MGT 491 final Flores

Assembling the Pieces: Mechanistic vs. Organic Organizations

(M) •Much specialization and formalization•Tall hierarchies•Centralized decision making (O) •Little specialization and formalization•Flat organizational structure•Decentralized decision making

Agency Theory

a set of ideas on organizational control based on the belief that the separation of the ownership from management creates the potential for the wishes of owners to be ignored

Simple Structure

has authority centralized in a single person, a flat hierarchy, few rules, and low work specialization.

Global-Standardization Strategy

strategy attempting to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost

Why Do Firms Enter Strategic Alliances?

strengthen competitive position- enter new markets- hedge against uncertainty- access critical complementary assets- learn new capabilities

Explain why firms engage in acquisitions.

Firms engage in acquisitions to (1) access new markets and distributions channels, (2) gain access to a new capability or competency, and (3) preempt rivals.

Why Do Firms Make Acquisitions?

Firms engage in acquisitions to (1) access new markets and distributions channels, (2) gain access to a new capability or competency, and (3) preempt rivals.

Where Do Organizational Cultures Come From?

Founder imprinting•Examples: Steve Jobs, Walt Disney, Michael Dell, Oprah Winfrey, Martha Stewart, Bill Gates•Beware of groupthink•When individuals don't challenge a leader's opinionValues:•Should be linked to a reward system

Define globalization, multinational enterprise (MNE), foreign direct investment (FDI), and global strategy.

- A process of closer integration and exchange- Between different countries and peoples worldwide- Made possible by:*Falling trade and investment barriers*Advances in telecommunications*Reductions in transportation costs - A company that deploys resources and capabilities in*The procurement, production, and distribution of goods and services*At least two countries a firm's investments in value chain activities abroad - part of a firms corporate strategy- goals: *to gain and sustain CA*to compete against foreign and domestic companies around the world

Apply the integration-responsiveness framework to evaluate the four different strategies MNEs can pursue when competing globally.

- Deals with the pressures an MNE faces for cost reductions and local responsiveness*Local responsiveness: the need to tailor product and service offerings to fit local consumer preferences. *International strategy - Leverages home-based core competencies- Sells the same products or services in both domestic and foreign markets- Advantageous when the MNE faces:*Low pressures for local responsiveness*Low pressures for cost reductions- Often used successfully by MNEs with: *Large domestic markets*Strong reputations and brand names- E.g., Rolex and Harley Davidson *Multidomestic strategy - Used to try and maximize local responsiveness- MNEs hope that local consumers will perceive their products or services as local ones.- This strategy arises out of the combination of:*High pressure for local responsiveness*Low pressure for cost reductions- Can be costly and inefficient*Duplication of business functions across countries*E.g., Nestle and Philips *Global-standardization strategy - Attempts to reap significant:*Economies of scale & location economies*Through global division of labor where capabilities are at the lowest cost- Arises out of the combination of:*High pressure for cost reductions*Low pressure for local responsiveness- Price becomes the main competitive weapon- E.g., Infosys, Lenovo, Cemex *Transnational strategy- Strategy that attempts to combine:*Benefits of a localization strategy *High local responsiveness*With a global-standardization strategy*Lowest-cost position attainable- Arises out of the combination of:*High pressure for local responsiveness*High pressure for cost reductions- Used by MNEs that pursue a blue ocean strategy- Difficult to implement - E.g., P&G, McDonald's

Alliance Management Capability

- Firm's ability to effectively manage 3 alliance-related tasks concurrently - Partner selection and alliance formation - Alliance design and governance - Post formation alliance management

How Does Organizational Culture Change?

-Culture can turn from a core competency into a core rigidity. -A firm must hone, refine, and upgrade. -Because the firm and the environment change

Other Governance Mechanisms

-Executive compensation -The market for corporate control -Financial statement auditors, government regulators, and industry analysis

Explain why companies compete abroad, and evaluate the advantages and disadvantages of a global strategy.

-Firms expand beyond their domestic borders if they can increase their economic value creation (V − C) and enhance competitive advantage. -Advantages to competing internationally include gaining access to a larger market, gaining access to low-cost input factors, and developing new competencies. -Disadvantages to competing internationally include the liability of foreignness, the possible loss of reputation, and the possible loss of intellectual capital.

Apply the CAGE distance framework to explain which countries MNEs enter.

-Most of the costs and risks involved in expanding beyond the domestic market are created by distance.-The CAGE distance framework determines the relative distance between home and foreign target country along four dimensions: cultural distance, administrative and political distance, geographic distance, and economic distance.

Define strategic alliances, and explain why they are important corporate strategy vehicles and why firms enter into them

-Strategic alliances have the goal of sharing knowledge, resources, and capabilities to develop processes, products, or services.-An alliance qualifies as strategic if it has the potential to affect a firm's competitive advantage by increasing value and/or lowering costs.-The most common reasons firms enter alliances are to (1) strengthen competitive position, (2) enter new markets, (3) hedge against uncertainty, (4) access critical complementary resources, and (5) learn new capabilities.

Apply the build-borrow-or-buy framework to guide corporate strategy

-The build-borrow-or-buy framework provides a conceptual model that aids strategists in deciding whether to pursue internal development (build), enter a contract arrangement or strategic alliance (borrow), or acquire new resources, capabilities, and competencies (buy).-Firms that are able to learn how to select the right pathways to obtain new resources are more likely to gain and sustain a competitive advantage.

Compare and contrast the different options MNEs have to enter foreign markets.

-The strategist has the following foreign-entry modes available: exporting, strategic alliances (licensing for products, franchising for services), joint venture, and subsidiary (acquisition or greenfield).-Higher levels of control, and thus a greater protection of IP and a lower likelihood of any loss in reputation, go along with more investment-intensive foreign-entry modes such as acquisitions or greenfield plants.

Governing Strategic Alliances

-non-equity alliances *partnerships based on contracts *examples: supply agreements, distribution agreements, and licensing agreements - equity alliances *one partner takespartial ownership in the other. - joint ventures *a standalone organization created and jointly owned by two or more parent companies

Disadvantages of Expanding Internationally

1. Liability of foreignness 2. Loss of reputation 3. Loss of intellectual property

Advantages of Expanding Internationally

1. gain access to a larger market2. gain access to low cost input factors3. develop new competencies

What Is Globalization? Stages of Globalization

1.0 (1900 - 1941) - sales operations, and some procurement- strategy flowed from HQ to international sites 2.0 (1945 - 2000) - to reconstruct damage from the war- focus on european countries, japan, and australia- greater local-responsiveness- HQ set goals, international sites influenced tactics 3.0 (21st century) - business function locations are based on costs, capabilities, and PESTEL factors- companies can operate 24/7 365 days a year

The CAGE Distance Framework

A decision framework based on the relative distance between home and a foreign target country along four dimensions: Cultural distance - Disparity between a firm's home country and its targeted host country*Social norms and morals, beliefs, and values*Differentiation among human groups- Made up of: (Hofstede's cultural distance)*Power distance*Individualism*Masculinity-femininity*Uncertainty avoidance*Long-term orientation Administrative and political distance - Captured in factors such as:*Shared monetary or political associations*Political hostilities*Weak or strong legal and financial institutions- Political and administrative barriers include:*Tariffs*Trade quotas*FDI restrictions Geographic distance - Does not imply only physical distance- Includes the following attributes: *Physical size (Canada versus Singapore)*Within-country distances to its borders*Time zones*Whether the countries are contiguous to one another *Access to waterways and the ocean- Infrastructure is also important:*Roads, power, and telecommunications Economic distance - Wealth and per capita income of consumers - Wealthy countries tend to engage in more cross-border trade.- Wealthy countries trade with poor countries.*To access low-cost input factors

The Board of Directors

A group of people elected by the stockholders of a corporation to set the policies for the corporation.

Differentiate between mergers and acquisitions, and explain why firms would use either as a vehicle for corporate strategy

A merger describes the joining of two independent companies to form a combined entity.▪An acquisition describes the purchase or takeover of one company by another. It can be friendly or hostile.Although there is a distinction between mergers and acquisitions, many observers simply use the umbrella term mergers and acquisitions, or M&A.▪Firms can use M&A activity for competitive advantage when they possess a superior relational capability, which is often built on superior alliance management capability.

Apply agency theory to explain why and how companies use governance mechanisms to align interests of principals and agents.

Agency theory views the firm as a nexus of legal contracts.The principal-agent problem concerns the relationship between owners (shareholders) and managers and also cascades down the organizational hierarchy.The risk of opportunism on behalf of agents is exacerbated by information asymmetry: Agents are generally better informed than the principals.Governance mechanisms are used to align incentives between principals and agents.Governance mechanisms need to be designed in such a fashion as to overcome two specific agency problems: adverse selection and moral hazard.

Describe three alliance governance mechanisms and evaluate their pros and cons.

Alliances can be governed by the following mechanisms: contractual agreements for non-equity alliances, equity alliances, and joint ventures.There are pros and cons are: Non-equity alliance's pros: flexible, fast, easy to get in and out; cons: weak ties, lack of trust/commitment.Equity alliance's pros: stronger ties, potential for trust/commitment, window into new technology (option value); cons: less flexible, slower, can entail significant investment.Joint venture pros: strongest tie, trust/commitment most likely, may be required by institutional setting; cons: potentially long negotiations and significant investments, long-term solution, managers may have two reporting lines (two bosses).

Describe the three phases of alliance management and explain how an alliance management capability can lead to a competitive advantage.

An alliance management capability consists of a firm's ability to effectively manage alliancerelated tasks through three phases: (1) partner selection and alliance formation, (2) alliance design and governance, and (3) post-formation alliance management.▪An alliance management capability can be a source of competitive advantage as better management of alliances leads to more likely superior performance.▪Firms build a superior alliance management capability through "learning by doing" and by establishing a dedicated alliance function.

Define organizational structure and describe its four elements.

An organizational structure determines how firms orchestrate employees' work efforts and distribute resources. It defines how firms divide and integrate tasks, delineates the reporting relationships up and down the hierarchy, defines formal communication channels, and prescribes how employees coordinate work efforts.The four building blocks of an organizational structure are specialization, formalization, centralization, and hierarchy

Describe the shared value creation framework and its relationship to competitive advantage.

By focusing on financial performance, many companies have defined value creation too narrowly.Companies should instead focus on creating shared value, a concept that includes value creation for both shareholders and society.The shared value creation framework seeks to identify connections between economic and social needs, and then leverage them into competitive advantage.

Organizational Culture and Competitive Advantage

Can organizational culture can help a firm gain and sustain competitive advantage? Yes, IF: The culture makes a positive contribution to the firm's economic value creation. If the culture obeys the VRIO principles It can be an effective lever for new ventures: It is malleable. Firm founders, early-stage CEOs, and venture capitalists should be proactive: Create a culture that supports a firm's economic value creation

Explain the role of corporate governance.

Corporate governance involves mechanisms used to direct and control an enterprise in order to ensure that it pursues its strategic goals successfully and legally.Corporate governance attempts to address the principal-agent problem, which describes any situation in which an agent performs activities on behalf of a principal

Functional Structure

Employees are grouped into functional areas.•Based on domain expertise•Often correspond to distinct stages in the value chain Leaders of functional areas report to the CEO.

Output Controls

Guides employee behavior by:•Defining expected results (outputs), but •Leaving the means to those results open to individual employees, groups, or SBUsIntrinsic motivation is highest when an employee has:•Autonomy (about what to do)•Mastery (how to do it)•Purpose (why to do it)

Merging with Competitors

Horizontal integration is the process of merging with competitors, leading to industry consolidation.As a corporate strategy, firms use horizontal integration to (1) reduce competitive intensity, (2) lower costs, and (3) increase differentiation.

Define horizontal integration and evaluate the advantages and disadvantages of this corporate-level strategy

Horizontal integration is the process of merging with competitors, leading to industry consolidation.▪As a corporate strategy, firms use horizontal integration to (1) reduce competitive intensity, (2) lower costs, and (3) increase differentiation.

Strategic Control-and-Reward Systems

Internal-governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees).

Matrix Structure

Leverages SBU (M-form) benefits:•Domain expertise•Economies of scale•Efficient processing of informationAlso leverages organizational structure benefits•Responsiveness•Decentralized focus

Evaluate whether mergers and acquisitions lead to competitive advantage

Mergers and acquisitions are a popular vehicle for corporate-level strategy implementation for three reasons: (1) because of principal-agent problems, (2) the desire to overcome competitive disadvantage, and (3) the quest for superior acquisition and integration capability.

M&A and Competitive Advantage

Most mergers and acquisitions destroy shareholder value because anticipated synergies never materialize.If there is any value creation in M&A, it generally accrues to the shareholders of the firm that is taken over (the acquiree), because acquirers often pay a premium when buying the target company.Mergers and acquisitions are a popular vehicle for corporate-level strategy implementation for three reasons: (1) because of principal-agent problems(2) the desire to overcome competitive disadvantage(3) the quest for superior acquisition and integration capability.

Apply Porter's diamond framework to explain why certain industries are more competitive in specific nations than in others.

National competitive advantage, or world leadership in specific industries, is created rather than inherited.Four interrelated factors explain national competitive advantage: (1) factor conditions, (2) demand conditions, (3) competitive intensity in a focal industry, and (4) related and supporting industries/complementors.Even in a more globalized world, the basis for competitive advantage is often local.

Compare and contrast mechanistic versus organic organizations.

Organic organizations are characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making.Mechanistic organizations are described by a high degree of specialization and formalization, and a tall hierarchy that relies on centralized decision making.The comparative effectiveness of mechanistic versus organic organizational forms depends on the context.

Describe the elements of organizational culture, and explain where organizational cultures can come from and how they can be changed.

Organizational culture describes the collectively shared values and norms of its members.Values define what is considered important, and norms define appropriate employee attitudes and behaviors.Corporate culture finds its expression in artifacts, which are observable expressions of an organization's culture.

Define organizational design and list its three components.

Organizational design is the process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization.The key components of organizational design are structure, culture, and control.The goal is to design an organization that allows managers to effectively translate their chosen strategy into a realized one.

Explain how organizational inertia can lead established firms to failure

Organizational inertia can lead to the failure of established firms when a tightly coupled system of strategy and structure experiences internal or external shifts.Firm failure happens through a dynamic, four-step process

Evaluate other governance mechanisms.

Other important corporate mechanisms are executive compensation, the market for corporate control, and financial statement auditors, government regulators, and industry analysts.Executive compensation has attracted significant attention in recent years. Two issues are at the forefront: (1) the absolute size of the CEO pay package compared with the pay of the average employee and (2) the relationship between firm performance and CEO pay.The board of directors and executive compensation are internal corporate-governance mechanisms. The market for corporate control is an important external corporate-governance mechanism. It consists of activist investors who seek to gain control of an underperforming corporation by buying shares of its stock in the open market.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. Auditors and industry analysts study these public financial statements carefully for clues of a firm's future valuations, financial irregularities, and strategy.

Public Stock Companies and Shareholder Capitalism

Public stock companies are vital in free market economies FOUR CHARACTERISTICS 1. limited liability of investors 2. transferability of invest interest 3. legal personality 4. separation of ownership and control

Input Controls

Seeks to define & direct employee behavior through:•Explicit, codified rules•Standard operating proceduresConsidered before employees make business decisionsExample: a budget•Managers allocate money to R&D projects before they begin

The Key Elements of Organizational Structure

Specialization - Describes the degree to which a task is divided into separate jobs. Larger firms: high degree of specialization Smaller ventures: low degree of specialization Formalization - The extent to which employee behavior is guided by rules and procedures. Pros:•Ensures consistent and predictable results. Cons:•Slower decision making•Reduced innovation•Hindered customer service Centralization - The degree to which decision making is concentrated at the top of the organization. Affects strategic planning:•Top-down strategic planning takes place in highly centralized organizations. •Planned emergence is found in more decentralized organizations. Hierarchy - The formal, position-based reporting lines•Who reports to whom. Span of control:•The number of employees who directly report to a manager

Compare and contrast different strategic control-and-reward systems.

Strategic control-and-reward systems are internal governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees).Strategic control-and-reward systems allow managers to specify goals, measure progress, and provide performance feedback.In addition to the balanced-scorecard framework, managers can use organizational culture, input controls, and output controls as part of the firm's strategic control-and-reward systems.Input controls define and direct employee behavior through explicit and codified rules and standard operating procedures.Output controls guide employee behavior by defining expected results, but leave the means to those results open to individual employees, groups, or SBUs.

Explain the relationship between strategy and business ethics.

The ethical pursuit of competitive advantage lays the foundation for long-term superior performance.Law and ethics are not synonymous; obeying the law is the minimum that society expects of a corporation and its managers.A manager's actions can be completely legal, but ethically questionable.Some argue that management needs an accepted code of conduct that holds members to a high professional standard and imposes consequences for misconduct.

Evaluate the board of directors as the central governance mechanism for public stock companies.

The shareholders are the legal owners of a publicly traded company and appoint a board of directors to represent their interests.The day-to-day business operations of a publicly traded stock company are conducted by its managers and employees, under the direction of the chief executive officer (CEO) and the oversight of the board of directors. The board of directors is composed of inside and outside directors, who are elected by the shareholders.Inside directors are generally part of the company's senior management team, such as the chief financial officer (CFO) and the chief operating officer (COO).Outside directors are not employees of the firm. They frequently are senior executives from other firms or full-time professionals who are appointed to a board and who serve on several boards simultaneously.

Describe different organizational structures and match them with appropriate strategies.

To gain and sustain competitive advantage, not only must structure follow strategy, but also the chosen organizational form must match the firm's business strategy.The strategy--structure relationship is dynamic, changing in a predictable pattern—from simple to functional structure, then to multidivisional (M-form) and matrix structure—as firms grow in size and complexity.In a simple structure, the founder tends to make all the important strategic decisions as well as run the day-to-day operations.A functional structure groups employees into distinct functional areas based on domain expertise. Its different variations are matched with different business strategies: cost leadership, differentiation, and blue ocean (see Exhibit 11.6).The multidivisional (M-form) structure consists of several distinct SBUs, each with its own profit-and-loss responsibility. Each SBU operates more or less independently from one another, led by a CEO responsible for the business strategy of the unit and its day-to-day operations (see Exhibit 11.7).The matrix structure is a mixture of two organizational forms: the M-form and the functional structure (see Exhibit 11.9).Exhibits 11.8 and 11.10 show how best to match different corporate and global strategies with respective organizational structures.

Multidivisional Structure

Used as a firm diversifies products and geographyEach strategic business unit (SBU):•Has profit-and-loss (P&L) responsibility•Operated independently•Led by a unique CEO who is:•Responsible for SBU strategy•Responsible for day-to-day operations

Creating Shared Value

a concept that involves creating economic value for shareholders while also creating social value by addressing society's needs and challenges.

Multidomestic Strategy

a strategy in which operating decisions are decentralized to each country to enhance local responsiveness

Transnational Strategy

a strategy that combines the benefits of global-scale efficiencies with the benefits of local responsiveness

International Strategy

a strategy through which the firm sells its goods or services outside its domestic market

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. is about checks and balances and about asking the tough questions at the right time. Attempts to address the principal-agent problem.