LOGO

The Development ofBusiness Government Strategies

by Diversified Firms(Brian Shaffer & Amy J. Hillman)

Group 3 :Budi Setyawan

Daniel Indramulia S.Didik Susilo H.

Yogi Pamungkas

2

The Background

1. The responsiveness of public policy issues and the ability to influence the government policy (political capital) are of increasing importance to the strategic management of business firms

2. The diversified firm poses a unique challenge for developing political strategy, since in some case there is conflicting interests among the SBUs within one firm toward specific public policy issue

3

The Question Raised

1. Do diversified firms experience intrafirm conflict in developing business-government strategies?

2. Are there distinctive type of intrafirm conflict within diversified firm in developing business-government strategies?

3. How do firms organize to resolve internal conflict in developing business-government strategies?

4

Models for corporate control of public policy involvement

Model A : Centralized Control

CorporateOffice

CorporateGovernment

Relations Office& Lobbyists

PolicyDecisionMaker

Division 3

Division 2

Division 1

5

Models for corporate control of public policy involvement

Model B : Autonomous Sub-Units

Division 3

Division 2

Division 1

CorporateOffice

CorporateGovernment

Relations Office& Lobbyists

Divisional Office/Lobbyists

Divisional Office/Lobbyists

Divisional Office/Lobbyists

PolicyDecisionMaker

6

Three firms under the study (Pseudonym)

1. Acme Motors One of the “Big Three” US automobile manufacturers. Related-Constrained structure (Rumelt’s typology, 1974) where diverse division are united by

the central corporate goal of producing and selling automobile. Relatedness and operational interdependence among divisions are high.

2. Appalachian Energy Began as an oil refiner and distributor, but has expanded into a variety of other business. Related-Linked structure (Rumelt’s typology, 1974) meaning that individual businesses are

linked by a core resource. Has medium relatedness (oil refining, motor oil, petrochemicals, convenience store with

gasoline sales, coal mining, road building). Nearly all business units have some upstream link to petroleum.

3. Assorted Industries Conglomerate by definition. Diversified business units (defense contracting, medical systems, financial services,

information systems, manufacturing of consumer and industrial products). Has the lowest relatedness Individual business are independent at operation level.

7

Type of Intrafirm Conflict

TypeType CharacteristicCharacteristic ExampleExampleDistributiveDistributive Conflict over the internal Conflict over the internal

distribution of cost and/or distribution of cost and/or benefits of public policy across benefits of public policy across business units (postpolicy business units (postpolicy conflict)conflict)

Acme : CAFE standardsAcme : CAFE standards

Acme and Appalachian : Acme and Appalachian : Pollution compliancePollution compliance

Assorted : Tax policyAssorted : Tax policy

Advocacy Advocacy positionposition

Conflict over the position Conflict over the position advocated by the company advocated by the company (policy preferences) in the public (policy preferences) in the public policy arenapolicy arena

Acme : Freight deregulationAcme : Freight deregulation

Assorted and Appalachian :Assorted and Appalachian :

Health care reformHealth care reform

Appalachian : Coal slurry Appalachian : Coal slurry pipelinespipelines

RepresentationRepresentationalal

Conflict over who represents the Conflict over who represents the firm to public policy makersfirm to public policy makers

Acme : Research subsidiesAcme : Research subsidies

8

Distributive conflict

Intrafirm conflict arising over compliance issues and postpolicy issues are significant sources of conflict in diversified firms.

Example 1:Acme - Corporate Average Fuel Economy (CAFE)

This regulation mandates the car manufactures to comply with the ‘miles per gallon’ fuel consumption of the average of all cars produce and sold by each firm.

Business unit that produces performance and luxury cars can remain in regulatory compliance only so long as another business unit produces economy cars that offset the fuel consumption of luxury cars.

9

Distributive conflict

Example 2 :Acme and Appalachian – EPA Pollution Standards

Regulation requires firms to meets overall emissions (pollution) reduction level approved by EPA.

Individual plant managers are forced to negotiate and compromise on their specific contribution to pollution reduction and fight for associated resources and financial compensation internally.

10

Distributive conflict

Example 3 :

Assorted Industries – Tax policy As a highly diversified firm, Assorted Industries

experiences fewer distributive conflicts because their business units are unrelated on most dimension.

Exception in Tax Issue:

Conflict may arise over the distribution of tax allocation and relief across divisions, so Assorted Industries chooses to centralize the tax issue in corporate level

11

Advocacy position conflict

A firm’s business units may differ over their preferred advocacy positions on public policy issues that are undecided or in the formulation stage

Example 1 :Acme – Freight deregulation

Acme Motors supported motor freight deregulation in order to reduce shipping cost.

Acme’s heavy truck division opposed deregulation because of its negative impact on its customer, the trucking company.

12

Advocacy position conflict

Example 2 :

Assorted Industries – Health care reform One division favored the Health care reform that it

has an aged unionized workforce and needs relief from the cost of employee medical benefits.

Another division (leading manufacturer of high-tech diagnostic medical equipment, it opposed the legislation owing to its expected negative effect on the ability of hospitals and clinics to purchase its product.

13

Representation conflict

Business units may act upon their individual policy preferences in the political arena. In some cases it may take political actions outside the coordinated corporate political strategy.

Example 1 :Acme – Research subsidies

Acme Motors has long standing ideological opposition to all government subsidies.

A small unit charged with developing electric cars in California approach the state legislature and requested R&D subsidies.

14

Representation conflict

Example 2 : Some potential conflicts that are easily avoided :

Appalachian – Transportation safety Appalachian Energy has a transportation division that

negotiates with U.S. Department of Transportation over driver and truck safety issues.

These safety issues are of little interest to other business units.

Assorted Industries – Broadcast content Broadcast network division has worked with the FCC and

U.S. Congress on programming issues specifically on how to restrict exposure to explicit sex and violence.

Broadcast division had the requisite expertise, and the issues did not affect other business units within the firm.

15

Mechanism for Resolving Conflict

““We have met the enemy and he is us” (We have met the enemy and he is us” (Pogo)Pogo)

16

Forms of Organization for Business-Government Forms of Organization for Business-Government StrategiesStrategies

17

Bureaucratic system

Acme Motors has highly centralized process of government relation strategies, mandating all issues analysis & political strategies be controlled directly by the corporate public affairs/government relation staff

This approach to political action is aiming to emphasize a goal of ‘efficiency’ and ‘economies of scale’

18

Federal Quasi-Market system

Business units in Acme Motors are permitted to represent the firm individually under close supervision from the central office, as long as the business unit does not contradict other positions taken by other units or the corporation

This system is one in which the firm representatives in the policy arena may be individual SBUs, but the authority to mobilize these actors & to establish political positions lies with a centralized body external to the individual units

19

Federalist system

Appalachian Energy promotes coordination on major issues by forming committees with public affairs representatives from all major business units. These committees then make recommendations to top management. The process of decision making by this committee form (shared authority) is more decentralized than that of Acme Motors

This system is aiming to balance the interests of various divisions through a process of negotiation & compromise, but retains representation at the corporate level

20

Shared Quasi-Market system

This system exists when authority is shared for policy positions & formulating political action, but representatives of these issues are still individual business units

Authority distribution, political resources & costs distributed along formal organizational lines policy positions are established by consensus reached by representatives of the individual units

21

Internal Contracting system

Assorted Industries are representing one single actor from the corporation in the public policy arena (especially for the ‘more corporate’ issues, such as trade and tax policies), but distribution of authority lies completely with the individual SBUs

However the system of coordination or decision making is not based on consensus along formal divisional lines, but rather is based on a competition among divisions for the political action. Each division may bid or pay for the services of the political strategy group or organizational implementers of political action

22

Market system

In most cases Assorted Industries utilizes a Market approach as the most decentralized system of implementation & formulation

Authority lies with individual units with no coordinating body. The representatives of these interests come from the SBUs themselves as opposed to the corporation. Competition in the public policy arena is not coordinated at all and one division of a company may be working in opposition to another

23

Relationship Between Degree of Diversification and Cost of Political Activity Integration

Single product Related Unrelated

Degree of Diversification

Costs ofPolitical Activity

Coordination

24

CASE STUDY

KALBE FARMA

25

26

Obat Generik Murah

Obat Generik :1.Obat Generik Berlogo2.Obat Generik Bermerek

OGB : obat yang menggunakan nama zat aktif sajamencantumkan logo perusahaan

Ogbermerek : obat bermerek, menggunakan merek dagang yang diberi oleh perusahaan produsen obat

tersebut

KepMenKes 336/2006 : harga obat generikKepMenKes 069/2006 : pencantuman HET pada label obatGP Farmasi sepakat menetapkan obat generik sebesar 3X obat generik

27

Obat Generik Murah

28

Obat Generik Murah

Pembagian market untuk Obat Generik : Hexpharm JayaObat resep ber merek : Kalbe

Merging antara Kalbe Farma - Dankos – Hexpharm untuk cross functional financing

Corporate Secretary menjadi wakil dalam hubungan dengan pemerintahan.

Legal masing- masing perusahaan melaksanakan bagian dari Corporate Secretary

29

Conclusion

The resolution of intrafirm conflicts over business-government strategies involves classic trade-offs between business unit specialization and expertise, and corporate cordination and control.

Based on categorization of intrafirm conflict and matrix depicting possible forms for organizing to resolve conflict : form of organization are related to degree of diversification. The more unrelated diversification of the firm, the more decentralized authority structure will be utilized to resolve conflict.

30