Presentation on theme: " Corporate Strategy Group 2 Bahrudin Yusuf T Ika Sekartaji MM UGM AP 14 YOGYA."— Presentation transcript:
Corporate Strategy Group 2 Bahrudin Yusuf T Ika Sekartaji MM UGM AP 14 YOGYA
Structure of the Multidivisional Company oTheory of the M-form oThe divisionalized firm in practice The Role of Corporate Management Managing the Corporate Portfolio oPortfolio planning techniques oValue-creation through corporate restructuring Managing Individual Businesses Managing Internal Linkages Recent Trends OUTLINE
Efficiency advantages of the multidivisional firm: - Recognizes bounded rationality—top management has limited decision-making capacity - Divides decision-making according to frequency: —high-frequency operating decisions at divisional level —low-frequency strategic decisions at corporate level - Reduces costs of communication and coordination: business level decisions confined to divisional level (reduces decision making at the top) - Global, rather than local optimization:- functional organizations encourage functional goals. M-form structure encourages focus on profitability. - Efficient allocation of resources through internal capital and labor markets - Resolves agency problem-- corporate management an interface between shareholders and business-level managers.
Constraints upon decentralization. Difficult to achieve clear division of decision making between corporate and divisional levels. On-going dialogue and conflict between corporate and divisional managers over both strategic and operational issues. Standardization of divisional management Despite potential for divisions to develop distinctive strategies and structures— corporate systems may impose uniformity. Managing divisional inter-relationships Requires more complex structures, e.g. matrix structures where functional and/or geographical structure is imposed on top of a product/market structure. Added complexity undermines the efficiency advantages of the M-form
— Decisions over diversification, acquisition, divestment — Resource allocation between businesses. — Business strategy formulation — Monitoring and controlling business performance — Sharing and transferring resources and capabilities Managing linkages between businesses Managing the individual businesses Managing the Corporate Portfolio
Late 1960’s: GE encounters problems of direction, coordination, control, and profitability Corporate planning responses: Portfolio Planning Models —matrix-based frameworks for evaluating business unit performance, formulating business strategies, and allocating resources Strategic Business Units —GE reorganized around SBUs (business comprising a strategically-distinct group of closely-related products PIMS —a database which quantifies the impact of strategy on performance. Used to appraise SBU performance and guide business strategy formulation
Allocating resources the analysis indicates both the investment requirements of different businesses and their likely returns Formulating business-unit strategy the analysis yields simple strategy recommendations (e.g..: “build”, “hold”, or “harvest”) Setting performance targets the analysis indicates likely performance outcomes in terms of cash flow and ROI Portfolios balance the analysis can assist in corporate goals such as a balanced cash flow and balance of growing and declining businesses.
H A R V E S T H O L D B U I L D Low Medium High LowMediumHigh Industry Attractiveness Industry Attractiveness Criteria Business Unit Position - Market size - Market share (domestic, - Market growth global, and relative) - Industry profitability - Competitive position - Inflation recovery - Relative profitability - Overseas sales ratio Business Unit Position
HIGH LOW Annual real rate of market growth (%) Relative market share Earnings: high stable Cash flow: high stable Strategy: milk Earnings: low, unstable Cash flow: neutral or negative Strategy: divest Earnings: high stable, growing Cash flow: neutral Strategy: invest for growth Earnings: low, unstable, growing Cash flow: negative Strategy: analyze to determine whether business can be grown into a star, or will degenerate into a dog HIGH ?
ADVANTAGES Simplicity: Can be quickly prepaired Big picture: Permits one page representation of the corporate portfolio & the strategic positioning of each business Analytically versatile: Applicable to businesses, products, countries, distribution channels. Can be augmented: A useful point of departure for more sophisticated analysis DISADVANTAGES Simplicity: Oversimplifies the factors determining industry attractiveness and competitive advantage Ambiguous:The positioning of a business depends critically upon how a market is defined Ignores synergy: the analysis takes no account of any interdependencies between businesses
Current market value Maximum raider opportunity Current perceptions gap Company value as is Optimal restructured value Strategic and operating opportunities Potential value with internal improvements Disposal/acquisition opportunities Total company opportunities 1 25 RESTRUCTURING FRAMEWORK 34 Potential value with external improvements
2 basic approaches Input control Monitoring & approving business level decisions Output (or performance) control Setting & monitoring the achievement of performance targets Primarily through strategic planning system & capital expenditure approval system Primarily through performance management system, including operating budgets and HR appraisals
Setting performance targets —feeding business unit strategic and industry data into the PIMS regression model gives performance norms for the business (PAR ROI). Formulating business unit strategy — PIMS model can simulate the impact of changing strategic variables. Allocating investment funds between businesses — PIMS Strategic Attractiveness Scan comparison different business units’ strategic attractiveness and their cash flow characteristics
KEY ISSUE—How does the corporate center add value to the business? BASIS OF BUSINESS LINKAGES—Sharing of resources and capabilities. SHARING OCCURS AT TWO LEVELS: Corporate level—common corporate services Business level—sharing resources, transferring capabilities PORTER’S ANALYSIS OF BUSINESS LINKAGES AND CORPORATE STRATEGY TYPES Portfolio management— Parent creates value by operating an internal capital market Restructuring—Parent create value by acquiring and restructuring Inefficiently-managed businesses Transferring skills—Parent creates value by transferring capabilities between businesses Sharing activities—Parent creates value by sharing resources between businesses ROLE OF DOMINANT LOGIC—importance of corporate managers’ perception of linkages
(1) Portfolio Management Using superior information and analysis to acquire attractive companies at favorable prices (e.g. Berkshire Hathaway). Minimizing cost of capital (e.g. GE) Create efficientt internal system for capital allocation (e.g. Exxon-Mobil) Efficient monitoring of business unit performance (e.g BP-Amoco). (2) Restructuring: Intervening to cut costs and divest under performing assets (e.g. Hanson during 1980s & early 1990s) (3) Transferring skills: —Transferring best practices (e.g. Hewlett-Packard) —Transferring innovations (e.g. Sharp) —Transferring key personnel between businesses (e.g. Sony) (4) Sharing activities: —Common corporate services (e.g. 3M) —Sharing —Sharing operational resources and functions (e.g. sales and distribution, manufacturing facilities).
Delayering --- from 9 or 10 layers of hierarchy to 4 or 5 Decentralizing decisions. Reformulating strategic planning—from formal, document-intensive analysis to direct face-to-face discussion of key issues. Redefining the role of HQ—from checker, inquisitor, and authority to facilitator, helper, and supporter. Coordinating role of HQ— corporate HQ to lead in creating the “boundaryless corporation” where innovations and ideas flow and where horizontal coordination occurs to respond to new opportunities. HQ as change agent— corporate HQ driving force for continual organizational change (e.g. “workout”, “six-sigma”). Jack Welch’s transformation of GE’s structure and management systems: