Chapter 8: Organizing to Implement Corporate Diversification

Organizational Structure M-Form or Mutlidivisional structure Divisions or Strategic Business Units Profit & Loss Centers

Agency Theory Strategy-in-depth (p. 248) Principal-Agent relationships Managerial Perquisites Managerial Risk Aversion

Roles & Responsibilities Board of Directors Monitor decision-making and represent equity holders. Audit committee Finance committee Nominating committee Personnel & Compensation committee Institutional Investors Block Holders

Roles & Responsibilities Senior Executives CEO, COO Corporate Staff Division General Managers Formulate divisional strategies Coordinate with functional managers Compete for corporate capital allocations Cooperate with other division to realize economies of scope

Family Businesses Unique corporate governances Still suffer from principal-agent problems. Different strategic motivation compared to publicly traded firms Stewardship Theory

Shared Activities Transfer Pricing related issues Profit & Cost Centers Alternative Transfer Pricing Schemes Exchange autonomy Mandated full cost Mandated market based Dual pricing Tapered integration

Evaluating Divisional Performance Accounting Measures of Divisional Performance Economic Value Added (EVA) EVA = adjusted accounting earnings – (weighted average cost of capital x total capital employed by a division) Ambiguity of Divisional Performance Allocating Corporate Capital

Strategy in Emerging Enterprise Corporate Spin-Off Managerial Buyout Initial Public Offering Parent firm maintains equity stake Parent firm completely sells equity stake

Compensation Policies Base salary Stock Options Other Perks Ethical related issues Jobs earned $30,000 an hour for 2003. Mark earned $56,400 an hour for 2003. Larry Ellison was paid $746 million and Oracle lost 54 percent of its value over the same time period.

Organizing in an International Context Decentralized Federation Multi-domestic or MNE strategy Coordinated Federation Centralized Hub Global strategy Transnational Structure Transnational strategy