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Day 3 MIM 578 Global Strategy II

Day 3 MIM 578 Global Strategy II. Scott Marshall SBA Corporate Partners Professor School of Business Portland State University. Organizational Structure as an Outcome of Strategy. Why do great companies fail?. Unparalleled track record of success. Accumulation of abundant resources.

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Day 3 MIM 578 Global Strategy II

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  1. Day 3 MIM 578 Global Strategy II Scott Marshall SBA Corporate Partners Professor School of Business Portland State University

  2. Organizational Structure as an Outcome of Strategy Why do great companies fail? Unparalleled track record of success Accumulation of abundant resources No gap between expectations and performance A view that resources will win out Contentment with current performance Resources substitute for creativity P&G Inability to escape the past! Ford

  3. Organizational Structure as an Outcome of Strategy Why do great companies fail? Optimized business system Success confirms strategy Deeply etched recipes Momentum is mistaken for leadership Vulnerability to new rules Failure to “reinvent” leadership Corning Glass Kodak Inability to invent the future!

  4. Organizational Structure as an Outcome of Strategy International Division Structure

  5. Organizational Structure as an Outcome of Strategy International Area Structure

  6. Organizational Structure as an Outcome of Strategy Global Product Structure

  7. Organizational Structure as an Outcome of Strategy Global Matrix Structure

  8. Organizational Structure as an Outcome of Strategy Structure is not an organizational chart – structure is the nature of the relationships within and between organizations. Structure influences behavior – when placed in the same system, people, however different, tend to produce similar results. In order to change behavior, we must change the structure.

  9. Organizational Structure as an Outcome of Strategy • Strategic change is a reorientation of the direction of the corporation and the relationships that exist within it. • The direction of the corporation is defined more by its vision than by how it maintains current advantage (or disadvantage). • In order to change the structure, we must change the strategy.

  10. Danone Group, 2003 Chair and CEO Vice Chair and COO Exec VP, Fresh Dairy Exec VP, Water General Secretary Exec VP, Finance Exec VP, Biscuits and Cereal Snacks Exec VP, Asia-Pacific Exec VP, Intl Strategy Organizational Structure as an Outcome of Strategy

  11. Structure as Constraint “Perfect alignment is death” Gary Hamel TRAP? Hamel & Prahalad (1994) & Tushman & O’Reilly (1997)

  12. Structure as Constraint Competence trap derived from routines and procedures that were successful in past: • promotion and hiring • incentive systems • capital budgeting • organizational structures • personal commitment to status quo

  13. Structure as Constraint Strategic Internal Congruence Align internal polices, procedures and systems with the firm’s strategy. Strategy of Firm • Innovation driven • Process driven • Market driven • Internal SOP & Ps • Compensation policies • Training procedures • Production systems • IT systems ?

  14. Structure as Constraint Competence Trap Firms that strive for competence within a given strategy can become trapped in this strategy and miss opportunities for strategic change. Are Sony and McDonald’s trapped? Did the iPod ‘untrap’ Apple? Will WalMart get trapped? It is not necessary to change.  Survival is not mandatory.  ~W. Edwards Deming

  15. Structure as Constraint Avoiding Traps by Creating Gaps “If you know how to get there – it’s not a stretch target” Jack Welch Adapted from Tushman & O’Reilly (1997)

  16. Structure as Constraint Avoiding Traps by Creating Gaps Opportunity Gaps – Capitalizing on existing competencies while building new competencies Adapted from Tushman & O’Reilly (1997); Govindarajan & Gupta (2001); Hamel & Prahalad (1994) Structure: • Avoid organizing around strict product “modules” • Provide defined ‘sand boxes’ Information: • Avoid dependence on existing customers & suppliers for new product & service ideas • Create internal ‘market’ for ideas Direction: • Focus new product development teams entirely on unserved markets. • Benchmark related industries, not just competitors

  17. Structure as Constraint Avoiding Traps by Creating Gaps Performance Gaps – Utilizing existing human, technological & financial resources to extend their performance. Productivity: • Avoid complete focus on cost/unit targets. • Focus on maximizing knowledge accumulation. Incentives: • Avoid regression to the mean in compensation - Higher risk should pay higher reward • Avoid individual reward – make it group-based

  18. Structure as Constraint Gap Analysis Collaborative Process Communications Technology Performance Measures Education/Development Leadership/Leverage Learning Network Market Image Innovation Intelligence Alliances/Joint Ventures Products/Services

  19. Structure as Constraint • Interview with Yang Yuanqing, Chairman, Lenovo Group Let’s listen to this interview of the Lenovo chairman and see if there’s a sense of competence traps and gaps…

  20. Structure as Constraint Samsung Avoids Traps…

  21. Structure as Constraint Samsung Avoids Traps…

  22. Structure as Constraint Samsung Avoids Traps… • Asia Knowledge Enterprise of the Year (MAKE Award) 2002, 2003. • From low cost producer to product innovator. • STRUCTURE HAS FOLLOWED STRATEGY SUCCESSFULLY…

  23. Mergers & Acquisitions • The Structure of Giants and how they got there • Let’s go to the PSU Library database – ‘Corporate Affiliations’ – and check out the structure of some very large global companies…

  24. Mergers & Acquisitions • Why? • Gain market share • Enter new markets • Acquire technologies • Integrate vertically • Why not? • Grasping for a company simply because it’s on the market, or because a competitor wants to buy it Overpayment or misguided purchase!

  25. Mergers & Acquisitions • Customers • Vertical • Related industries • Horizontal • Same industry/ • Same market • Consolidation • Same industry/ • Different market • International • Suppliers • Vertical

  26. Mergers & Acquisitions • Industry / Markets • Customers / Partners • Competition • People • Suppliers • Customer & Vendor Contracts • Operations & Support • Pricing and discounts • Finance, Accounting & Taxes • Contingent Liabilities • Corporate Controls • Intellectual Properties • Human Resources • Legal • IT – infrastructure & applications • Insurance • Synergy – Assumption Testing!! Look for the devils in the details!

  27. Mergers & Acquisitions Problems with Mergers and Acquisitions • High Costs • High Premiums Typically Paid By Acquiring Firms (Intel and DSP from reading) • Increased Interest Costs from Higher Leverage • High Advisory Fees and Other Transaction Costs • Poison Pills—things target companies do so they are less attractive to takeover

  28. Mergers & Acquisitions Problems with Mergers and Acquisitions • Strategic Problems • High Turnover Among the Managers of the Acquired Firm • Short-Term Managerial Distraction—takes managers away from the critical tasks of the core businesses • Long-Term Managerial Distraction—lose sight of the factors that lead to success in their core businesses • Less Innovation • No Organizational Fit—cultures or systems don’t combine well • Increased Risk—increased leverage. Also the risk of unsuccessful management

  29. Mergers & Acquisitions Successful Mergers and Acquisitions • Low debt • Friendly negotiations • Complementary resources (relatedness) • Cultures and management styles are similar (organizational fit) • Post-merger sharing of resources • Due diligence before merger • Learning occurs

  30. Mergers & Acquisitions Let’s Listen to Some Reports to Investors – listen for discussions around acquired business units… • Daimler-Chrysler Annual Meeting 2007 - Webcast • P&G 3rd Quarter 2007 Earnings Report – Webcast • What did you hear that was most interesting (and relevant to today)?

  31. Mergers & Acquisitions To Ally…or Acquire? From Dyer et al., 2004

  32. Mergers & Acquisitions From Dyer et al., 2004

  33. Mergers & Acquisitions • In-Class Discussion • Consider the case study of Lenovo, the interview of the Chairman heard today, as well as your knowledge of Lenovo gained during the trip. • Using all of your accumulated knowledge, assess the Lenovo acquisition of IBM’s PC division according to the Dyer et al. “Ally or Acquire” framework. • Based on your assessment, should Lenovo have made this acquisition or should it have considered an alliance? Why did you come to this conclusion?

  34. Take-Aways for Today • Corporate Failure • Escaping the Past • Inventing the Future • Successful Structure becomes Constraint on Future Success • The “Why” and “Challenges” of M&A • Necessity of Considering If M&A is Best Option (Ally or Acquire?)

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