1. 13 Chapter 13: Implementing Strategy in Companies That Compete Across Industries and Countries BA 469 Spring Term, 2007 Prof. Dowling

2. 13 - 2 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

3. 13 - 3 Multidivisional Structure

4. 13 - 4 Advantages of a Multidivisional Structure Enhanced corporate financial control Enhanced strategic control Growth Stronger pursuit of internal efficiency

5. 13 - 5 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

6. 13 - 6 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

7. 13 - 7 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

8. 13 - 8 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

9. 13 - 9 Corporate Strategy and Structure and Control

10. 13 - 10 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

11. 13 - 11 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

12. 13 - 12 Global Strategy/Structure Relationships

13. 13 - 13 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

14. 13 - 14 Global-Area Structure

15. 13 - 15 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

16. 13 - 16 International Division Structure

17. 13 - 17 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

18. 13 - 18 Global Product-Division Structure

19. 13 - 19 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

20. 13 - 20 Global Matrix Structure

21. 13 - 21 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

22. 13 - 22 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

23. 13 - 23 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

24. 13 - 24 IT, the Internet, and Outsourcing Strategic outsourcing and network structure –IT increases the efficiency of interorganizational relationships –Business-to-business (B2B) networks –Network structure