Chapter 13 IMPLEMENTING STRATEGY IN COMPANIES THAT COMPETE ACROSS INDUSTRIES AND COUNTRIES 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Managing Corporate Strategy With Multidivisional Structure Self-contained – full set of value-chain functions May share value-chain functions with other divisions Corporate headquarters staff Monitor divisional activities Exercise financial control over each division Strategic responsibilities Addresses problems and economizes costs of managing handoffs between value-chain functions across industries 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Multidivisional Structure Figure 13.1 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Research suggests large companies that adopt a multidivisional structure outperform those that retain the functional structure. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Advantages of a Multidivisional Structure Enhanced corporate financial control Profitability of divisions clearly visible Corporate office is ‘investor’ channeling funds to high-yield uses Enhanced strategic control Frees corporate managers from business-level responsibilities Corporate managers deal with wider strategic issues Profitable long-run growth- Overcomes organizational limit to growth Stronger pursuit of internal efficiency Can compare one division against another In better position to identify inefficiencies 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Problems in Implementing Multidivisional Structure Establishing divisional-corporate authority relationship Restrictive financial controls lead to short-run focus Competition for resources Transfer pricing Duplication of functional resources 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Unrelated Diversification Operates as ‘portfolio’ of independent businesses Divisions have considerable autonomy No integration among divisions necessary Businesses bought/sold as conditions change Corporate culture meaningless No exchanges or linkages among divisions Easiest/cheapest strategy to manage Lowest level of bureaucratic costs Controls to evaluate divisional performance easily and accurately Each division evaluated by output controls, e.g. ROIC Sophisticated accounting controls 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Vertical Integration Vertically integrated company requires centralized control – in order to achieve benefits from sequential flow of resources from one division to next. Bureaucratic costs more complex & expensive than unrelated diversification Multidivisional structure provides necessary controls to achieve benefits from control of resource transfers Must strike balance between centralized/decentralized control Divisions must have input regarding resource transfer Integration is managed through combination of corporate & divisional controls 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Related Diversification Principle benefits of related diversification come from transferring, sharing, or leveraging functional resources or skills and some exchange of distinctive competencies across divisions. Gains derived from transfer, sharing, or leveraging across divisions Output control difficult as businesses share resources Integration/control at divisional level required Incentives/rewards for cooperation necessary 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Corporate Strategy, Structure & Control Table 13.1 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Implementing Strategy Across Countries Localization Local responsiveness Decentralized control in each country it operates International Centralized R&D & marketing in home country Other value creation functions are decentralized Global standardization Oriented towards cost reductions Centralized functions at optimal global location Transnational Local responsiveness and cost reduction Select best global location to achieve these objectives 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Implementing Localization Strategy Company pursuing localization strategy generally operates with global area structure, establishing overseas divisions in regions or countries. Value creation activities duplicated in every region or country of operation Decentralized authority in each overseas division Managers at global headquarters evaluate performance of overseas divisions No integrating mechanisms needed No global organizational culture Duplication of specialist activities raises costs 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Global-Area Structure Figure 13.2 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Company shifts to international strategy when it decides to sell domestically made products in markets abroad. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Implementing International Strategy Add foreign sales organizations to existing structure using same control system Product customization minimal Subsidiary handles local sales & distribution System of behavior controls set up to keep home office informed Global divisions coordinate flow of different products across different countries This arrangement of tasks and roles reduces transaction of managing handoffs across countries and world regions. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Global Division Structure Figure 13.3 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Implementing Global Standardization Strategy Company locates manufacturing & other value-chain activities at global location will allow it to increase efficiency, quality, & innovation using global product-group structure. Focus on centralized control by product group. This makes it difficult for different product divisions to trade information and knowledge. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Global Product-Group Structure Figure 13.4 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Many companies implemented global-matrix structure to lower global cost structures & differentiate activities. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Implementing Transnational Strategy Decentralized control provides flexibility for local issues Product & corporate managers at HQ have centralized control to coordinate activities on global level Knowledge & experience can be transferred Global corporate culture is created IT integration provides coordination Task of integrating & controlling a global-matrix structure can be difficult. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Global-Matrix Structure Figure 13.5 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Entry Mode & Implementation Internal new venturing- needs to give new-venture managers autonomy & motivation needed to develop new products. Joint ventures- allocating authority & responsibility is first major issue when companies share resources to collaborate on development of new business model to compete in new market or industry. Mergers & acquisitions- profitability of mergers & acquisitions depends on structure & control systems companies adopt to integrate & manage them. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Role of Information Technology IT having increasingly important effects on way multi-business companies implement strategies: Promotes development of functional competencies Enables transfer of knowledge across functional groups Improves knowledge base employees draw on Provides mechanism to promote collaboration Allows new ideas to be transmitted easily & quickly Provides managers with real-time capability Allows managers to flatten organization Permits greater decentralization 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Strategic Outsourcing & Network Structure Increases efficiency of relationships Business-to-Business (B2B) networks Network structure Avoids high bureaucratic costs of complex structure Allows formation of strategic alliances with foreign suppliers & gives access to low-cost foreign sources of inputs Implications of IT for strategy implementation are still evolving as new hardware & software reshape companies’ business models & strategies. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.