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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 R&D 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 (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

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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

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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 R&D 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 (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

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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