13 Implementing Strategy in Companies That Compete Across Industries and Countries

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 Copyright © Houghton Mifflin Company. All rights reserved.

Multidivisional Structure Copyright © Houghton Mifflin Company. All rights reserved.

Advantages of a Multidivisional Structure Enhanced corporate financial control Enhanced strategic control Growth Stronger pursuit of internal efficiency Copyright © Houghton Mifflin Company. All rights reserved.

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 Copyright © Houghton Mifflin Company. All rights reserved.

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 Copyright © Houghton Mifflin Company. All rights reserved.

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 Copyright © Houghton Mifflin Company. All rights reserved.

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 Copyright © Houghton Mifflin Company. All rights reserved.

Corporate Strategy and Structure and Control Copyright © Houghton Mifflin Company. All rights reserved.

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 Copyright © Houghton Mifflin Company. All rights reserved.

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 Copyright © Houghton Mifflin Company. All rights reserved.

Global Strategy/Structure Relationships Copyright © Houghton Mifflin Company. All rights reserved.

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 Copyright © Houghton Mifflin Company. All rights reserved.

Global-Area Structure Copyright © Houghton Mifflin Company. All rights reserved.

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 Copyright © Houghton Mifflin Company. All rights reserved.

International Division Structure Copyright © Houghton Mifflin Company. All rights reserved.

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 Copyright © Houghton Mifflin Company. All rights reserved.

Global Product-Division Structure Copyright © Houghton Mifflin Company. All rights reserved.

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 Copyright © Houghton Mifflin Company. All rights reserved.

Global Matrix Structure Copyright © Houghton Mifflin Company. All rights reserved.

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 Copyright © Houghton Mifflin Company. All rights reserved.

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 Copyright © Houghton Mifflin Company. All rights reserved.

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 Copyright © Houghton Mifflin Company. All rights reserved.

IT, the Internet, and Outsourcing Strategic outsourcing and network structure IT increases the efficiency of inter-organizational relationships Business-to-business (B2B) networks Network structure Copyright © Houghton Mifflin Company. All rights reserved.