hill 8e basic ch13
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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
Addresses the problems and economizes the costs of managing the handoffs between value-
chain functions across industries
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
2. Corporate headquarters staff • Monitor divisional activities• Exercise financial control over each division• Strategic responsibilities
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Multidivisional StructureFigure 13.1
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Advantages of a Multidivisional Structure
Enhanced corporate financial control• Profitability of divisions is clearly visible• Corporate office acts as the ‘investor’ –channeling funds to high-
yield 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
Research suggests that large companies that adopt a multidivisional structure outperform those that retain the functional structure.
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Problems in Implementing a Multidivisional Structure
Establishing the divisional- corporate authority relationship
Distortion of informationCompetition for resourcesTransfer pricingShort-term R&D focusDuplication of functional resources
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Unrelated Diversification
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
For unrelated diversification, the multibusiness model is based on general managerial capabilities in entrepreneurship, organizational design, or strategy.
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Vertical Integration
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
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.
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Related Diversification
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
Principle benefits of related diversification come from transferring, sharing, or leveraging functional resources or skills and some exchange of distinctive competencies across divisions.
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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
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
A company pursuing a localization strategy generally operates with a global area structure, establishing overseas divisions in regions or countries.
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Global-Area StructureFigure 13.2
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Implementing an International Strategy
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
A company shifts to an international strategy when it decides to sell domestically made products in markets abroad.
This arrangement of tasks and roles reduces the transaction of managing handoffs across
countries and world regions.
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Global Division StructureFigure 13.3
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Implementing a Global Standardization Strategy
Company locates its manufacturing and other value-chain 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 StructureFigure 13.4
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Implementing a Transnational Strategy
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
Many companies implemented a global-matrix structure to simultaneously lower their global cost structures and differentiate their activities.
The task of integrating and controlling a global-matrix structure can be a difficult task.
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Global-Matrix StructureFigure 13.5
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Entry Mode and Implementation
1. Internal new venturing The internal venturing process needs to give new-
venture 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 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.
IT is having increasingly important effects on the way multibusiness companies implement their strategies:
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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.