Copyright © Houghton Mifflin Company. All rights reserved. STRATEGIC MANAGEMENT Lecture 13 Dr. John Kraft Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved. Opening Case Avon is Calling Copyright © Houghton Mifflin Company. All rights reserved.

Managing Corporate Strategy Through the Multidivisional Structure 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. The Multidivisional Structure Divisions Responsible for day-to-day operations Self-contained – with a 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 the problems and economizes the costs of managing the handoffs between value-chain functions across industries. Copyright © Houghton Mifflin Company. All rights reserved.

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 Source: Publisher’s PowerPoint, Ch13-Slide 2 Copyright © Houghton Mifflin Company. All rights reserved.

Multidivisional Structure Figure 13.1 Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved. Strategy in Action SAP’s ERP Systems Copyright © Houghton Mifflin Company. All rights reserved.

Global Matrix Structure Source: Publisher’s PowerPoint, Ch13-Slide 20 Copyright © Houghton Mifflin Company. All rights reserved.

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 the transfer, sharing, or leveraging across divisions  R&D knowledge  Industry information  Customer bases Output control difficult as businesses share resources Not easy to measure performance of individual divisions Integration and control at divisional level required Incentives and rewards for cooperation necessary High bureaucratic costs The aim is to design structure and control systems to maximize strategic benefits while economizing on costs. Copyright © Houghton Mifflin Company. All rights reserved.

Corporate Strategy and Structure and Control Table 13.1 Copyright © Houghton Mifflin Company. All rights reserved.

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Copyright © Houghton Mifflin Company. All rights reserved. Strategy in Action Nestlé’s Global Structure Copyright © Houghton Mifflin Company. All rights reserved.

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 Source: Publisher’s PowerPoint, Ch13-Slide 11 Copyright © Houghton Mifflin Company. All rights reserved.

Global Strategy/Structure Relationships Table 13.2 Copyright © Houghton Mifflin Company. All rights reserved.

Implementing a Localization Strategy A company pursuing a localization strategy generally operates with a 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 Companies using a localization strategy lose many of the benefits of operating globally. Copyright © Houghton Mifflin Company. All rights reserved.

Global-Area Structure Figure 13.2 Copyright © Houghton Mifflin Company. All rights reserved.

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 Source: Publisher’s PowerPoint, Ch13-Slide 15 Copyright © Houghton Mifflin Company. All rights reserved.

International Division Structure Source: Publisher’s PowerPoint, Ch13-Slide 16 Copyright © Houghton Mifflin Company. All rights reserved.

Global Division Structure Figure 13.3 Copyright © Houghton Mifflin Company. All rights reserved.

Global-Matrix Structure Figure 13.5 Copyright © Houghton Mifflin Company. All rights reserved.

Global Product-Division Structure Source: Publisher’s PowerPoint, Ch13-Slide 18 Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved. Strategy in Action Oracle’s New Approach to Control Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved. Strategy in Action Li & Fung’s Global Supply Chain Management Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved. Closing Case Ford CEO Copyright © Houghton Mifflin Company. All rights reserved.

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Copyright © Houghton Mifflin Company. All rights reserved. End of Lecture 13 Copyright © Houghton Mifflin Company. All rights reserved.