Global Management

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #1

MGT. 5491Session # 8

Strategic and

Global Management:

Corporate Strategies


Corporate/Enterprise (Parent) Level Strategies


Firms must learn to compete differently if they are to Firms must learn to compete differently if they are to achieve strategic competitiveness in the 21achieve strategic competitiveness in the 21stst-century -century competitive landscape. To provide an idea of what this competitive landscape. To provide an idea of what this means, new ways of competing may include:means, new ways of competing may include:

bringing new good and services to market more bringing new good and services to market more quicklyquickly

The use of new technologies (e.g., Amazon.com)The use of new technologies (e.g., Amazon.com)

Diversifying the product line (e.g., Barnes and Diversifying the product line (e.g., Barnes and Nobles into music as a catalyst for growth)Nobles into music as a catalyst for growth)

The New Reality - #1


Shifting product emphasis (e.g., U-Haul’s new focus Shifting product emphasis (e.g., U-Haul’s new focus on accessory sales) (i.e., Dual Branding)on accessory sales) (i.e., Dual Branding)

Consolidation (e.g., the merger of Exxon and Mobil)Consolidation (e.g., the merger of Exxon and Mobil)

Combining online selling with physical stores (e.g., Combining online selling with physical stores (e.g., CompUSA’s new strategy)CompUSA’s new strategy)



Dell Model for GrowthDell Model for Growth

Have New Business Model (maybe changes every 5 Have New Business Model (maybe changes every 5 years?)years?)

Identify Core Competencies and then improve the Identify Core Competencies and then improve the four capabilitiesfour capabilities

Outsource non-core competenciesOutsource non-core competencies

Create a “Brand Management Company”Create a “Brand Management Company”



Brief Overview of Corporate Strategy

• Those strategies concerned with the broad and long-term questions of what business(es) the organization is in and what it wants to do with those businesses


1. What businesses should the corporation/enterprise be in?

2. How should the corporate/G.O. office manage the array of business units (GBU’s/SBU’s/ Wholly owed subsidiaries)

Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts

Key Questions of Corporate/Firm-level Strategies


21st Century Organization Strategies for Growth and Profitability Multi-International: One Consumer Products Company (Corporate Level)

DrivingGrowth (8)

FundingGrowth (5)

Creating theBest Place

To Work (10)

Global Scope

Consumer Promotion

3600 Marketing

Superior Knowledge ofCustomers/Consumers

Strong Alliances/Partnershipswith Customers

Coverage of Trade

Acquisitions/JV’s

Focus on ProductQuality

Innovative New Products/Services

Vision Direction: Guiding Core Values, Philosophies, Principles, Mission, & Others

RegionalizationWith Local Control

Lean & FlatStructures

Shared Leadership, Coaching & Feedback

Horizontal, Structures, Systems, & Processes: Integration/communication/coordination

Empower People

Stimulating Careers

Streamline and obtainA Seamless Supply Chain/Demand Side (Value Chain)Integration

Use of Technologies to create Cost Savings

IS/SAP/ConsolidatedPartnership

Move to “Global”And “Local” RegionalBusiness

HPWS

CommunityInvolvement

Recognition & Financial Rewards

Demand Side Strategies: Supply Chain Strategies:

Source: Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming)


Corporate (and International) Strategies

• Three directions for corporate strategy– Growth

• M&A , JV, and SA (external growth)• International (internal growth)

– Stability (internal growth)– Renewal (internal growth)

• Retrenchment• Turnaround• Increase the four capabilities via core

competencies

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #10Future Work TrendsFuture Work Trends

How does it fit together?How does it fit together?

Globalization(External Growth)


Year 2009Success Factors


Strategic Alliances

(External and/or Internal Growth)

Improvement inthe four Capabilities via Core

Competencies along Value Chain

Business Imperatives:

Capabilities:

Vision Direction and Strategies:

Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA. (forthcoming)

Vision Direction

External and InternalStrategies

(Corporate & Business)

1st

2nd

3rd


Organizational Growth: External and/or Internal

• External and Internal Growth Strategy– One that involves the attainment of specific

growth objectives by increasing the level of an organization’s capabilities

– Typical growth strategies include goals for:• Increase in sales revenues• Profits• Other balanced scorecard performance

measures


Types of Growth Strategies

Organizational

Growth

HorizontalIntegration:

Along Value Chain

International Concentration

Diversification•Related Businesses•Unrelated Businesses

Vertical Integration•Related Businesses•Unrelated Businesses


Concentration

Organization concentrates on its primary lines of business and looks for ways to meet its growth objectives through increasing its level of capability in this primary business


Concentration

Product-Market Exploitation

Product Development

Market Focused Development

Product/Market Diversification

Cu

stom

ers

Product(s)


Another Possible Way for Growth


The “Right” People or the “Right” Organization?

• What are our basic Principles, Philosophies and Core Values?• What do we believe in?

• What policies and practices are consistent with these Values and Philosophies?

•What can we do for the customer better than our competitors?

• Given our core capabilities, how can we deliver value (EVA) to customers in a way our competitors cannot easily imitate?

• Senior management “manages” the values and culture of the firm.

A Values-Based View of Strategy

Fundamental Values or Beliefs

Design Management PracticesThat Reflect and Embody

These Values

Use These to Build Core Capabilities

Invent a Strategy That is Consistentwith the Values and Uses the

Talents & your four Capabilities toCompete in

New and Unusual Ways

Senior Management’s Role


Possible Strategic FocusTrust: Is it Valuable, Rare, Costly to Imitate, and Nonsubstitutable?

The following examples are provided as evidence that the trust structures contribute to the above average performance of each firm. Anderson & Associates practices open-book management, meaning that all financial data are readily accessible on the firm’s Intranet. The company’s CEO claims that this practice contributes to employee loyalty.

Radius, a French restaurant in Boston, relies upon trust to sustain one of its competencies – excellent teamwork.

MTW Corp., a software and Internet applications provider, relies upon “expectation agreements” among the boss , an employee, and his or her work team.



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What is the value of a friend who can be trusted compared to one who cannot be trusted?

Would you be willing to loan your car to the less-than-trustworthy acquaintance if they were going to need it for a few hours?

Would you trust them at all?

For firms, trust relationships can easily make the difference between a deal getting done or not, or it can impact the size of the deal that is done. Trust carries a great deal of weight, especially in an environment where it is in short supply. AND Today’s deal that is based on trust can lead to a sustainable edge when future deals are considered.



Trust and organizational success are closely linked. Trust benefits the organization in that it reduces the overall transaction costs.

There are many attributes to trust, the most prominent of which is risk. This risk can be divided into two categories:

Managerial Risk – the general risk of management decisions

Organizational Risk – characteristic of forms with volatile income streams



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Davis, Schoorman, Mayer and Tan define trust as “the willingness of a party (trustor) to be vulnerable to the actions of another party (trustee) based on the expectation that the trustee will perform an action important to the trustor, regardless of the trustor’s ability to monitor

or control the trustee.”

Trust between general manager and employees may be a source of competitive advantage. This trust rests upon the trustor’s perception of the trustees:

ability – skills and competencies by which trustee may influence outcomes

benevolence – degree to which trustor believes trustee acts for the good of the trustor

integrity – belief that the trustee will follow a set of principles that are desired by the trustor



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The Davis, et al. study suggests that these three factors of trust can contribute to competitive advantage of the firm. We can conclude that trust satisfies at least three of the four (and conceivably all four) criteria for sustainable competitive advantage.

Valuable – the study demonstrated that trust increased profitability and reduced turnover.

Rare – this relationship dynamic is uncommon.

Costly to imitate – trust is an intangible social construct that cannot easily be replicated.

Nonsubstitutable – possibility, since trust is difficult to observe


Another Way: Diversification

Related

Diversification

Product

Similarities

Distribution

Channels

Value Chain Capabilities/

Core Competencies

Customer

Use

Similar

Technology


Diversification

• Level

– Horizontal• Anti-trust laws prohibit a lot of these

– Vertical• Suppliers buying buyers (or vice versa)

• Two Types

– Related Businesses

– Unrelated Businesses


Related Diversification and Competitive Advantage

• Competitive advantage can result from related diversification if opportunities exist to– Transfer expertise / capabilities / technology– Combine related activities into a single operation and

reduce costs– Leverage use of firm’s brand name reputation– Conduct related value chain activities in a

collaborative fashion to create valuable competitive capabilities


What is Unrelated Diversification?

• Involves diversifying into businesses with

– NO strategic fit

– NO meaningful value chain relationship

– NO unifying strategic theme

• Approach is to venture into “any business in which we think we can make a profit”

• Firms pursuing unrelated diversification are often referred to as conglomerates


Attractive Merger/Acquisition Targets

• Companies with undervalued assets– Capital gains may be realized

• Companies in financial distress– May be purchased at bargain prices and turned

around

• Appeal of Unrelated Diversification Strategy– Business risk scattered over different industries– Financial resources can be directed to those industries

offering the best profit prospects– If bargain-priced firms with big profit potential are

bought, shareholder wealth can be enhanced


Drawbacks of Unrelated Diversification

• Difficulties of competently managing many diverse businesses

• Lack of strategic fits which can be leveraged into competitive advantage– Consolidated performance of unrelated businesses

tends to be no better than sum of individual businesses on their own (and it may be worse)

• Likely effect is 1 + 1 = 1.5, not 1 + 1 = 3

– Promise of greater sales-profit stability over business cycles seldom realized


Combination Related-Unrelated Diversification Strategies

• Dominant-business firms– One major core business accounting for 50 –

80 percent of revenues, with several small related or unrelated businesses accounting for remainder

• Narrowly diversified firms– Diversification includes a few (2-5) related or

unrelated businesses


Combination Related-Unrelated Diversification Strategies (cont.)

• Broadly diversified firms

– Diversification includes a wide ranging collection of either related or unrelated businesses or a mixture

• Multi-business firms

– Diversification portfolio includes several unrelated groups or related businesses


Diversification and Corporate Strategy

• A company is diversified when it is in two or more lines of business

• Strategy-making in a diversified company is a bigger picture exercise than crafting a strategy for a single line-of-business– A diversified company needs a multi-industry, multi-

business strategy– A strategic action plan must be developed and

implemented for several different businesses competing in diverse industry environment


Levels and Types of DiversificationLow Levels of Diversification

Moderate to High Levels of Diversification

Very High Levels of Diversification

Related linked (mixed) < 70% of revenues from dominant business, and only limited links exist

AA

BB CC

Single business > 95% of revenues from a single business unit

AA

Dominant business Between 70% and 95% of revenues from a single business unit BB

AA

Unrelated-DiversifiedUnrelated-Diversified Business units not closely related

AA

BB CC

< 70% of revenues from dominant business; all businesses share product, technological and distribution linkages

Related constrainedAA

BB CC


When to Diversify

• Some companies do EXCELLENTLY and are not diversified– McDonald’s, SWA, Coca-Cola, Domino’s Pizza,

Wal-Mart, FedEx, Timex, Gerber– Why stay single business

• Clear understanding of who we are/what we do• No Dilution of management’s attention

– Risks of a single business strategy• Putting all the “eggs” in one industry basket• Unforeseen changes can undermine a single

business firm’s prospects


Adding Value by DiversificationDiversification most effectively adds value by either of three mechanisms:

By developing economies of scope between business units in the firms which leads to synergistic benefitsBy developing market power which leads to greater returnsECR (Efficient Consumer Response)• Efficient Assortment• Efficient Product Introduction• Efficient Replenishment• Efficient Promotion• TOTAL ECR SCORE = Sum of 4 above


Assumptions:

Sharing ActivitiesAlternative Diversification Strategies

Strong sense of corporate identity

Clear corporate mission that emphasizes the importance of integrating business units

Incentive system that rewards more than just business unit performance (balanced scorecard)


Alternative Diversification Strategies

Related Diversification Strategies

Unrelated Diversification Strategies

Sharing Activities (Shared Global Services)

Transferring Core Competencies

Efficient Internal Capital Market Allocation

Restructuring


Key Characteristics:

Example: Using a common physical distribution system and sales force such as Procter & Gamble’s disposable diaper and paper towel divisions

Example: General Electric’s costs to advertise, sell and service major appliances are spread over many different products


Achieves economies of scale

Boosts efficiency of utilization

Helps move more rapidly down Learning Curve

Sharing Activities often lowers costs or raises differentiation

Sharing Activities can lower costs if it:


Example: Shared order processing system may allow new features customers value or make more advanced remote sensing technology available

Example: Procter & Gamble’s sharing of sales and physical distribution for disposable diapers and paper towels is effective because these items are so bulky and costly to ship



Sharing Activities can enhance potential for or reduce the cost of differentiation

Must involve activities that are crucial to competitive advantage



Transferring Core CompetenciesAlternative Diversification Strategies

Identify ability to transfer skills or expertise among similar value chains

Exploit ability to transfer activities

Exploits Interrelationships among divisions

Start with Value Chain analysis


Summary Model of the Relationship Between FirmPerformance and Diversification

Resources

Incentives

ManagerialMotives

Capital MarketIntervention and

Market forManagerial Talent

DiversificationStrategy

StrategyImplementation

FirmPerformance


Per

form

ance

Level of Diversification

Diversification and Firm Performance

DominantBusiness

UnrelatedBusiness

RelatedConstrained

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #41Future Work TrendsFuture Work Trends

How does it fit together?How does it fit together?





Strategic Alliances

(External and/or Internal Growth)

Improvement inthe four Capabilities via Core

Competencies along Value Chain

Business Imperatives:

Capabilities:

Vision Direction and Strategies:

Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA. (forthcoming)

Vision Direction

External and InternalStrategies

(Corporate & Business)

1st

2nd

3rd


Questions for Strategyto Consider

Competitive Dynamics


An organization’s size affects the An organization’s size affects the likelihood that it will take competitive likelihood that it will take competitive actions as well as the types of action it actions as well as the types of action it will take and their timing. will take and their timing. Small firmsSmall firms are more likely to launch competitive are more likely to launch competitive actions and tend to be quicker in doing actions and tend to be quicker in doing so.so.

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Strategic Actions and Organizational Size - 1


Large firmsLarge firms are likely to initiate more are likely to initiate more competitive actions as well as strategic competitive actions as well as strategic actions during a given time period. Thus, actions during a given time period. Thus, the competitive actions a firm will likely the competitive actions a firm will likely ecounter from larger competitors will be ecounter from larger competitors will be different than the competitive actions it different than the competitive actions it will encounter from smaller firms.will encounter from smaller firms.

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Large organizationsLarge organizations often have the often have the slack resources required to launch a slack resources required to launch a larger number of total competitive larger number of total competitive actions, and thus do. However, actions, and thus do. However, smaller smaller firmsfirms have the flexibility needed to have the flexibility needed to launch a greater variety of competitive launch a greater variety of competitive actions.actions.

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Declining emphasis on single, domestic markets and increasing emphasis on global markets

Advances in communication technology make coordination easier across multiple markets

Advances in technology and innovation have increased competitiveness of small and medium sized firmsNational barriers are falling due to the number and scope of trade agreements (GATT, NAFTA, EEC)

Factors Leading to More Complex Rivalry


Competitive DynamicsResults from a series of competitive actions and competitive responses among firms competing within a particular industry

Competitive RivalryExists when two or more firms jockey with one another in the pursuit of better market position


Actions and responses shape the

competitive positions of each firm’s business level

strategy

Actions taken by one firm elicit responses from competitors

A firm’s strategic conduct

is dynamic in nature

Competitive responses lead

to additional actions from the

firm that acted originally

Competitive Dynamics


Drivers of Competitive

Behavior

Motivation

Capability

Awareness

Model of Interfirm Rivalry:Likelihood of Attack and Response

Do managers understand the key characteristics of competitors?

Awareness


Does the firm have appropriate incentives to attack or respond?


Behavior

Motivation

Capability

Awareness



Does the firm have the necessary resources to attack or respond?


Behavior

Motivation

CapabilityCapability

Awareness



Competitor Analysis

Resource Similarity

Market Commonality


Do firms compete with each other in multiple markets?Do firms compete with each other in multiple markets?

Market Commonality

Market Commonality


Competitor Analysis

Resource Similarity

Market Commonality

Multipoint competition tends to reduce competitive interactions, but increases the likelihood of response where interaction occurs

For example, airlines price flights similarly but respond quickly when competitors introduce promotional prices



Competitor Analysis

Resource Similarity

Do competitors possess similar types or amounts of resources?

Market Commonality



Competitor Analysis

Resource Similarity

Market Commonality

Firms are less inclined to attack a firm that is likely to retaliate

Firms with dissimilar resources are more likely to attack

Firms with similar resources are more likely to be aware of each other’s competitive moves



Interfirm Rivalry:Attack & Response

Likelihood of Attack

First Mover IncentivesLikelihood of Response

Type of CompetitiveAction

Dependence on theMarket

Resource Availability

Actor’s Reputation


Likelihood of Attack

First Mover IncentivesFirst Mover advantage can be substantial


First Mover

Firms that take an initial competitive action

Generally possess the resources and capabilities that enable them to be pioneers in new products, new markets or new technologies

Can earn above average profits until competitors respond

Gain customer loyalty, helping to create a barrier to entry by competitors

Advantage depends upon difficulty of imitation


Second Mover

Firms that respond to a First Mover’s actions

Second Movers frequently imitate First Movers

Speed of response often dictates success

Should evaluate customers’ response before moving

“Fast” Second Movers can capture some of initial customers and develop some brand loyalty

Avoid some of the risks associated with First Move

Must possess necessary capabilities to imitate


TacticalActions

Major AcquisitionExample

Types of Competitive Actions

Strategic Actions

Price cutExample

Significant commitments of specific and distinctive organizational resources

Difficult to implement

Difficult to reverse

Relatively easy to implement

Relatively easy to reverse

Undertaken to “fine tune” strategy


Relative Size

Quality

Innovation

Speed

Ability for Action and Response


Relative SizeFirm size can have opposing effects on competitive dynamics


Quality

Speed

Large firms may exert market power over rivals and erect barriers to entry against smaller competitors

However, smaller competitors may be more nimble and innovative


Relative Size

Innovation


“Think and act big and we’ll get smaller. Think and act small and we’ll get bigger.”

-- Herb Kelleher, CEO, Southwest Airlines


Relative Size

Quality

Innovation

Speed

Quick response is crucial to both the first mover and the fast second mover




Consistent innovation is required for market leadership in many dynamic industries


Relative Size

Quality

Innovation

Speed



Exceeding customer expectations is a necessity to compete in the 21st century


Relative Size

Quality

Innovation

Speed



Outcomes

Evolutionary ActionsGrowth-Oriented Actions Market-Power Actions

Evolutionary Outcomes

Sustained Competitive

Competitive Market TypesSlow, Standard or Fast Cycle

Competitive Outcomes

Advantage

Temporary Advantage


Slow cycle markets are frequently shielded by monopoly power or very strong brand loyalties

This market outcome and lack of interfirm rivalry may lead to sustained competitive advantage




Advantage

Temporary Advantage


Outcomes



Sustained competitive advantage is a possible outcome in this instance

Standard cycle markets often lead to highly competitive pressures despite world class products

Firms with multimarket competition may dampen rivalry somewhat




Advantage

Temporary Advantage




Outcomes



Advantage

Temporary Advantage


Fast cycle markets are intensely dynamic and a first mover advantage is often unsustainable


Firms may cannibalize older generation products while introducing new innovative premium products

Sustainable competitive advantage is unilkely
