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Organizing to Organizing to Implement Implement Corporate Corporate DiversificationDiversification
Copyright © 2008 Pearson Prentice Hall. All rights reserved. Copyright © 2008 Pearson Prentice Hall. All rights reserved. 8-8-11
Chapter 8Chapter 8
Strategic Management & Competitive Advantage – Barney & Hesterly 2
Organizing to Implement Corporate DiversificationOrganizing to Implement Corporate Diversification
Copyright © 2008 Pearson Prentice Hall. All rights reserved. Copyright © 2008 Pearson Prentice Hall. All rights reserved. 8-8-22
Mission Objectives
ExternalAnalysis
InternalAnalysis
StrategicChoice
StrategyImplementation
CompetitiveAdvantage
The Strategic Management Process
ImplementingCorporate
Diversification
Strategic Management & Competitive Advantage – Barney & Hesterly 3
Organizing to Implement Corporate DiversificationOrganizing to Implement Corporate Diversification
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Implementation Issues
How Information Flows
Where and By Whom are Decisions Made
How to Influence the Behavior of People
• how can the interests of employeesbe aligned with the interests of the firm?
Strategic Management & Competitive Advantage – Barney & Hesterly 4
Organizing to Implement Corporate DiversificationOrganizing to Implement Corporate Diversification
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The Need for Organizational Structure
Information Processing Requirements
• as organizations become larger and more complex,information processing requirements exceed individual capacity
• bounded rationality
• organizational structure divides informationprocessing into manageable blocks (span of control)
• satisficing
Strategic Management & Competitive Advantage – Barney & Hesterly 5
Organizing to Implement Corporate DiversificationOrganizing to Implement Corporate Diversification
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Strategic Planning
Corporate Finance
Corporate R&D
Corporate Marketing
M-Form Structure
ProductionFinance Engineering Accounting
Human Resources
Division Division Division
Sales &Marketing
Senior Executive
CorporateHuman
Resources
Board of Directors
Strategic Management & Competitive Advantage – Barney & Hesterly 6
Organizing to Implement Corporate DiversificationOrganizing to Implement Corporate Diversification
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The Agency Relationship
A Trade Off
M-Form Structure
Divides InformationProcessing RequirementsInto Manageable Blocks
Divides OwnersFrom Managers
Interests of Owners andManagers May Diverge
Strategic Management & Competitive Advantage – Barney & Hesterly 7
Organizing to Implement Corporate DiversificationOrganizing to Implement Corporate Diversification
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IndividualShareholders
InstitutionalShareholders
Principals Agents
SeniorExecutives
CorporateStaff
DivisionGeneral
Managers
SharedActivity
Managers
Monitors
The Agency Relationship
BoardOf
Directors
Managing Agency
DualRole
Strategic Management & Competitive Advantage – Barney & Hesterly 8
Organizing to Implement Corporate DiversificationOrganizing to Implement Corporate Diversification
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The Office of the President
Chairmanof theBoard
(monitoring)
ChiefExecutive
Officer(strategy formulation)
ChiefOperating
Officer(strategy implementation)
Chairman
CEO
COO
Chairman
CEO
COO
Chairman
CEO
COO
Chairman
CEO
COO
One Person Two People Three People
Strategic Management & Competitive Advantage – Barney & Hesterly 9
Organizing to Implement Corporate DiversificationOrganizing to Implement Corporate Diversification
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Information Filtering
• information about the divisions’ businesses is filtered as it rises to the senior executive
• the senior executive can ‘manage’ the informationflow
• information flow should not exceed thebounded rationality of managers at anylevel in the organization
• information should flow should be matchedwith decision-making authority
The Office of the President
Strategic Management & Competitive Advantage – Barney & Hesterly 10
Organizing to Implement Corporate DiversificationOrganizing to Implement Corporate Diversification
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Strategic Planning
Corporate Finance
Corporate R&D
Corporate Marketing
Division General Managers
ProductionFinance Engineering Accounting
Human Resource
s
Division Division Division
Sales &Marketing
Senior Executive
CorporateHuman
Resources
Strategic Management & Competitive Advantage – Barney & Hesterly 11
Organizing to Implement Corporate DiversificationOrganizing to Implement Corporate Diversification
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Shared Activity Managers
ProductionFinance
Engineering
Division Division Division
Human Resources
Sales &Marketing
ProductionFinance
Engineering
SharedActivities
Cost Centers
Profit Centers
Strategic Management & Competitive Advantage – Barney & Hesterly 12
Organizing to Implement Corporate DiversificationOrganizing to Implement Corporate Diversification
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Management Controls
3 Issues
EvaluatingDivisional
Performance
AllocatingCapital
TransferringIntermediate
Products
Measurement:• accounting
• economic valueadded (EVA)
Ambiguity:
• allocating costs& revenues
Playing Games:• managers want
to look good
• zero-basedbudgeting
Setting Prices:• negotiation
• cost
• market-based
• dual pricing
Strategic Management & Competitive Advantage – Barney & Hesterly 13
Organizing to Implement Corporate DiversificationOrganizing to Implement Corporate Diversification
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Compensation Policies
Compensation Committee
In theory…
• represents interests of owners in setting compensationof top executive team
• sets compensation based on performance or market
In practice…
• sometimes appear to be beholden to executives
• compensation decisions often bear little relationshipto performance
Strategic Management & Competitive Advantage – Barney & Hesterly 14
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Compensation Policies
Aligning Incentives
Salary
Cash Bonus
Stock Grants
Stock Options
Not Tied toPerformance
Tied toPerformance
Long TimeHorizon
Short TimeHorizon
Research shows… Theory predicts…
Strategic Management & Competitive Advantage – Barney & Hesterly 15
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Refocusing
Corporate level strategy may call for exiting a business
• a conglomeration discount may exist
• the corporation may lack necessary skills
• expected economies of scope may not exist
• the corporation may need funds for core activities
DivestAssets
Spin-off
MBO
IPO
or,
Strategic Management & Competitive Advantage – Barney & Hesterly 16
Organizing to Implement Corporate DiversificationOrganizing to Implement Corporate Diversification
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International Implementation
GlobalStrategy
Multi-DomesticStrategy
Centralized Hub:
• facilitates globalintegration
• exploits aglobal product
• exploits scaleeconomies
Decentralized Federation:
• highly autonomous units
• very responsive locally
Coordinated Federation:
• less autonomous
• some shared activitiesbetween divisions
Strategic Management & Competitive Advantage – Barney & Hesterly 17
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International Implementation
TransnationalStructure
• facilitates both local responsivenessand global integration
• country managers are responsible forexploiting economies of scope
• corporate HQ constantly scans theglobe looking for best practices
Strategic Management & Competitive Advantage – Barney & Hesterly 18
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Summary
Successful implementation is a matter of:
• appropriately breaking information processinginto manageable blocks
• aligning the interests of owners and managers
These can be accomplished through:
• Organizational Structure
• Management Controls
• Compensation Policies
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