2. 13 Implementing Strategy in Companies That Compete Across Industries and Countries

3. Copyright © Houghton Mifflin Company. All rights reserved.13 - 2 Tonight Implementing Strategy (Continued) (Hill) Chapter 13 Case: Kmart Corporation: Seeking Customer Acceptance and Preference – Oral Discussion –Can strategic management issues save Kmart? Why or why not? Discussion Quiz 7 Written Analysis, Finkelstein, Why Smart Executives Fail

4. Copyright © Houghton Mifflin Company. All rights reserved.13 - 3 Why Smart Executives Fail Professor, how do you define smart? –Perception Dogs get mad.

5. Copyright © Houghton Mifflin Company. All rights reserved.13 - 4 Next Week – How Can you motivate employees? Age-old question: "How do I get an employee to do what I want?“ The psychology of motivation is very complex One of the most appealing theories, is Fredrick Herzberg’s two-factor theory

6. Copyright © Houghton Mifflin Company. All rights reserved.13 - 5 Next Week -- Who Moved My Cheese? Change, Change, Change … Sniff Scurry

7. Copyright © Houghton Mifflin Company. All rights reserved.13 - 6 “Ole” Proverb on Knowledge Unconscious incompetent –Those who know not, and know not that they know not … shun them Conscious incompetent –Those who know not, and know that they know not … teach them Unconscious competent –Those who know, and know not that they know, are asleep … wake them Conscious competent –But those who know, and know that they know, are wise people … follow them

8. Copyright © Houghton Mifflin Company. All rights reserved.13 - 7 Communication With Understanding Will be one of the biggest problems you as new MBA’s will face in an organization So what’s the importance of communication? To give you the information/knowledge and understanding to do a job. –I.e., the skills to do the work. To give you that desire to want to do the work. –I.e., the will to do the work.

9. Copyright © Houghton Mifflin Company. All rights reserved.13 - 8 Communication and Learning How to “Play the Game” Recognizing the need for effective communication Do you agree with Jack Welch’s statement that “Business is a game?” Learning the rule and how to play the “game” – can be extremely important if as a new MBA you are to survive and advance in a business organization.

10. Copyright © Houghton Mifflin Company. All rights reserved.13 - 9 Enlightenment As a new MBA, what does it take to survive, and move up in a business organization? Let me use two words to give just one answer to that question. –Ability – when you lack ability to advance, you need someone to educate and train you. –Desire – when you lack desire to advance, you need someone to motivate you. Bottom-line – what is take to survive and to advance is not failing. Then, why do smart executives fail?

11. Copyright © Houghton Mifflin Company. All rights reserved.13 - 10 Six Reasons Why Many MBA’s Fail The chances are good that a new MBA won’t survive and advance if they, –Lack drive –Lack imagination (If they’re unable to see ahead, either potential problems or new opportunities.) –Lack good judgment (Try to keep your “cool” and don’t get emotional easily.) –Attitude –Not a so-called “team player” –Don’t communicate well Don’t panic – never let them see you sweat

12. Copyright © Houghton Mifflin Company. All rights reserved.13 - 11 What Should MBA’s Think About The future – it is the only thing you can really do anything about. Change – be an active agent of change (You can’t become better without change). Vision and focus – always have clear objective (Always remember that you can’t have an objective without a problem/opportunity). Behavior – learn what people do and why (Seek to lead and motivate them). Society – play a role in the design of the socio- economic-political world around you. –Get know and get your name in print.

13. Copyright © Houghton Mifflin Company. All rights reserved.13 - 12 Life’s Brick Walls – Are Only a Temporary Inconvenience If things aren’t going great –If you didn’t get that raise or promotion –Don’t let it get you down, just say, it’s only a temporary inconvenience Remember that many difficulties in life are only, “temporary inconveniences” What’s the worst thing that some feel could ever have happened? –Not having ever been born.

14. Copyright © Houghton Mifflin Company. All rights reserved.13 - 13 Quiz 7f. - Objectives and Problems: Rhetorical Question Do you think there are MBA’s who work on a problem which if solved, won’t get them to their objective? Do you think there are MBA’s, or anyone else, who work on symptoms instead of the real problem? Can anyone cite an example?

15. Copyright © Houghton Mifflin Company. All rights reserved.13 - 14 Why Do MBA’ Bother to Solve a Problem? To reach an objective is it possible to have an objective and no problem? –No: You would be at your objective. Can you have a problem and no objective? –No: If you don’t want to go anywhere, there’s no problem getting there.

16. Copyright © Houghton Mifflin Company. All rights reserved.13 - 15 Teaching Objectives (Chapter 13) To introduce you to the multidivisional structure. To introduce you to the four global strategies –Multidivisional –International –Global –Transnational To discuss the relationship between global strategy and organizational structure. To describe three entry modes for firms wishing to enter a new industry. –Internal new venturing, e.g., intrapreneurs –Joint venturing –Mergers and acquisitions Explain the impact that information technology (IT) has had on strategy implementation.

17. Copyright © Houghton Mifflin Company. All rights reserved.13 - 16 Are You Ready – To Be Able to Think Strategically? “Just as many medical doctors are earning MBAs today to understand the many strategic issues confronting their profession, so scientists need to be able to think strategically …” p. 470

18. Copyright © Houghton Mifflin Company. All rights reserved.13 - 17 IT (e.g., mySap) and the Value Chain IT is changing the nature of value chain activities both inside and between Organizations, –Affecting all four building blocks of competitive advantage: efficiency, quality, innovation, and responsiveness to customers. For both the multi-business firm and the single-business firm, there is the need to be alert to changes (e.g., IT) to strengthen their position in their core business, –The success of companies like Dell and Wal-Mart, and –The failure of firms such as Gateway and Kmart can be traced, –To their success in developing the IT capabilities that lead to sustained competitive advantage. P. 479

19. Copyright © Houghton Mifflin Company. All rights reserved.13 - 18 Quiz 7a.– Chapter 13 Opening Case: The “New HP” Gets Up to Speed –How does the use of a multidivisional structure hinder HP relative to a primarily single-business firms such as Dell? –How does the structure help HP? –What about Dell’s as it ventures into the printer business (See BW 4/19/04 “Dude, You’re Getting a Printer”)? Dell is said to have higher profits than its competitors for the preceding seven or eight years. Based on this information, which of the following is the best description of Dell’s situation? a.Dell has a competitive advantage. b.Dell has a sustained competitive advantage. c.Dell has an appropriate strategic process.

20. Copyright © Houghton Mifflin Company. All rights reserved.13 - 19 Quiz 7b. – Chapter 13 Strategy in Action 13.4 – Using IT to Make Nestlé's Global Structure Work –How can IT – such as mySAP, e-mail, and global intranets – facilitate strong global cultures and ease difficulties of worldwide coordination mechanisms. When firms use a network structure to implement outsourcing (note: explain your answer), a.Many firms can easily cooperate. b.Bureaucratic costs are increased. c.The cost of the outsourced functions increases. d.Information technology must be used. e.Many firms can easily cooperate and bureaucratic costs are increased.

21. Copyright © Houghton Mifflin Company. All rights reserved.13 - 20 Quiz 7c. – Chapter 13 Strategy in Action 13.5 – Oracle’s New Approach to Control –What problems did Larry Ellison discover regarding how Oracle was controlling its activities? –Considering Oracle’s core products, why do you think it took Ellison so long to realize that there was a problem? –What steps did he take, and why, to correct the problem?

22. Copyright © Houghton Mifflin Company. All rights reserved.13 - 21 Quiz 7d. – Chapter 13 Closing Case: Hughes Aircraft Changes its Divisional Structure –What problems did Armstrong discover with Hughes's strategy and structure? –What steps did he take, and why, to reengineer the company?

23. Copyright © Houghton Mifflin Company. All rights reserved.13 - 22 Quiz 7 e.- Reengineering Reengineering –Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements Focuses not on functions, but on processes (which cut across functions) Process Example: Customer Order Process –Explain and provide and example.

24. Copyright © Houghton Mifflin Company. All rights reserved.13 - 23 Chapter 13

25. Copyright © Houghton Mifflin Company. All rights reserved.13 - 24 Managing Corporate Strategy Through the Multidivisional Structure Functional or product structures are not sufficient when a company enters new industries Multidivisional structure innovations –Divisions (operating responsibility) –Corporate headquarters staff to monitor divisions (strategic responsibility) –Each division may be organized differently

26. Copyright © Houghton Mifflin Company. All rights reserved.13 - 25 Multidivisional Structure

27. Copyright © Houghton Mifflin Company. All rights reserved.13 - 26 Advantages of a Multidivisional Structure Enhanced corporate financial control Enhanced strategic control Growth Stronger pursuit of internal efficiency

28. Copyright © Houghton Mifflin Company. All rights reserved.13 - 27 Problems in Implementing a Multidivisional Structure Establishing the divisional-corporate authority relationship Distortion of information Competition for resources Transfer pricing Short-term R&D focus Duplication of functional resources

29. Copyright © Houghton Mifflin Company. All rights reserved.13 - 28 Structure, Control, Culture, and Corporate-Level Strategy Unrelated diversification –Easiest and cheapest strategy to manage –Allows corporate managers to evaluate divisional performance easily and accurately –Divisions have considerable autonomy –No integration among divisions is necessary

30. Copyright © Houghton Mifflin Company. All rights reserved.13 - 29 Structure, Control, Culture, and Corporate-Level Strategy (cont’d) Vertical integration –More expensive than unrelated diversification –Multidivisional structure provides necessary controls to achieve benefits from the control of resource transfers –Must strike balance between centralized and decentralized control –Divisions must have input regarding resource transfer –Managed through a combination of corporate and divisional controls

31. Copyright © Houghton Mifflin Company. All rights reserved.13 - 30 Structure, Control, Culture, and Corporate-Level Strategy (cont’d) Related diversification –Multidivisional structure allows gains from the transfer, sharing, or leveraging of R&D knowledge, industry information, and customer bases across divisions –Difficult to measure performance of individual divisions –High bureaucratic costs –Integration and control at divisional level is required –Incentives and rewards for cooperation are necessary

32. Copyright © Houghton Mifflin Company. All rights reserved.13 - 31 Corporate Strategy and Structure and Control

33. Copyright © Houghton Mifflin Company. All rights reserved.13 - 32 The Role of Information Technology IT provides a common software platform that can make it less problematic for divisions to share information IT facilitates output and financial control IT helps corporate managers react more quickly because of higher-quality, more timely information IT makes it easier to decentralize control to divisional managers, but react quickly if necessary IT makes it difficult to distort information because of standardized information IT eases the transfer pricing problem

34. Copyright © Houghton Mifflin Company. All rights reserved.13 - 33 Implementing Strategy Across Countries Multidomestic strategy –Local responsiveness; decentralized control International strategy –Centralized R&D and marketing; other functions are decentralized Global strategy –Cost reductions; centralized functions Transnational strategy –Local responsiveness and cost reduction

35. Copyright © Houghton Mifflin Company. All rights reserved.13 - 34 Global Strategy/Structure Relationships

36. Copyright © Houghton Mifflin Company. All rights reserved.13 - 35 Implementing a Multi-domestic Strategy Global-area structure –All value creation activities duplicated and overseas division established in every country of operation –Decentralized authority –Managers at global headquarters evaluate performance of overseas divisions –No integrating mechanisms needed –No global organizational culture –Duplication of specialist activities raises costs

37. Copyright © Houghton Mifflin Company. All rights reserved.13 - 36 Global-Area Structure

38. Copyright © Houghton Mifflin Company. All rights reserved.13 - 37 Implementing International Strategy International division structure –Used when a company sells domestically made products in markets abroad –Foreign sales organization added to existing structure; same control system –Customization is minimal –Subsidiary handles local sales and distribution –Behavior controls keep the home office informed –International division coordinates flow of different products across different countries –Domestic and overseas managers may compete for control of strategy making

39. Copyright © Houghton Mifflin Company. All rights reserved.13 - 38 International Division Structure

40. Copyright © Houghton Mifflin Company. All rights reserved.13 - 39 Implementing Global Strategy Global product-division structure –All value chain activities located to allow efficiency, quality, and innovation –Problems of coordinating and integrating global activities –Structure must lower bureaucratic costs and provide central control –Product division headquarters coordinates activities

41. Copyright © Houghton Mifflin Company. All rights reserved.13 - 40 Global Product-Division Structure

42. Copyright © Houghton Mifflin Company. All rights reserved.13 - 41 Implementing Transnational Strategy Global Matrix Structure –Lower cost structures and differentiate activities –Decentralized control provides flexibility for local issues, but product and corporate managers at headquarters have centralized control to coordinate company activities on global level –Knowledge and experience can be transferred –Global corporate culture –IT integration mechanisms provide coordination –Bureaucratic costs are high

43. Copyright © Houghton Mifflin Company. All rights reserved.13 - 42 Global Matrix Structure

44. Copyright © Houghton Mifflin Company. All rights reserved.13 - 43 Entry Mode and Implementation Internal new venturing –Structure, control, and culture must encourage creativity and give intrapreneurs autonomy and freedom to develop and champion new products and allow corporate managers to monitor profitability and fit –Organization-wide new venturing vs. separate new-venture division

45. Copyright © Houghton Mifflin Company. All rights reserved.13 - 44 Entry Mode and Implementation (cont’d) Joint venturing –Managing culture differences –Allocating authority and responsibility Mergers and acquisitions –Must establish new lines of authority –Must streamline operations –In unrelated acquisitions, managers must understand the new industry –Must standardize control systems –Must recognize culture differences

46. Copyright © Houghton Mifflin Company. All rights reserved.13 - 45 IT, the Internet, and Outsourcing IT and strategy implementation –Knowledge leveraging through IT to achieve low costs and differentiation –Flattening the organization, moving toward decentralization and increased integration through IT –Virtual organization –Knowledge management system

47. Copyright © Houghton Mifflin Company. All rights reserved.13 - 46 IT, the Internet, and Outsourcing Strategic outsourcing and network structure –IT increases the efficiency of inter-organizational relationships –Business-to-business (B2B) networks –Network structure

48. Copyright © Houghton Mifflin Company. All rights reserved.13 - 47