1. Corporate Strategy: Implementation And Diversification
Corporate Strategy:
Implementation
And
Diversification

2. Seven-S Framework From In Search of Excellence, Peters and Waterman, 1982
S’s are interrelated
Need to be developed and maintained to support each other and implement the overarching strategy.
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3. Details of Seven-S Framework
Strategy
Analysis of environment, competition, customers, leading to a plan for future firm actions
Structure
Organization chart, patterns of status and control and how relevant groups are tied together
Systems
Processes, procedures, reward/control/information/ manufacturing systems, quality programs
Staff
Characteristics and capabilities of people working in firm’s groups
Style
Decision making processes, nature of interpersonal interactions/communications, behavioral expectations
Shared Values
Culture, central beliefs and ambitions of organization, priority objectives
Skills
Key knowledge and capabilities that are relied on to compete successfully
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4. Strategic Change: Improving Performance
Changing the leadership
New leader is often from outside the company
New leader must make difficult decisions, motivate, listen, and delegate
Changing the strategy
Redefine strategic focus
Divest unwanted assets
Improve profitability
Make acquisitions
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5. Strategic Change: Improving Performance (cont’d)
Changing the organization
Unfreezing the organization
Big bang theory of change
Senior managers must be committed to it
Movement
Speed
Involving employees
Refreezing the organization
Culture, socialization, management education programs
Hiring policies, control and incentive systems
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6. Building Blocks of Organizational Structure
Grouping tasks, functions, and divisions
Organizational structure follows the range and variety of tasks that an organization pursues
Companies group people and tasks into functions and then functions into divisions
Bureaucratic costs
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7. Building Blocks of Organizational Structure (cont’d)
Allocating authority and responsibility
Hierarchy of authority (chain of command)
Span of control (number of subordinates)
Tall and flat organizations
Drawbacks of taller organizations
Less flexibility and slower response time
Communication problems
Distortion of commands
Expense
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8. Tall and Flat Structures
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9. Allocating Authority and Responsibility (cont’d)
The minimum chain of command
To combat an organization that is too tall
Hand responsibility up and empower those below
Centralization or decentralization?
Delegating responsibility reduces information overload and enables managers to focus on strategy
Empowering lower-level managers increases motivation and accountability
Empowering employees requires fewer managers
Centralized decisions allow easier coordination of activities
Centralization means that decisions fit broad organizational objectives
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10. Building Blocks of Organizational Structure (cont’d)
Integration and integrating mechanisms
Direct contact among managers across functions or divisions
Liaison roles
Gives one manager in each function or division the responsibility for coordinating with the other
Teams
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11. Organizational structure
Implementing Strategy Through Organizational Structure, Control, and Culture
Organizational structure
Depicted in organizational chart
Assigns employees to specific value creation tasks and roles and specifies how those are linked to increase efficiency, quality, innovation, and responsiveness to customers
To coordinate and integrate the efforts of all employees
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12. Implementing Strategy Through Organizational Structure, Control, and Culture (cont’d)
Control system
A set of incentives to motivate employees to increase efficiency, quality, innovation, and responsiveness to customers
Provides feedback on performance so corrective action can be taken
Organizational culture
The collection of values, norms, beliefs, and attitudes shared within an organizations and that control interactions within and outside the organization
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13. Strategic Reward Systems
Based on strategy managers must decide which behaviors to reward
A control system measures those behaviors and links the reward structure to them
PERHAPS MOST IMPORTANT ASPECT OF IMPLEMENTATION
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14. Organizational Culture
Culture and strategic leadership
Traits of strong and adaptive corporate cultures
Bias for action
Nature of the organization’s mission (sticking with what the organization does best)
How to operate the organization (motivating employees to do their best)
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15. Corporate Level Strategies
Portfolio or “mix” of businesses of a company
Parallels investment portfolio concept from finance
Focuses on owner/stockholder as main stakeholder—creation of value for owners through “mix” of businesses
Diversification
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16. A Company as a Portfolio of Distinctive Competencies
Reconceptualize the company as a portfolio of distinctive competencies rather than a portfolio of products
Consider how those competencies might be leveraged to create opportunities in new industries
Existing vs. new competencies
Existing industries in which a company competes vs. new industries
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17. Free Cash Flow What is it? How to use it?
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18. Diversification Reasons Continuum
Most Power to
Create Value
Least Power to
Create Value
Reducing
Risk
Maintaining
Growth
Balancing
Cash
Flows
Sharing
Infrastructure
Increasing
Market
Power
Capitalizing
on Core
Competencies
Not
Recommended
as a Reason
to Diversify
Recommended
as a Reason
to Diversify
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19. Transfer of Competencies at Philip Morris
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20. Sharing Resources at Proctor & Gamble
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21. Overview of Forms of Corporate Strategy
Horizontal integration
The process of acquiring or merging with industry competitors
Acquisition and merger
Vertical integration
Expanding operations backward into an industry that produces inputs for the company or forward into an industry that distributes the company’s products
Strategic outsourcing
Letting some value creation activities within a business be performed by an independent entity
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22. Benefits of Horizontal Integration
Reducing costs
Increasing value
Product bundling
Cross selling
Managing industry rivalry
Increasing bargaining power
Market power (monopoly power)
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23. Drawbacks and Limits of Horizontal Integration
Majority of mergers and acquisitions do not create value
Implementing a horizontal integration strategy is not easy
Mergers and acquisitions often fail to produce the anticipated gains
Can bring the company into conflict with antitrust law
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24. Vertical Integration: Stages in the Raw Material to Consumer Value Chain
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25. The Raw Material to Consumer Value (Supply) Chain in the Personal Computer Industry
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26. Full and Taper Integration
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27. Increasing Profitability Through Vertical Integration
Building barriers to entry
Facilitating investments in specialized assets
Protecting product quality
Improved scheduling
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28. Arguments Against Vertical Integration
Cost disadvantages
Company-owned suppliers that have higher costs than external suppliers
Rapid technological change
Tying a company to an obsolescent technology
Demand unpredictability
Difficulty of achieving close coordination among vertically integrated activities
Bureaucratic costs
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29. Alternatives to Vertical Integration: Cooperative Relationships
Short-term contracts and competitive bidding
Strategic alliances and long-term contracting
Building long-term cooperative relationships
Hostage taking
Credible commitments
Maintaining market discipline
Parallel sourcing policy
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30. Strategic Outsourcing of Primary Value Creation Functions
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31. Benefits of Outsourcing
Reducing costs
The specialist company is less than what it would cost to perform the activity internally
Differentiation
The quality of the activity performed by the specialist is greater than if the activity were performed by the company
Focus
Distractions are removed; the company can focus attention and resources on activities important for value creation and competitive advantage
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32. Identifying and Managing the Risks of Outsourcing
Holdup
The company can become too dependent on the provider of the outsourced activity so that the provider can raise prices
Scheduling of activities
Loss of control can result in distorted signals in the supply chain
Loss of information
Contact with the customer may be lost
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33. Restructuring
Reducing the scope of the company by exiting business areas
Why restructure?
Not competitive
Diversification discount: investors see highly diversified companies as less attractive
Complexity and lack of transparency in financial statements
Too much diversification or for the wrong reasons
Response to failed acquisitions
Innovations have diminished the advantages of vertical integration or diversification
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34. Restructuring Strategies
Exit strategies
Bankruptcy
Divestment
Spinoff
Selling to another company
Management buyout (MBO)
Harvest
Liquidation
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35. Restructuring and Reengineering
Restructuring involves
Streamlining hierarchy of authority and reducing number of levels
Downsizing the workforce to reduce costs
Reasons
Change in the business environment
Excess capacity
Organization grew too tall and inflexible; bureaucratic costs
To improve competitive advantage and stay on top
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36. Restructuring and Reengineering (cont’d)
Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements
Focuses not on functions, but on processes (which cut across functions)
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