1. Chapter Thirteen
Implementing Strategy in Companies That Compete Across Industries and Countries

2. Managing Corporate Strategy Through the Multidivisional Structure
A company competing across industries and countries confronts a new set of problems and has to make a new series of organizational design decisions for a global and multinational business.
The Multidivisional Structure
Divisions
Responsible for day-to-day operations
Self-contained – with a full set of value-chain functions
May share value-chain functions with other divisions
Corporate headquarters staff
Monitor divisional activities
Exercise financial control over each division
Strategic responsibilities
Addresses the problems and economizes the costs of managing the handoffs between value-chain functions across industries.
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3. Multidivisional Structure
Figure 13.1
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4. Advantages of a Multidivisional Structure
Research suggests that large companies that adopt a multidivisional structure outperform those that retain the functional structure:
Enhanced corporate financial control
Profitability of divisions is clearly visible
Corporate office acts as the ‘investor’ – channeling funds to high-yield uses
Enhanced strategic control
Frees corporate managers from business-level responsibilities
Corporate managers can deal with the wider strategic issues
Growth
Overcomes organizational limit to its growth
Stronger pursuit of internal efficiency
Can compare one division against another
In a better position to identify inefficiencies that result in bureaucratic costs
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5. Problems in Implementing a Multidivisional Structure
Establishing the divisional-corporate authority relationship
How much authority should be centralized to corporate
How much should be decentralized to the divisions
Distortion of information
Short-run ROIC versus investments in the future
Competition for resources
Divisions actively competing for financial and other resources may reduce interdivisional cooperation
Transfer pricing
Need to properly design incentive and control systems
Short-term R&D focus
Must control incentives to assure that both short and long-term goals are met
Duplication of functional resources
Determine which functions to centralize and decentralize to minimize duplication
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6. Unrelated Diversification
For unrelated diversification, the multibusiness model is based on general managerial capabilities in entrepreneurship, organizational design, or strategy.
Operates as a ‘portfolio’ of independent businesses
Divisions have considerable autonomy
No integration among divisions is necessary
Businesses bought & sold as conditions change
Idea of ‘corporate culture’ is meaningless
No exchanges or linkages among divisions
Easiest and cheapest strategy to manage
Lowest level of bureaucratic costs
Controls to evaluate divisional performance easily and accurately
Each division evaluated by output controls, e.g. ROIC
Sophisticated accounting controls
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Vertical Integration
The vertically integrated company requires the centralized control – in order to achieve the benefits from the sequential flow of resources from one division to the next.
Bureaucratic costs are more complex and 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.
Integration is managed through a combination of corporate and divisional controls.
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8. Related Diversification
Principle benefits of related diversification come from transferring, sharing, or leveraging functional resources or skills and some exchange of distinctive competencies across divisions.
Gains derived from the transfer, sharing, or leveraging across divisions
 R&D knowledge  Industry information  Customer bases
Output control difficult as businesses share resources
Not easy to measure performance of individual divisions
Integration and control at divisional level required
Incentives and rewards for cooperation necessary
High bureaucratic costs
The aim is to design structure and control systems to maximize strategic benefits while economizing on costs.
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9. Corporate Strategy and Structure and Control
Table 13.1
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10. Implementing Strategy Across Countries
Localization Strategy
Local responsiveness
Decentralized control in each country it operates
International strategy
Centralized R&D and marketing in home country
Other value creation functions are decentralized
Global standardization strategy
Oriented toward cost reductions
Centralized functions at optimal global location
Transnational strategy
Local responsiveness and cost reduction
Select best global location to achieve these objectives
Need to coordinate and integrate global value-chain activities increases as company moves from a localization  to an international  to a global  to a transnational strategy
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11. Global Strategy/Structure Relationships
Table 13.2
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12. Implementing a Localization Strategy
A company pursuing a localization strategy generally operates with a global area structure, establishing overseas divisions in regions or countries:
Value creation activities duplicated in every region or country of operation
Decentralized authority in each overseas division
Managers at global headquarters evaluate performance of overseas divisions
No integrating mechanisms needed
No global organizational culture
Duplication of specialist activities raises costs
Companies using a localization strategy lose many of the benefits of operating globally.
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13. Global-Area Structure
Figure 13.2
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14. Implementing an International Strategy
A company shifts to an international strategy when it decides to sell domestically made products in markets abroad.
Foreign sales organizations added to existing structure using the same control system
Product customization is minimal
Subsidiary handles local sales and distribution
System of behavior controls set up to keep the home office informed
Global divisions coordinate the flow of different products across different countries
This arrangement of tasks and roles reduces the transaction of managing handoffs across countries and world regions.
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15. Global Division Structure
Figure 13.3
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16. Implementing a Global Standardization Strategy
Company locates its manufacturing and other value-chain activities at the global location that will allow it to increase efficiency, quality, and innovation using a global product-group structure.
Product-group headquarters created to coordinate the activities of home and overseas operations
Product-group structure allows managers to decide how to best pursue global standardization strategy
Problems of coordinating and integrating global activities across product divisions
Structure must lower bureaucratic costs and provide central control
Focus is on centralized control by product group. This makes it difficult for different product divisions to trade information an knowledge.
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17. Global Product-Group Structure
Figure 13.4
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18. Implementing a Transnational Strategy
Many companies implemented a global-matrix structure to simultaneously lower their global cost structures and differentiate their activities.
Decentralized control provides flexibility for local issues.
Product and corporate managers at headquarters have centralized control to coordinate company activities on global level.
Knowledge and experience can be transferred to create value with the ‘matrix-in-the-mind’.
Global corporate culture is created.
IT integration mechanisms provide coordination.
The task of integrating and controlling a global-matrix structure can be a difficult task.
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19. Global-Matrix Structure
Figure 13.5
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20. Entry Mode and Implementation
Altering business models and strategies by finding new ways to use resources and capabilities to create value.
Internal new venturing
The internal venturing process needs to give new-venture manages the autonomy and motivation they need to develop new products.
Joint venturing
Allocating authority and responsibility is the first major implementation issue when companies share resources to collaborate on the development of a new business model to compete in a new market or industry.
Mergers and acquisitions
The profitability of mergers and acquisitions depends on the structure and control systems that companies adopt to integrate and manage them.
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21. The Role of Information Technology
IT is having increasingly important effects on the way multibusiness companies implement their strategies:
IT provides a common software platform that can make it less problematic for divisions to share information.
IT facilitates output and financial controls.
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.
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22. 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 integration through IT
Virtual organization
Knowledge management system
Strategic outsourcing and network structure
IT increases the efficiency of interorganizational relationships
Business-to-business (B2B) networks
Network structure
The implications of IT for strategy implementation are still evolving as new hardware and software reshape companies’ business models and strategies.
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