4490 FINAL
National Culture
The collective mental and emotional "programming of the mind" that differentiates human groups - made up of social norms and mores, beliefs and values - captures the underwritten/implicitly understood rules of the game
Codes of Conduct
The manager should imagine whether he or she would feel comfortable explaining and defending the decision in public. - How would the media report the business decision if it were to become public? How would the company's stakeholders feel about it?
Board of Directors
The centerpiece of corporate governance, composed of inside and outside directors who are elected by the shareholders.
Mechanistic Organizations
high degree of specialization and formalization, TALL hierarchy that relies on CENTRALIZED decision making - McDonald's - decisions at the TOP - follow cost-leadership
Zappos
"Delivering Happiness" - Amazon acquired them - Zappos acts as an independent company - implementing HOLACRACY -- control and coordination by distributing power and authority to self-organizing groups (CIRCLES) of people - circle self organize and own a specific task - "delivering WOW through SERVICE," providing a positive online shopping experience including free shipping to and from its customers, including a generous 365-day return policy.
Engine behind globalization...
"Multinational Enterprise (MNE)"
Key Question of Globalization 3.0:
"What defines a U.S. company?"
1) Liability of Foreignness
"additional costs of doing business in an unfamiliar cultural AND economic environment, & coordinating across geographic distances Example: WalMart exited Germany-- had LIABILITY OF FOREIGNNESS - Culturally, Germans didn't want to cheer and smile. - Behaved gruffly like at every other retail store They couldn't get costs down = prices weren't low - Many other stores were cheaper & more convenient.
zappo's #1 core value
"deliver WOW through service."
GE Example
"ecomagination" - cleaner and more efficient energy, reduce emissions
2.) Loss of Reputation
* one of the most valuable resources a firm may possess is its reputation * A firm's reputation can have several dimensions, including a reputation for innovation, customer service, or brand reputation. Apple's brand, for example, stands for innovation and superior customer experience. Apple's brand reputation is also one of its most important resources. Apple's brand is valued at $250 billion, making it the most valuable in the world.43 We detailed in Chapter 4 that a brand can be the basis for a competitive advantage if it is valuable, rare, and difficult to imitate
MNE Stats
** MNE's have a disproportionately POSITIVE impact on the US economy MNE's make up less than 1% of the number of total U.S. companies, but they: - Account for 11 percent of private-sector employment growth since 1990. - Employ 19 percent of the work force. - Pay 25 percent of the wages. - Provide for 31 percent of the U.S. gross domestic product (GDP). - Make up 74 percent of private-sector R&D spending
4) Economic Distance
- **Wealth and per capita income of consumers is the MOST important economic factor. - wealthy countries engage in more cross-border trade than poor countries - rich countries trade with rich countries AND poor countries trade with rich countries - Developed economies trade and benefit from economies of experience, scale, scope, and standardization, economies of "arbitrage" although the CAGE distance framework helps determine the attractiveness of foreign target markets in a more fine-grained manner based on relative differences, it is necessarily only a first step. A deeper analysis requires looking inside the firm (as done in Chapter 4) to see how a firm's strengths and weaknesses work to increase or reduce distance from specific foreign markets.
Network Structure
- A network structure allows the firm to connect centers of excellence, whatever their global location. - The firm benefits from COMMUNITIES OF PRACTICE, which store important organizational learning and expertise.
Culture facts
- A positive culture motivates and energizes employees by appealing to their higher ideals. - Strong organizational cultures that are strategically relevant, therefore, align employees' behaviors more fully with the organization's strategic goals. - Positive organizational cultures better coordinate work efforts, and they make cooperation more effective. - They also strengthen employee commitment, engagement, and effort. - Effective alignment in turn allows the organization to develop and refine its core competencies, which can form the basis for competitive advantage.
3) Develop New Competencies
- Attractive for firms that develop a "differentiation" strategy. - Making foreign direct investments to be part of COMMUNITIES OF LEARNING - Benefits from location value chain activities reap LOCATION ECONOMIES
Auditors, Regulators, Analysts
- Auditors, government regulators, and industry analysts serve as additional external-governance mechanisms. - All public companies listed on the U.S. stock exchanges must file a number of financial statements with the Securities and Exchange Commission (SEC), a federal regulatory agency whose task it is to oversee stock trading and enforce federal securities laws. - To avoid the misrepresentation of financial results, all public financial statements must follow generally accepted accounting principles (GAAP) and be audited by certified public accountants. - As part of its disclosure policy, the SEC makes all financial reports filed by public companies available electronically via the EDGAR database. - This database contains more than 7 million financial statements, going back several years. - Industry analysts scrutinize these reports in great detail, trying to identify any financial irregularities and assess firm performance. - Given recent high-profile oversights in accounting scandals and fraud cases, the SEC has come under pressure to step up its monitoring and enforcement. - Industry analysts often base their buy, hold, or sell recommendations on financial statements filed with the SEC and business news published in The Wall Street Journal, Bloomberg Businessweek, Fortune, Forbes, and other business media such as CNBC. - Researchers have questioned the independence of industry analysts and credit-rating agencies that evaluate companies (such as Fitch, Moody's, and Standard & Poor's).
(output controls) intrinsic motivation in a task is HIGHEST when an employee has
- Autonomy (about what to do). - Mastery (how to do it). - Purpose (why to do it).
Multinational Enterprise (MNE)
- Company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least TWO countries. - need an effective "global strategy" that enables them to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world. - By making investments in value chain activities abroad, MNEs engage in FOREIGN DIRECT INVESTMENT (FDI). - i.e. European aircraft maker "Airbus" is investing $600 million in Mobile, Alabama, to build jetliners.10 It's doing so in order to avoid import restrictions, be closer to customers in North America, and take advantage of business-friendly conditions such as lower taxes, labor cost, and cost of living, plus other incentives provided by host states. - Based on an optimal mix of costs, skills, and PESTEL factors, MNEs are organized as "global collaboration networks" that perform business functions throughout the world.
Cage Distance Framework (cont.)
- If the countries belong to the same regional trading bloc, they can expect another 330% in trade intensity. Examples include the United States and Mexico in NAFTA, or the 28 member states of the European Union. If the two countries use the same currency it increases trade intensity by 340%.
Strategic Control and Reward Systems
- Internal-governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees). - These systems allow managers to specify goals, measure progress, and provide performance feedback.
Market for Corporate Control
- Last resort because it comes with significant transaction costs. - To succeed in its hostile takeover bid, buyers generally pay a significant premium over the given share price. - This often leads to overpaying for the acquisition and subsequent shareholder value destruction—the so-called "winner's curse" - The market for corporate control is useful, however, when internal corporate-governance mechanisms have not functioned effectively and the company is underperforming.
Inside Directors
- Members who are generally part of the company's senior management team, such as the chief financial officer (CFO) and the chief operating officer (COO). - They are appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance. - As senior executives, however, inside board members' interests tend to align with management and the CEO rather than the shareholders.
Microsoft: Organizational Inertia
- Microsoft had a prototype called Keywords. - More than a decade earlier than Google - It was shut down because managers didn't see it as a viable business model. - Microsoft almost acquired this capability. - But determined Overture Services was overpriced Launched their own, Bing, in 2009
Corporate Governance Mechanisms
- Play an important part in aligning the interests of principals and agents. - They enable closer monitoring and controlling, as well as provide incentives to align interests of principals and agents. - Perhaps even more important are the "most internal of control mechanisms": business ethics—a topic we discuss next.
Mechanistic
- TALLER - low span of control - clear line of control - cost leadership strategy
3) Geographic DIstance
- The costs to cross-border trade rise with geographic distance. - Geographic distance does not simply capture how far 2 countries are from each other. - It ALSO includes: 1. country's physical size (Canada versus Singapore) 2. within-country distances to its borders 3. the country's topography 4. time zones 5. whether the countries are contiguous to one another or have access to waterways and the ocean. The country's infrastructure, including road, power, and telecommunications networks, also plays a role in determining geographic distance. Geographic distance is particularly relevant when trading products with LOW value-to-weight ratios, such as steel, cement, or other bulk products, and fragile and perishable products, such as glass or fresh meats and fruits.
Strategy and business ethics
- The principles, norms, and standards of business practice differ to some degree in different cultures around the globe. - Research studies have found that some notions—such as fairness, honesty, and reciprocity—are universal norms. As such, many of these values have been codified into law. - Law and ethics are NOT synonymous. This distinction is important and not always understood by the general public. Staying within the law is a "minimum acceptable standard" A manager's actions can be completely legal, but ethically questionable.
Disadvantages of moving to an M-structure
- adding another layer of corporate hierarchy - slows pace because CEO of SBU must get approval from corporate HQ - because SBUs are considered a standalone profit and loss center, SBUs often end up competing against eachother - co-opetition among SBUs is inevitable and necessary
fiduciary responsibility
legal duty to act solely in another party's interest -- toward the shareholder because of the trust placed in him/her
Global Matrix Structure
- geographic divisions are charged with local responsiveness and learning - each SBU is charged with driving down costs through economies of scale/other efficiencies - allows sharing of learnings from abroad - fits well with a transnational strategy
Market for Corporate Control
- important EXTERNAL corporate-governance mechanism - Consists of activist investors who seek to gain control of an underperforming corporation by buying shares of its stock in the open market. Corporate managers strive to protect shareholder value by delivering strong share-price performance or putting in place poison pills to avoid this. If a company is poorly managed, its performance suffers and its stock price falls as more and more investors sell their shares. Once shares fall to a low enough level, the firm may become the target of a hostile takeover Besides competitors, so-called "corporate raiders" or private equity firms and hedge funds may buy enough shares to exert control over a company.
Google 2015
- unrelated diversification - decentralized decision making - diversified multidivisional structure overseen by Alphabet, a new corporate entity
2) Gain Access to Low Cost Input Factors
1) Access to low-cost RAW MATERIALS such as lumber, iron ore, oil, and coal was a key driver behind Globalization 1.0 and 2.0. 2) During Globalization 3.0, firms have expanded globally to benefit from lower LABOR costs in manufacturing and services. - china is a manufacturing power house because of low labor costs and good infrastructure
Matrix structure—disadvantages:
1) Creates additional organizational complexity -Can slow decision-making -Performance appraisals more difficult -Increases admin costs 2) Difficult to implement -Employees have trouble reconciling goals -Multiple supervisors
MNEs face 2 two opposing forces when competing around the globe which can affect strategy:
1. Cost Reductions 2. Local Responsiveness COST REDUCTION achieved through a "global-standardization strategy" often reinforce a cost-leadership strategy at the business level. LOCAL RESPONSIVENESS increases the differentiation of products and services, reinforcing a differentiation strategy at the business level
While the board of directors is the central governance piece for a public stock company, several OTHER corporate mechanisms are also used to align incentives between principals and agents, including
1. Executive compensation. 2. The market for corporate control. 3. Financial statement auditors, government regulators, and industry analysts.
Porter recommends that managers focus on THREE things within the shared value creation framework
1. Expand the customer base to bring in NONCONSUMERS...such as those at the bottom of the pyramid—the largest but poorest socioeconomic group of the world's population. 2. Expand traditional internal firm value chains to include more NONTRADITIONAL PARTNERS... such as nongovernmental organizations (NGOs). - NGOs are nonprofit organizations that pursue a particular cause in public interest and are independent of any government (habitat for humanity, greenpeace) 3. Focus on creating new REGIONAL CLUSTERS.. such as Silicon Valley in the United States, Electronic City in Bangalore, India, and Chilecon Valley in Santiago, Chile. *these strategic actions will lead to a larger pie of revenues and profits that can be distributed among a company's stakeholders
(3) Advantages of going global
1. Gain access to a larger market. 2. Gain access to low-cost input factors. 3. Develop new competencies
Matching global strategy and structure
1. MULTIDOMESTIC - multidivisional - geographic areas - decentralized decision making 2. GLOBAL STANDARDIZATION - multidivisional - product divisions - centralized decision making 3. TRANSNATIONAL - balance of centralized and decentralized decision making - additional layer of hierarchy to coordinate both: geographic ares & product divisions
Organizational Inertia: The pattern for successful firms often follows a particular path:
1. Mastery of, and fit with, the current environment. (fit/alignment) 2. Success, usually measured by financial measurements. 3. Structures, measures, and systems to accommodate and manage size. 4. A resulting organizational inertia that tends to minimize opportunities and challenges created by shifts in the internal and external environment.
Hofstede's Cultural Dimensions
1. Power distance 2. Individualism 3. Masculinity—femininity 4. Uncertainty avoidance 5. Long-term orientation 6. Indulgence **newest additions: long-term orientation and indulgence
(4) Key building blocks of an ORGANIZATIONAL STRUCTURE:
1. Specialization 2. Formalization 3. Centralization 4. Hierarchy
(3) Political and Administrative Barriers
1. Tariffs 2. Trade quotas 3. FDI restrictions
2 Agency problems
1. adverse selection 2. moral hazard
(2) Functional Structure Drawbacks
1. communication within departments is good...BUT Frequently lacks effective communication channels ACROSS departments. - solve this with 'cross-functional" teams 2. Can't effectively address a higher level of diversification, which stems from further growth
Increasing Firm complexity as firms grow
1. simple structure 2. functional structure 3. multi-divisional structure, Matrix structure ** Different stages in a firm's growth require different organizational structures
Globalization allows companies to
1. source supplies at lower costs 2. learn new competencies 3. further differentiate products
The Public Stock Company: Hierarchy of Authority
1. state charter 2. shareholders 3. board of directors 4. management 5. employees
1) Cultural Distance
Cultural disparity between an internationally expanding firm's home country and its targeted host country - A greater cultural distance can increase the cost and uncertainty of conducting business abroad. - ** greater cultural distance increases the "liability of foreignness" If we calculate the cultural distance from the United States to various countries, for example, we find that some countries are culturally very close to the United States. Australia, for example, has an overall cultural distance score of 0.02. Others are culturally quite distant. Russia has an overall cultural distance score of 4.42.
(3) Stages of Globalization
1.) Globalization 1.0: (1900-1941): - all business functions were located in the home country - only sales and distribution may have taken place overseas - strategy formulation/implementation, knowledge flows follow a ONE WAY PATH from home market to national outposts - blossoming of MNES - ended with US entry into WWII 2.) Globalization 2.0: (1945-2000): - end of WWII, focus on new business - all business functions in a few key countries - US headquarters set strategy and allocated resources BUT local-mini MNE's had significant power over day to day operations - knowledge flow back to headquarters was still LIMITED 3.) Globalization 3.0: 21st Century - Locate business functions anywhere -** defines the key question: "What defines a U.S. Company?" Note: MNEs now are replacing the one-way innovation flow from Western economies to developing markets with a "POLYCENTRIC INNOVATION STRATEGY" —a strategy in which MNEs now draw on multiple, equally important innovation hubs throughout the world characteristic of Globalization 3.0
(3) DISADVANTAGES of going global
1.) Liability of foreignness. 2.) Loss of reputation. 3.) Loss of intellectual property ** if economic value creation is negative (C-V) then they shout NOT go global
Cage Distance Framework
A decision framework based on the RELATIVE distance between home and a foreign target country along FOUR dimensions: - Cultural distance - Administrative &political distance - Geographic distance - Economic distance. ** instead of looking at absolute measures, looks at RELATIVE measures
Organizational Inertia
A firm's resistance to change the status quo, which can set the stage for the firm's subsequent failure - successful firms can plant a seed of subsequent failure: they try to optimize their organizational structure to the current situation - often the result of SUCCESS in a particular market during a particular time; it becomes difficult to argue with success
Organizational Structure
A key to determining how the work efforts of individuals and teams are orchestrated and how resources are distributed. Organizational Structure...: - defines how jobs and tasks are divided and integrated - delineates the reporting relationships up and down the hierarchy - defines formal communication channels - prescribes how individuals and teams coordinate their work efforts.
Shared Value Creation Framework
A model proposing that managers have a dual focus on shareholder value creation and value creation for society. guidance about how to reconcile the economic imperative of 1. gaining and sustaining competitive advantage 2. with corporate social responsibility. - It helps managers create a larger pie that benefits both shareholders and other stakeholders - externalities ( pollution, energy waste, costly accidents) create INTERNAL costs
Founder Imprinting
A process by which the founder defines and shapes an organization's culture, which can persist for decades after his or her departure. - Founders set the initial strategy, structure, and culture of an organization by transforming their vision into reality.
Public Company
A public company is a company that has issued securities through an initial public offering (IPO) and is traded on at least one stock exchange or in the over the counter market.
Leveraged Buyout (LBO)
A single investor or group of investors buys, with the help of borrowed money (leveraged against the company's assets), the outstanding shares of a publicly traded company in order to take it PRIVATE. - LBO changes the ownership structure of a company from public to private. The expectation is often that the private owners will restructure the company and eventually take it public again through an initial public offering (IPO).
Moral Hazard
A situation in which information asymmetry increases the incentive of one party to take undue risks or shirk other responsibilities because the costs incur to the other party. example: bailing out homeowners from their mortgage obligations or bailing out banks from the consequences of undue risk-taking in lending are examples of moral hazard. The costs of default are rolled over to society ("other party") Knowing that there is a high probability of being bailed out ("too big to fail") increases moral hazard. In this scenario, any profits remain private, while losses become public
Groupthink
A situation in which opinions coalesce around a leader without individuals critically evaluating and challenging that leader's opinions and assumptions.
Adverse Selection
A situation that occurs when information asymmetry increases the likelihood of selecting inferior alternatives. - agent misrepresents his/her ability to do the job, gets hired, and struggles
Corporate Governance
A system of mechanisms to direct and control an enterprise in order to ensure that it pursues its strategic goals successfully and legally. -checks and balances and about asking the tough questions at the right time. - Attempts to address the principal-agent problem -The accounting scandals of the early 2000s and the global financial crisis of 2008 and beyond got so out of hand because the enterprises involved did not practice effective corporate governance.
Agency Theory
A theory that views the firm as a nexus of legal contracts corporations are viewed merely as a set of legal contracts between different parties. Conflicts that may arise are to be addressed in the legal realm. Such governance mechanisms are used to align incentives between principals and agents. These mechanisms need to be designed in such a fashion as to overcome two specific agency problems: 1. adverse selection 2. moral hazard
Pay and Performance
About two-thirds of CEO pay is linked to firm performance. The relationship between pay and performance is positive, but the link is weak at best. Agency theory would predict a positive link (weak) between pay and performance (this aligns incentives). Some recent experiments in behavioral economics caution that incentives that are too high-powered (e.g., outsized bonuses) may have a negative effect.
Distance between 2 countries INCREASES with:
Cultural: - different languages, religions, social norms, dispositions - lack of ethnic/social networks, trust, respect Administrative/Political: - absence of trading bloc, shared currency, colonial ties - political hostilities - weak legal/financial institutions Geographic: - lack of common border, waterway, transportation, communication links - physical remoteness - different climate/time zone Economic: - different consumer incomes - different costs and quality of natural, financial, and human resources - different information/knowledge
Agent vs. Principal
Agent can be a manager, and principal a share holder, or an employee can be an agent and her manager the principal. When agents act in their own self-interest it can be at the detriment of the firm as a whole (hence the principal agent problem). There are may examples of this from Enron and Tyco and Merrill Lynch in the B of A merger at the extreme, although an employee clocking in and using Facebook all morning while telling her boss she made sales calls is another example. Insider trading is an example of the principal agent problem and information asymmetry (e.g., at Goldman board member Rajat Gupta phoning a friend at a hedge fund after board meetings). The key it terms of strategic management here is to align strategy with the organizational design, processes and systems in a way to alleviate this, which involves good governance.
Fact
Although at first glance organic organizations may appear to be more attractive than mechanistic ones, their relative EFFECTIVENESS depends on CONTEXT. - McDonald's, with its over 36,000 restaurants across the globe, would not be successful with an organic structure. Similarly, a mechanistic structure would not allow Zappos or W.L. Gore to develop and hone their respective core competencies in customer service and product innovation. The key point is this: To gain and sustain competitive advantage, structure must follow strategy. Moreover, the chosen organizational form must match the firm's business strategy. ...the organizational form must MATCH the business strategy (in that order)
Employee Stock Options
An incentive mechanism to align the interests of shareholders and managers, by giving the recipient the right (but not the obligation) to buy a company's stock at a predetermined price sometime in the future
Strategic Management
An integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage
Ambidextrous Organization
An organization able to balance and harness different activities in trade-off situations. - "Ambidexterity" is a firm's ability to address trade-offs not only at one point but also OVER TIME - simultaneous pursuit of low-cost and differentiation - It encourages managers to balance exploitation with exploration
Formalization
An organizational element that captures "the extent to which employee behavior is steered by explicit and codified rules and procedures" - characterized by detailed written rules and policies of what to do in specific situations. - often codified in employee handbooks. McDonald's, for example, uses detailed standard operating procedures throughout the world to ensure consistent quality and service. Most customer service reps in call centers, for example, follow a detailed script. This is especially true when call centers are outsourced to overseas locations. - Zappos deliberately AVOIDED this approach when it made customer service its core competency. - can be very necessary in industries like airlines BUT can lead to lack of satisfaction, reduced creativity/innovation, and hinder customer service
Specialization
An organizational element that describes the degree to which a task is divided into separate jobs ..."the division of labor" - large companies are usually highly specialized while smaller companies require people to wear many hats - specialization requires a tradeoff between: DEPTH and BREADTH of knowledge - While a high degree of the division of labor increases productivity, it can also have unintended side-effects such as reduced satisfaction due to repetition of tasks.
Centralization
An organizational element that refers to the degree to which decision making is concentrated at the TOP of the organization. "Top-down" strategic planning takes place in highly CENTRALIZED organizations. VS. "Planned emergence" is found in more DECENTRALIZED organizations. - Centralized decision-making often correlates with SLOW response time and reduced customer satisfaction. - In decentralized organizations such as Zappos, decisions are made and problems solved by empowered lower-level employees who are closer to the sources of issues
Exploitation
Applying current knowledge to enhance firm performance in the short term.
Globalization Hypothesis
Assumption that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogenous. - based on COST REDUCTION
Death of Distance Hypothesis
Assumption that geographic LOCATION alone should NOT lead to firm-level competitive advantage because firms are now, more than ever, able to source inputs globally. - Despite an increasingly globalized world, however, it turns out that high-performing firms in certain industries ARE concentrated in specific countries. - For example, the leading biotechnology, software, and Internet companies are headquartered in the United States. Some of the world's best computer manufacturers are in China and Taiwan
1) Gain Access to a Larger Market
Becoming an MNE provides significant opportunities for companies, given economies of SCALE and SCOPE that can be reaped by participating in a much larger market
Outside Directors
Board members who are NOT employees of the firm, but who are frequently senior executives from other firms or full-time professionals. - Given their independence, they are more likely to watch out for the interests of shareholders
#1 reason a board of directors will fire a CEO
CEO's inability to implement strategy effectively
CHAPTER 10
CHAPTER 10
CHAPTER 11
CHAPTER 11
CHAPTER 12
CHAPTER 12
3) Competitive Intensity in a Focal Industry
Companies that face a highly competitive environment at home tend to outperform global competitors that lack such intense domestic competition. - EX: Fierce domestic competition in Germany combined with demanding customers and the no-speed-limit autobahn make a tough environment for any car company. - Success requires top-notch engineering of chassis and engines, as well as keeping costs and fuel consumption ($9-per-gallon gas) in check. This extremely tough home environment amply prepared German car companies such as Volkswagen (which also owns Audi and Porsche), BMW, and Daimler for global competition.
Organizational Culture (cont)
Corporate culture finds its expression in ARTIFACTS Artifacts include: - elements such as the design and layout of physical space (e.g., cubicles or private offices) - symbols (e.g., the type of clothing worn by employees) - vocabulary - what stories are told (the Zappos pizza-ordering example).
Distance affects industries/products with...
Cultural: - high linguistic content (TV) - related to national/religious identity (food) - carrying country-specific quality associations (wine) Administrative/Political: - what govt. views as staples (electricity), reputation (aerospace), security (telecommunications) Geographic: - LOW value to weight ratio (cement) - fragile/perishable (glass) - communications are vital (financial services) Economic: - demand varies by income (cars) - labor and other cost differences matter (textiles)
Poison Pill
Defensive provisions to deter hostile takeovers by making the target firm less attractive. - ex: allow existing shareholders to buy additional shares at a steep discount - have become RARE because they slow effective markets
1) Factor Conditions
Describe a country's endowments in terms of natural, human, capital and other resources. - Other important factors include capital markets, a supportive institutional framework, research universities, and public infrastructure (airports, roads, schools, health care system), among others. - natural resources are often NOT needed to generate world-leading companies, because competitive advantage is often based on other factor endowments such as HUMAN CAPITAL and KNOW-HOW.
Hierarchy
Determines the formal, POSITION-BASED reporting lines and thus stipulates "who reports to whom" - Can be a tall or flat structure - Let's assume two firms of roughly equal size: Firm A and Firm B. If many levels of hierarchy exist between the frontline employee and the CEO in Firm A, it has a TALL structure. In contrast, if there are few levels of hierarchy in Firm B, it has a FLAT structure. - the # of levels of the hierarchy determine the SPAN OF CONTROL
EXAM: 10,11,12
EXAM: 10,11,12
Modes of Foreign-Market Entry along the Investment and Control Continuum
EXPORTING—producing goods in one country to sell in another—is one of the oldest forms of internationalization (part of Globalization 1.0).
MTW's dynamic strategic positioning example:
FIRST: MTV followed a "global standardization" strategy. THEN: To be more responsive to local audiences, MTV then implemented a "multidomestic strategy" to meet the need for local responsiveness. This led to a loss of all possible scale effects, especially rolling out expensive content over a large installed base of viewers. NOW: pursuing a transnational strategy.
Integration- Responsiveness Framework
FOUR different strategic positions to gain and sustain competitive advantage when competing globally: 1. International 2. Multidomestic 3. Global-Standardization 4. Transitional
Can organizational culture be the basis of a firm's competitive advantage?
For this to occur, the firm's unique culture must help it in some way to increase its economic value creation (V—C). it must either help in increasing the perceived value of the product/service and/or lower its cost of production/delivery. - according to the resource-based view of the firm, the resource—in this case, organizational culture—must be valuable, rare, difficult to imitate, and the firm must be organized to capture the value created. The VRIO principles (see Chapter 4) must apply even as to organizational culture itself
Cost Leadership (structure)
GOAL: offer @ price that is LESS than competitors but with similar value Functional structure should be... - MECHANISTIC organization - centralized - command and control - competencies: efficient manufacturing and logistics - process innovation to drive cost down - focus on economies of scale
Differentiation (structure)
GOAL: offer product with a higher perceived VALUE while controlling costs Functional structure should be... - ORGANIC organization - decentralized - flexibility and mutual adjustment - core competencies: R&D, innovation, marketing - product innovations - focus on economies of scope
Span of Control
How many employees directly report to a manager. In TALL organizational structures (Firm A), the span of control is NARROW. In FLAT structures (Firm B), the span of control is WIDE, meaning one manager supervises many employees. Recently... firms have "de-layered" by reducing the headcount (often middle managers), making themselves FLATTER and more nimble. - This puts MORE pressure on the remaining managers who have to supervise and monitor more direct reports due to an INCREASED span of control. *** Recent research suggests that managers are most effective at an INTERMEDIATE point where the span of control is not too narrow or too wide.
THE WORLD'S MOST profitable retailer
IKEA - a privately owned home-furnishings company with origins in Sweden. - By 2015, IKEA had more than 360 stores worldwide in over 40 countries, employed more than 150,000 people, and earned revenues of 37 billion euros. - now a global phenomenon but was initially SLOW to internationalize Because keeping costs low is critical to IKEA's value innovation it shifted from an "international strategy" TO a GLOBAL-STANDARDIZATION STRATEGY, in which it attempts to achieve economies of scale through efficiently managing a global supply chain. - Goal: 50B Euros by 2020 ** (not Walmart)
Goldman Sachs "fabulous fab"
In 2010, the SEC sued the company and an employee, named Fabrice Tourre, for fraud. Did the bank knowingly mislead investors? Goldman Sachs argued that it is up to clients to assess risk involved in investments. Public pressure mounted. Goldman Sachs ended up paying $550M to settle the lawsuit, but did not admit wrongdoing. Tourre was convicted of fraud.
2) Administrative & Political Distance
Includes: - Shared monetary or political associations - Political hostilities - Weak or strong legal and financial institutions ** strong legal/ethical platforms, well functioning economic institutions REDUCE distance...strong institutions both formal and informal reduce uncertainty and reduce transaction costs Note: The 19 European countries in the Eurozone not only share the same currency but also integrate politically to some extent. It should come as no surprise then that most cross-border trade between European countries takes place within the EU. Germany, one of the world's largest exporters, conducts roughly 75 percent of its cross-border business within the EU
Board of directors: Responsibilities
Strategic Goals and Initiatives General Strategic Oversight and Guidance Overall Resource Allocation Remuneration Review CEO Selection and Succession Evaluate Performance Overall Risk Mitigation
4) Relating and Supporting Industries/Complementors
Leadership in related and supporting industries can also foster world-class competitors in downstream industries. The availability of top-notch COMPLEMENTORS—firms that provide a good or service that leads customers to value the focal firm's offering more when the two are combined—further strengthens national competitive advantage. - Toyota's global success in the 1990s and early 2000s was based to a large extent on a network of world-class suppliers in Japan. This tightly knit network allowed for fast two-way knowledge sharing—this in turn improved Toyota's quality and lowered its cost, which it leveraged into a successful blue ocean strategy at the business level.
Input Controls
Mechanisms in a strategic control-and reward system that seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures - that are considered BEFORE any business decisions/ the value-creating activities. i.e. BUDGETS are key to input controls. - Managers set budgets before employees define and undertake the actual business activities. For example, managers decide how much money to allocate to a certain R&D project before the project begins. - "Standard operating procedures", or policies and rules, are also a frequently used with input controls
Output Controls
Mechanisms in a strategic control-and reward system that seek to guide employee behavior by defining expected RESULTS (outputs), but leave the means to those results open to individual employees, groups, or SBUs. - tie employee compensation/rewards to predetermined goals - at the corporate level, output controls DISCOURAGE collaboration among different strategic business unit - best used for a single-line of business or with unrelated diversification - These days, more and more work requires creativity and innovation, especially in highly developed economies. "RESULTS ONLY WOK ENVIRONMENTS" (ROWEs) have attracted significant attention. ROWEs are output controls that attempt to tap INTRINSIC (rather than extrinsic) employee motivation, which is driven by the employee's interest in and the meaning of the work itself. (In contrast, extrinsic motivation is driven by external factors such as awards and higher compensation, or punishments like demotions and layoffs (CARROT-AND-STICK APPROACH).
Uber
Most valuable private startup ever
Organizational Culture
Organizational culture describes the collectively shared values and norms of an organization's members. - key building block of organizational design Values define what is considered important. - Values are at the center-- MOST important, least visible Norms define appropriate employee attitudes and behaviors ** Employees learn about an organization's culture through SOCIALIZATION, a process whereby employees internalize an organization's values and norms through immersion in its day-to-day operations.38 Zappos' new-employee orientation and immersion is now a four-week extensive course. Successful socialization, in turn, allows employees to function productively and to take on specific roles within the organization. Strong cultures emerge when the company's core values are widely shared among the firm's employees and when the norms have been internalized.
Simple Structure
Organizational structure in which the FOUNDERS tend to MAKE all the important strategic DECISIONS as well as run the day-to-day operations. i.e. Facebook in 2004, when the startup operated out of Mark Zuckerberg's dorm room
Functional Structure
Organizational structure that GROUPS EMPLOYEES into distinct functional areas based on domain EXPERTISE i.e. A business school student generally majors in one of these "functional" areas such as finance, accounting, IT, marketing, operations, or human resources, and is then recruited into a corresponding functional group. - allows for an efficient top-down and bottom-up communication chain between the CEO and the functional departments, and thus relies on a relatively flat structure - recommended when a firm has a narrow focus of what is offers in products/services AND a small geographic footprint - this is the RECOMMENDED structure however there are variations to a "functional structure"....
Matrix Structure
Organizational structure that combines the functional structure AND the M-form. - firm is organized according to SBUs along the horizontal axis but also has a second dimension of organizational structure along the vertical axis *** - combine the benefits of the M-form (domain expertise, economies of scale, and the efficient processing of information) with those of the functional structure (responsiveness and decentralized focus). - teams tend to be more permanent rather than project-based
Multidivisional Structure" (M-Form)
Organizational structure that consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility. - each SBU is operated independently from one another and each is led by a CEO who is responsible for the Unit's business strategy - popular structure - Zappos is a multidivisional structure under Amazon - can use SBUs to organize around different businesses/product lines or geographic areas - each SBU represents a self-contained business with its own hierarchy and organizational structure - company-wide staff functions are housed at the HQ to leverage economies of scale and avoid duplication of effort within SBUs (HR, finance, R&D) - HQs add value by acting as an internal capital market (distributing resources/assets)
Creating shared value
Porter argues that executives should NOT concentrate exclusively on increasing firm profits. Rather, the strategist should focus on creating shared value, a concept that involves creating economic value for shareholders while also creating social value by addressing society's needs and challenges.
Globalization
Process of CLOSER integration & exchange between different countries and peoples worldwide. Made possible by: 1. falling trade and investment barriers 2. advances in telecommunications 3. reductions in transportation costs
Corporate Strategy and Structure
SINGLE BUSINESS - "functional" structure DOMINANT BUSINESS - "functional" structure RELATED DIVERSIFICATION - "Cooperative multidivisional" (m-form) - centralized decision making - high level of integration at corporate HQ - co-opetition among SBUs - competition for resources - cooperation in competency sharing UNRELATED DIVERSIFICATION - "Competitive multidivisional" (m-form) - decentralized decsion making - low level of integration at HQ - competition among SBUs for resources
Exploration
Searching for new knowledge that may enhance a firm's future performance.
Shareholder Capitalism
Shareholders—the providers of the necessary risk capital and the legal owners of public companies—have the most legitimate claim on profits.
3) Global Standardization Strategy
Strategy attempting to reap significant economies of scale/ location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost. - combination of HIGH pressure for cost reductions and LOW pressure for local responsiveness. - used for standardized products or services - strive for lowest-cost position possible - STRATEGY: cost-leadership BENEFITS - Location economies: global division of labor based on whatever best-of-class capabilities reside at the lowest cost - economies of scale and standardization - MNEs using this strategy are often organized as networks (Globalization 3.0). Because there is little/no differentiation or local responsiveness because products are standardized, price becomes the main competitive weapon. RISKS: - no local responsiveness - little/no differentiation - some exchange rate exposure - "race to the bottom" as wages increase - some risk of IP exposure STRUCTURE: ** MULTIDIVISIONAL ** - economies of scale and location economies by pursuing a global DIVISION OF LABOR based on wherever best in class capabilities are at the lowest cost - undifferentiated commodity SO...cost-leadership strategy - centralized decision making - product divisions
Integration Responsiveness Framework
Strategy framework that juxtaposes the pressures an MNE faces for: cost reductions VS. local responsiveness to derive FOUR different strategies to gain and sustain competitive advantage when competing globally
2) Multidomestic Strategy
Strategy pursued by MNEs that attempts to maximize local responsiveness, with the intent that local consumers will perceive them to be domestic companies. - HIGH pressure for local responsiveness & LOW pressure for cost reduction - Strategy: Differentiation - want to be perceived as a local company - used when entering host countries with large and/or idiosyncratic domestic markets, such as Japan or Saudi Arabia. - This is one of the main strategies MNEs pursued in the Globalization 2.0 stage. - common in consumer products and foods industry BENEFITS: - HIGHEST local responsiveness - increased differentiation - reduced exchange rate exposure RISKS: - costly and inefficient because requires duplication of effort - Little/no economies of scale - risk of IP appropriation increases - Besides exposing codified knowledge embedded in products (like with an international strategy) a multidomestic strategy ALSO requires exposing TACIT knowledge because products are manufactured locally. - little/no learning - STRUCTURE: ** multidivisional ** - allows them to set up different divisions based on geographic regions -
4) Transnational Strategy
Strategy that attempts to combine the benefits of a localization strategy (high local responsiveness) with those of a global-standardization strategy (lowest-cost position attainable). - HIGH pressure for cost reduction and HIGH pressure for local-responsiveness generally used by MNEs that pursue a blue ocean strategy at the business level by attempting to reconcile product and/or service differentiations at low cost. - "think globally but act locally" STRUCTURE: global matrix - blue ocean The idea is that best practices, ideas, and innovations will be diffused throughout the world, regardless of their origination. The managers' mantra is to think globally, but act locally. BENEFITS: - Economies of scale, location, experience, and learning RISKS: - global matrix is costly/difficult, high failure rate - some exchange-rate exposure - higher risk of IP exposure STRUCTURE: **global matrix ** - balance of centralized and decentralized decision making - additional layer of hierarchy to coordinate both: geographic areas and product divisions
1) International Strategy
Strategy that involves leveraging home-based core competencies by selling the same products or services in BOTH domestic and foreign markets. - used when company faces LOW pressure for BOTH cost reduction and local responsiveness - One of the oldest types of global strategies - often the FIRST step in internationalizing - used by MNEs with large domestic markets or strong exporters (US, Germany, Japan, S.K.) - tend to focus on differentiation (because they are selling the same product home and abroad so it must be good) - high end products with high value-to-weight ratios: machine tools/luxury goods - tends to rely on exporting or the licensing of products and franchising of services to reap economies of scale by accessing a larger market. STRENGTH: limited local responsiveness—is also a weakness in many industries. For example, when an MNE sells its products in foreign markets with little or no change, it leaves itself open to the expropriation of intellectual property (IP). BENEFITS: - leverage core competencies - economies of scale - low-cost implementation (licensing, franchising, exporting) RISKS: - no/limited local responsiveness - Intellectual property could be expropriated - affected by exchange rate changes Examples: Harley Davidson, Starbucks, Rolex STRUCTURE: **functional** - functional structure allows the company to leverage its core competency the best - leverage home-based core competencies by moving into foreign markets - differentiation strategy at the business level
Blue Ocean (structure)
TRADEOFFS between differentiation and low cost - ambidextrous organization - balance centralization and decentralization - competencies: r&d, manufacturing, logistics, marketing, etc - process and product innovation - economies of scale and scope
Formulating an effective strategy is a necessary but not sufficient condition for gaining and sustaining competitive advantage; strategy execution is at least as important for success
TRUE
Structure MUST accommodate strategy
TRUE
facebook if it were a country would be the most populous nation in the world, even ahead of China
TRUE
in reality..the level of globalization is no more than 10- 25%
TRUE - the world is only "semi-globalized"
Firms tend to use a "global matrix structure" to pursue a transnational strategy
TRUE - Firms tend to use a global matrix structure to pursue a transnational strategy, in which the firm combines the benefits of a multidomestic strategy (high local responsiveness) with those of a global-standardization strategy (lowest-cost position attainable).
a global matrix structure fits well with a "transnational strategy"
TRUE - To complete the strategy—structure relationships in the global context, we also need to consider the international, multidomestic, and standardization strategies.
An organization's culture can turn from a core competency into a "core rigidity"
TRUE - An organization's culture can be one of its strongest assets, but also its greatest liability. An organization's culture can turn from a core competency into a core rigidity if a firm relies too long on the competency without honing, refining, and upgrading as the firm and the environment change.
Local Responsiveness
The need to tailor product and service offerings to fit local consumer preferences and host-country requirements. - usually entails higher costs - Walmart sells live animals (snakes, eels, toads, etc.) for food preparation in China. IKEA sells kimchi refrigerators and metal chopsticks in South Korea. McDonald's uses mutton instead of beef in India and offers a teriyaki burger in Japan, even though its basic business model of offering fast food remains the same the world over. - Local responsiveness generally entails higher cost, and sometimes even outweighs cost advantages from economies of scale and lower-cost input factors.
Organizational Design
The process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization.
4 advantages of public companies
The public stock company enjoys four characteristics that make it an attractive corporate form: 1. Limited liability for investors. - shareholders are only liable to the capital they invested 2. Transferability of investor ownership. 3. Legal personality. - a firm is similar to a person with legal rights and obligations. - allows continuation beyond the founders family 4. Separation of legal ownership and management control - the stockholders (principals, represented by a board) are the legal owners of the company and delegate the decision making to managers (agents)
Absolute Size of Pay Package
The ratio of CEO to average employee pay in the United States is about 300 to 1, up from roughly 40 to 1 in 1980. Based on a 2014 survey of CEOs among 300 large companies with revenues of at least $9 billion, the average salary for a CEO was $14 million.
3.) Loss of Intellectual Property
The software, movie, and music industries have long lamented large-scale copyright infringements in many foreign markets. when required to partner with a foreign host firm, companies may find their intellectual property being siphoned off and reverse-engineered.
2) Demand Conditions
The specific characteristics of demand in a firm's domestic market. For example, due to dense urban living conditions, hot and humid summers, and high energy costs, it is not surprising that Japanese customers demand small, quiet, and energy-efficient air conditioners.
Why are certain industries more competitive in some countries than in others?
This question goes to the heart of the issue of NATIONAL COMPETITIVE ADVANTAGE: " a consideration of world leadership in specific industries" - That issue, in turn, has a direct effect on firm-level competitive advantage. Companies from home countries that are world leaders in specific industries tend to be the strongest competitors globally.
structure follows strategy
This tenet implies that to implement a strategy successfully, organizational design must be flexible enough to accommodate the formulated strategy and future growth and expansion
Organizational culture
To foster ethical behavior in employees, boards must be clear in their ethical expectations, and top management must create an organizational structure, culture, and control system that values and encourages desired behavior. A company's formal and informal cultures must be aligned, and executive behavior must be in sync with the formally stated vision and values. Employees will quickly see through any duplicity. Actions by executives speak louder than words in vision statements.
Codes of conduct
To go beyond the minimum acceptable standard codified in law, many organizations have explicit codes of conduct. - These codes go above and beyond the law in detailing how the organization expects an employee to behave and to represent the company in business dealings - Codes of conduct allow an organization to overcome moral hazards and adverse selections as they attempt to resonate with employees' deeper values of justice, fairness, honesty, integrity, and reciprocity. Managers should consider... 1. When facing an ethical dilemma, a manager can ask whether the intended course of action falls within the ACCEPTABLE NORMS OF PROFESSIONAL BEHAVIOR as outlined in the organization's code of conduct and defined by the profession at large. 2. imagine whether he/she would be comfortable EXPLAINING AND DEFENDING the decision in PUBLIC
Executive Compensation
Two issues of CEO compensation: 1. The absolute size of the CEO pay package compared with the pay of the average employee. 2. The relationship between CEO pay and firm performance.
Zappos: values, norms, artifacts example
VALUES: zappos turned to employees to articulate company values, daily operations, and evaluation reviews NORMS: celebrate the norm of happiness, employees are encouraged to promote happiness in the workplace in creative ways ARTIFACTS: all employees, even CEO, work from cubicles
polycentric innovation strategy
a strategy in which MNEs now draw on multiple, equally important innovation hubs throughout the world characteristic of Globalization 3.0
Ambidecterity
ability to address tradeoffs not only @ one point but OVER TIME. - Balance of "exploitation" and "exploration"
Business Ethics
agreed upon code of conduct in business, based on societal norms Business ethics lay the foundation and provide training for "behavior that is consistent with the principles, norms, and standards of business practice that have been agreed upon by society." - Multiple, high-profile accounting scandals and the global financial crisis have placed business ethics center stage in the public eye.
CEO/chairperson duality
being the CEO and holding a chair on the board - has been DECREASING in recent years
Location Economis
benefits from locating value chain activities in the world's optimal geographies for a specific activity, wherever that may be
Greenfield Operations
building new, fully owned plants and facilities from scratch
One of the main benefits of going global
economies of ARBITRAGE - Access to low-cost input factors
"born global"
founders start the company with the intent of running global operations
Porter's Diamond of National Competitive Advantage
framework to explain national competitive advantage -- why are some nations outperforming others in specific industries?? Because: 1) Factor Conditions 2) Demand Conditions 3) Competitive Intensity in a Focal Industry 4) Relating and Supporting Industries/Complementors
Organic Organizations
low specialization and formalization, a FLAT organizational structure, decentralized decision making - fluid, flexible information flow both vertically and horizontally, faster decision making, higher motivation, retention, and satisfaction - entrepreneurial and innovation - follow differentiation
Cage Distance Framework (cont.)
most of the costs/risks of expansion outside of the domestic market are because of DISTANCE (figuratively and literally) - relative measures matter MORE than absolute measures - Countries that are 5,000 miles apart trade only 20% of the amount traded among countries that are 1,000 miles apart. - A common language increases trade between two countries by 200% over country pairs without one. A historic "colony—colonizer" relationship. increases the expected trade intensity between these two countries by yet another 900% in comparison to country pairs where absent. ** Although absolute metrics such as country wealth or market size matter to some extent—as we know, that a 1% increase in country wealth leads to a 0.8% increase in international trade—the relative factors captured by the CAGE distance model matter MORE
Investment and Control Framework
moving from left to right, has been suggested as a "stage model" of sequential commitment to a foreign market over time - used to test whether a foreign market is ready for a firm's products. Order of continuum (least to most investment/control) 1. CONTRACT-BASED a. Exporting 2. STRATEGIC ALLIANCES a. long-term contracts - licensing - franchising b. equity alliance c. joint ventures 3. SUBSIDIARY a. acquisition b. greenfield
Strategy Implementation
organization, coordination, and integration of how work gets done
Holacracy
organizational structure in which decision making authority is distributed through loose collections/CIRCLES of self-organizing teams
Global Strategy
part of a firm's corporate strategy to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world
Unicorns
private startup companies valued at 1+Billion - tech sector has the most unicorns
Key advantage to publicly traded company
separation of ownership and control - but this can lead to the principal-agent problem - problem: information asymmetry: the agents are usually more informed than the principals
(3) key components of organizational design
structure, culture, and control. - This is a CONTINUAL process - The goal is to design an organization that allows managers to effectively translate their chosen strategy into a realized one.
The ethical pursuit of competitive advantage lays the foundation for long-term superior performance.
true