Implementing Strategy in Companies that Compete Across Industries and Countries 13 Chapter Prepared by C. Douglas Cloud Professor Emeritus of Accounting

Implementing Strategy in Companies that Compete Across Industries and Countries

Implementing Strategy in Companies that Compete Across Industries and Countries

13

Chapter

Prepared by C. Douglas Cloud

Professor Emeritus of Accounting

Pepperdine University

Prepared by C. Douglas Cloud

Professor Emeritus of Accounting

Pepperdine University

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Student Version

GARETH R. JONES /CHARLES W. L. HILL GARETH R. JONES /CHARLES W. L. HILL

Theory of Strategic Management Theory of Strategic Management 10th ed.10th ed.Theory of Strategic Management Theory of Strategic Management 10th ed.10th ed.

Learning Objective:Learning Objective: After reading this After reading this chapter, you should be able to discuss the chapter, you should be able to discuss the reasons why companies pursuing different reasons why companies pursuing different corporate strategies need to implement corporate strategies need to implement these strategies using different these strategies using different combinations of organizational structure, combinations of organizational structure, control, and culture.control, and culture.

Learning Objective:Learning Objective: After reading this After reading this chapter, you should be able to discuss the chapter, you should be able to discuss the reasons why companies pursuing different reasons why companies pursuing different corporate strategies need to implement corporate strategies need to implement these strategies using different these strategies using different combinations of organizational structure, combinations of organizational structure, control, and culture.control, and culture.


Companies that pursue a multibusiness model based on related diversification face many problems and costs in managing the handoffs or transfers between the value chain functions of its business units around the world.

MANAGING CORPORATE STRATEGY MANAGING CORPORATE STRATEGY THROUGH MULTIDIVISIONAL THROUGH MULTIDIVISIONAL

STRUCTURESTRUCTURE


STRUCTURESTRUCTURE

13-3

A multidivisional structure has two organizational design advantages over a functional or product structure:

1) In each industry in which a company operates, strategic managers group all its different business operations in that industry into one division or subunit. Each industry division contains all the value chain functions and is thus called a self-contained division.

2) The office of corporate headquarters staff is created to monitor divisional activities and exercise financial control over each division.



STRUCTURESTRUCTURE


STRUCTURESTRUCTURE

13-4

Learning Objective:Learning Objective: After reading After reading this chapter, you should be able to this chapter, you should be able to describe the advantages and describe the advantages and disadvantages of a multidivisional disadvantages of a multidivisional structure.structure.

Learning Objective:Learning Objective: After reading After reading this chapter, you should be able to this chapter, you should be able to describe the advantages and describe the advantages and disadvantages of a multidivisional disadvantages of a multidivisional structure.structure.


Because each division has its own profit center, financial controls can be applied to each business on the basis of profitability.

Divisional managers develop their own business model and strategies; this allows corporate managers to focus on the multibusiness model.

ADVANTAGES OF A ADVANTAGES OF A MULTIDIVISIONAL STRUCTUREMULTIDIVISIONAL STRUCTURE


13-5© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The division of responsibilities between corporate and divisional managers in the multidivisional structure allows a company to overcome organizational problems, such as communication problems and information overload.

The multidivisional structure allows top managers to identify divisions with problems, such as organizational slack (unproductive use of functional resources) that would otherwise go undetected.




Corporate managers face the problem of deciding how much authority and control to delegate to divisional managers, and how much authority to retain at corporate headquarters. If corporate managers retain too much power and

authority, the managers of business divisions lack the autonomy required to handle rapidly changing competitive conditions.

When too much authority is delegated to divisions, managers may start to pursue strategies that benefit their own division, but add little to the whole company’s profitability.

PROBLEMS IN IMPLEMENTING A PROBLEMS IN IMPLEMENTING A MULTIDIVISIONAL STRUCTUREMULTIDIVISIONAL STRUCTURE



If too much emphasis is placed on each division’s individual profitability, divisional managers may engage in information distortion, that is, they manipulate the facts they supply to corporate managers to hide declining divisional profits, or use strategies that give only short-term benefits.

When divisions compete against themselves for scarce resources, this rivalry makes it difficult—or impossible—to obtain the gains from transferring, sharing, or leveraging distinctive competencies.




Competition among divisions may lead to battles over transfer pricing, that is, establishing the fair or “competitive” price of a resource or skill developed in one division that is to be transferred and sold to other divisions that require it.

Because each division has its own set of value chain functions, functional resources are duplicated across divisions; thus, multidivisional structures are expensive to operate. For example, R&D and marketing are especially costly.




Because there are no exchanges or linkages among divisions unrelated diversification is the easiest and cheapest strategy to manage.

The primary advantage of the unrelated diversification structure is that it allows corporate managers to evaluate division performance accurately.

Divisions usually have considerable autonomy unless they fail to reach their ROIC goals, in which case corporate managers will intervene in the operations of a division to help solve problems.

STRUCTURE, CONTROL, CULTURE, STRUCTURE, CONTROL, CULTURE, AND CORPORATE-LEVEL AND CORPORATE-LEVEL

STRATEGYSTRATEGY


STRATEGYSTRATEGY


Vertical integration is a more expensive strategy to manage than unrelated diversification because sequential resource flows from one division to the next must be coordinated.

The way to distribute authority between corporate and divisional managers must be carefully considered in vertical integration companies.

To facilitate communication among divisions, corporate managers create teams composed of both corporate and divisional managers.


STRATEGYSTRATEGY


STRATEGYSTRATEGY


In related diversification, the gains from pursuing this multibusiness model are derived from the transfer, sharing, and leveraging of R&D knowledge, industry information, customer bases, and so on, across divisions.

A company needs to develop a corporate culture that stresses cooperation among divisions and the corporate team rather than focusing purely on divisional goals.

With related diversification, rewarding divisions is more difficult because divisions share activities.


STRATEGYSTRATEGY


STRATEGYSTRATEGY


Information Technology (IT) provides a common software platform that can make it much less problematic for divisions to share information and obtain the benefits from leveraging their competencies.

IT facilitates output and financial control, making it easier for corporate headquarters to monitor divisional performance and selectively decide when to intervene.

IT makes it easier to manage the problems that can occur in a multidivisional structure.

THE ROLE OF THE ROLE OF INFORMATION INFORMATION TECHNOLOGYTECHNOLOGY

THE ROLE OF THE ROLE OF INFORMATION INFORMATION TECHNOLOGYTECHNOLOGY

Learning Objective:Learning Objective: After reading this After reading this chapter, you should be able to explain chapter, you should be able to explain why companies that pursue different why companies that pursue different kinds of global expansion strategies kinds of global expansion strategies choose different kinds of global choose different kinds of global structures and control systems to structures and control systems to implement these strategies.implement these strategies.

Learning Objective:Learning Objective: After reading this After reading this chapter, you should be able to explain chapter, you should be able to explain why companies that pursue different why companies that pursue different kinds of global expansion strategies kinds of global expansion strategies choose different kinds of global choose different kinds of global structures and control systems to structures and control systems to implement these strategies.implement these strategies.


Companies can use four basic strategies as they establish production facilities and market abroad:1) A localization strategy

2) An international strategy

3) A global standardization strategy

4) A transnational strategy

IMPLEMENTING STRATEGY ACROSS IMPLEMENTING STRATEGY ACROSS COUNTRIESCOUNTRIES



When using this structure, a company duplicates all value creation activities and establishes overseas divisions in every country or world area in which it operates.

Authority is decentralized to managers in each overseas division, and these managers devise the appropriate strategy for responding to the needs of the local environment.

Overseas divisions have little contact with other divisions, so no integrating mechanism is needed.



Implementing a Localization Implementing a Localization StrategyStrategy

Implementing a Localization Implementing a Localization StrategyStrategy


To manage the challenging problem of coordinating the flow of different products across different countries, many companies create global divisions.

Global operations are managed as a separate divisional business, with managers given the authority and responsibility for coordinating domestic product divisions with overseas markets.

The global division monitors and controls the overseas subsidiaries that market the products.



Implementing an International Implementing an International StrategyStrategy

Implementing an International Implementing an International StrategyStrategy


When a company embarks on a global standardization strategy, it locates its manufacturing and other value-chain activities at the global location that will allow it to increase efficiency, quality, and innovation.

To coordinate and integrate its global-chain activities, a product-group headquarters is created to coordinate the company’s home and overseas operations.



Implementing a Global Implementing a Global Standardization StrategyStandardization StrategyImplementing a Global Implementing a Global

Standardization StrategyStandardization Strategy


In the 1990s, many companies implemented a global-matrix structure to simultaneously lower their global cost structures and differentiate their activities through superior innovation and responsiveness to customers globally.

Implementing a matrix structure decentralizes control to overseas managers and provides them with considerable flexibility for managing local issues, yet gives top management centralized control they need to coordinate global activities.



Implementing a Transnational StrategyImplementing a Transnational StrategyImplementing a Transnational StrategyImplementing a Transnational Strategy

13-18

Learning Objective:Learning Objective: After reading this After reading this chapter, you should be able to discuss chapter, you should be able to discuss the strategy implementation problems the strategy implementation problems associated with the three primary associated with the three primary methods used to enter new industries: methods used to enter new industries: internal new venturing, joint ventures, internal new venturing, joint ventures, and mergers.and mergers.

Learning Objective:Learning Objective: After reading this After reading this chapter, you should be able to discuss chapter, you should be able to discuss the strategy implementation problems the strategy implementation problems associated with the three primary associated with the three primary methods used to enter new industries: methods used to enter new industries: internal new venturing, joint ventures, internal new venturing, joint ventures, and mergers.and mergers.

ENTRY MODE AND ENTRY MODE AND IMPLEMENTATIONIMPLEMENTATIONENTRY MODE AND ENTRY MODE AND IMPLEMENTATIONIMPLEMENTATION


Corporation managers must treat the internal new venturing process as a form of entrepreneurship and the managers who are to pioneer new ventures as intrapreneurs, that is, internal entrepreneurs.

Internal New VenturingInternal New VenturingInternal New VenturingInternal New Venturing

13-19



Another approach to internal new venturing is to separate the new venture unit from the rest of the organization to encourage new product development.

The new-venture division uses controls that reinforce its entrepreneurial spirit.

The upfront R&D costs of new venturing are high, and its success is uncertain.

If strategic thinking is lacking in a new-venture division, the result is failure.

Internal New VenturingInternal New VenturingInternal New VenturingInternal New Venturing

13-20



A joint venture occurs when two companies agree to pool resources and capabilities and establish a new business unit to develop a new product and a business model that will allow it to bring the new product to market successfully.

Allocating authority and responsibility is the first major implementation issue upon which companies must decide.

It can be dangerous because one party might decide to take the technology and “go it alone.”

Joint VenturesJoint VenturesJoint VenturesJoint Ventures

13-21



One of the primary reasons acquisitions perform poorly is that many companies do not anticipate difficulties associated with mergers or integrating new companies into their existing operations.

One problem with a mishandled merger is that skilled managers who feel they have been demoted will leave the company.

Even in a closely related industry, managers must realize that each company has unique norms, values, and culture.

Mergers and Mergers and AcquisitionsAcquisitions

Mergers and Mergers and AcquisitionsAcquisitions

13-22

Learning Objective:Learning Objective: After reading this After reading this chapter, you should be able to identify the chapter, you should be able to identify the ways in which advanced Information ways in which advanced Information Technology (IT) may reduce bureaucratic Technology (IT) may reduce bureaucratic costs and allow a company to more costs and allow a company to more effectively implement its business model.effectively implement its business model.

Learning Objective:Learning Objective: After reading this After reading this chapter, you should be able to identify the chapter, you should be able to identify the ways in which advanced Information ways in which advanced Information Technology (IT) may reduce bureaucratic Technology (IT) may reduce bureaucratic costs and allow a company to more costs and allow a company to more effectively implement its business model.effectively implement its business model.

INFORMATION TECHNOLOGY, THE INFORMATION TECHNOLOGY, THE INTERNET, AND OUTSOURCINGINTERNET, AND OUTSOURCING



IT drastically increases the number of ways in which strategic managers can effectively implement their strategies.

Information Technology and Information Technology and Strategy ImplementationStrategy Implementation


13-23




IT is an important factor that promotes the development of functional competencies and capabilities.

IT enables a company to transfer its knowledge and expertise across functional groups and integrate that knowledge into a function’s operations, so it can deliver new and improved products to the customers.

IT allows managers to flatten the hierarchy.



13-24




Some companies make the most cost-effective use of their employees’ skills by using a virtual organization structure, which is composed of people who are linked by laptops, smartphones, etc. and may never see one another face-to-face.

In virtual organizations, consultants connect through their laptops to a company’s centralized knowledge management system, which allows for other employees who have the expertise to solve the problems that they encountered.



13-25




IT has affected a company’s ability to pursue strategic outsourcing to strengthen its business model.

Recall that outsourcing occurs as companies use short- and long-term contracts and strategic alliances to form relationships with other companies.

The business-to-business (B2B) network allows companies in adjacent industries to use the same software platform to link to each other.

Strategic Outsourcing Strategic Outsourcing and Network Structureand Network StructureStrategic Outsourcing Strategic Outsourcing and Network Structureand Network Structure

Documents

Implementing Strategy in Companies that Compete Across Industries and Countries 13 Chapter Prepared by C. Douglas Cloud Professor Emeritus of Accounting