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

2 Wal-Mart and Monsanto How would you apply concepts here to either of these companies?

3 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

4 Multidivisional Structure

5 Advantages of a Multidivisional Structure Enhanced corporate financial control Enhanced strategic control Growth Stronger pursuit of internal efficiency

6 Problems in Implementing a Multidivisional Structure Establishing the divisional-corporate authority relationship Distortion of information Competition for resources Transfer pricing Short-term R&D focus Duplication of functional resources

7 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

8 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

9 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

10 Transfer of Competencies at Philip Morris

11 Sharing Resources at Proctor & Gamble

12 Corporate Strategy and Structure and Control

13 The Role of Information and Communications Technology ICT provides a common software platform that can make it less problematic for divisions to share information ICT facilitates output and financial control ICT helps corporate managers react more quickly because of higher-quality, more timely information ICT makes it easier to decentralize control to divisional managers, but react quickly if necessary ICT makes it difficult to distort information because of standardized information ICT eases the transfer pricing problem

14 Exercise Discuss Strategy in Action 13.1 – GM –What went wrong with their reorganization into a more centralized structure? What was their solution?

15 Exercise 2 Discuss Opening Case – New HP –What were perceived advantages in this example of a horizontal integration? –What structure did they implement? Discuss alternative strategies to improve shareholder value.

16 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

17 Global Strategy/Structure Relationships

18 Exercise 3 Write down your thoughts on what structure is appropriate for: –Monsanto (beginning of 2 nd case, assume no spin-off) –Wal-Mart Discuss with your group

19 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

20 Global-Area Structure

21 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

22 International Division Structure

23 Implementing Global Strategy Global product-division structure –Objective: All value chain activities located to allow efficiency, quality, and innovation –Problems of coordinating and integrating global activities –Structure must lower bureaucratic costs while providing central control –Product division headquarters coordinates activities

24 Global Product-Division Structure

25 Implementing Transnational Strategy Global Matrix Structure –Objective: 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

26 Implementing Transnational Strategy Global Matrix Structure (continued) –Knowledge and experience can be transferred –Global corporate culture –IT integration mechanisms provide coordination –Bureaucratic costs are high

27 Global Matrix Structure

28 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

29 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

30 ICT, the Internet, and Outsourcing ICT and strategy implementation –Knowledge leveraging through ICT to achieve low costs and differentiation –Flattening the organization, moving toward decentralization and increased integration through ICT –Virtual organization –Knowledge management system

31 Outsourcing - Offshoring Outsourcing – separating a value creating activity for a specialist to perform –Specialist located within the company –Specialist located within the country Offshoring is outsourcing in another country

32 ICT, the Internet, and Outsourcing Strategic outsourcing and network structure –IT increases the efficiency of interorganizational relationships –Business-to-business (B2B) networks –Network structure