Implementing Strategy in Companies That Compete Across Industries and Countries

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• Implementing Strategy in Companies That Compete
  Across Industries and Countries

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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

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Multidivisional Structure
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Advantages of a Multidivisional Structure

• Enhanced corporate financial control
• Profitability of each division clearly visible
• Enhanced strategic control
• Headquarters can focus on corporate strategy
  while divisions focus on business strategy
• Growth
• Reduces information overload on top management
• Communication problems are reduced via
  standardization
• Management by exception
• Stronger pursuit of internal efficiency
• In theory, divisions have no excuse for poor
  performance and thus use resources more
  efficiently

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Problems in Implementing a Multidivisional
Structure

• Establishing the divisional-corporate authority
  relationship
• How many decisions should be centralized at HQ
  and how much at division?
• Distortion of information
• Manipulating divisional performance
• Competition for resources
• Little incentive to fund cross-divisional
  activities
• Battles over transfer pricing
• Short-term RD focus
• cut to stimulate ROIC
• Duplication of functional resources

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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

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Structure, Control, Culture, and Corporate-Level
Strategy (contd)

• 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

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Structure, Control, Culture, and Corporate-Level
Strategy (contd)

• Related diversification
• Multidivisional structure allows gains from the
  transfer, sharing, or leveraging of RD
  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

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Corporate Strategy and Structure and Control
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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

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Implementing Strategy Across Countries

• Multidomestic strategy
• Local responsiveness decentralized control
• International strategy
• Centralized RD and marketing other functions
  are decentralized
• Global strategy
• Cost reductions centralized functions
• Transnational strategy
• Local responsiveness and cost reduction

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Global Strategy/Structure Relationships
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Global-Area Structure
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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

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International Division Structure
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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

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Global Product-Division Structure
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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

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Global Matrix Structure
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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

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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

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Entry Mode and Implementation (contd)

• 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

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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

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IT, the Internet, and Outsourcing

• Strategic outsourcing and network structure
• IT increases the efficiency of interorganizational
  relationships
• Business-to-business (B2B) networks
• Network structure
• Li Fung example

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Exercises

• The university wants to start an international
  teaching arm teaching law and business courses in
  several Asian countries how should this be
  structured?
• Hughes Aircraft