Chapter 13
IMPLEMENTING STRATEGY IN
COMPANIES THAT COMPETE ACROSS
INDUSTRIES AND COUNTRIES
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13-1
Learning Objectives
• Discuss why companies pursuing different
strategies need to implement strategies using
different combinations of structure, control, &
culture
• Describe advantages/disadvantages of
multidivisional structure
• Explain why companies pursuing different global
expansion strategies choose different global
strategies & control systems
• Discuss strategy implementation problems with 3
methods used to enter new industries
• Identify ways IT reduces bureaucratic costs & allows
company to effectively implement business model
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13-2
Managing Corporate Strategy
With Multidivisional Structure
1) Division
•
•
Self-contained – full set of value-chain functions
May share value-chain functions with other
divisions
2) Corporate headquarters staff
•
•
•
Monitor divisional activities
Exercise financial control over each division
Strategic responsibilities
Addresses problems and economizes costs of
managing handoffs between value-chain
functions across industries
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13 -3
Multidivisional Structure
Figure 13.1
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13 -4
Research suggests large
companies that adopt a
multidivisional structure
outperform those that retain
the functional structure.
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13 -5
Advantages of a
Multidivisional Structure
o Enhanced corporate financial control
• Profitability of divisions clearly visible
• Corporate office is ‘investor’ channeling funds to
high-yield uses
o Enhanced strategic control
o
• Frees corporate managers from business-level
responsibilities
• Corporate managers deal with wider strategic
issues
Profitable long-run growth- Overcomes
organizational limit to growth
o Stronger pursuit of internal efficiency
• Can compare one division against another
• In better position to identify inefficiencies
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13 -6
Problems in Implementing
Multidivisional Structure
o Establishing divisional-corporate
authority relationship
o Restrictive financial controls lead to
short-run focus
o Competition for resources
o Transfer pricing
o Duplication of functional resources
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13 -7
For unrelated diversification, the
multi-business model is based on
general managerial capabilities in
entrepreneurship, organizational
design, or strategy.
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13 -8
Unrelated Diversification
o Operates as ‘portfolio’ of independent
businesses
•
•
•
•
Divisions have considerable autonomy
No integration among divisions necessary
Businesses bought/sold as conditions change
Corporate culture meaningless
o No exchanges or linkages among divisions
• Easiest/cheapest strategy to manage
• Lowest level of bureaucratic costs
o Controls to evaluate divisional performance
easily and accurately
• Each division evaluated by output controls, e.g. ROIC
• Sophisticated accounting controls
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13 -9
Vertical Integration
Vertically integrated company requires centralized
control – in order to achieve benefits from sequential
flow of resources from one division to next.
o Bureaucratic costs more complex & expensive than
unrelated diversification
o Multidivisional structure provides necessary controls
to achieve benefits from control of resource transfers
o Must strike balance between centralized/decentralized
control
o Divisions must have input regarding resource transfer
o Integration is managed through combination of
corporate & divisional controls
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13 -10
Related Diversification
Principle benefits of related diversification come
from transferring, sharing, or leveraging functional
resources or skills and some exchange of distinctive
competencies across divisions.
o Gains derived from transfer, sharing, or
leveraging across divisions
o Output control difficult as businesses
share resources
o Integration/control at divisional level
required
o Incentives/rewards for cooperation
necessary
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13 -11
Corporate Strategy,
Structure & Control
Table 13.1
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13 -12
Implementing Strategy
Across Countries
o Localization
• Local responsiveness
• Decentralized control in each
country it operates
o International
• Centralized R&D & marketing in home country
• Other value creation functions are decentralized
o Global standardization
• Oriented towards cost reductions
• Centralized functions at optimal global location
o Transnational
• Local responsiveness and cost reduction
• Select best global location to achieve these objectives
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13 -13
Global
Strategy/Structure Relationships
Table 13.2
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13 -14
“Global managers have
exceptionally open minds.
They respect how different
countries do things.”
- Percy Barnevik
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13 -15
Implementing Localization Strategy
Company pursuing localization strategy generally
operates with global area structure, establishing
overseas divisions in regions or countries.
o Value creation activities duplicated in every
region or country of operation
o Decentralized authority in each overseas division
o Managers at global headquarters evaluate
performance of overseas divisions
o No integrating mechanisms needed
o No global organizational culture
o Duplication of specialist activities raises costs
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13 -16
Global-Area Structure
Figure 13.2
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13 -17
Company shifts to
international strategy when
it decides to sell
domestically made products
in markets abroad.
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13 -18
Implementing
International Strategy
o Add foreign sales organizations to existing
structure using same control system
o Product customization minimal
o Subsidiary handles local sales & distribution
o System of behavior controls set up to keep home
office informed
o Global divisions coordinate flow of different
products across different countries
This arrangement of tasks and roles reduces
transaction of managing handoffs across
countries and world regions.
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13 -19
Global Division Structure
Figure 13.3
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13 -20
Implementing Global
Standardization Strategy
Company locates manufacturing & other valuechain activities at global location will allow it to
increase efficiency, quality, & innovation using
global product-group structure.
Focus on centralized control by product group. This
makes it difficult for different product divisions to
trade information and knowledge.
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13 -21
Global
Product-Group Structure
Figure 13.4
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13 -22
Many companies
implemented global-matrix
structure to lower global
cost structures &
differentiate activities.
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13 -23
Implementing
Transnational Strategy
o Decentralized control provides flexibility for
local issues
o Product & corporate managers at HQ have
centralized control to coordinate activities on
global level
o Knowledge & experience can be transferred
o Global corporate culture is created
o IT integration provides coordination
Task of integrating & controlling
a global-matrix structure can be difficult.
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13 -24
Global-Matrix Structure
Figure 13.5
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13 -25
Entry Mode & Implementation
1. Internal new venturing- needs to give newventure managers autonomy & motivation
needed to develop new products.
2. Joint ventures- allocating authority &
responsibility is first major issue when
companies share resources to collaborate
on development of new business model to
compete in new market or industry.
3. Mergers & acquisitions- profitability of
mergers & acquisitions depends on
structure & control systems companies
adopt to integrate & manage them.
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13 -26
Role of Information Technology
IT having increasingly important effects on way
multi-business companies implement strategies:
o Promotes development of functional competencies
o Enables transfer of knowledge across functional
groups
o Improves knowledge base employees draw on
o Provides mechanism to promote collaboration
o Allows new ideas to be transmitted easily & quickly
o Provides managers with real-time capability
o Allows managers to flatten organization
o Permits greater decentralization
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13 -27
Strategic Outsourcing
& Network Structure
o Increases efficiency of relationships
o Business-to-Business (B2B) networks
o Network structure
• Avoids high bureaucratic costs of complex
structure
• Allows formation of strategic alliances with foreign
suppliers & gives access to low-cost foreign
sources of inputs
Implications of IT for strategy implementation are
still evolving as new hardware & software reshape
companies’ business models & strategies.
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13 -28