Chapter

Thirteen
Implementing
Strategy in
Companies
That Compete
Across
Industries and
Countries
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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
A company competing across industries and
countries confronts a new set of problems and
has to make a new series of organizational design
decisions for a global and multinational business.
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Multidivisional Structure
Figure 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
How much authority should be centralized to corporate
How much should be decentralized to the divisions
Distortion of information
Short-run ROIC versus investments in the future
Competition for resources
Divisions actively competing for financial and other
resources may reduce interdivisional cooperation
Transfer pricing
Need to properly design incentive and control systems
Short-term R&D focus
Must control incentives to assure that both short-
and long-term goals are met
Duplication of functional resources
Determine which functions to centralize and
decentralize to minimize duplication
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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
R&D knowledge Industry information Customer bases
Output control difficult as businesses share resources
Not easy to measure performance of individual divisions
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.
High bureaucratic costs
The aim is to design structure and control systems to
maximize strategic benefits while economizing on costs.
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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
Need to coordinate and integrate global value-chain activities
increases as company moves from a localization to an
international to a global to a transnational strategy
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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
Companies using a localization strategy lose
many of the benefits of operating globally.
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 Structure
Figure 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 Structure
Figure 13.3
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Implementing a Global
Standardization Strategy
Product-group headquarters created to coordinate the
activities of home and overseas operations
Product-group structure allows managers to decide
how to best pursue global standardization strategy
Problems of coordinating and integrating global
activities across product divisions
Structure must lower bureaucratic costs and provide
central control


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 Structure
Figure 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 Structure
Figure 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.
Altering business models and strategies by finding
new ways to use resources and capabilities to create
value.
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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.