1 13 Implementing Strategy in Companies That Compete Across Industries and Countries

2 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

3 Multidivisional Structure

4 Advantages of a Multidivisional Structure  Enhanced corporate financial control Profitability of each division clearly visible  Enhanced strategic control Headquarters can focus on corporate strategy while divisions focus on business strategy  Growth Reduces information overload on top management Communication problems are reduced via standardization Management by exception  Stronger pursuit of internal efficiency In theory, divisions have no excuse for poor performance and thus use resources more efficiently

5 Problems in Implementing a Multidivisional Structure  Establishing the divisional-corporate authority relationship How many decisions should be centralized at HQ and how much at division?  Distortion of information Manipulating divisional performance  Competition for resources Little incentive to fund cross-divisional activities  Battles over transfer pricing  Short-term R&D focus cut to stimulate ROIC  Duplication of functional resources

6 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

7 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

8 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

9 Corporate Strategy and Structure and Control

10 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

11 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

12 Global Strategy/Structure Relationships

13 Global-Area Structure

14 Implementing a Multidomestic 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

15 International Division Structure

16 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

17 Global Product-Division Structure

18 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

19 Global Matrix Structure

20 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

21 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

22 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

23 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

24 IT, the Internet, and Outsourcing  Strategic outsourcing and network structure IT increases the efficiency of interorganizational relationships Business-to-business (B2B) networks Network structure Li & Fung example

25 Exercises  The university wants to start an international teaching arm teaching law and business courses in several Asian countries – how should this be structured?  Hughes Aircraft