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ORGANIZING TO IMPLEMENT CORPORATE DIVERSIFICATION

Q: What are the three types of plans mentioned as tools for strategy implementation?

The three types include: Strategic plans - Long-term direction. Tactic plans - Short-term actions. Operational plans - Day-to-day operations.

Q: What are the two main areas of focus in implementing strategy through structure and controls?

The two main areas are: Structure - Allocation of tasks and responsibilities. Controls - Ensuring lower management aligns with company goals.

Q: What are the advantages of grouping similar tasks in functional departments?

Key benefits include: SPECIALIZATION : Focus allows employees to deepen expertise. EFFICIENT : Streamlined processes lead to productivity. Example: In a purchase department, emphasis on purchasing enhances both specialization and efficiency.

64 important questions on ORGANIZING TO IMPLEMENT CORPORATE DIVERSIFICATION

What is the significance of strategy implementation in the strategic management process?

Implementation is crucial for achieving sustained competitive advantage. Without effective execution:

Analysis and design alone are insufficient.
Strategies risk becoming obsolete.
Stakeholder interests may not be aligned.

What are the three types of plans mentioned as tools for strategy implementation?

The three types include:

Strategic plans - Long-term direction.
Tactic plans - Short-term actions.
Operational plans - Day-to-day operations.

How does project management relate to strategy implementation?

Project management is essential as it involves:

Creating specific projects based on the strategy.
Ensuring alignment with overall company goals.
Facilitating structured execution of strategic initiatives.

What factors should be considered when choosing entry and exit modes for a firm's strategy?

Key factors include:

Types of alliances.
Options for acquisitions.
Analysis based on market conditions (refer to chapters 11-12-13).

What is the process of change management in strategy implementation?

Change management involves:

Unfreezing the organization.
Implementing the desired changes.
Refreezing the organization to stabilize.

What role does the Balanced Scorecard (BSC) play in strategy execution?

The Balanced Scorecard serves to:

Monitor and track strategy execution.
Align performance metrics with strategic goals.
Provide a comprehensive view of organizational performance.

What are the two main areas of focus in implementing strategy through structure and controls?

The two main areas are:

Structure - Allocation of tasks and responsibilities.
Controls - Ensuring lower management aligns with company goals.

How is structure defined in the context of strategy implementation?

Structure is concerned with:

How tasks are allocated to organizational units.
The overall design of the organization.
Enhancing efficiency in achieving objectives.

What does controls refer to in strategy implementation?

Controls pertain to:

Mechanisms that ensure alignment of lower management performance with goals.
Oversight by top management.
Ensuring that strategies are effectively executed.

What are the advantages of grouping similar tasks in functional departments?

Key benefits include:

SPECIALIZATION: Focus allows employees to deepen expertise.
EFFICIENT: Streamlined processes lead to productivity.
Example: In a purchase department, emphasis on purchasing enhances both specialization and efficiency.

What are the main disadvantages of organizing tasks into functional departments?

Key drawbacks include:

CUMULATIVE CONTROL LOSS: Growth can lead to reduced oversight.
LACK OF STRATEGIC FOCUS: Management may become overwhelmed with daily tasks.
Example: Problems in coordination among departments when resolving customer issues.

Which corporate strategies utilize functional departmentalization?

Two corporate strategies include:

HORIZONTAL EXPANSION: Expanding product lines or markets.
VERTICAL INTEGRATION: Control over supply chain or distribution processes.

How does specialization in departments improve efficiency?

Specialization allows for:

Focus on specific tasks and duties.
Development of expertise leading to faster decision-making.
Greater output from employees through competency.

What are the characteristics and advantages of a product division structure?

Activities are grouped by product, with all primary functions.
Chosen for product diversification.
Advantages:
- Product focus.
- Reduced overload on top management.
- Coordination within the division.

What is the structure of the area division?

Top Management oversees the entire organization.
Staff supports Top Management.
Four divisions: Division Area 1, Division Area 2, Division Area 3, Division Area N report to Staff.

What are the advantages and disadvantages of a divisional structure in internationalisation strategy?

Advantages:

Focus on specific areas
Reduced overload for top management

Disadvantages:

Loss of efficiency
Loss of synergies
Duplication of functions in divisions

What are the characteristics of activities grouped along multiple dimensions in a firm?

Activities are organized by:

Product 1
Area 2
Chosen for product diversification and internationalisation strategy

What are the advantages of grouping activities along several dimensions?

Advantages include:

Simultaneous focus on performance
Enhances effectiveness across areas and products

What are the disadvantages associated with grouping activities in a firm?

Disadvantages include:

Loss of unity of command
Confusion among management levels
Conflicting goals for unit managers

What challenges arise for managers when activities are structured this way?

Challenges include:

Top manager reports to multiple managers
Unclear assignment of responsibilities
Loss of control over performance

What strategies are paired with a low variety in activities?

Business-Level Strategy: Focuses on competing within an industry.
Corporate-Level Strategy:
- Horizontal Expansion: Spreading in the same industry.
- Vertical Integration: Controls supply chain.

What structures are associated with a high variety in activities?

High variety in activities suggests:
- Product Diversification: Broaden product range.
- Internationalization: Expand to global markets.
- Product Diversification & Internationalization.

What organizational structures correspond to different strategies and varieties of activities?

Low variety:
- Functional Structure
High variety:
- Product Division Structure
- Area Division Structure
- Matrix Structure

When should a cooperative management style be chosen?

Cooperative management style is ideal when the value of collaboration is high.
Strategies include:
- Horizontal Expansion
- Vertical Integration
- Related Diversification
Encourages collaboration.

Under what circumstances is a competitive management style appropriate?

Competitive management style is suitable when the value of collaboration is low.
Strategies include:
- Local Responsiveness
- Unrelated Diversification
Stimulates competition.

How do management control styles differ in terms of HQ involvement?

Centralized control involves HQ in unit decisions and activities.
Cooperative style encourages collaboration.
Decentralized control focuses on financial performance.
Competitive style stimulates competition.

What strategic approaches align with cooperative and competitive management styles?

Cooperative: Aligns with strategic approaches such as integration and horizontal expansion.
Competitive: Aligns with financial performance and local responsiveness strategies.

What are the benefits of the COOPERATIVE STYLE model?

The advantages include:

Centralized involvement and strategic expectations.
Effective at realizing potential synergies between units.
Significant synergies in related diversification.
Resource sharing among divisions requires management.
Promotes collaboration between divisions (M-form, related).

What are the benefits of the COMPETITIVE STYLE model?

Key benefits include:

Decentralized involvement with financial expectations.
Focus on maximizing individual unit performance.
Importance of individual performance in unrelated diversification.
Encourages competition among divisions for financial results.
Little to no cooperation between units (e.g., services vs. travel).

What are the components of hybrid structures and different management control styles?

Hybrid structures:
- Top Management
- Staff
- Research & Development
- North America
- Aircraft Engines
- Ship Engines
Management control styles:
- Cooperative
- Over-control
- Strategic Control
- Under-control
- Competitive

What are hybrid structures in an organizational context?

Commonly utilize:

Different grouping criteria at the same level
Align with various corporate strategies simultaneously
Typically more complicated than matrix structures

What outcomes arise from under control in an organization?

Results in:

Losing all control over the organization
Headquarters not involved in unit decisions
Less concern for the results achieved by units

What aspects are crucial for successful strategy implementation?

Involves:

Designing a fitting structure
Applying an appropriate control style
Considering the complexity of matrix structures

How does vertical integration affect organizational structure?

Results in:

Acquiring a supplier adds an extra department
If leading to external sales, best to create a separate product division
Affects the functional structure

What is the most common organizational structure for implementing a corporate diversification strategy?

The M-FORM, or MULTIDIVISIONAL, structure is common for corporate diversification.

Each business is managed through a DIVISION.
Facilitates complex operations and multiple products.

What is a key feature of divisions in an M-form organization?

Divisions act as profit-and-loss centers.
Profits and losses are calculated at the division level.
They should be large enough to be identifiable entities.
Small enough for effective management by a general manager.

How is an M-form organization structured to emphasize roles and responsibilities?

Board of Directors at the top.
Senior Executive oversees operations.
Corporate staff includes finance, legal, accounting, HR.
Divisions managed by General Managers (A, B, C).
Includes shared activities: Research and Development, Sales.

What roles do the Board of Directors and Institutional Investors play in the M-Form structure?

Board of Directors: Monitor firm decisions to align with outside equity holders' interests.
Institutional Investors: Monitor firm decisions to align with major institutional equity investors' interests.

What are the responsibilities of Senior Executives in strategy formulation and implementation?

Strategy Formulation:
- Decide business operations
- Determine competition methods
- Specify economies of scope
Strategy Implementation:
- Encourage cross-division cooperation
- Evaluate division performance
- Allocate capital

How do Corporate Staff contribute to strategy in the M-Form structure?

- Provide information on internal and external environments for strategy formulation and implementation.

What tasks do Division General Managers handle in strategy formulation and implementation?

Strategy Formulation:
- Decide division competition within corporate strategy
Strategy Implementation:
- Coordinate functional managers' decisions
- Compete for corporate capital
- Cooperate with other divisions

What is the purpose of the M-form structure in a diversified firm?

Designed to ensure that:

Managers are held accountable
Operations align with equity holders’ interests
There are checks and balances on management effectiveness.

Who typically holds the position of the firm’s senior executive in the M-form structure?

Often, but not always, the position is held by the:

CHAIRMAN OF THE BOARD
Manages insights about decisions impacting equity holders.

What is the primary task of the managerial board members in the M-form structure?

Responsibilities include:

Providing information and insights
Addressing critical decisions
Evaluating effects of decisions on equity holders.

How do outsiders contribute to the board's function in the M-form structure?

Their main task is to:

Evaluate past, current, and future performance
Assess senior managers’ actions
Ensure alignment with the interests of equity holders.

What is the role of the AUDIT COMMITTEE in the M-form structure?

Primarily responsible for:

Ensuring accuracy in accounting
Verifying financial statements
Maintaining investor trust.

What does the FINANCE COMMITTEE do within the M-form structure?

The committee’s main role involves:

Maintaining relationships with external capital markets
Monitoring financial strategy and funding opportunities.

What responsibility does the NOMINATING COMMITTEE hold in the M-form structure?

Their key task is to:

Nominate new board members
Assess board composition and diversity needs.

What is the function of the PERSONNEL AND COMPENSATION COMMITTEE?

This committee is responsible for:

Evaluating senior executive performance
Compensating senior managers
Aligning rewards with firm performance.

Who are typically the institutional owners that manage their investments collaboratively?

Institutional owners generally include:

Pension funds
Mutual funds
Insurance companies
Other groups formed by individual investors

How are shared activities managed within an M-form structure?

In a multidivisional structure:

Shared activities are treated as COST CENTERS
They operate under a budget rather than having profit and loss responsibility
Services aim to just cover operating costs

How can divisional performance be measured?

Divisional performance measurement methods include:

Accounting methods focusing on financial metrics
Economic methods incorporating short-term investments and cost of capital

What are common accounting measures for evaluating divisional performance?

Common accounting measures include:

Return on assets (ROA)
Return on sales
Sales growth
Comparison to performance standards

What three standards are used to evaluate divisional performance?

The three evaluation standards are:

A hurdle rate common across business units
A division’s budgeted performance
Average profitability in the division’s industry

What does the Economic Value Added (EVA) indicate and how is it calculated?

EVA indicates performance by:

Subtracting the cost of capital from a division’s earnings
It adjusts accounting measures for long-term benefits

How do firms typically allocate capital using zero-based budgeting?

In zero-based budgeting:

Capital allocation requests are listed
Priority ranking is established from most to least important
Funding is provided for all projects within available capital

What are INTERMEDIATE PRODUCTS OR SERVICES and how are they managed?

Products or services from one division serve as inputs for another division. Management occurs through a TRANSFER-PRICING SYSTEM that uses a transfer price to accomplish corporate objectives.

How should OPTIMAL TRANSFER PRICES be established in a diversified firm?

The transfer price should reflect the value of opportunities forgone when a product or service moves between divisions. This is based on the missed opportunities.

What information is needed to establish optimal transfer prices?

Information about opportunities forgone is crucial. This includes:

marginal costs
manufacturing capacity
external demand for products

Much of this data is hard to obtain.

What is the significance of COMPENSATION POLICIES for firms with a diversification strategy?

Compensation policies are crucial for diversification as they:

Align management and investor interests
Increase performance incentives
Address potential conflicts.
High absolute compensation levels remain in the U.S.

What are the mode of entry options mentioned in the diagram?

Strategic Choices lead to entry modes:
- (Strategic) Alliances
- Mergers & Acquisitions
- Going alone

What do Barney and Hesterly classify Mergers, Acquisitions, and Alliances as?

These are considered corporate-strategies according to Barney and Hesterly.

However, this classification has been pointed out as a drawback in lectures.
Mergers, acquisitions, and alliances serve as governance modes, not strategies in themselves.

How can Mergers, Acquisitions, and Alliances be utilized according to the lectures?

They can be employed for both business-level and corporate-level strategies.

They function as a governance mode for entry into markets.
They serve to implement other strategies rather than being strategies on their own.

What is an example of using a business-level strategy with Mergers or Acquisitions?

An example involves a business-level strategy of Cost leadership.

The goal is to lower costs through economies of scale.
This can be achieved via horizontal expansion through alliances, mergers, or acquisitions.

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