1. Session 11 © Furrer 2002-20081 Corporate Strategy Fall 2008 Session 11 Corporate Strategy: Organizational and International Dimensions Dr. Olivier Furrer Office: TvA 1-1-11, Phone: 361 30 79 e-mail: o.furrer@fm.ru.nl Office Hours: only by appointment

2. Session 11 © Furrer 2002-20082 Young Strategy and Structure Growth Pattern Maturity Age of Organization Size of Organization Small Large Coordination and Control Problems Simple Structure Functional Structure Multi- divisional Structure Matrix Structure Network Structure Ref.: Adapted from Greiner, 1972; Churchill and Lewis, 1983

3. Session 11 © Furrer 2002-20083 ProductionFinanceR&DAccounting Sales & Marketing Human Resources Chief Executive Officer Functional Structure

4. Session 11 © Furrer 2002-20084 ProductionFinanceEngineeringAccounting Sales & Marketing Human Resources Strategic Planning Corporate Finance Corporate R&D Corporate Marketing Corporate Human Resources Chief Executive Officer Functional Structure

5. Session 11 © Furrer 2002-20085 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. Session 11 © Furrer 2002-20086 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

7. Session 11 © Furrer 2002-20087 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

8. Session 11 © Furrer 2002-20088 The decision-making of managers in a Multi- Divisional structure may be: Balance on 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

9. Session 11 © Furrer 2002-20089 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

10. Session 11 © Furrer 2002-200810 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

11. Session 11 © Furrer 2002-200811 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

12. Session 11 © Furrer 2002-200812 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

13. Session 11 © Furrer 2002-200813 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

14. Session 11 © Furrer 2002-200814 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

15. Session 11 © Furrer 2002-200815 High Global Co-ordination Integration Low High National differentiation, Responsiveness Multi- National Global Trans- National International Corporate Strategy

16. Session 11 © Furrer 2002-200816 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

17. Session 11 © Furrer 2002-200817 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

18. Session 11 © Furrer 2002-200818 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

19. Session 11 © Furrer 2002-200819 SBU’s 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

20. Session 11 © Furrer 2002-200820 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

21. Session 11 © Furrer 2002-200821 Traditional International Structures International Division Area Division Worldwide Product Division FOREIGN PRODUCT DIVERSITY FOREIGN SALES AS PERCENTAGE OF TOTAL SALES Global Matrix

22. Session 11 © Furrer 2002-200822 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 2002-200823 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. Session 11 © Furrer 2002-200824 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. Session 11 © Furrer 2002-200825 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. Session 11 © Furrer 2002-200826 Pre-War European Empires: Decentralised Federations MULTINATIONAL STRATEGY MODEL - COMPETE BY BEING NATIONALLY RESPONSIVE

27. Session 11 © Furrer 2002-200827 Post-war American Hegemony Expended abroad in a time of economic reconstruction. –Large, advanced home market as knowledge source Organisation 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 another skills. Strategy of Knowledge Transfer

28. Session 11 © Furrer 2002-200828 Post-war American Hegemony: Co-ordinated Federations INTERNATIONAL STRATEGY MODEL - COMPETE THROUGH KNOWLEDGE TRANSFER

29. Session 11 © Furrer 2002-200829 Modern Day Japanese Challenge Expanded abroad in a period of falling trade barriers. –Newly added capacity and government industrial policy as assets Organisation 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. Session 11 © Furrer 2002-200830 Modern Day Japanese Challenge: Centralised Hubs GLOBAL STRATEGY MODEL - COMPETE THROUGH GLOBAL EFFICIENCY

31. Session 11 © Furrer 2002-200831 Strategic Capabilities of the Transnational Sensitivity, flexibility, and responsiveness to local needs. Global scale efficiency and competitive response capability. World-wide innovation skills and learning capabilities. The New Game for the 21 th Century

32. Session 11 © Furrer 2002-200832 The Transnational Organization Model: The Integrated Network Centralized Hub Decentralized Federation The Integrated Network Coordinated Federation

33. Session 11 © Furrer 2002-200833 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. Session 11 © Furrer 2002-200834 Organizational Characteristics of the Transnational

35. Session 11 © Furrer 2002-200835 Next Session: Case Study 3 The Globalization of CEMEX