9-10-11-12 corporate strategy: implementation and diversification

9-10-11-12

Corporate Strategy:

Implementation

And

Diversification

Copyright © Houghton Mifflin Company. All rights reserved. 9 - 2

Seven-S FrameworkFrom In Search of Excellence, Peters and Waterman, 1982

•S’s are interrelated

•Need to be developed and maintained to support each other and implement the overarching strategy.


Details of Seven-S Framework

Strategy Analysis of environment, competition, customers, leading to a plan for future firm actions

Structure Organization chart, patterns of status and control and how relevant groups are tied together

Systems Processes, procedures, reward/control/information/ manufacturing systems, quality programs

Staff Characteristics and capabilities of people working in firm’s groups

Style Decision making processes, nature of interpersonal interactions/communications, behavioral expectations

Shared Values

Culture, central beliefs and ambitions of organization, priority objectives

Skills Key knowledge and capabilities that are relied on to compete successfully


Strategic Change: Improving Performance

• Changing the leadership– New leader is often from outside the company– New leader must make difficult decisions,

motivate, listen, and delegate

• Changing the strategy– Redefine strategic focus– Divest unwanted assets– Improve profitability– Make acquisitions


Strategic Change: Improving Performance (cont’d)

• Changing the organization– Unfreezing the organization

• Big bang theory of change• Senior managers must be committed to it

– Movement• Speed• Involving employees

– Refreezing the organization• Culture, socialization, management education programs• Hiring policies, control and incentive systems


Building Blocks of Organizational Structure

• Grouping tasks, functions, and divisions– Organizational structure follows the range and

variety of tasks that an organization pursues– Companies group people and tasks into functions

and then functions into divisions– Bureaucratic costs


Building Blocks of Organizational Structure (cont’d)

• Allocating authority and responsibility– Hierarchy of authority (chain of command)– Span of control (number of subordinates)– Tall and flat organizations– Drawbacks of taller organizations

• Less flexibility and slower response time

• Communication problems

• Distortion of commands

• Expense


Tall and Flat Structures


Allocating Authority and Responsibility (cont’d)

– The minimum chain of command• To combat an organization that is too tall

• Hand responsibility up and empower those below

– Centralization or decentralization?• Delegating responsibility reduces information overload and enables

managers to focus on strategy

• Empowering lower-level managers increases motivation and accountability

• Empowering employees requires fewer managers

• Centralized decisions allow easier coordination of activities

• Centralization means that decisions fit broad organizational objectives


Building Blocks of Organizational Structure (cont’d)

• Integration and integrating mechanisms– Direct contact among managers across functions or

divisions– Liaison roles

• Gives one manager in each function or division the responsibility for coordinating with the other

– Teams


Implementing Strategy Through Organizational Structure, Control, and Culture

• Organizational structure– Depicted in organizational chart– Assigns employees to specific value creation tasks

and roles and specifies how those are linked to increase efficiency, quality, innovation, and responsiveness to customers

– To coordinate and integrate the efforts of all employees


Implementing Strategy Through Organizational Structure, Control, and Culture (cont’d)

• Control system– A set of incentives to motivate employees to increase

efficiency, quality, innovation, and responsiveness to customers

– Provides feedback on performance so corrective action can be taken

• Organizational culture– The collection of values, norms, beliefs, and attitudes

shared within an organizations and that control interactions within and outside the organization


Strategic Reward Systems

• Based on strategy managers must decide which behaviors to reward

• A control system measures those behaviors and links the reward structure to them

PERHAPS MOST IMPORTANT ASPECT OF

IMPLEMENTATION


Organizational Culture

• Culture and strategic leadership

• Traits of strong and adaptive corporate cultures– Bias for action– Nature of the organization’s mission (sticking with

what the organization does best)– How to operate the organization (motivating

employees to do their best)


Corporate Level Strategies

• Portfolio or “mix” of businesses of a company

• Parallels investment portfolio concept from finance

• Focuses on owner/stockholder as main stakeholder—creation of value for owners through “mix” of businesses

• Diversification


A Company as a Portfolio of Distinctive Competencies

• Reconceptualize the company as a portfolio of distinctive competencies rather than a portfolio of products

• Consider how those competencies might be leveraged to create opportunities in new industries

• Existing vs. new competencies• Existing industries in which a company

competes vs. new industries


Free Cash Flow

• What is it?

• How to use it?


Diversification Reasons Continuum

Least Power to

Create Value

Most Power to

Create Value

Reducing

Risk

Maintaining

Growth

Balancing

Cash

Flows

Sharing

Infrastructure

Increasing

Market

Power

Capitalizing

on Core

Competencies

Not

Recommended

as a Reason

to Diversify

Recommended

as a Reason

to Diversify


Transfer of Competencies at Philip Morris


Sharing Resources at Proctor & Gamble


Overview of Forms of Corporate Strategy

• Horizontal integration– The process of acquiring or merging with industry

competitors• Acquisition and merger

• Vertical integration– Expanding operations backward into an industry that

produces inputs for the company or forward into an industry that distributes the company’s products

• Strategic outsourcing– Letting some value creation activities within a business be

performed by an independent entity


Benefits of Horizontal Integration

• Reducing costs

• Increasing value– Product bundling– Cross selling

• Managing industry rivalry

• Increasing bargaining power– Market power (monopoly power)


Drawbacks and Limits of Horizontal Integration

• Majority of mergers and acquisitions do not create value

• Implementing a horizontal integration strategy is not easy

• Mergers and acquisitions often fail to produce the anticipated gains

• Can bring the company into conflict with antitrust law


Vertical Integration: Stages in the Raw Material to Consumer Value Chain


The Raw Material to Consumer Value (Supply) Chain in the Personal Computer

Industry


Full and Taper Integration


Increasing Profitability Through Vertical Integration

• Building barriers to entry

• Facilitating investments in specialized assets

• Protecting product quality

• Improved scheduling


Arguments Against Vertical Integration

• Cost disadvantages– Company-owned suppliers that have higher costs

than external suppliers

• Rapid technological change– Tying a company to an obsolescent technology

• Demand unpredictability– Difficulty of achieving close coordination among

vertically integrated activities

• Bureaucratic costs


Alternatives to Vertical Integration: Cooperative Relationships

• Short-term contracts and competitive bidding

• Strategic alliances and long-term contracting

• Building long-term cooperative relationships– Hostage taking

– Credible commitments

– Maintaining market discipline• Parallel sourcing policy


Strategic Outsourcing of Primary Value Creation Functions


Benefits of Outsourcing

• Reducing costs– The specialist company is less than what it would cost to

perform the activity internally

• Differentiation– The quality of the activity performed by the specialist is

greater than if the activity were performed by the company

• Focus– Distractions are removed; the company can focus attention

and resources on activities important for value creation and competitive advantage


Identifying and Managing the Risks of Outsourcing

• Holdup– The company can become too dependent on the

provider of the outsourced activity so that the provider can raise prices

• Scheduling of activities– Loss of control can result in distorted signals in the

supply chain

• Loss of information– Contact with the customer may be lost


Restructuring

• Reducing the scope of the company by exiting business areas

• Why restructure?– Not competitive– Diversification discount: investors see highly diversified

companies as less attractive • Complexity and lack of transparency in financial statements• Too much diversification or for the wrong reasons

– Response to failed acquisitions– Innovations have diminished the advantages of vertical

integration or diversification


Restructuring Strategies

• Exit strategies– Bankruptcy– Divestment

• Spinoff

• Selling to another company

• Management buyout (MBO)

– Harvest– Liquidation


Restructuring and Reengineering

• Restructuring involves– Streamlining hierarchy of authority and reducing number

of levels

– Downsizing the workforce to reduce costs

• Reasons– Change in the business environment

– Excess capacity

– Organization grew too tall and inflexible; bureaucratic costs

– To improve competitive advantage and stay on top


Restructuring and Reengineering (cont’d)

• Reengineering– Fundamental rethinking and radical redesign of

business processes to achieve dramatic improvements

– Focuses not on functions, but on processes (which cut across functions)

9-10-11-12 corporate strategy: implementation and diversification

Documents

diversification slide

company new leader

organization culture

ambitions of organization

responsibility contd

strategic change

tall hand responsibility

fewer managers