Global Enterprise and Competition
66.511.202
Fall 2006
Ashwin Mehta, Visiting Faculty
Session 6
Global Enterprise Management
Culture
Strategy
Standards
Coordination
Global/Regional
(standardization)
Local
sales
Production
Logistics
Marketing
Frontline cust support
Procurement
R&D
Call Centers
Backend customer svc
Session 6
IMPORTANCE OF INTEGRATING CORPORATE,
BUSINESS & INTERNATIONAL STRATEGIES
Consistency requirements - purposes/goals
Resource Allocation
Internal Financing
Portfolio Balance
Growth & Profit
Guide Business Strategy Formulation
Set Business Performance Objectives
Develop Business Performance Criteria
Potential Issues
Communication between Corporate & Businesses
Role of Business in Corporate Portfolio
Clarity of Business Strategies
Performance Metrics and Incentives
Structures
Session 6
Global Leader*
Question
Our businesses are aligned around a common corporate
culture
Performance management is adequately focused on enterprisewide objectives
We are effective in integrating operations globally to exploit
economies of scale
Our businesses have a centralized compensation structure
Our company makes frequent use of expatriate assignments
We are effective at sharing local innovations around the world
Our managers are willing to sacrifice local priorities to benefit
the global enterprise
We do a good job developing new approaches centrally and
diffusing them worldwide
Global
Leaders
90%
Peer Group
87%
63%
85%
68%
83%
79%
69%
68%
55%
51%
55%
51%
64%
53%
71%
Global Leaders=Top 3 companies in the industry on effectiveness in conducting
business globally
*: Fortune Feb 2006
Session 6
Global Enterprise Strategy Implementation
1. Organization Structures
2. Coordination and Information sharing
3. Human Resource Management
4. Incentives
5. Communication across cultures
Session 6
Multinational Firms Organizations
International Division
Underneath geographical structures
Most common and is simple
greater reliance/dependency on domestic operations – more overhead
Functional division
International functions reporting into domestic functions
R&D functions reporting to domestic R&D, etc.
Low overhead, works well with limited product offers
coordination among functions could be a challenge
Product division
good for companies with many different offers (like consumer goods companies)
Redundancies
Geographical division
More popular with companies having large International presence
Matrix division
Better coordination/communication and information sharing
Complex
Potential for a politicized
Session 6
Groupe Bull
(France)
Product Line
Mgmt (PLM)
Strategy
Staff
Bull HN
(US)
R&D
Mfg
Mktg
Admin
Geographic
UK
Italy
International
Canada
Pacific
Global Corporate/Business Strategy
PLM mainly R&D focused
Products global
Mission assignment by product
US-Mainframe and Mini
France-Mid range, UNIX
Italy-Small end
etc.
Implementation poor
Local mgmt with power
Lacked central leadership
Cultural differences
Bull
(France)
R&D
Mfg
Mktg
Admin
Sales
France
Germany
etc.
Session 6
Geographic Area Structure for a Multinational Corporation
Board of Directors
President
Corporate
Staff
R&D
Operating
Companies
U.S.
Product
Group
A
Operating
Companies
Europe*
Product
Group
B
Operating
Companies
Latin
America
Product
Group
C
Operating
Companies
Africa
Operating
Companies
Asia*
Product
Group
B
*Note: Because of space
limitations, product
groups for only Europe
and Asia are shown
here.
Product
Group
D
Session 6
Global/MNE’s
Before – established companies adapted to new global environment
incremental markets view
Now --- new companies and industries are “born” global
primarily from developing countries (e.g. India)
home markets too small and moving to go global
Primary markets view
Accessing scarce resources (specially human)
Session 6
Global/Multinationals Challenges
Country Managers
CEO
SBU head
Business managers
Functional managers
Session 6
“Up the (E) Organization! A Seven-Dimensional Model for the Centerless Enterprise”, Neilson, et al,
Strategy+Bsiness, 2000
Session 6
Measuring impact of structures
Cost/Benefit Analysis and Measurements
Organization as a System: Input, Throughput and Output
Process Specialization --- Throughputs based (functional Org’n)
Purpose Specialization --- Output based (Divisional, Product,
Geographic, Customer)
Session 6
Measuring impact of structures
Functional
Benefits
Costs
Divisional
Expertise, critical mass
Economy of scale and scope
Efficiency
Avoid duplication of resources
Career benefits
Focus
Effectiveness
Fewer coordination issues
Quick response to changes
Coordination costs
Functional myopia
Loss of “big” picture
Bureaucracy
Duplication of scarce resource
Potential loss of economics and
efficiency
Session 6
Measuring impact of structures
Efficiency
Effectiveness
• Cost per
• Economics of scale
• Duplication of resources
• Coordination costs
• Market share
• Customer satisfaction
• Revenue Growth
• Time to market
• Product introduction
Functional Structure
“ Doing Things Right”
Divisional Structures
“ Doing Right Things”
Session 6
Centralization Vs Decentralization
There are 2 basic forms of organization structures: Centralize or Decentralize --“If one does not work, try the other!”
Typically companies use both types of organizations
Right mix
Sequential Decision Process
Efficiency and Effectiveness requirements
Centralization/Decentralization mix
Tall Vs Flat Organizations
Inertia
Expertise issue
Responsibility
Lateral Communication
The Corporate Center
Primarily includes efficiency (HR, Legal, Purchasing, IT, etc.)
Expanded Center: Strategic Management function;
Executive Ed function; and “Centers of Excellence”
Session 6
Relationship between Strategy and Structure
Demands of Strategy
Low cost
Focus
Differentiation
Mix
Global
Strategic Drivers of Structure Choice
Type of Strategy
Need for Efficiency/Effectiveness
Market and Technology Relatedness
Size/Growth
Session 6
Effective Coordination and Information Sharing
Integration/Coordination required between organizations
to completely execute strategy
Structures give static view
Integration makes structures work
Dell
Focused Systems of Activities to
Reduce costs
Improve Delivery
Improve customer service
Create a competitive advantage
Activity Systems
Session 6
Effective Coordination and Information Sharing
Information/Knowledge Sharing
GE Work Out
Challenge and Stretch
Learning Culture
Structure and Process of Work Out
An example of Reciprocal Interdependence
Session 6
Effective Coordination and Information Sharing
Issues with Information/knowledge Sharing
Formal Vs Informal
Open Vs Guarded
Power and Influence
Filtered
Session 6
Effective Coordination and Information Sharing
Responsibility and Accountability
Type of structure and interdependence will either add clarity or
make it complex
Centralized/Pooled
Clearer responsibility &
Accountability
Matrix/Reciprocal
Highly unclear
Responsibility Matrix
Session 6
Human Resource --- Management and Staffing Challenges
When do you use Expats
When do you use Locals
How to create new class of employees Glopats
Scarcity of management talents
Ten Steps To A Global Human Resources Strategy, John A. Quelch, Helen Bloom Strategy+Business, 1999
Session 6
Use of Expats
Pros
- Product/culture knowledge
- Easy & Efficient corporate
relationships
-Technical/business skills not locally
available
-Transferable skills
-Protects/promotes company interests
in JV’s, M&A
-Less chance of competition
-Career Path
Cons
-Hi Costs
-Black outs and Brown outs
-Long start-ups and wind down time
-Short sighted focus
-Out of sight, out of mind concern
-Re-entry issues
-Lack of available management
Session 6
Use of Locals
Pros
-Cheaper
-Language/culture of the country
-Local market/custom knowledge
-Skills in managing local staff
-Project local company image
-Educated
Cons
-Demand>Supply
-Takes time to bring to speed
-Lack corporate contacts
-Protection of IP’s
-Control of JV’s (loyalty concern)
Session 6
Session 6
Incentives
Incentives
Good objectives --- measurable
Incentives tied to objectives
Motivating objectives and incentives
Objectives should not be “all or nothing”
Reward the right things
Session 6
Incentives
Evaluation Controls
Strategy and Objectives
Actual performance
Significant deviation?
Cause-effect analysis/learning
Continue
Rewards/corrections Actions/change
Session 6
Culture Affects Performance
Culture
Behavior
Performance
Corporate culture clashes - a leading cause of merger failures
Organization Performance Affects Culture
Culture
Behavior
Performance
Feedback and Change
(new behavior)
Session 6
Culture
Company/Corporate Culture
Sub-cultures and Managing Differences
National/Regional Culture
Work Vs Customer Implications
Session 6
Global Enterprise and Culture
Most critical factor in doing business Globally, and least-understood
Culture is a set of norms that are generally accepted within a society
Culture has levels: national; regional; and, organizational
Understanding these cultures in a country/region is important in
conduct of a business
Business blunders if market cultures not fully understood
Key question: how does culture affect workplace values?
Customer behaviors
Management of operation
Managers must study and understand cultures before launching a
Global business
Session 6
Culture’s Importance in Strategy Implementation
-Dell launched a new web site in Japan with black borders
Black is considered negative in Japan; Consumers did want
to do anything with Dell
Localization did not just mean language translation
-When Gerber first started selling baby food in Africa, they used the
same packaging as in the USA - the cute baby on the label. Later,
when investigating lower than expected sales figures, they found out
that it is common practice in Africa to put pictures of the contents on
food package labels.
-Workers Participation in work planning may not work everywhere
-Going Global and Acting Local
Session 6
Customer Country and Competitor
Country Features
P&G JAPAN SKII
© Professor Daniel F. Spulber
Session 6
P&G Internationalization Evolution
1930 – 1970’s
Strategy:
International Market
Expansion
Country level focus
-Tailor to meet needs
-Common structures,
Policies, practices
Issues:
Cost
Global introduction
1980’s
Cost
Innovation
Coordinating
Regional org’ns
-overlapping structures
To minimize differences
1990’s
New untapped
markets
Global management
-strategy
-technical programs
-marketing
O2005
Innovation
- GBU taking
over profit
Country level
-profit
Session 6
How did international business
considerations
affect the P&G strategy and organization?
P&G Reorganization: CEO Durk I. Jager reorganized
from four geographical business groups to:
• Seven global business units (GBUs) based on product lines (baby care,
beauty care, fabric & home care, feminine protection, food & beverage,
health care, tissue & towel)
• Decentralization: R&D, product supply, marketing, information
technology, finance, human resources
• Market Development Organizations (MDOs) at both the regional and
country levels, feed consumer and market knowledge into GBUs
• Global Business Services: accounting, payroll, order mgmt
• Corporate Functions staff will move directly into the GBUs
• Mirrored global retailer expansions (Wal-Mart, Carrefour)
Session 6
Organization 2005:
Objective: transform Global planning and management system into a
more innovative and quicker system
Old structure:
countries
Global area design, organizing around country or
O2005: organize around products or product groups
convert 4 geographically based business units to 7 global BU’s
around products
create 8 market development org’ns to adapt global programs to
local markets
Global business services (accounting, HR, IT, etc.)
Redefine corporate staff roles; move to other departments
Success: Swiffer – test phase to global product in 18 months
multi-department effort
Session 6
Global business unit (GBU)
Extends strategic business unit (SBU)
organization to international business
Headquarters
Division managers
create and implement
strategies
on a global basis
GBU 1
GBU 2
GBU 3
Division managers responsible for products, pricing, marketing,
sales, R&D, financing, procurement on a global basis
Session 6
What made SKII a success in
Japan?
• Product developed in Japan
• P&G adjusted the product features, marketing and sales to
the local market
• Substantial consumer interest in beauty products
• Emphasis on customer service
• High willingness to pay
• Multiple-step treatment favored by consumers
Session 6
The Legend
For almost a generation, Japanese women have
known a secret. This secret was discovered by a
Japanese monk who visited a sake brewery in
Kobe.
He was surprised to discover that the brewery
workers had extraordinary soft and youthful hands.
Even an elderly man with pronounced wrinkles on
his face possessed the silky smooth hands of a
young boy.
This observation encouraged the monk to conduct
a series of experiments. He eventually discovered a
clear, nutrient-rich liquid that could be extracted
during the yeast fermentation process. He shared
his findings with a group of skincare scientists, who
became equally excited by the potential of his
discovery.
http://sk2us.com/index.htm
For the following five and a half years, intensive
research was undertaken to understand more about
this magical seemingly 'age-defying' liquid.
Session 6
The Discovery
The team of scientists were able to pinpoint the
exact fermentation process required for this liquid to
achieve its maximum potency and harness its
magical youth-giving powers.
They named the liquid 'Pitera'. Pitera, which contains
a collection of vitamins, minerals, amino acids and
organic acids, became known amongst researching
scientists as 'the secret key' to beautiful skin.
Many things can upset the delicate balance of your
skin, from stress to hormonal fluctuations.
Pitera helps restore the skin's natural rhythm by
stimulating its renewal process. The result is skin
that is clearer, smoother and wonderfully radiant.
Through nature's miracle, Pitera, women have
discovered a totally new skin experience - the joy of
reborn skin.
Session 6
The Ritual
Visualize
Empty your mind and visualize your skin now
and in the future.
Purify
Apply a small amount of cleanser with your
fingertips, using slow circular motions, until your
skin feels clean, awakened and refreshed.
Renew
To experience the Pitera magic, sprinkle about a
teaspoon of Facial Treatment Essence into the
cupped palm of your hand. Rub hands together
and press gently and evenly onto face and neck,
stimulating the renewal of the skin’s outer layer.
Enhance
Complete the Ritual with any of the following
treatment options based on your specific needs:
Anti-Aging, Illuminating, Refining, Nourishing
and/or Boosting.
Session 6
Issues in the SK-II Global Strategy
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Not invented here
Vertical organization issues: Getting management to buy in
Would a Japanese product sell elsewhere?
Too many new products in pipeline
Budget pressures in Beauty Care business
Not a mass market product
Requires change of company strategy in sales effort and
choice of distribution outlets
• Conflict with heads of GBU
Session 6
Making the case for SK–II
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Incremental revenues
Addresses prestige market segment
Diversifies P&G’s cosmetics product lines
Investment in sales and marketing will yield positive returns
Innovation should originate throughout the GBU
Coordination of national and regional strategies is the task of
the GBU
Session 6
Customer countries and
Competitor countries
Evaluate the strategy for making SK-II a global brand
• Development of initial market in Japan provides test market
Will the company be able to extend the brand effectively:
• Hong Kong and Taiwan?
• Singapore, Malaysia, South Korea?
• China?
• Europe?
• United States?
Session 6
P&G O2005 issues/problems
Changes applied too quickly
responsibility issues/concerns
BU’s competing with each other
Resistance by employees
morale, defection
Status 2004:
Jager was forced out, replaced by Lafley
Stopped the changes
Adopted “global matrix” organization – blend of
geographical and product BU’s
Session 6
SK-II is brought to the
US and sold at Saks
Fifth Avenue stores
Store display for SK-II
Session 6
Discuss Danone Case
“Danone: Organizing for Global Competition”
Session 6