Session 6
Global Enterprise and Competition66.511.202Fall 2006
Ashwin Mehta, Visiting Faculty
Session 6
Global Enterprise Management
CultureStrategy
StandardsCoordination
Global/Regional(standardization) Local
ProductionLogistics
Procurement
R&D
Backend customer svc
sales
Marketing
Frontline cust supportCall Centers
Session 6
IMPORTANCE OF INTEGRATING CORPORATE, BUSINESS & INTERNATIONAL STRATEGIES
Consistency requirements - purposes/goalsResource AllocationInternal FinancingPortfolio BalanceGrowth & ProfitGuide Business Strategy FormulationSet Business Performance ObjectivesDevelop Business Performance Criteria
Potential IssuesCommunication between Corporate & BusinessesRole of Business in Corporate PortfolioClarity of Business StrategiesPerformance Metrics and IncentivesStructures
Session 6
Question Global Leaders
Peer Group
Our businesses are aligned around a common corporate culture
90% 71%
Performance management is adequately focused on enterprise-wide objectives
87% 63%
We are effective in integrating operations globally to exploit economies of scale
85% 68%
Our businesses have a centralized compensation structure 83% 55% Our company makes frequent use of expatriate assignments 79% 51% We are effective at sharing local innovations around the world 69% 55% Our managers are willing to sacrifice local priorities to benefit the global enterprise
68% 51%
We do a good job developing new approaches centrally and diffusing them worldwide
64% 53%
Global Leader*
*: Fortune Feb 2006
Global Leaders=Top 3 companies in the industry on effectiveness in conducting business globally
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Global Enterprise Strategy Implementation
1. Organization Structures
2. Coordination and Information sharing
3. Human Resource Management
4. Incentives
5. Communication across cultures
Session 6
Multinational Firms Organizations
International DivisionUnderneath geographical structuresMost common and is simplegreater reliance/dependency on domestic operations – more overhead
Functional division International functions reporting into domestic functions
R&D functions reporting to domestic R&D, etc.Low overhead, works well with limited product offers
coordination among functions could be a challenge
Product divisiongood for companies with many different offers (like consumer goods companies)Redundancies
Geographical divisionMore popular with companies having large International presence
Matrix divisionBetter coordination/communication and information sharingComplexPotential for a politicized
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Bull HN(US)
R&DMfgMktgAdminGeographic UK ItalyInternational Canada Pacific
Bull(France)
R&DMfgMktgAdminSales France Germany etc.
Strategy
Staff
Product Line Mgmt (PLM)
Groupe Bull(France)
Global Corporate/Business StrategyPLM mainly R&D focusedProducts globalMission assignment by product US-Mainframe and Mini France-Mid range, UNIX Italy-Small end etc.Implementation poor Local mgmt with power Lacked central leadership Cultural differences
Session 6
Geographic Area Structure for a Multinational Corporation
Board of Directors
President
Corporate StaffR & D
Operating Companies
U.S.
Operating Companies
Europe*
Operating Companies
Africa
Operating Companies
Asia*
Product Group
B
Operating Companies
Latin America
Product Group
A
Product Group
C
Product Group
B
Product Group
D
*Note: Because of space limitations, product groups for only Europe and Asia are shown here.
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Global/MNE’s
Before – established companies adapted to new global environmentincremental markets view
Now --- new companies and industries are “born” globalprimarily from developing countries (e.g. India)home markets too small and moving to go globalPrimary markets viewAccessing scarce resources (specially human)
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Country Managers
Business managers Functional managers
CEOSBU head
Global/Multinationals Challenges
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“Up the (E) Organization! A Seven-Dimensional Model for the Centerless Enterprise”, Neilson, et al, Strategy+Bsiness, 2000
Session 6
Measuring impact of structures
Cost/Benefit Analysis and Measurements
Organization as a System: Input, Throughput and Output
Process Specialization --- Throughputs based (functional Org’n)
Purpose Specialization --- Output based (Divisional, Product, Geographic, Customer)
Session 6
Measuring impact of structures
Functional Divisional
BenefitsExpertise, critical massEconomy of scale and scopeEfficiencyAvoid duplication of resourcesCareer benefits
FocusEffectivenessFewer coordination issuesQuick response to changes
Costs Coordination costsFunctional myopiaLoss of “big” pictureBureaucracy
Duplication of scarce resourcePotential loss of economics and efficiency
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Measuring impact of structures
Efficiency Effectiveness• Cost per• Economics of scale• Duplication of resources• Coordination costs
• Market share• Customer satisfaction• Revenue Growth• Time to market• Product introduction
Functional Structure Divisional Structures
“ Doing Things Right” “ Doing Right Things”
Session 6
Centralization Vs Decentralization
There are 2 basic forms of organization structures: Centralize or Decentralize --- “If one does not work, try the other!”
Typically companies use both types of organizationsRight mix
Sequential Decision Process Efficiency and Effectiveness requirementsCentralization/Decentralization mix
Tall Vs Flat OrganizationsInertiaExpertise issueResponsibilityLateral CommunicationThe Corporate Center
Primarily includes efficiency (HR, Legal, Purchasing, IT, etc.)Expanded Center: Strategic Management function; Executive Ed function; and “Centers of Excellence”
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Relationship between Strategy and Structure
Demands of Strategy
Low costFocusDifferentiationMixGlobal
Strategic Drivers of Structure ChoiceType of StrategyNeed for Efficiency/EffectivenessMarket and Technology RelatednessSize/Growth
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Effective Coordination and Information Sharing
Integration/Coordination required between organizations to completely execute strategy
Structures give static viewIntegration makes structures work
DellFocused Systems of Activities to
Reduce costsImprove Delivery Improve customer serviceCreate a competitive advantage
Activity Systems
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Effective Coordination and Information Sharing
Information/Knowledge Sharing
GE Work OutChallenge and StretchLearning CultureStructure and Process of Work Out
An example of Reciprocal Interdependence
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Issues with Information/knowledge Sharing
Formal Vs Informal
Open Vs Guarded
Power and Influence
Filtered
Effective Coordination and Information Sharing
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Responsibility and Accountability
Type of structure and interdependence will either add clarity or make it complex
Centralized/Pooled Clearer responsibility &Accountability
Matrix/Reciprocal Highly unclear
Responsibility Matrix
Effective Coordination and Information Sharing
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Human Resource --- Management and Staffing Challenges
When do you use Expats
When do you use Locals
How to create new class of employees Glopats
Scarcity of management talents
Ten Steps To A Global Human Resources Strategy, John A. Quelch, Helen Bloom Strategy+Business, 1999
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Pros
- Product/culture knowledge- Easy & Efficient corporate relationships-Technical/business skills not locally available-Transferable skills-Protects/promotes company interests in JV’s, M&A-Less chance of competition-Career Path
Cons
-Hi Costs-Black outs and Brown outs-Long start-ups and wind down time-Short sighted focus-Out of sight, out of mind concern-Re-entry issues-Lack of available management
Use of Expats
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Use of Locals
Pros-Cheaper-Language/culture of the country-Local market/custom knowledge-Skills in managing local staff-Project local company image-Educated
Cons-Demand>Supply-Takes time to bring to speed-Lack corporate contacts-Protection of IP’s-Control of JV’s (loyalty concern)
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Incentives
Incentives
Good objectives --- measurableIncentives tied to objectivesMotivating objectives and incentivesObjectives should not be “all or nothing”Reward the right things
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Incentives
Evaluation Controls
Strategy and Objectives
Actual performance
Cause-effect analysis/learning
Rewards/corrections Actions/change
Significant deviation?
Continue
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Culture Affects Performance
Culture Behavior Performance
Corporate culture clashes - a leading cause of merger failures
Organization Performance Affects Culture
Culture Behavior Performance
Feedback and Change(new behavior)
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Culture
Company/Corporate Culture
Sub-cultures and Managing Differences
National/Regional Culture
Work Vs Customer Implications
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Global Enterprise and Culture
Most critical factor in doing business Globally, and least-understood
Culture is a set of norms that are generally accepted within a society
Culture has levels: national; regional; and, organizational
Understanding these cultures in a country/region is important in conduct of a business
Business blunders if market cultures not fully understood
Key question: how does culture affect workplace values?
Customer behaviorsManagement of operation
Managers must study and understand cultures before launching a Global business
Session 6
Culture’s Importance in Strategy Implementation
-Dell launched a new web site in Japan with black bordersBlack is considered negative in Japan; Consumers did want to do anything with Dell
Localization did not just mean language translation
-When Gerber first started selling baby food in Africa, they used the same packaging as in the USA - the cute baby on the label. Later, when investigating lower than expected sales figures, they found out that it is common practice in Africa to put pictures of the contents onfood package labels.
-Workers Participation in work planning may not work everywhere
-Going Global and Acting Local
Session 6
Customer Country and Competitor Country FeaturesP&G JAPAN SKII
© Professor Daniel F. Spulber
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P&G Internationalization Evolution
1930 – 1970’s 1980’s 1990’s O2005Strategy:International MarketExpansion
Cost Innovation
New untappedmarkets Innovation
Country level focus-Tailor to meet needs-Common structures,Policies, practices
Issues:CostGlobal introduction
CoordinatingRegional org’ns-overlapping structuresTo minimize differences
Global management-strategy-technical programs-marketing
Country level-profit
- GBU taking over profit
Session 6
How did international business considerations
affect the P&G strategy and organization?
P&G Reorganization: CEO Durk I. Jager reorganized
from four geographical business groups to:
• Seven global business units (GBUs) based on product lines (baby care, beauty care, fabric & home care, feminine protection, food & beverage, health care, tissue & towel)
• Decentralization: R&D, product supply, marketing, information technology, finance, human resources
• Market Development Organizations (MDOs) at both the regional and country levels, feed consumer and market knowledge into GBUs
• Global Business Services: accounting, payroll, order mgmt
• Corporate Functions staff will move directly into the GBUs
• Mirrored global retailer expansions (Wal-Mart, Carrefour)
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Organization 2005:
Objective: transform Global planning and management system into a more innovative and quicker system
Old structure: Global area design, organizing around country or countries
O2005: organize around products or product groups
convert 4 geographically based business units to 7 global BU’s around products
create 8 market development org’ns to adapt global programs to local markets
Global business services (accounting, HR, IT, etc.)
Redefine corporate staff roles; move to other departments
Success: Swiffer – test phase to global product in 18 monthsmulti-department effort
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Global business unit (GBU)Extends strategic business unit (SBU)organization to international business
Division managers create and implementstrategies on a global basis
Division managers responsible for products, pricing, marketing, sales, R&D, financing, procurement on a global basis
Headquarters
GBU 1 GBU 2 GBU 3
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What made SKII a success in Japan?
• Product developed in Japan
• P&G adjusted the product features, marketing and sales to the local market
• Substantial consumer interest in beauty products
• Emphasis on customer service
• High willingness to pay
• Multiple-step treatment favored by consumers
Session 6
For almost a generation, Japanese women have known a secret. This secret was discovered by a Japanese monk who visited a sake brewery in Kobe. He was surprised to discover that the brewery workers had extraordinary soft and youthful hands. Even an elderly man with pronounced wrinkles on his face possessed the silky smooth hands of a young boy. This observation encouraged the monk to conduct a series of experiments. He eventually discovered a clear, nutrient-rich liquid that could be extracted during the yeast fermentation process. He shared his findings with a group of skincare scientists, who became equally excited by the potential of his discovery. For the following five and a half years, intensive research was undertaken to understand more about this magical seemingly 'age-defying' liquid.
http://sk2us.com/index.htm
The Legend
Session 6
The team of scientists were able to pinpoint the exact fermentation process required for this liquid to achieve its maximum potency and harness its magical youth-giving powers. They named the liquid 'Pitera'. Pitera, which contains a collection of vitamins, minerals, amino acids and organic acids, became known amongst researching scientists as 'the secret key' to beautiful skin. Many things can upset the delicate balance of your skin, from stress to hormonal fluctuations. Pitera helps restore the skin's natural rhythm by stimulating its renewal process. The result is skin that is clearer, smoother and wonderfully radiant. Through nature's miracle, Pitera, women have discovered a totally new skin experience - the joy of reborn skin.
The Discovery
Session 6
VisualizeEmpty your mind and visualize your skin now and in the future. Purify Apply a small amount of cleanser with your fingertips, using slow circular motions, until your skin feels clean, awakened and refreshed. Renew To experience the Pitera magic, sprinkle about a teaspoon of Facial Treatment Essence into the cupped palm of your hand. Rub hands together and press gently and evenly onto face and neck, stimulating the renewal of the skin’s outer layer. Enhance Complete the Ritual with any of the following treatment options based on your specific needs: Anti-Aging, Illuminating, Refining, Nourishing and/or Boosting.
The Ritual
Session 6
Issues in the SK-II Global Strategy
• Not invented here
• Vertical organization issues: Getting management to buy in
• Would a Japanese product sell elsewhere?
• Too many new products in pipeline
• Budget pressures in Beauty Care business
• Not a mass market product
• Requires change of company strategy in sales effort and choice of distribution outlets
• Conflict with heads of GBU
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Making the case for SK–II
• Incremental revenues
• Addresses prestige market segment
• Diversifies P&G’s cosmetics product lines
• Investment in sales and marketing will yield positive returns
• Innovation should originate throughout the GBU
• Coordination of national and regional strategies is the task of the GBU
Session 6
Customer countries andCompetitor countries
Evaluate the strategy for making SK-II a global brand
• Development of initial market in Japan provides test market
Will the company be able to extend the brand effectively:
• Hong Kong and Taiwan?
• Singapore, Malaysia, South Korea?
• China?
• Europe?
• United States?
Session 6
P&G O2005 issues/problems
Changes applied too quicklyresponsibility issues/concerns
BU’s competing with each other
Resistance by employeesmorale, defection
Status 2004: Jager was forced out, replaced by Lafley
Stopped the changes
Adopted “global matrix” organization – blend of geographical and product BU’s
Session 6
SK-II is brought to the US and sold at Saks Fifth Avenue stores
Store display for SK-II
Session 6
Discuss Danone Case
“Danone: Organizing for Global Competition”
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