Stanford GSB Sloan Program Stramgt 258 Strategic Management 14: Strategy, Organization and Globalization Daimler Chrysler CVD

February 25, 2003John Roberts2 Alignment A central premise of the O-E-S triangle is that performance derives from aligning the organization, environment, and strategy But, especially in a global context – where organization is trying to reconcile demands of localization and global coordination – certain elements of the O/E/S triangle just cannot be brought into alignment.

February 25, 2003John Roberts3 3 Models International: tightly coupled, emphasize global coordination, often export based, C.A. often from home base characteristics Multidomestic: decoupled, emphasize local responsiveness, confederation of national companies, little coordination Global: variegated coupling, try for both, but costly to manage

February 25, 2003John Roberts4 Alignment International Model: –easier to achieve internal alignment of organization and strategy (i.e., internal consistency) –generally harder to achieve external alignment of organization/strategy with environment (i.e., harder to achieve external consistency) Multidomestic Model: –easier to achieve external alignment –harder to achieve internal alignment Global Model is intermediate

February 25, 2003John Roberts5 Management Attention and Alignment Considerable fraction of time and effort of management will necessarily be devoted to managing facets of O-E-S that are out of alignment For international firm, most of attention will be directed to managing firm-environment interface (e.g., inconsistencies between centrally determined marketing campaign and local differences in taste) For global firm, most of attention will be directed to managing internal inconsistencies (e.g., conflicts between local units)

February 25, 2003John Roberts6 E S O Performance In the environment, globalization can occur at the level of: -- economy -- industry -- market CA based on -- home base -- global coordination -- local responsiveness -- combination of global coord, local resp., and learning International vs. Global vs. Multi-Local models of organization

February 25, 2003John Roberts7 Deciding on a Model If firm has competitive advantage from home base that is leverageable across regions, then follow international design that extends that advantage geographically If there is no competitive advantage from the home base,then consider the design implications of transportation/communication costs and preference similarity across regions (as in following diagram)…..

February 25, 2003John Roberts8 LO MEDHI LO HI Transport/Communication Costs Across Regions Preference Similarity Across Regions Globalization of Economies Globalization of Markets Domestic (No Multi- Nationals) Multi- Local Multi- Local ? Global Firm International (Not Tied to Region)

February 25, 2003John Roberts9 Issues/Implications of Framework (1)Offers a contingent framework for integrating views of Porter, Ohmae, and Bartlett/Ghoshal (2) Framework does not provide exhaustive consideration of relevant factors. Specifically, framework does not consider : (a) how tacit collusion might affect design choice (i.e., Cemex shows tacit collusion is facilitated by international design) (b) the role of path dependence in organization design choice (change is hard and costly) (c) how choices of competitors may constrain or influence choice of focal firm (e.g., a ‘global’ choice by others may make an international choice more attractive in so far as it gives rise to a distinct advantage)