1. 1 Corporate Strategy Session 07 Corporate Strategy: Organizational and International Dimensions Dr. Olivier Furrer e-mail: o.furrer@fm.ru.nl

2. 2 Young Strategy and Structure Growth Pattern Maturity Age of Organization Size of Organization Small Large Coordination and Control Crises Simple Structure Functional Structure Multi- divisional Structure Matrix Structure Network Structure Source: Adapted from Greiner, 1972; Churchill and Lewis, 1983

3. 3 ProductionFinanceR&DAccounting Sales & Marketing Human Resources Chief Executive Officer Functional Structure

4. 4 ProductionFinanceEngineeringAccounting Sales & Marketing Human Resources Strategic Planning Corporate Finance Corporate R&D Corporate Marketing Corporate Human Resources Chief Executive Officer Functional Structure

5. 5 Division ProductionFinanceEngineeringAccounting Sales & Marketing Human Resources Strategic Planning Corporate Finance Corporate R&D Corporate Marketing Corporate Human Resources Chief Executive Officer Multi-Divisional Structure

6. 6 Finance ProductionFinanceEngineeringAccounting Sales & Marketing Human Resources ProductionEngineeringAccounting Sales & Marketing Human Resources Corporate Office (Staff) Chief Executive Officer Product AProduct B Evolution of Multi-Divisional Structure

7. 7 Product A North America EuropeAsia Chief Executive Officer Product BProduct CProduct D ProductionFinanceEngineeringAccounting Sales & Marketing Human Resources Corporate Office (Staff) Evolution of Multi-Divisional Structure

8. 8 SBUs Help to Solve Complexity Issues Strategic Business Unit A Division Chief Executive Officer Corporate Office (Staff) Strategic Business Unit B Strategic Business Unit C Strategic Business Unit D Division Strategic Business Units (SBUs) are used to organize related businesses into groups for strategy development

9. 9 Global Matrix Structure EuropeAsia North America Africa Chief Executive Officer Corporate Office (Staff) Product A Product B Product C Unit 1Unit 4Unit 3Unit 2 Unit 5Unit 8Unit 7Unit 6 Unit 9Unit 12Unit 11Unit 10

10. 10 The decision-making of managers in a Multi- Divisional structure may be: Balance of these dimensions may change over time * Centralized or Decentralized * Bureaucratic or Non-bureaucratic * Changes in Strategy * Degree of Diversification * Geographic scope * Nature of competition Structure will evolve over time with: Multi-Divisional Structure

11. 11 Cooperative Form Three variations of the Multi-Divisional Structure Related-Constrained Multi-Divisional FormStrategy Type Strategic Business Unit (SBU) Structure Related-Linked Competitive Form Unrelated /Holding Company Multi-Divisional Structure

12. 12 Each division is operated as a separate business Managers try to strike a balance between: Competing among divisions for scarce capital resources Creating opportunities for cooperation to develop synergies The goal is to maximize overall firm performance Key task of corporate managers is exploiting synergies among divisions Appropriate for related-diversified businesses Managers use a combination of strategic controls and financial controls Cooperative Form Multi- Divisional Structure

13. 13 Type of Corporate Strategy selected will have an impact on the selection and implementation of the business-level strategies Some Corporate strategies provide individual country units with flexibility to choose their own strategies Others dictate business-level strategies from the home office and coordinate resource sharing across units Global Strategy Transnational Strategy Multi-Domestic Strategy Corporate-Level International Strategies Three Corporate Strategies

14. 14 Strategy and operating decisions are decentralized to strategic business units (SBU) in each country Products and services are tailored to local markets Business units in each country are independent of each other Assumes markets differ by country or regions Focus on competition in each market Prominent strategy among European firms due to broad variety of cultures and markets in Europe Multi-Domestic Strategy

15. 15 Products are standardized across national markets Decisions regarding business-level strategies are centralized in the home office Strategic business units (SBU) are assumed to be interdependent Emphasizes economies of scale Often lacks responsiveness to local markets Requires resource sharing and coordination across borders (which also makes it difficult to manage) Global Strategy

16. 16 Seeks to achieve both global efficiency and local responsiveness Difficult to achieve because of simultaneous requirements for strong central control and coordination to achieve efficiency and local flexibility and decentralization to achieve local market responsiveness Must pursue organizational learning to achieve competitive advantage Transnational Strategy

17. 17 High Global Co-ordination Integration Low High National differentiation, Responsiveness Multi- National Global Trans- National International Corporate Strategy

18. 18 Product A Chief Executive Officer Product BProduct CProduct D Corporate Office (Staff) A Structural evolution based on Product lines usually implies a Global International Strategy Evolution of Multi-Divisional Structure

19. 19 A Structural evolution based on Geographic lines usually implies a Multi-Domestic International Strategy North America AustraliaEuropeAsia Latin America Africa Chief Executive Officer Corporate Office (Staff) Product AProduct BProduct CProduct D Evolution of Multi-Divisional Structure

20. 20 A Transnational International Strategy is likely to utilize a structure and that results in emphasis on both geographic and product structures Evolution of Multi-Divisional Structure

21. 21 Traditional International Structures International Division Country Division Global Product Division FOREIGN PRODUCT DIVERSITY/SCOPE FOREIGN SALES AS PERCENTAGE OF TOTAL SALES Global Matrix Network Structure

22. 22 The choice between centralization and decentralization is frequently based on the business-level strategy implemented in each division Multi-Divisional structure firms use a combination of: Cost Leadership Decentralization Differentiation Centralization Complex Multi-Divisional structure firms may be simultaneously centralized and decentralized, depending upon the various business-level strategies employed throughout the firm’s individual businesses Financial Controls Strategic Controls Multi-Divisional Structure

23. Session 11 © Furrer 2002-201123 Cooperative M-Form SBU M-Form Competitive M-Form Structural Characteristics Degree of Centralization Use of Integrating Mechanisms Divisional Performance Appraisal Divisional Incentive Compensation Type of Strategy Related- Constrained Mixed Related or Unrelated Centralized at Corporate Office Centralized in SBUs Decentralized to Division Extensive Synergies Moderate Synergies Financial Criteria Strategic & Financial Criteria Linked to Corporate Performance Linked to Corporation, Division, & SBU Linked to Divisional Performance Nonexistent Synergies Subjective/ Strategic Criteria Attributes of Various Structural Forms Unrelated

24. 24 Administrative Heritage “Where to” is influenced by “where from.” Competitive advantage shaped by country of origin, time of expansion, and nature of leadership. The challenge is to built new capabilities while protecting existing strengths. Strategic Asset and Organisational Anchor

25. 25 Pre-War European Empires Expended abroad in a period of high international barriers. –Preferential access to foreign empire markets Organisation developed as a portfolio of national companies. –Heritage of family management, personal control Strategy based on understanding and responding to national markets. Nationally Responsive Strategies

26. 26 Pre-War European Empires: Decentralized Federations MULTINATIONAL STRATEGY MODEL COMPETE BY BEING NATIONALLY RESPONSIVE

27. 27 Post-War American Hegemony Expended abroad in a time of economic reconstruction. –Large, advanced home market as knowledge source Organization built on strong links to the parent company based on transfer of expertise. –Heritage of professional management, systems control Strategy based on transferring parent company’s leadership in technology, marketing, and other skills. Strategy of Knowledge Transfer

28. 28 Post-War American Hegemony: Co-Ordinated Federations INTERNATIONAL STRATEGY MODEL COMPETE THROUGH KNOWLEDGE TRANSFER

29. 29 Modern Day Japanese Challenge Expanded abroad in a period of falling trade barriers. –Newly added capacity and government industrial policy as assets Organization grew as dependent foreign units tightly controlled from the centre. –Heritage of culturally dependent management practices dominated by group processes Strategy based on capturing global scale economies. Competing through Global Efficiency

30. 30 Modern Day Japanese Challenge: Centralized Hubs GLOBAL STRATEGY MODEL COMPETE THROUGH GLOBAL EFFICIENCY

31. 31 Strategic Capabilities of the Transnational Sensitivity, flexibility, and responsiveness to local needs. Global scale efficiency and competitive response capability. Worldwide innovation skills and learning capabilities. The New Game for the 21st Century

32. Session 11 © Furrer 2002-201132 The Transnational Organization Model: The Integrated Network Centralized Hub Decentralized Federation The Integrated Network Coordinated Federation

33. 33 Organisational Characteristics of the Transnational Multi-dimensional Perspective –Large flows of components, products, resources, people, and information among interdependent units. Distributed, Interdependent Capabilities Flexible Integrative Process –Complex process of co-ordination and co- operation in an environment of shared decision making

34. 34 Organizational Characteristics of the Transnational