topic 6 strategy and structure in ib-281111_112953

8/3/2019 Topic 6 Strategy and Structure in IB-281111_112953

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Topic 6

Strategy & Structure inInternational Business


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Strategy and the Firm

Value creation if the form of sustainablegrowth and profitability


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Value Creation

Value (add) creation occurs whenvalue > price and is generated bycost decrease or product

differentiation (Porter)= +V a lu e P C o n su m e r

S u rp lu s

= +P C o st P ro fit

=C C o st

= -V a lu e cre a te d V C


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Strategic Positioning : Value& Cost

Figure 12.3 Depicts strategic choice between high-mid-

low value and cost A viable strategy is supported by effective

and efficient operations with the rightorganization structure.This is represented below

High cost Mid cost Low costHigh Value 4-SeasonsMid Value Starwood MarriotLow Value


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Operations as Value Chain

&R D&Marketing SalesProduction

Customer Service

upport Activities

rimary Activities


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Check point 1

Which activities account for directand indirect costs?

How would you described

Vertically integrated value chain?

Cost or product differentiationemphasis?

Horizontally integrated value chain? Cost of product differentiation

emphasis?


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Global Expansion, Profitabilityand Profit Growth

Strategic international options:1.Expand market internationally

Core competencies not easily substitutableor imitated.

2.Realize location economies Lower costs (transportation & tariffs) to

differentiate product offerings

3.Realize (learning curve/scale) costeconomies With experience curve learning effects are

gained as well as economies of scale

4.Leverage of valuable skills throughintegration (via subsidiary skills) andinternational engagement as well as

interaction within global network.


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Cost and Local responsivenessPressures

Pressures forCost

Reduction

Pressures for Local Response

Low High

High Firm A Firm CLow Firm B

,Under global competitive pricing conditions firms arepressured to lower cost and hence explore location. ( )economies Global standardization strategy

, Within different host economies firms need to customizeand meet local requirements and customer tastes and

.preferences thus avoiding product imitations( )Localization strategy


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Customization to LocalResponse

Differences in Customer Tastes andPreferences

Historical or cultural attributes

Differences in Infrastructure andTraditional Practices

Left or right hand drives etc

Differences in Distribution Channels Network of agencies/branches

Host Government Demands Specific public sector requirements on

safety, health, welfare etc


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Which Strategy?

Pressures forCostReduction

Pressures for Local Response

Low High

High Global

StandardizationStrategy

Transnational

StrategyLow InternationalStrategy

LocationStrategy

&In te rn a tio n a l stra te g y a t lo w co st Lo w lo ca lre sp o n se m a y m o ve to e ith e r T H R E Estra te g ie s d e p e n d in g o n th e v a ria tio n o f

.d im e n sio n s fo r e a ch q u a d ra n t


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Organization of InternationalBusiness

Organizational architecture refers to

Organization structure

Control Systems and incentives,

processes, organizational cultureand people.

Enterprise sustainable growth and

profitability is achievable if: Strategyis consistent with

architecture and competitive

environment.


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Organizational Architecture:Internally consistent (coherent)


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Components of OrganizationalArchitecture

Organizational structure : formaldivisions, decision making responsibilities(centers) & integrating mechanisms tocoordinate (committees)

Control Systems + Incentives:performance measures of sub-units

Processes: SOPs for decisions andexecutive action

Culture: Norms and value systems sharedby employees

People: Quality staffing in recruitment,compensate, develop and retain.


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Dimensions of OrganizationalStructure

Vertical Differentiation

Centralization or Decentralization ofDecisions?

Horizontal Differentiation

Integrating mechanisms


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Vertical Differentiation

Centralization

Facilitate coordination

Ensure decision

consistent withorganizationalobjectives

Concentrating powerand authority within

one individual forneeded majororganizationalchanges

Avoid duplication of

activites

Decentralization

Avoid top managementoverburdened

Encouragesempowerment thatmotivates

Greater flexibility torespond to

environmentalchanges

Greater proximity tooriginatingissue/problem

Enhances control


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Which Strategy favorscentralization/decentralization?

Pressures forCostReduction

Pressures for Local ResponseLow High

High Global

StandardizationStrategy?

Transnational

Strategy??Low InternationalStrategy

LocationStrategy?

&In te rn a tio n a l stra te g y a t lo w co st Lo w lo ca lre sp o n se m a y m o ve to e ith e r T H R E Estra te g ie s d e p e n d in g o n th e v a ria tio n o f

.d im e n sio n s fo r e a ch q u a d ra n t

H i t l diff ti ti


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Horizontal differentiation:Functional, Business/Product,

Geographical AreaTypes FunctionalBusiness/

ProductGeographical

StrategyDomestic International InternationalWorldwide Area LocationWorldwideProduct

GlobalStandardization

Global MatrixStructure

Transnational


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Integrating mechanism

Choice of strategy affect complexity ofintegration mechanism

Domestic => Minimal

International => Low Global Standardized => Medium

Local/Matrix => High

Impediments to coordination Functional orientation (working in silos in

production or marketing)

Lacking goal congruence amongdivisions


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Modes of IntegrationMechanism

Formal

Direct contact withsub-unit managers

(least complex) Liaison roles

Temporary orpermanent teams

Matrix where all rolesare integrating(most complex0

Informal

Knowledge networksupported by

distributedcomputer andtelecommunicationsinformation systemetc.

Subscribe to a set ofvalues and norms(common culture)that override

differing subunitorientations.

Control S stems and


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Control Systems andIncentives: Types of Control

Systems Personal controls Involves direct supervision of

subordinates

Bureaucratic controls Control through a system of rules and

procedures

Output controls

Emphasize on objective performancemetrics for control through standardsand variance analysis

Cultural controls Focus on self-governance through shared


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INCENTIVE SYSTEMS

Incentives could be directed to

Performance objective in terms ROE

Higher level achievement of sub-unit

Supportive of strategic goal

In line with integration mechanism ~congruence

Quality versus Quantity


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Control Systems, Incentives +Choice of Strategy

Strategy interdependence PerformanceAmbiguity

Cost of ControlLocalization Low Low LowInternational Moderate Moderate ModerateGlobal High High High

Transnational Very high Very High Very High

ig h e r in te rd e p e n d e n ce is e x p e cte d w ith- .o re a u to n o m y a m o n g su b u n its

ig h e r p e rfo rm a n ce a m b ig u ity is a s so c ia te dith in cre a sin g d ive rse ro le s

ig h e r co st co n tro l in cre a se s w ith m o rea rie d co st m e asu re s th a t n e ed to b e

.ntegrated


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International BusinessProcesses

Process is the manner in which decisions aremade and work is performed withinorganization.

Functional areas could be identified with

types of processes. Beginning from idea origination,

development, approval, implementation tocontrol and reporting of behavior andperformance.

Challenges in international business is whenprocesses are:

Cross organizational and nationalboundaries

Need to recognize value add process witthcompetitive advantage


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Organizational Culture

A social construct ascribed to organizations andsocieties. System of common shared valuesand norms.

Sources of cultural traits:

Founders or important leaders National ideals

History and tradition of enterprise

Sustaining organizational culture Hiring and promotional practices

Incentives and rewards Socialization recognition + status

Communication

Association of strong culture and performance

varies with shared values that bind andvalues that generate value.


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Synthesis of Strategy, Structure and ControlSystems

Strategy

Structure &Controls

Localization International GlobalStandardization

Transnational

VerticalDifferentiation

Decentralized Core competencymore centralized;rest decentralized

Some centralizationMixedCentralization anddecentralizationHorizontal

differentiationWorldwide AreaStructure

Worldwide productdivisions

Worldwide productdivisions

Informal Matrix

Need forCoordination

Low Moderate High Very High

Integratingmechanisms None Few Many Very HighPerformanceAmbiguity


Need for culturalcontrols


topic 6 strategy and structure in ib-281111_112953

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