1 13 implementing strategy in companies that compete across industries and countries
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Implementing Strategy in Companies That Compete Across Industries and Countries
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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
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Multidivisional Structure
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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
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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
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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
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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
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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
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Corporate Strategy and Structure and Control
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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
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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
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Global Strategy/Structure Relationships
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Global-Area Structure
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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
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International Division Structure
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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
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Global Product-Division Structure
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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
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Global Matrix Structure
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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
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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
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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
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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
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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
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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