization </li></ul></ul><ul><ul><li>Knowledge management system </li></ul></ul><ul><li>Strategic outsourcing and network structure </li></ul><ul><ul><li>IT increases the efficiency of interorganizational relationships </li></ul></ul><ul><ul><li>Business-to-business (B2B) networks </li></ul></ul><ul><ul><li>Network structure </li></ul></ul>The implications of IT for strategy implementation are still evolving - as new hardware and software reshape companies’ business models and strategies.
  26. 26. “ The best way to predict the future is to create it yourself.” - Peter Drucker © RoyaltyFree/ Harnet/Hanzon/ Getty Images
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