CHARLES W. L. HILL / GARETH R. JONES
Strategic Management
Chapter
13
An Integrated Approach 10th ed.
Implementing
Strategy in
Companies that
Compete Across
Industries and
Countries
Student Version
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Prepared by C. Douglas Cloud , Professor Emeritus of Accounting, Pepperdine University
Learning Objective: After reading this chapter, you
should be able to discuss the reasons why
companies pursuing different corporate strategies
need to implement these strategies using different
combinations of organizational structure, control,
and culture.
MANAGING CORPORATE STRATEGY
THROUGH MULTIDIVISIONAL STRUCTURE
 Companies that pursue a multibusiness model
based on related diversification face many
problems and costs in managing the handoffs
or transfers between the value chain functions
of its business units around the world.
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MANAGING CORPORATE STRATEGY
THROUGH MULTIDIVISIONAL STRUCTURE
 A multidivisional structure has two organizational
design advantages over a functional or product
structure:
1) In each industry in which a company operates,
strategic managers group all its different business
operations in that industry into one division or subunit.
Each industry division contains all the value chain
functions and is thus called a self-contained
division.
2) The office of corporate headquarters staff is created
to monitor divisional activities and exercise financial
control over each division.
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Learning Objective: After reading this
chapter, you should be able to describe
the advantages and disadvantages of a
multidivisional structure.
ADVANTAGES OF A
MULTIDIVISIONAL STRUCTURE
 Because each division has its own profit center,
financial controls can be applied to each
business on the basis of profitability.
 Divisional managers develop their own business
model and strategies; this allows corporate
managers to focus on the multibusiness model.
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ADVANTAGES OF A
MULTIDIVISIONAL STRUCTURE
 The division of responsibilities between corporate
and divisional managers in the multidivisional
structure allows a company to overcome
organizational problems, such as communication
problems and information overload.
 The multidivisional structure allows top managers
to identify divisions with problems, such as
organizational slack (unproductive use of
functional resources) that would otherwise go
undetected.
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PROBLEMS IN IMPLEMENTING A
MULTIDIVISIONAL STRUCTURE
 Corporate managers face the problem of
deciding how much authority and control to
delegate to divisional managers, and how much
authority to retain at corporate headquarters.
 If corporate managers retain too much power and
authority, the managers of business divisions lack
the autonomy required to handle rapidly changing
competitive conditions.
 When too much authority is delegated to divisions,
managers may start to pursue strategies that
benefit their own division, but add little to the whole
company’s profitability.
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PROBLEMS IN IMPLEMENTING A
MULTIDIVISIONAL STRUCTURE
 If too much emphasis is placed on each division’s
individual profitability, divisional managers may
engage in information distortion, that is, they
manipulate the facts they supply to corporate
managers to hide declining divisional profits, or
use strategies that give only short-term benefits.
 When divisions compete against themselves for
scarce resources, this rivalry makes it difficult—or
impossible—to obtain the gains from transferring,
sharing, or leveraging distinctive competencies.
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PROBLEMS IN IMPLEMENTING A
MULTIDIVISIONAL STRUCTURE
 Competition among divisions may lead to battles
over transfer pricing, that is, establishing the fair
or “competitive” price of a resource or skill
developed in one division that is to be transferred
and sold to other divisions that require it.
 Because each division has its own set of value
chain functions, functional resources are
duplicated across divisions; thus, multidivisional
structures are expensive to operate. For
example, R&D and marketing are especially
costly.
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STRUCTURE, CONTROL, CULTURE,
AND CORPORATE-LEVEL STRATEGY
 Because there are no exchanges or linkages
among divisions unrelated diversification is the
easiest and cheapest strategy to manage.
 The primary advantage of the unrelated
diversification structure is that it allows corporate
managers to evaluate division performance
accurately.
 Divisions usually have considerable autonomy
unless they fail to reach their ROIC goals, in which
case corporate managers will intervene in the
operations of a division to help solve problems.
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STRUCTURE, CONTROL, CULTURE,
AND CORPORATE-LEVEL STRATEGY
 Vertical integration is a more expensive strategy
to manage than unrelated diversification because
sequential resource flows from one division to the
next must be coordinated.
 The way to distribute authority between corporate
and divisional managers must be carefully
considered in vertical integration companies.
 To facilitate communication among divisions,
corporate managers create teams composed of
both corporate and divisional managers.
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STRUCTURE, CONTROL, CULTURE,
AND CORPORATE-LEVEL STRATEGY
 In related diversification, the gains from pursuing
this multibusiness model are derived from the
transfer, sharing, and leveraging of R&D
knowledge, industry information, customer bases,
and so on, across divisions.
 A company needs to develop a corporate culture
that stresses cooperation among divisions and the
corporate team rather than focusing purely on
divisional goals.
 With related diversification, rewarding divisions is
more difficult because divisions share activities.
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THE ROLE OF INFORMATION
TECHNOLOGY
 Information Technology (IT) provides a common
software platform that can make it much less
problematic for divisions to share information and
obtain the benefits from leveraging their
competencies.
 IT facilitates output and financial control, making it
easier for corporate headquarters to monitor
divisional performance and selectively decide when
to intervene.
 IT makes it easier to manage the problems that
can occur in a multidivisional structure.
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Learning Objective: After reading this
chapter, you should be able to explain why
companies that pursue different kinds of
global expansion strategies choose different
kinds of global structures and control
systems to implement these strategies.
IMPLEMENTING STRATEGY ACROSS COUNTRIES
 Companies can use four basic strategies as they
establish production facilities and market abroad:
1) A localization strategy
2) An international strategy
3) A global standardization strategy
4) A transnational strategy
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IMPLEMENTING STRATEGY ACROSS COUNTRIES
Implementing a Localization Strategy
 When using this structure, a company duplicates
all value creation activities and establishes
overseas divisions in every country or world area in
which it operates.
 Authority is decentralized to managers in each
overseas division, and these managers devise the
appropriate strategy for responding to the needs of
the local environment.
 Overseas divisions have little contact with other
divisions, so no integrating mechanism is needed.
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IMPLEMENTING STRATEGY ACROSS COUNTRIES
Implementing an International Strategy
 To manage the challenging problem of
coordinating the flow of different products across
different countries, many companies create global
divisions.
 Global operations are managed as a separate
divisional business, with managers given the
authority and responsibility for coordinating
domestic product divisions with overseas markets.
 The global division monitors and controls the
overseas subsidiaries that market the products.
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IMPLEMENTING STRATEGY ACROSS COUNTRIES
Implementing a Global
Standardization Strategy
 When a company embarks on a global
standardization strategy, it locates its
manufacturing and other value-chain activities at
the global location that will allow it to increase
efficiency, quality, and innovation.
 To coordinate and integrate its global-chain
activities, a product-group headquarters is created
to coordinate the company’s home and overseas
operations.
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IMPLEMENTING STRATEGY ACROSS COUNTRIES
Implementing a Transnational Strategy
 In the 1990s, many companies implemented a
global-matrix structure to simultaneously lower
their global cost structures and differentiate their
activities through superior innovation and
responsiveness to customers globally.
 Implementing a matrix structure decentralizes
control to overseas managers and provides them
with considerable flexibility for managing local
issues, yet gives top management centralized
control they need to coordinate global activities.
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Learning Objective: After reading this chapter,
you should be able to discuss the strategy
implementation problems associated with the
three primary methods used to enter new
industries: internal new venturing, joint
ventures, and mergers.
ENTRY MODE AND IMPLEMENTATION
Internal New Venturing
 Corporation managers must treat the internal new
venturing process as a form of entrepreneurship
and the managers who are to pioneer new ventures
as intrapreneurs, that is, internal entrepreneurs.
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ENTRY MODE AND IMPLEMENTATION
Internal New Venturing
 Another approach to internal new venturing is to
separate the new venture unit from the rest of the
organization to encourage new product
development.
 The new-venture division uses controls that
reinforce its entrepreneurial spirit.
 The upfront R&D costs of new venturing are high,
and its success is uncertain.
 If strategic thinking is lacking in a new-venture
division, the result is failure.
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ENTRY MODE AND IMPLEMENTATION
Joint Ventures
 A joint venture occurs when two companies agree
to pool resources and capabilities and establish a
new business unit to develop a new product and a
business model that will allow it to bring the new
product to market successfully.
 Allocating authority and responsibility is the first
major implementation issue upon which companies
must decide.
 It can be dangerous because one party might decide
to take the technology and “go it alone.”
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ENTRY MODE AND IMPLEMENTATION
Mergers and Acquisitions
 One of the primary reasons acquisitions perform
poorly is that many companies do not anticipate
difficulties associated with mergers or integrating
new companies into their existing operations.
 One problem with a mishandled merger is that
skilled managers who feel they have been demoted
will leave the company.
 Even in a closely related industry, managers must
realize that each company has unique norms,
values, and culture.
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Learning Objective: After reading this chapter,
you should be able to identify the ways in which
advanced Information Technology (IT) may
reduce bureaucratic costs and allow a company to
more effectively implement its business model.
INFORMATION TECHNOLOGY, THE
INTERNET, AND OUTSOURCING
Information Technology and
Strategy Implementation
 IT drastically increases the number of ways in
which strategic managers can effectively
implement their strategies.
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INFORMATION TECHNOLOGY, THE
INTERNET, AND OUTSOURCING
Information Technology and
Strategy Implementation
 IT is an important factor that promotes the
development of functional competencies and
capabilities.
 IT enables a company to transfer its knowledge
and expertise across functional groups and
integrate that knowledge into a function’s
operations, so it can deliver new and improved
products to the customers.
 IT allows managers to flatten the hierarchy.
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INFORMATION TECHNOLOGY, THE
INTERNET, AND OUTSOURCING
Information Technology and
Strategy Implementation
 Some companies make the most cost-effective use
of their employees’ skills by using a virtual
organization structure, which is composed of
people who are linked by laptops, smartphones,
etc. and may never see one another face-to-face.
 In virtual organizations, consultants connect
through their laptops to a company’s centralized
knowledge management system, which allows
for other employees who have the expertise to
solve the problems that they encountered.
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INFORMATION TECHNOLOGY, THE
INTERNET, AND OUTSOURCING
Strategic Outsourcing and
Network Structure
 IT has affected a company’s ability to pursue
strategic outsourcing to strengthen its business
model.
 Recall that outsourcing occurs as companies use
short- and long-term contracts and strategic
alliances to form relationships with other
companies.
 The business-to-business (B2B) network allows
companies in adjacent industries to use the same
software platform to link to each other.
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