Implementing Strategy in Companies that Compete in a Single Industry Evaluation notes were added to the output document. To get rid of these notes, please order your copy of ePrint 5.0 now.
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Implementing Strategy in
Companies that
Compete in a Single Industry
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Implementing Strategy in a Single IndustryImplementing Strategy in a Single Industry
Build capabilities in organisational design to develop Build capabilities in organisational design to develop competitive advantage starting from functional levelcompetitive advantage starting from functional level
Coordinate and integrate across functions and business Coordinate and integrate across functions and business units to Increase differentiation, add more value for units to Increase differentiation, add more value for customers, allow for premium pricingcustomers, allow for premium pricing
Reduces bureaucratic costsReduces bureaucratic costs
Balance the cost side and the revenue side of the profit Balance the cost side and the revenue side of the profit equation in the organisational designequation in the organisational design
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How Organizational Design How Organizational Design Increases ProfitabilityIncreases Profitability
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Implementing Strategy in a Single IndustryImplementing Strategy in a Single Industry
Implementing a broad product lineImplementing a broad product line——pproduct roduct structurestructure
Group the overall product line into product Group the overall product line into product groupsgroups
Centralize support value chain functions to Centralize support value chain functions to lower costslower costs
Divide support functions into productDivide support functions into product--oriented oriented teams of functional specialists who focus on teams of functional specialists who focus on the needs of one specific product groupthe needs of one specific product group
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KodakKodak’’s Product Structures Product Structure
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Implementing Strategy in a Single IndustryImplementing Strategy in a Single Industry
Increasing responsiveness to customer groupsIncreasing responsiveness to customer groups——market structuremarket structure
Group people and functions by customer or Group people and functions by customer or market segmentsmarket segments
Different managers are responsible for Different managers are responsible for developing products for each group of developing products for each group of customerscustomers
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Market StructureMarket Structure
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Implementing Strategy in a Single IndustryImplementing Strategy in a Single Industry
Expanding nationallyExpanding nationally——geographic structuregeographic structure
To be responsive to needs of regional To be responsive to needs of regional customerscustomers
To reduce transportation costsTo reduce transportation costs
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Geographic StructureGeographic Structure
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Implementing Strategy in a Single IndustryImplementing Strategy in a Single Industry
Competing in fastCompeting in fast--changing, highchanging, high--tech tech environmentsenvironments——productproduct--team and matrix team and matrix structuresstructures
Matrix structureMatrix structure Value chain activities are grouped by function Value chain activities are grouped by function andand
by product or projectby product or project
Flat and decentralizedFlat and decentralized
Promotes innovation and speedPromotes innovation and speed
Norms and values based on innovation and Norms and values based on innovation and product excellenceproduct excellence
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Matrix StructureMatrix Structure
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Implementing Strategy in a Single IndustryImplementing Strategy in a Single Industry
Competing in fastCompeting in fast--changing, highchanging, high--tech tech environmentsenvironments——productproduct--team and matrix team and matrix structures (contstructures (cont’’d)d)
ProductProduct--team structureteam structure Tasks divided along product or project linesTasks divided along product or project lines
Functional specialists are part of permanent crossFunctional specialists are part of permanent cross--functional teamsfunctional teams
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ProductProduct--Team StructureTeam Structure
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Implementing Strategy in a Single IndustryImplementing Strategy in a Single Industry
Focusing on a narrow product lineFocusing on a narrow product line
Tends to have higher production costs Tends to have higher production costs because output is lower, reducing opportunity because output is lower, reducing opportunity for scale economiesfor scale economies
Has to develop some form of distinctive Has to develop some form of distinctive competencycompetency
Functional structure is appropriateFunctional structure is appropriate
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Restructuring and ReengineeringRestructuring and Reengineering
Environment factors change, CustomersEnvironment factors change, Customers’’ changing taste, changing taste, excessive cost structure or to create proexcessive cost structure or to create pro--active structure active structure for future needsfor future needs
Restructuring involvesRestructuring involves Streamlining hierarchy of authority and reducing number of Streamlining hierarchy of authority and reducing number of
levelslevels Downsizing the workforce to reduce costsDownsizing the workforce to reduce costs
ReengineeringReengineering Fundamental rethinking and radical redesign of business Fundamental rethinking and radical redesign of business
processes to achieve dramatic improvementsprocesses to achieve dramatic improvements Focuses not on functions, but on processes (which cut across Focuses not on functions, but on processes (which cut across
functions)functions)
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Implementing Strategy in
Companies that
Compete Across Industries and Countries
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MultiMulti--Country Business Model Country Business Model ImplementationImplementation
The Company has to use the Organisational The Company has to use the Organisational Design to combineDesign to combine
StructureStructure
Control SystemsControl Systems
CultureCulture
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Managing Corporate Strategy Through the Managing Corporate Strategy Through the Multidivisional StructureMultidivisional Structure
Functional or product structures are not Functional or product structures are not sufficient when a company enters new industriessufficient when a company enters new industries
Multidivisional structure innovationsMultidivisional structure innovations In each industry, organise Divisions structureIn each industry, organise Divisions structure-- mostly mostly
self contained self contained --(operating responsibility)(operating responsibility)-- like GElike GE’’ss Sometimes Divisions in different industries share Sometimes Divisions in different industries share
value chain functions for cost advantage value chain functions for cost advantage –– like many like many FMCG CosFMCG Cos
Each division may be organized differentlyEach division may be organized differently
Corporate headquarters staff to monitor divisions Corporate headquarters staff to monitor divisions (strategic responsibility)(strategic responsibility)
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Multidivisional StructureMultidivisional Structure
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Advantages of a Multidivisional StructureAdvantages of a Multidivisional Structure
Enhanced corporate financial controlEnhanced corporate financial control-- as each Divisionas each Division’’s s profitability being different, financial controls applied profitability being different, financial controls applied suitablysuitably
Enhanced strategic control Enhanced strategic control –– Top management can Top management can concentrate on strategic review and control of the concentrate on strategic review and control of the DivisionDivision’’s operative responsibilitiess operative responsibilities
Enables growth through DivisionsEnables growth through Divisions
Stronger pursuit of internal efficiency through focused Stronger pursuit of internal efficiency through focused review of each Divisionreview of each Division’’s cost structure and deployment s cost structure and deployment of resourcesof resources
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Problems in Implementing a Multidivisional Problems in Implementing a Multidivisional StructureStructure
Establishing the divisionalEstablishing the divisional--corporate authority corporate authority relationshiprelationship-- issues of extent of delegationissues of extent of delegation
Distortion of information Distortion of information –– sub system optimisation sub system optimisation tendency of Division headstendency of Division heads
Competition for resources Competition for resources –– hoarding of generated hoarding of generated resources and unwillingness to shareresources and unwillingness to share
Transfer pricing issues between DivisionsTransfer pricing issues between Divisions
ShortShort--term R&D focus by Divisionsterm R&D focus by Divisions
Duplication of resources and facilitiesDuplication of resources and facilities
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Structure, Control, Culture, and Structure, Control, Culture, and CorporateCorporate--Level StrategyLevel Strategy
Having selected the path of MultiHaving selected the path of Multi--Divisional StructureDivisional Structure
Need to decide the kind ofNeed to decide the kind of
Integrating mechanisms and control systems to make Integrating mechanisms and control systems to make the structure work efficientlythe structure work efficiently
This depends on whether the multiThis depends on whether the multi--business model is business model is based on which strategy:based on which strategy:
Unrelated diversificationUnrelated diversification
Vertical integrationVertical integration
Related diversificationRelated diversification
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Structure, Control, Culture, and Structure, Control, Culture, and CorporateCorporate--Level StrategyLevel Strategy
Unrelated diversificationUnrelated diversification Easiest and cheapest strategy to manageEasiest and cheapest strategy to manage
(no exchanges or linkages with other existing Divisions)(no exchanges or linkages with other existing Divisions)
Allows corporate managers to evaluate divisional Allows corporate managers to evaluate divisional performance easily and accuratelyperformance easily and accurately
Divisions have considerable autonomyDivisions have considerable autonomy No integration among divisions is necessaryNo integration among divisions is necessary
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Structure, Control, Culture, Structure, Control, Culture, and and
CorporateCorporate--Level StrategyLevel Strategy Vertical integration & MultiVertical integration & Multi--divisional structuredivisional structure
More expensive than unrelated diversification More expensive than unrelated diversification (sequential (sequential resource flow from one Division to another)resource flow from one Division to another)
Multidivisional structure provides necessary controls Multidivisional structure provides necessary controls to achieve benefits from the control of resource to achieve benefits from the control of resource transferstransfers
Must strike balance between centralized and Must strike balance between centralized and decentralized controldecentralized control
Divisions must have input regarding scheduling and Divisions must have input regarding scheduling and resource transfer decisionsresource transfer decisions
Managed through a combination of corporate and Managed through a combination of corporate and divisional controlsdivisional controls
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Structure, Control, Culture, Structure, Control, Culture, and and
CorporateCorporate--Level StrategyLevel Strategy
Related diversification & MultiRelated diversification & Multi--divisional divisional structurestructure Multidivisional structure allows gains from the Multidivisional structure allows gains from the
transfer, sharing, or leveraging of R&D knowledge, transfer, sharing, or leveraging of R&D knowledge, industry information, and customer bases across industry information, and customer bases across divisionsdivisions
Difficult to measure performance of individual Difficult to measure performance of individual divisions because of high level of resource sharing divisions because of high level of resource sharing between Divisionsbetween Divisions
Integration and control at divisional level is requiredIntegration and control at divisional level is required
Incentives and rewards for cooperation are necessaryIncentives and rewards for cooperation are necessary
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Corporate Strategy, Structure Corporate Strategy, Structure andand ControlControl
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Implementing Strategy Across CountriesImplementing Strategy Across Countries
Localisation strategy: Local responsiveness; Localisation strategy: Local responsiveness; decentralized control at Subsidiaries/Divisions in each decentralized control at Subsidiaries/Divisions in each countrycountry
International strategy: Centralized R&D and marketing at International strategy: Centralized R&D and marketing at home; other value creation functions are decentralized home; other value creation functions are decentralized to national unitsto national units
Global standardisation strategy: Principal value creation Global standardisation strategy: Principal value creation functions centralised at optimum global locationfunctions centralised at optimum global location
Transnational strategy: Some functions centralised and Transnational strategy: Some functions centralised and others decentralied at best global locationsothers decentralied at best global locations Local responsiveness and cost reductionLocal responsiveness and cost reduction
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Global Strategy/Structure RelationshipsGlobal Strategy/Structure Relationships
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Localisation Strategy Localisation Strategy -- GlobalGlobal--area structurearea structure
All value creation activities duplicated and overseas All value creation activities duplicated and overseas division established in every country of operationdivision established in every country of operation
Decentralized authorityDecentralized authority
Managers at global headquarters evaluate Managers at global headquarters evaluate performance of overseas divisionsperformance of overseas divisions
No integrating mechanisms neededNo integrating mechanisms needed
No global organizational cultureNo global organizational culture
Duplication of specialist activities raises costsDuplication of specialist activities raises costs
Mostly global car companies follow this structureMostly global car companies follow this structure
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GlobalGlobal--Area StructureArea Structure
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Implementing International StrategyImplementing International Strategy
International division structureInternational division structure Used when a company sells domestically made Used when a company sells domestically made
products in markets abroadproducts in markets abroad Foreign sales organization added to existing Foreign sales organization added to existing
structure; same control systemstructure; same control system Customization is minimalCustomization is minimal Subsidiary handles local sales and distributionSubsidiary handles local sales and distribution Behavior controls keep the home office informedBehavior controls keep the home office informed International division coordinates flow of different International division coordinates flow of different
products across different countriesproducts across different countries Domestic and overseas managers may compete for Domestic and overseas managers may compete for
control of strategy makingcontrol of strategy making IBM, CitiBankIBM, CitiBank
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International Division StructureInternational Division Structure
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Implementing Global Standardisation Implementing Global Standardisation StrategyStrategy
Global productGlobal product--group structuregroup structure All value chain activities located to allow efficiency, All value chain activities located to allow efficiency,
quality, and innovationquality, and innovation
Problems of coordinating and integrating global Problems of coordinating and integrating global activitiesactivities
Structure must lower bureaucratic costs and provide Structure must lower bureaucratic costs and provide central controlcentral control
Product division headquarters coordinates activitiesProduct division headquarters coordinates activities
Many MNC consumer durable/white goods Cos. Adopt Many MNC consumer durable/white goods Cos. Adopt this this –– Product Design centres in parent country and Product Design centres in parent country and manufacturing to low cost countriesmanufacturing to low cost countries
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Global ProductGlobal Product--Division StructureDivision Structure
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Implementing Transnational StrategyImplementing Transnational Strategy
Global Matrix StructureGlobal Matrix Structure Lower cost structures Lower cost structures and and differentiate activitiesdifferentiate activities Decentralized control provides flexibility for local Decentralized control provides flexibility for local
issues, but product and corporate managers at issues, but product and corporate managers at headquarters have centralized control to coordinate headquarters have centralized control to coordinate company activities on global levelcompany activities on global level
Knowledge and experience can be transferredKnowledge and experience can be transferred Global corporate cultureGlobal corporate culture IT integration mechanisms provide coordinationIT integration mechanisms provide coordination Bureaucratic costs are highBureaucratic costs are high MS, HP, Toyota follow this with modification using MS, HP, Toyota follow this with modification using
ITIT
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Global Matrix StructureGlobal Matrix Structure
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Entry Mode and Implementation IssuesEntry Mode and Implementation Issues
Internal new venturingInternal new venturing Structure, control, and culture must encourage Structure, control, and culture must encourage
creativity and give intrapreneurs autonomy and creativity and give intrapreneurs autonomy and freedom to develop and champion new products freedom to develop and champion new products andandallow corporate managers to monitor profitability and allow corporate managers to monitor profitability and fitfit
OrganizationOrganization--wide new venturing vs. separate newwide new venturing vs. separate new--venture divisionventure division
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Entry Mode and Implementation IssuesEntry Mode and Implementation Issues
Joint venturingJoint venturing Managing culture differencesManaging culture differences
Allocating authority and responsibilityAllocating authority and responsibility
Mergers and acquisitionsMergers and acquisitions Must establish new lines of authorityMust establish new lines of authority
Must streamline operationsMust streamline operations
In unrelated acquisitions, managers must understand In unrelated acquisitions, managers must understand the new industrythe new industry
Must standardize control systemsMust standardize control systems
Must recognize culture differencesMust recognize culture differences
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