MGMT 449 FINAL SG CH.6-11

Contemporary approach to strategic control "Strategy drives Structure"

- Relationships between strategy formulation, implementation, & control are highly interactive, utilizing: Informational & Behavioral control Formulate Strategies <--> Implement Strategies <--> BC <--> Strategic Control <--> IC <--> Formulate Strategies, etc.

Vertical Integration

- Vertical integration is to become your own supplier or distributor through (Backward / Forward integration)

Behavioral Strategic control Informational Control

Behavioral control = Is the organization "doing things right" in the implementation of its strategy? Influences employee actions via: Culture, Rewards, Boundaries Informational control = Is the organization "doing the right things"? Both types of control are necessary, but not sufficient, conditions for success.

Strategic Leadership:Creating an Ethical Organization

Ethics has everything to do with leadership. • Ethics deals with right and wrong. a. Ethical beliefs come from religion, ethnic heritage, family practices, community standards, educational experiences, friends & neighbors. • Organizational ethics promote an operating culture & determine acceptable behavior. a. Ethical beliefs come from the values, attitudes, & behavioral patterns of leadership. b. Unethical business practices involve the tacit, if not explicit, cooperation of others.

Strategic Leadership: Approaches to Ethics Management

Ethos - Compliance based & Integrity Based Objective - Compliance based & Integrity Based Leadership - Compliance based & Integrity Based Methods - Compliance based & Integrity Based Behavioral Assumptions - Compliance based & Integrity Based

Corporate Competencies **

Firms should look at develop- ing the ability to divest units as a distinct form of corporate competencies. While many firms have acquisition units, they often don't have divesting units even though there is significant potential value in divestitures.

Characteristics of a successful learning organization

Five key elements of a learning organization. • Necessary, but not sufficient. 1. Inspiring and motivating people with a mission or purpose 2. Empower employees at all levels 3. Accumulating and sharing internal knowledge 4. Gathering and integrating external information 5. Challenging the status quo and enabling creativity

Cultures

Organizational culture is a system of: Shared values (what is important). Beliefs (how things work). Organizational culture shapes a firm's people, organizational structures, and control systems. Organizational culture produces behavioral norms (the way we do things around here). A strong culture Leads to greater employee engagement Provides a common purpose and identity Reduces monitoring costs Effective organizational cultures must be: Cultivated Encouraged Fertilized

Obstacles to the design of organization structure - Barriers to change

Organizations are prone to inertia, slow to learn, adapt, & change because of: • Vested interests in the status quo • Systemic barriers • Behavioral barriers • Political barriers • Personal time constraints

Multi-Domestic strategy

a strategy based on firms' differentiating their products and services to adapt to local markets; used in industries where the pressure for local adaptation is high and the pressure for lowering costs is low. Decisions evolving from a multidomestic strategy tend to be decentralized to permit the firm to tailor its products and respond rapidly to changes in demand. Strengths -Ability to adapt products and services to local market conditions. -Ability to detect potential opportunities for attractive niches in a given market, enhancing revenue. Limitations -Decreased ability to realize cost savings through scale economies. -Greater difficulty in transferring knowledge across countries. -Possibility of leading to "overadaptation" as conditions change.

Functional bench marking

benchmarking: managers seeking out best examples of a particular practice as part of an ongoing effort to improve the corresponding practice in their own organization. competitive benchmarking: benchmarking in which the examples are drawn from competitors in the industry. functional benchmarking: benchmarking in which the examples are drawn from any organization, even those outside the industry. There are two primary types of benchmarking. Competitive benchmarking restricts the search for best practices to competitors, while functional benchmarking endeavors to determine best practices regardless of industry. Industry-specific standards (e.g., response times required to repair power outages in the electric utility industry) are typically best handled through competitive benchmarking, whereas more generic processes (e.g., answering 1-800 calls) lend themselves to functional benchmarking because the function is essentially the same in any industry.

Characteristics of entrepreneurial leadership

entrepreneurial leadership: leadership appropriate for new ventures that requires courage, belief in one's convictions, and the energy to work hard even in difficult circumstances; and that embodies vision, dedication and drive, and commitment to excellence.

Outsourcing

using other firms to perform value-creating activities that were previously performed in-house.

Agency Theory

Agency theory deals with the relationship between principals & agents. What to do when the goals of the principals and agents conflict? What to do when it is difficult or expensive for the principal to verify what the agent is actually doing? What happens when the principal and the agent have different attitudes and preferences toward risk?

Core Competencies

Core competencies reflect the collective learning in organizations, such as how to coordinate diverse production skills, integrate multiple streams of technology, and market diverse products and services. - The core competencies must be difficult for competitors to imitate or find substitutes for.

Primary source of financing for entrepreneurial start-ups

Financial resources depend on the stage of venture development & venture scale. •Initial, startup financing: a. Personal savings, family, and friends b. Crowdfunding (funding a venture by pooling small investments from a large number of investors; often raised on the Internet.) • Early-stage financing a. Bank financing, angel investors (private individuals who provide equity investments for seed capital during the early stages of a new venture.) • Later-stage financing a. Commercial banks, venture capitalists equity financing (companies organized to place their investors' funds in lucrative business opportunities - VC)

Different Bases of power - legitimate, referent, coercive

Leaders must make effective use of power to: - Influence other people's behavior - Persuade them to do things they otherwise would not do - Overcome resistance & opposition Organizational bases of power • Legitimate, reward, coercive, information • Personal bases of power • Referent,expert

Mergers & Aquisitions (M&A)

M&A Motives - In high-technology & knowledge-intensive industries, speed is critical: acquiring is faster than building - M&A allows a firm to obtain valuable resources that help it expand its product offerings & services. - M&A helps a firm develop synergy. •Leveraging core competencies •Sharing activities •Building market power

International Operations Multidomestic vs. Global

Multidomestic strategies use... •International division structure •Geographic-area division structure •Worldwide matrix structure Global strategies use... •Worldwide functional structure •Worldwide product division structure •Worldwide holding company structure

Synergist acquisitions

Operational synergies enable firms to develop both turnover and growth and can be split into four primary categories. 1. Combined operational strengths 2. Increased purchasing power 3. Economies of scale 4. New or Current market growth Financial Synergies 1. Increased debt capacity 2. Tax Benefits 3. Optimized Output Evidently, in certain situations a combination of two organizations can create more value than the sum of the two parts thus highlighting the attractiveness of a synergistic acquisition. The right combination should see the combined company grow at an increased rate and become more profitable than prior to the acquisition.

Generic Strategies - Differentiation, Low-cost, Focus

Overall cost leadership - advantage due to: A. Simpler organizational structure & smaller size B. Quicker decision making to upgrade technology & integrate marketplace feedback controls costs Differentiation - can compete by: A. Offering a unique value proposition through innovation & superior use of new technology B. Deploying resources in a radical new way Focus - means ability to: A. Use niche strategies that fit the small business model

Entry Strategies - Imitative, Adaptive & Pioneering

Pioneering new entry: • Create new ways to solve old problems. • Meet customers' needs in a unique new way. • Will it be accepted by consumers? • Will it be disruptive to the status quo of an industry? • Will the advantage be sustainable against imitators? Imitative new entry: -Imitators have a strong marketing orientation. -Capitalize on proven market successes. -Introduce the same basic product or service in another segment of the market. -Can we do it better than an existing competitor? -Will someone then imitate us? Adaptive new entry: • Capitalizes on current market trends. • Offers a product or service that is somewhat new and sufficiently different. • Creates new value for customers. • Captures market share. • Does it do a superior job of meeting customer needs? • Can it be easily imitated? • How can we continue to keep it fresh and new?

Objectives & Action Plans - Characteristics

Providing short-term objectives and action plans to channel employee efforts by: Setting specific, measurable objectives, including a specific time horizon for attainment Making them achievable, yet challenging enough to motivate

Corporate Restructuring

Restructuring involves the intervention of the corporate office in a new business that substantially changes the assets, capital structure, and/or management, including selling off parts of the business, changing the management, reducing payroll and unnecessary sources of expenses, changing strategies, and infusing the new business with new technologies, processes, and reward systems.

Typical order of entry into foreign markets

START Exporting Licensing Franchising Strategic Alliance Joint Venture Wholly Owned Subsidiary END

Components of emotional intelligence (EI)

Self Awareness Motivation Social Skill Empathy Self-Regulation Emotional intelligence -self-management, managing relationships with others • Self-awareness, self-regulation, motivation, empathy, social skills

Simple Structure (attributes, advantages and disadvantages)

Simple Structure: The simple organizational structure is the oldest & most common organizational form. a. The organization is small, with a single or very narrow product line. b. The owner-manager makes most of the decisions. c. The staff serves as an extension of the top executive. Advantages a. Highly informal b. Coordination of tasks by direct supervision c. Centralized decision making d. Little specialization of tasks e. Few rules & regulations; informal reward systems Disadvantages a. Responsibilities not understood b. Self-interest, employees taking advantage of lack of regulations c. Limited opportunities for upward mobility

Successful Learning Organizations Challenge the Status Quo

Successful learning organizations challenge the status quo & enable creativity. Leaders must bring about useful change. • Forcefully create a sense of urgency • Establish a "culture of dissent" • Foster a culture that encourages risk taking & learning from mistakes a. Formalize forums for failure; move the goalposts; bring in outsiders; prove yourself wrong, not right b. Do the "right thing"

Empowerment

The central key to empowerment is effective leadership. Empowerment can't occur in a leadership vacuum. According to Melrose, "You best lead by serving the needs of your people. You don't do their jobs for them; you enable them to learn and progress on the job." Leading-edge organizations recognize the need for trust, cultural control, and expertise at all levels instead of the extensive and cumbersome rules and regulations inherent in hierarchical control Empowering individuals by soliciting their input helps an organization to enjoy better employee morale. It also helps create a culture in which middle- and lower-level employees feel that their ideas and initiatives will be valued and enhance firm performance.

Divisional Structure (attributes, advantages and disadvantages)

The divisional organizational structure is where products, projects, or product markets are grouped internally. a. Divisions are relatively autonomous, consisting of products & services that are different from those of other divisions. b. Although governed by a central corporate office, each division includes its own functional specialists. c. Division executives help determine product-market & financial objectives; decision making is delegated to lower-level managers. Advantages a. Separation of strategic & operating control b. Quicker response to changes in the market environment c. Fewer problems sharing resources across functions d. Development of general management talent is enhanced Disadvantages a. Very expensive duplication of functions possible b. Dysfunctional competition among divisions c. Differences in image & quality possible across divisions d. Too much focus on short-term performance

Functional Structure (attributes, advantages and disadvantages)

The functional organizational structure is where the major functions of the firm are grouped internally. a. The organization is small, with a single or closely related product or service, high production volume, perhaps some vertical integration. b. The owner-manager needs specialists in various functional areas. c. The chief executive has responsibility for coordination & integration of the functional areas. Advantages a. Enhanced coordination & control b. Centralized decision making c. Enhanced organizational-level perspective d. More efficient use of managerial & technical talent e. Facilitated career paths in specialized areas Disadvantages a. Impeded communication & coordination due differences in values & orientations - "silos" b. May lead to short-term thinking c. Difficult to establish uniform performance standards

Organizational Structures: Holding Company Structure (attributes, advantages and disadvantages)

The holding company structure is where businesses in a corporation's portfolio are the result of unrelated diversification. A. Variation on the divisional structure B. Similarities are few, synergies are limited C. Autonomous operating divisions D. Small corporate staffs, with limited involvement, relying on financial controls & incentive programs to obtain performance Advantages A. Cost savings due to fewer personnel and lower overhead B. Divisional autonomy increases motivation level of divisional executives C. Quicker response to changes in the market environment Disadvantages A. Potential for synergies is very limited B. Corporate office has little control C. Difficult to replace key divisional executives if they leave D. Turnaround may be difficult due to limited corporate staff support

Matrix Structure (attributes, advantages and disadvantages)

The matrix organizational structure is where functional departments are combined with product groups on a project basis. - Functional departments, product groups & geographical units can be combined. - Individuals have two managers. - Project managers & functional managers share responsibility. a. Product managers handle development, manufacturing & distribution of their own line. b. Geographic managers are responsible for profitability of the business in their regions. Advantages •Increases market responsiveness, collaboration & synergies •Allows more efficient utilization of resources •Improves flexibility, coordination & communication •Increases professional development Disadvantages •Dual reporting relationships lead to uncertainty regarding accountability •Can lead to power struggles & conflict •Relationships are complicated, need teamwork •Decision making takes longer

SBU Structure (attributes, advantages and disadvantages)

The strategic business unit (SBU) structure is where similar products or markets are grouped into units to achieve synergy. A. Variation on the divisional structure B. Similar divisions grouped into homogeneous units C. Synergies achieved through related diversification - leveraging core competencies, sharing infrastructures, using market power D. Each SBU operates as a profit center Advantages A. Planning & control by the corporate office B. Decentralization of authority C. Quicker response to changes in the market environment D. Synergies through sharing core competencies, infrastructures, & market power Disadvantages A. Possible difficulty in achieving synergies B. Increased personnel & overhead expenses C. Corporate office further removed from the divisions D. Corporate unaware of key changes in market conditions

Corporate Governance Participants

The strategic control mechanism corporate governance focuses on relationships among: Shareholders Management (led by the CEO) Board of Directors

Unrelated diversification

Unrelated diversification enables a firm to benefit from vertical or hierarchical relationships between the corporate office & individual business units through... •The corporate parenting advantage a. Providing competent central functions •Restructuring to redistribute assets a. Asset, capital, & management restructuring •Portfolio management a. BCG growth/share matrix

Global Strategy

a strategy based on firms' centralization and control by the corporate office, with the primary emphasis on controlling costs; used in industries where the pressure for local adaptation is low and the pressure for lowering costs is high. Strengths -Strong integration occurs across various businesses. -Standardization leads to higher economies of scale, which lower costs. -Creation of uniform standards of quality throughout the world is facilitated. Limitations -Limited ability exists to adapt to local markets. -Concentration of activities may increase dependence on a single facility. -Single locations may lead to higher tariffs and transportation costs.

International Strategy

a strategy based on firms' diffusion and adaptation of the parent companies' knowledge and expertise to foreign markets; used in industries where the pressures for both local adaptation and lowering costs are low.

Transnational Strategy

a strategy based on firms' optimizing the trade-offs associated with efficiency, local adaptation, and learning; used in industries where the pressures for both local adaptation and lowering costs are high. Strengths - Ability to attain economies of scale. - Ability to adapt to local markets. - Ability to locate activities in optimal locations. - Ability to increase knowledge flows and learning. Limitations - Unique challenges in determining optimal locations of activities to ensure cost and quality. - Unique managerial challenges in fostering knowledge transfer.

Porter Diamond-of-national-advantage framework

def: a framework for explaining why countries foster successful multinational corporations; consists of four factors—factor endowments; demand conditions; related and supporting industries; and firm strategy, structure, and rivalry. Factor endowments. The nation's position in factors of production, such as skilled labor or infrastructure, necessary to compete in a given industry. Demand conditions. The nature of home-market demand for the industry's product or service. Related and supporting industries. The presence or absence in the nation of supplier industries and other related industries that are internationally competitive. Firm strategy, structure, and rivalry. The conditions in the nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry. We can conclude that competitive advantage for global firms typically grows out of relentless, continuing improvement, and innovation.

Offshoring

shifting a value-creating activity from a domestic location to a foreign location.

Boundaryless Designs: Barrier-Free Organizations

A barrier-free organization has permeable internal & external boundaries and requires: a. Higher level of trust and shared interests b. Shift in philosophy from executive development to organizational development c. Greater use of teams d. Flexible, porous organizational boundaries e. Communication flows & mutually beneficial relationships with both internal and external constituencies Pros - Leverages the talents of all employees. - Enhances cooperation, coordination, and information sharing among functions, divisions, SBUs, and external constituencies. - Enables a quicker response to market changes through single-goal focus. - Can lead to coordinated win-win initiatives with key suppliers. Cons - Difficult to overcome political and authority boundaries inside and outside the organization. - Lacks strong leadership and common vision, which can lead to coordination problems. - Time-consuming and difficult-to-manager democratic processes. - Lacks high levels of trust, which can impede performance.

Organizational Structures: Boundaryless Designs (Barrier Free, Modular, Virtual Organizations)

A boundaryless organizational design makes these boundaries more permeable: a. Vertical boundaries between organizational levels b. Horizontal boundaries between functional areas c. External boundaries between the firm and its customers, suppliers, & regulators d. Geographic boundaries between locations, cultures, & markets Boundaryless designs include barrier-free, modular, & virtual organizations. Benefits a. Agency costs are reduced through the use of relational systems. b. Transaction costs between the firm and its suppliers are reduced. c. Individual participants are less likely to perceive a conflict of interest. Costs a. Relationships between individuals become more important than profits. b. Conflicts are resolved through ad hoc negotiations & processes. c. Relationships are driven more by social connections than by needed competencies.

Boundaryless Designs: Modular Organizations

A modular organization requires seamless relationships with external organizations. a. Outsources nonvital functions or non-core activities to outsiders b. Activates knowledge & expertise of "best in class" suppliers but retains strategic control c. Focuses scarce resources on key areas d. Accelerates organizational learning e. Decreases overall costs, leverages capital Pros - Directs a firm's managerial and technical talent to the most critical activities. - Maintains full strategic control over most critical activities - core competencies. - Achieves "best in class" performance at each link in the value chain. - Leverages core competencies by outsourcing with smaller capital commitment. - Encourages information sharing and accelerates organizational learning. Cons - Inhibits common vision through reliance on outsiders. - Diminishes future competitive advantages if critical technologies or other competencies are outsourced. - Increased the difficulty of bringing back into the firm activities that now add value due to market skills. - Leads to an erosion of cross-functional skills. - Decreases operational control and potential loss of control over a supplier.

BCG (Boston Consulting group) Matrix

DEF: A framework for evaluating businesses relative to the growth rate of their market and the organization's share of the market In the BCG approach, each of the firm's strategic business units (SBUs) is plotted on a two-dimensional grid in which the axes are relative market share and industry growth rate. The grid is broken into four quadrants. TOP-LEFT: Stars are SBUs competing in high-growth industries with relatively high market shares. These firms have long-term growth potential and should continue to receive substantial investment funding. TOP-RIGHT: Question marks are SBUs competing in high-growth industries but having relatively weak market shares. Resources should be invested in them to enhance their competi- tive positions. BOTTOM-LEFT: Cash cows are SBUs with high market shares in low-growth industries. These units have limited long-run potential but represent a source of current cash flows to fund investments in "stars" and "question marks." BOTTOM-RIGHT: Dogs are SBUs with weak market shares in low-growth industries. Because they have weak positions and limited potential, most analysts recommend that they be divested.

anti-takeover tactics

DEF: managers' actions to avoid losing wealth or power as a result of a hostile takeover. Antitakeover tactics include: •Green mail : a payment by a firm to a hostile party for the firm's stock at a premium, made when the firm's management feels that the hostile party is about to make a tender offer. •Golden parachutes : a prearranged contract with managers specifying that, in the event of a hostile takeover, the target firm's managers will be paid a significant severance package. •Poison pills : used by a company to give shareholders certain rights in the event of takeover by another firm. •Can benefit multiple stakeholders - not just management •Can raise ethical/legal considerations because the managers of the firm are not acting in the best interests of the shareholders

Strategic Leadership: Emotional Intelligence, Pros & Cons

Effective leaders should: - Have empathy for others - Be astute judges of people - Be passionate, persistent about pursuing objectives - Create personal connections with people, take time to engage employees individually & in groups - Be altruistic, focused on the firm's general welfare, highly principled Effective leaders should NOT: - Over-identify, confuse empathy with sympathy - Become overly critical - Allow passion to close their minds to other possibilities - Make too many announced visits, creating a culture of fear & micromanagement - Be manipulative, selfish, dishonest, use leadership solely to gain power

Strategic Leadership: Ethical Frameworks

Ethical frameworks for integrity include: • Compliance-based ethics program a. Prevents, detects, & punishes legal violations • Integrity-based ethics program a. Enables ethical conduct b. Examines organizational members' core guiding values, thoughts, & actions c. Defines responsibility & aspirations for ethical conduct

Ingredients for entrepreneurial start-up to be successful

Vision. This may be an entrepreneur's most important asset. Entrepreneurs envision realities that do not yet exist. But without a vision, most entrepreneurs would never 244 PART 2 :: STRATEGIC FORMULATION even get their venture off the ground. With vision, entrepreneurs are able to exercise a kind of transformational leadership that creates something new and, in some way, changes the world. Just having a vision, however, is not enough. To develop support, get financial backing, and attract employees, entrepreneurial leaders must share their vision with others. Dedication and drive. Dedication and drive are reflected in hard work. Drive involves internal motivation; dedication calls for an intellectual commitment that keeps an entrepreneur going even in the face of bad news or poor luck. They both require patience, stamina, and a willingness to work long hours. However, a business built on the heroic efforts of one person may suffer in the long run. That's why the dedi- cated entrepreneur's enthusiasm is also important—like a magnet, it attracts others to the business to help with the work. Commitment to excellence. Excellence requires entrepreneurs to commit to knowing the customer, providing quality goods and services, paying attention to details, and continuously learning. Entrepreneurs who achieve excellence are sensitive to how these factors work together. However, entrepreneurs may flounder if they think they are the only ones who can create excellent results. The most successful, by contrast, often report that they owe their success to hiring people smarter than themselves.

Characteristics of an entrepreneurial opportunity

• Higher core self-evaluation. Successful entrepreneurs evidence higher levels of self- confidence and a higher assessment of the degree to which an individual controls his or her own destiny. • Higher conscientiousness. Entrepreneurs tend to have a higher degree of organization, persistence, hard work, and pursuit of goal accomplishment. • Higher openness to experience. Entrepreneurs also tend to score higher on openness to experience, a personality trait associated with intellectual curiosity and a desire to explore novel ideas. • Higher emotional stability. Entrepreneurs exhibit a higher ability to handle ambiguity and maintain even emotions during stressful periods, and they are less likely to be overcome by anxieties. • Lower agreeableness. Finally, entrepreneurs tend to score lower on agreeableness. This suggests they typically look out primarily for their own self-interest and also are willing to influence or manipulate others for their own advantage.

Related diversification

•Related diversification enables a firm to benefit from horizontal relationships across different businesses. •Economies of scope allow businesses to: a. Leverage core competencies b. Share related activities c. Enjoy greater revenues, enhance differentiation •Related businesses gain market power by: a.Pooled negotiating power -Gaining greater bargaining power with suppliers & customers b.Vertical integration- Market power can lead to the creation of value and synergy