13
Implementing
Strategy in
Companies That
Compete Across
Industries and
Countries
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
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 2
Multidivisional Structure
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 3
Advantages of a Multidivisional
Structure
•
•
•
•
Enhanced corporate financial control
Enhanced strategic control
Growth
Stronger pursuit of internal efficiency
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 4
Problems in Implementing a
Multidivisional Structure
• Establishing the divisional-corporate authority
relationship
• Distortion of information
• Competition for resources
• Transfer pricing
• Short-term R&D focus
• Duplication of functional resources
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 5
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
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 6
Structure, Control, Culture, and
Corporate-Level Strategy (cont’d)
• 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
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 7
Structure, Control, Culture, and
Corporate-Level Strategy (cont’d)
• Related diversification
– Multidivisional structure allows gains from the transfer,
sharing, or leveraging of R&D 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
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 8
Corporate Strategy and Structure and
Control
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 9
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
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 10
Implementing Strategy Across Countries
• Multidomestic strategy
– Local responsiveness; decentralized control
• International strategy
– Centralized R&D and marketing; other functions
are decentralized
• Global strategy
– Cost reductions; centralized functions
• Transnational strategy
– Local responsiveness and cost reduction
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 11
Global Strategy/Structure Relationships
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 12
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
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 13
Global-Area Structure
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 14
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
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 15
International Division Structure
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 16
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
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 17
Global Product-Division Structure
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 18
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
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 19
Global Matrix Structure
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 20
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
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 21
Entry Mode and Implementation
(cont’d)
• 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
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 22
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
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 23
IT, the Internet, and Outsourcing
• Strategic outsourcing and network structure
– IT increases the efficiency of inter-organizational
relationships
– Business-to-business (B2B) networks
– Network structure
Copyright © Houghton Mifflin Company. All rights reserved.
13 - 24