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 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 Learning Objectives Discuss why companies pursuing different strategies need to implement strategies using different combinations of structure, control, & cultureDiscuss why companies pursuing different strategies need to implement strategies using different combinations of structure, control, & culture Describe advantages/disadvantages of multidivisional structureDescribe advantages/disadvantages of multidivisional structure Explain why companies pursuing different global expansion strategies choose different global strategies & control systemsExplain why companies pursuing different global expansion strategies choose different global strategies & control systems Discuss strategy implementation problems with 3 methods used to enter new industriesDiscuss strategy implementation problems with 3 methods used to enter new industries Identify ways IT reduces bureaucratic costs & allows company to effectively implement business modelIdentify ways IT reduces bureaucratic costs & allows company to effectively implement business model

13 -3 Managing Corporate Strategy With Multidivisional Structure Addresses problems and economizes costs of managing handoffs between value-chain functions across industries 1)Division Self-contained – full set of value-chain functionsSelf-contained – full set of value-chain functions May share value-chain functions with other divisionsMay share value-chain functions with other divisions 2)Corporate headquarters staff Monitor divisional activitiesMonitor divisional activities Exercise financial control over each divisionExercise financial control over each division Strategic responsibilitiesStrategic responsibilities 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.

13 -4 Multidivisional Structure Figure 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 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.

13 -6 Advantages of a Multidivisional Structure o Enhanced corporate financial control Profitability of divisions clearly visibleProfitability of divisions clearly visible Corporate office is ‘investor’ channeling funds to high-yield usesCorporate office is ‘investor’ channeling funds to high-yield uses o Enhanced strategic control Frees corporate managers from business-level responsibilitiesFrees corporate managers from business-level responsibilities Corporate managers deal with wider strategic issuesCorporate managers deal with wider strategic issues o Profitable long-run growth- Overcomes organizational limit to growth o Stronger pursuit of internal efficiency Can compare one division against anotherCan compare one division against another In better position to identify inefficienciesIn 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.

13 -7 Problems in Implementing Multidivisional Structure oEstablishing divisional-corporate authority relationship oRestrictive financial controls lead to short-run focus oCompetition for resources oTransfer pricing oDuplication 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.

For unrelated diversification, the multi-business model is based on general managerial capabilities in entrepreneurship, organizational design, or strategy 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

13 -9 Unrelated Diversification oOperates as ‘portfolio’ of independent businesses Divisions have considerable autonomyDivisions have considerable autonomy No integration among divisions necessaryNo integration among divisions necessary Businesses bought/sold as conditions changeBusinesses bought/sold as conditions change Corporate culture meaninglessCorporate culture meaningless oNo exchanges or linkages among divisions Easiest/cheapest strategy to manageEasiest/cheapest strategy to manage Lowest level of bureaucratic costsLowest level of bureaucratic costs oControls to evaluate divisional performance easily and accurately Each division evaluated by output controls, e.g. ROICEach division evaluated by output controls, e.g. ROIC Sophisticated accounting controlsSophisticated 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 oBureaucratic costs more complex & expensive than unrelated diversification oMultidivisional structure provides necessary controls to achieve benefits from control of resource transfers oMust strike balance between centralized/decentralized control oDivisions must have input regarding resource transfer oIntegration is managed through combination of corporate & divisional controls Vertically integrated company requires centralized control – in order to achieve benefits from sequential flow of resources from one division to next 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 oGains derived from transfer, sharing, or leveraging across divisions oOutput control difficult as businesses share resources oIntegration/control at divisional level required oIncentives/rewards for cooperation necessary Principle benefits of related diversification come from transferring, sharing, or leveraging functional resources or skills and some exchange of distinctive competencies across divisions 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 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 o Localization Local responsivenessLocal responsiveness Decentralized control in each country it operatesDecentralized control in each country it operates o International Centralized R&D & marketing in home countryCentralized R&D & marketing in home country Other value creation functions are decentralizedOther value creation functions are decentralized o Global standardization Oriented towards cost reductionsOriented towards cost reductions Centralized functions at optimal global locationCentralized functions at optimal global location o Transnational Local responsiveness and cost reductionLocal responsiveness and cost reduction Select best global location to achieve these objectivesSelect 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.

Global Strategy/Structure Relationships Table 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 managers have exceptionally open minds. They respect how different countries do things.” - Percy Barnevik - Percy Barnevik 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 oValue creation activities duplicated in every region or country of operation oDecentralized authority in each overseas division oManagers at global headquarters evaluate performance of overseas divisions oNo integrating mechanisms needed oNo global organizational culture oDuplication of specialist activities raises costs Company pursuing localization strategy generally operates with global area structure, establishing overseas divisions in regions or countries 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 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 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 oAdd foreign sales organizations to existing structure using same control system oProduct customization minimal oSubsidiary handles local sales & distribution oSystem of behavior controls set up to keep home office informed oGlobal 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 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 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 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 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 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 oDecentralized control provides flexibility for local issues oProduct & corporate managers at HQ have centralized control to coordinate activities on global level oKnowledge & experience can be transferred oGlobal corporate culture is created oIT integration provides coordination Task of integrating & controlling a global-matrix structure can be difficult 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 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 1.Internal new venturing- needs to give new- venture managers autonomy & motivation needed to develop new products. 2.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. 3.Mergers & acquisitions- profitability of mergers & acquisitions depends on structure & control systems companies adopt to integrate & manage them 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 oPromotes development of functional competencies oEnables transfer of knowledge across functional groups oImproves knowledge base employees draw on oProvides mechanism to promote collaboration oAllows new ideas to be transmitted easily & quickly oProvides managers with real-time capability oAllows managers to flatten organization oPermits greater decentralization IT having increasingly important effects on way multi-business companies implement 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.

Strategic Outsourcing & Network Structure oIncreases efficiency of relationships oBusiness-to-Business (B2B) networks oNetwork structure Avoids high bureaucratic costs of complex structureAvoids high bureaucratic costs of complex structure Allows formation of strategic alliances with foreign suppliers & gives access to low-cost foreign sources of inputsAllows 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 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.