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Chapter Thirteen

Implementing Strategy in Companies

That Compete Across

Industries and Countries

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“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

Addresses the problems and economizes the costs of managing the handoffs between value-chain

functions across industries.

The Multidivisional Structure1. 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.


Multidivisional Structure

Figure 13.1


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:


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 cooperationTransfer pricing

• Need to properly design incentive and control systemsShort-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


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.


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.


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 costsThe aim is to design structure and control systems to

maximize strategic benefits while economizing on costs.


Corporate Strategy and Structure and Control

Table 13.1


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


Global Strategy/Structure Relationships

Table 13.2


“Global managers have exceptionally open minds. They respect how different countries do things.”

- Percy Barnevik

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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:


Global-Area Structure

Figure 13.2


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.


Global Division Structure

Figure 13.3


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.


Global Product-Group Structure

Figure 13.4


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.


Global-Matrix Structure

Figure 13.5


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.


Implementation at General Mills


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:


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.


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

- Peter Drucker

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