Theory of Strategic Management with Cases, 8e

Hills, Jones

Chapter Thirteen
Corporate Strategy across Countries and Industries

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Managing Corporate Strategy Through the Multidivisional Structure

The Multidivisional Structure:
1. Divisions
Responsible for day-to-day operations Self-contained with a full set of value-chain functions May share value-chain functions with other divisions Monitor divisional activities Exercise financial control over each division Strategic responsibilities

2. Corporate headquarters staff

Addresses the problems and economizes the costs of managing the handoffs between valuechain functions across industries

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Multidivisional Structure
Figure 13.1

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Advantages of a Multidivisional Structure

Research suggests that large companies that adopt a multidivisional structure outperform those that retain the functional structure. Enhanced corporate financial control
Profitability of divisions is clearly visible Corporate office acts as the investor channeling funds to highyield uses

Enhanced strategic control

Frees corporate managers from business-level responsibilities Corporate managers can deal with the wider strategic issues

Growth
Overcomes organizational limit to its growth

Stronger pursuit of internal efficiency

Can compare one division against another In a better position to identify inefficiencies that result in bureaucratic costs
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Problems in Implementing a Multidivisional Structure

Establishing the divisionalcorporate authority relationship Distortion of information Competition for resources Transfer pricing Short-term R&D focus Duplication of functional resources
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Unrelated Diversification
For unrelated diversification, the multibusiness model is based on general managerial capabilities in entrepreneurship, organizational design, or strategy.
Operates as a portfolio of independent businesses
Divisions have considerable autonomy No integration among divisions is necessary Businesses bought & sold as conditions change Idea of corporate culture is meaningless

No exchanges or linkages among divisions

Easiest and cheapest strategy to manage Lowest level of bureaucratic costs

Controls to evaluate divisional performance easily and accurately

Each division evaluated by output controls, e.g. ROIC Sophisticated accounting controls
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Vertical Integration
The vertically integrated company requires the centralized control in order to achieve the benefits from the sequential flow of resources from one division to the next.
Bureaucratic costs are more complex and 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 Integration is managed through a combination of corporate and divisional controls

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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.

Gains derived from the transfer, sharing, or leveraging across divisions Output control difficult as businesses share resources Integration and control at divisional level required Incentives and rewards for cooperation necessary
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Corporate Strategy and Structure and Control

Table 13.1

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Implementing Strategy Across Countries

Localization Strategy
Local responsiveness Decentralized control in each country it operates

International strategy
Centralized R&D and marketing in home country Other value creation functions are decentralized

Global standardization strategy

Oriented toward cost reductions Centralized functions at optimal global location

Transnational strategy
Local responsiveness and cost reduction Select best global location to achieve these objectives

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Global Strategy/Structure Relationships

Table 13.2

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Implementing a Localization Strategy

A company pursuing a localization strategy generally operates with a global area structure, establishing overseas divisions in regions or countries.
Value creation activities duplicated in every region or country of operation Decentralized authority in each overseas division 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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Global-Area Structure
Figure 13.2

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Implementing an International Strategy

A company shifts to an international strategy when it decides to sell domestically made products in markets abroad.
Foreign sales organizations added to existing structure using the same control system Product customization is minimal Subsidiary handles local sales and distribution System of behavior controls set up to keep the home office informed Global divisions coordinate the flow of different products across different countries

This arrangement of tasks and roles reduces the transaction of managing handoffs across countries and world regions.
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Global Division Structure

Figure 13.3

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Implementing a Global Standardization Strategy

Company locates its manufacturing and other valuechain activities at the global location that will allow it to increase efficiency, quality, and innovation using a global product-group structure. Focus is on centralized control by product group. This makes it difficult for different product divisions to trade information an knowledge.

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Global Product-Group Structure

Figure 13.4

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Implementing a Transnational Strategy

Many companies implemented a global-matrix structure to simultaneously lower their global cost structures and differentiate their activities.
Decentralized control provides flexibility for local issues Product and corporate managers at headquarters have centralized control to coordinate company activities on global level Knowledge and experience can be transferred to create value with the matrix-in-the-mind Global corporate culture is created IT integration mechanisms provide coordination

The task of integrating and controlling a global-matrix structure can be a difficult task.
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Global-Matrix Structure
Figure 13.5

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Entry Mode and Implementation

1. Internal new venturing
The internal venturing process needs to give newventure manages the autonomy and motivation they need to develop new products.

2. Joint venturing
Allocating authority and responsibility is the first major implementation issue when companies share resources to collaborate on the development of a new business model to compete in a new market or industry.

3. Mergers and acquisitions

The profitability of mergers and acquisitions depends on the structure and control systems that companies adopt to integrate and manage them.
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The Role of Information Technology

IT is having increasingly important effects on the way multibusiness companies implement their strategies:
IT provides a common software platform that can make it less problematic for divisions to share information. IT facilitates output and financial controls. 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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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 integration through IT Virtual organization Knowledge management system

Strategic outsourcing and network structure

IT increases the efficiency of interorganizational relationships Business-to-business (B2B) networks Network structure

The implications of IT for strategy implementation are still evolving as new hardware and software reshape companies business models and strategies.
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