organizing to implement corporate diversification copyright © 2008 pearson prentice hall. all...

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


Mission Objectives

ExternalAnalysis

InternalAnalysis

StrategicChoice

StrategyImplementation

CompetitiveAdvantage

The Strategic Management Process

ImplementingCorporate

Diversification




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?




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 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




The Agency Relationship

A Trade Off

M-Form Structure

Divides InformationProcessing RequirementsInto Manageable Blocks

Divides OwnersFrom Managers

Interests of Owners andManagers May Diverge




IndividualShareholders

InstitutionalShareholders

Principals Agents

SeniorExecutives

CorporateStaff

DivisionGeneral

Managers

SharedActivity

Managers

Monitors

The Agency Relationship

BoardOf

Directors

Managing Agency

DualRole




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




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 Planning

Corporate Finance

Corporate R&D

Corporate Marketing

Division General Managers

ProductionFinance Engineering Accounting

Human Resource

s


Sales &Marketing

Senior Executive

CorporateHuman

Resources




Shared Activity Managers

ProductionFinance

Engineering


Human Resources

Sales &Marketing

ProductionFinance

Engineering

SharedActivities

Cost Centers

Profit Centers




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




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




Compensation Policies

Aligning Incentives

Salary

Cash Bonus

Stock Grants

Stock Options

Not Tied toPerformance

Tied toPerformance

Long TimeHorizon

Short TimeHorizon

Research shows… Theory predicts…




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,




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




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




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

organizing to implement corporate diversification copyright © 2008 pearson prentice hall. all...

Documents

pearson prentice hall

strategic management

agency dual role slide

president chairman

information flows

managers interests of

activity managers

implementation issues