Corporate Strategy
Fall 2008
Session 11
Corporate Strategy:
Organizational and International Dimensions
Dr. Olivier Furrer
Office: TvA 1-1-11, Phone: 361 30 79
e-mail: [email protected]
Office Hours: only by appointment
Session 11 © Furrer 2002-2008
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Functional
Structure
Matrix
Structure
Network
Structure
Size of Organization
Large
Simple
Structure
Multidivisional
Structure
Coordination and
Control Problems
Small
Young
Session 11 © Furrer 2002-2008
Age of Organization
Maturity
Ref.: Adapted from Greiner, 1972; Churchill and Lewis, 1983
Strategy and Structure
Growth Pattern
2
Functional Structure
Chief Executive Officer
Finance
Production
Session 11 © Furrer 2002-2008
R&D
Accounting
Sales &
Marketing
Human
Resources
3
Functional Structure
Chief Executive Officer
Corporate
R&D
Finance
Production
Session 11 © Furrer 2002-2008
Corporate
Finance
Strategic
Planning
Engineering
Corporate
Marketing
Accounting
Corporate
Human
Resources
Sales &
Marketing
Human
Resources
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Multi-Divisional Structure
Chief Executive Officer
Corporate
R&D
Division
Finance
Corporate
Finance
Strategic
Planning
Division
Production
Session 11 © Furrer 2002-2008
Engineering
Corporate
Marketing
Corporate
Human
Resources
Division
Accounting
Sales &
Marketing
Division
Human
Resources
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Multi-Divisional Structure
Three variations of the Multi-Divisional Structure
Multi-Divisional Form
Strategy Type
Cooperative Form
Related-Constrained
Strategic Business
Unit (SBU) Structure
Related-Linked
Competitive Form
Unrelated /Holding
Company
Session 11 © Furrer 2002-2008
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Cooperative Form MultiDivisional Structure
Each division is operated as a separate business
Appropriate for related-diversified businesses
Key task of corporate managers is exploiting synergies
among divisions
Managers use a combination of strategic controls and
financial controls
Managers try to strike a balance between:
Competing among divisions for scarce capital resources
Creating opportunities for cooperation to develop synergies
The goal is to maximize overall firm performance
Session 11 © Furrer 2002-2008
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Multi-Divisional Structure
The decision-making of managers in a MultiDivisional structure may be:
* Centralized or Decentralized
* Bureaucratic or Non-bureaucratic
Balance on these dimensions may change over time
Structure will evolve over time with:
* Changes in Strategy
* Degree of Diversification
* Geographic scope
* Nature of competition
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Evolution of Multi-Divisional
Structure
Chief Executive Officer
Corporate Office (Staff)
Product A
Finance
Finance
Product B
Production Engineering
Accounting
Sales &
Marketing
Human
Resources
Production Engineering
Accounting
Sales &
Marketing
Human
Resources 9
Session 11 © Furrer 2002-2008
Evolution of Multi-Divisional
Structure
Chief Executive Officer
Corporate Office (Staff)
Product A
Product B
North
America
Finance
Europe
Production Engineering
Session 11 © Furrer 2002-2008
Product C
Product D
Asia
Accounting
Sales &
Marketing
Human
Resources
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Corporate-Level International
Strategies
Type of Corporate Strategy selected will have an impact on the
selection and implementation of the business-level strategies
Some Corporate strategies provide individual country units with
flexibility to choose their own strategies
Others dictate business-level strategies from the home office and
coordinate resource sharing across units
Three
Corporate
Strategies
Session 11 © Furrer 2002-2008
Multi-Domestic Strategy
Global Strategy
Transnational Strategy
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Multi-Domestic Strategy
Strategy and operating decisions are decentralized
to strategic business units (SBU) in each country
Products and services are tailored to local markets
Business units in each country are independent of
each other
Assumes markets differ by country or regions
Focus on competition in each market
Prominent strategy among European firms due to
broad variety of cultures and markets in Europe
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Global Strategy
Products are standardized across national markets
Decisions regarding business-level strategies are
centralized in the home office
Strategic business units (SBU) are assumed to be
interdependent
Emphasizes economies of scale
Often lacks responsiveness to local markets
Requires resource sharing and coordination across
borders (which also makes it difficult to manage)
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Transnational Strategy
Seeks to achieve both global efficiency and local
responsiveness
Difficult to achieve because of simultaneous
requirements for strong central control and
coordination to achieve efficiency and local
flexibility and decentralization to achieve local
market responsiveness
Must pursue organizational learning to achieve
competitive advantage
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International Corporate Strategy
High
Global Co-ordination
Integration
Global
TransNational
MultiNational
Low
Low
Session 11 © Furrer 2002-2008
National differentiation, Responsiveness
High
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Evolution of Multi-Divisional
Structure
Chief Executive Officer
Corporate Office (Staff)
Product A
Product B
Product C
Product D
A Structural evolution based on Product lines
usually implies a Global International Strategy
Session 11 © Furrer 2002-2008
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Evolution of Multi-Divisional
Structure
Chief Executive Officer
Corporate Office (Staff)
North
America
Europe
Asia
Latin
America
Product A
Product B
Product C
Product D
Africa
Australia
A Structural evolution based on Geographic lines usually
implies a Multi-Domestic International Strategy
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Evolution of Multi-Divisional
Structure
A Transnational International Strategy is likely to utilize
a structure and that results in emphasis on both
geographic and product structures
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SBU’s Help to Solve
Complexity Issues
Chief Executive Officer
Corporate Office (Staff)
Strategic
Business
Unit A
Strategic
Business
Unit B
Division
Division
Strategic
Business
Unit C
Strategic
Business
Unit D
Division
Strategic Business Units (SBUs) are used to organize
related businesses into groups for strategy development
Session 11 © Furrer 2002-2008
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Global Matrix Structure
Chief Executive Officer
Corporate Office (Staff)
North
America
Africa
Unit 2
Unit 3
Unit 4
Unit 5
Unit 6
Unit 7
Unit 8
Unit 9
Unit 10
Unit 11
Unit 12
Europe
Asia
Product A
Unit 1
Product B
Product C
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Traditional International
Structures
Worldwide
Product
Division
FOREIGN PRODUCT
DIVERSITY
International
Division
Global
Matrix
Area
Division
FOREIGN SALES AS
PERCENTAGE OF TOTAL SALES
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Multi-Divisional Structure
The choice between centralization and decentralization is
frequently based on the business-level strategy
implemented in each division
Differentiation
Cost Leadership
Decentralization
Centralization
Complex Multi-Divisional structure firms may be
simultaneously centralized and decentralized , depending
upon the various business-level strategies employed
throughout the firm’s individual businesses
Multi-Divisional structure firms use a combination of:
Strategic Controls
Session 11 © Furrer 2002-2008
Financial Controls
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Attributes of Various Structural Forms
Structural
Characteristics
Cooperative
M-Form
SBU
M-Form
Competitive
M-Form
Type of
Strategy
RelatedConstrained
Mixed Related
or Unrelated
Unrelated
Degree of
Centralized
Centralized at
Centralization Corporate Office
in SBUs
Decentralized
to Division
Use of
Integrating
Mechanisms
Extensive
Synergies
Moderate
Synergies
Nonexistent
Synergies
Divisional
Performance
Appraisal
Subjective/
Strategic
Criteria
Strategic &
Financial
Criteria
Financial
Criteria
Divisional
Incentive
Compensation
Session 11 © Furrer 2002-2008
Linked to
Linked to
Linked to
Corporate
Corporation,
Divisional
Performance Division & SBU Performance
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Administrative Heritage
Strategic Asset and Organisational Anchor
• “Where to” is influenced by “where from.”
• Competitive advantage shaped by country of
origin, time of expansion, and nature of
leadership.
• The challenge is to built new capabilities while
protecting existing strengths.
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Pre-war European Empires
Nationally Responsive Strategies
• Expended abroad in a period of high international
barriers.
– Preferential access to foreign empire markets
• Organisation developed as a portfolio of national
companies.
– Heritage of family management, personal control
• Strategy based on understanding and responding to
national markets.
Session 11 © Furrer 2002-2008
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Pre-War European Empires:
Decentralised Federations
• MULTINATIONAL STRATEGY MODEL
- COMPETE BY BEING NATIONALLY RESPONSIVE
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Post-war American Hegemony
Strategy of Knowledge Transfer
• Expended abroad in a time of economic
reconstruction.
– Large, advanced home market as knowledge source
• Organisation built on strong links to the parent
company based on transfer of expertise.
– Heritage of professional management, systems control
• Strategy based on transferring parent company’s
leadership in technology, marketing, and another
skills.
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Post-war American Hegemony:
Co-ordinated Federations
• INTERNATIONAL STRATEGY MODEL
- COMPETE THROUGH KNOWLEDGE TRANSFER
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Modern Day Japanese Challenge
Competing Through Global Efficiency
• Expanded abroad in a period of falling trade barriers.
– Newly added capacity and government industrial policy as
assets
• Organisation grew as dependent foreign units tightly
controlled from the centre.
– Heritage of culturally dependent management practices
dominated by group processes
• Strategy based on capturing global scale economies.
Session 11 © Furrer 2002-2008
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Modern Day Japanese Challenge:
Centralised Hubs
• GLOBAL STRATEGY MODEL
- COMPETE THROUGH GLOBAL EFFICIENCY
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Strategic Capabilities of the
Transnational
The New Game for the 21th Century
• Sensitivity, flexibility, and responsiveness to
local needs.
• Global scale efficiency and competitive
response capability.
• World-wide innovation skills and learning
capabilities.
Session 11 © Furrer 2002-2008
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The Transnational Organization Model:
The Integrated Network
Decentralized
Federation
Centralized Hub
The Integrated Network
Session 11 © Furrer 2002-2008
Coordinated Federation
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Organisational Characteristics
of the Transnational
• Multi-dimensional Perspective
– Large flows of components, products, resources,
people, and information among interdependent
units.
• Distributed, Interdependent Capabilities
• Flexible Integrative Process
– Complex process of co-ordination and cooperation in an environment of shared decision
making
Session 11 © Furrer 2002-2008
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Organizational Characteristics of the
Transnational
Characteristics
Multinational
Global
International
Transnational
Configuration of
assets and
capabilities
Decentralized
and nationally
self-sufficient
Centralized and
globally scaled
Core
competencies
centralized,
others
decentralized
Dispersed,
interdependent
and specialized
Role of overseas
operation
Sensing and
exploiting local
opportunities
Implementing
parent
company
strategy
Adapting and
leveraging
parent
company
competencies
Differentiated
contributions by
national units to
integrated
worldwide
operations
Development
and diffusion of
knowledge
Knowledge
developed and
retained within
each unit
Knowledge
developed and
retained at the
center
Knowledge
developed at
the center and
transferred to
overseas units
Knowledge
developed
jointly and
shared
worldwide
Session 11 © Furrer 2002-2008
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Next Session: Case Study 3
The Globalization of CEMEX
Session 11 © Furrer 2002-2008
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