Chapter

Thirteen
Implementing
Strategy in
Companies
That Compete
Across
Industries and
Countries
 “It is not the strongest
of the species that will
survive, not the most
intelligent, but the
ones most responsive
to change.”
- Charles Darwin
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 Managing Corporate Strategy
Through the Multidivisional Structure
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.
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
Addresses the problems and economizes the costs of
managing the handoffs between value-chain
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 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
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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
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
 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
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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 “Global managers have
exceptionally open minds.
They respect how different
countries do things.”
- Percy Barnevik

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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
Companies using a localization strategy lose
many of the benefits of operating globally.
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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
value-chain activities at the global location that will
allow it to increase efficiency, quality, and
innovation using a global product-group structure.
 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
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
Altering business models and strategies by finding
new ways to use resources and capabilities to create
value.
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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 Implementation at General Mills

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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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 “The best way to
predict the future
is to create it
yourself.”
- Peter Drucker

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