Chapter 13: Implementing Strategy in Companies That Compete Across Industries and Countries

1. 13 Chapter 13: Implementing Strategy in Companies That Compete Across Industries and Countries BA 469 Spring Term, 2007 Prof. Dowling

2. 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

3. Multidivisional Structure

4. Advantages of a Multidivisional Structure • Enhanced corporate financial control • Enhanced strategic control • Growth • Stronger pursuit of internal efficiency

5. 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

6. 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

7. 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

8. 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

9. Corporate Strategy and Structure and Control

10. 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

11. 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

12. Global Strategy/Structure Relationships

13. 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

14. Global-Area Structure

15. 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

16. International Division Structure

17. 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

18. Global Product-Division Structure

19. 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

20. Global Matrix Structure

21. 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

22. 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

23. 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

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