Efficiency advantages of the multidivisional firm: + Recognizes bounded rationality— top management has limited decision-making capacity + Divides decision-making according to frequency: —high-frequency operating decisions at di —ow-frequency strategic decisions at corporate level + Reduces costs of communication and coordination: business level decisions confined to divisional level (reduces decision making at the top) + Global, rather than local optimization:- functional organizations encourage functional goals. M-form structure encourages focus ‘on profitability. + Efficient allocation of resources through internal capital and labor markets + Resolves agency problem corporate management an interface between shareholders and business-level managers.+ Constraints upon decentralization = Difficult to achieve clear division of decision making between corporate and divisional levels. — On-going dialogue and conflict between corporate and divisional managers over both strategic and operational issues. + Standardization of divisional management — Despite potential for divisions to. develop distinctive strategies and structures —corporate systems may impose uniformity. + Managing divisional inter-relationships - Requires more complex structures, e.g. matrix structures where functional and/or geographical structure is imposed on top of a product/market structure. ~ Added complexity undermines the efficiency advantages of the M- formManaging the Corporate Portfolio Managing the individual businesses Managing between businesses —Decisions over diversification —Resource allocation between businesses. — Business strategy formulation —Monitoring and controlling business linkages —Sharing and transferring resources and , acquisition, divestment performance capabilitieseee Ue Mere CoM oe Uses in Strategy Formulation Allocating resources the analysis indicates both the investment requirements of different businesses and their likely retums Formulating business-unit strategy -- the analysis yields simple strategy recommendations (e.g... "build", “hold”, or “harvest’) Setting performance targets — the analysis indicates likely performance outcomes in terms of cash flow and RO! Portfolios balance — the analysis can assist in corporate goals such as a balanced cash flow and balance of growing and declining businesses.Portfolio Planning Models: The BCG Growth-Share Matrix Earnings. low, unstable, rowing leash fow: negative Earnings: high stable, growing Istrategy analyze to determine Cash fiow- neutral ‘whether business can be grown into a ” Strategy invest for growth star, oF r will degenerate into a dog . Earnings: — low, unstable Earnings: high stable Cash flow. neutral or negative ‘Cash flow. high stable FEstratoay divest Svategy rik iSADVANTAGES + Simplicity: Can be quickly prepaired + Big picture: Permits one page Tepresentation of the corporate portfolio & the strategic positioning of each business + Analytically versatile: Applicable to businesses, products, countries, distribution channels. + Can be augmented: A useful point of departure for more sophisticated analysis Do Portfolio Planning Models Help or Hinder Cer ee Sila menue DISADVANTAGES + Simplicity: Oversimplifies the factors determining industry attractiveness and competitive advantage + Ambiguous:The positioning of a business depends critically upon how a market is defined + Ignores synergy: the analysis takes no account of any interdependencies between businessesCorporate Restructuring to Create AZM aM ea ule ea) Current perceptions Maximum raider ‘opportunity Stategi and Teal eompas coating copotunie, cppatinites Potential vatue (3. Sosposaraequszion \ 4 ) Potential value with internal ‘pportuntes with external improvements improvementsForecast > Discuss- ~ion with by contact. [=] Mgmt. director Committee Financial Corporate Plan2 basic approaches Primarily through strategic planning system & capital ‘expenditure approval system Monitoring & appro\ business level decisions Output (or performance) control v Setting & monitoring the achievement of performance targets Primarily through performance management system, including operating budget s and HR appraisal s+ Setting performance targets —feeding business unit strategic and industry data into the PIMS regression model gives performance norms for the business (PAR ROI). + Formulating business unit strategy —PIMS model can simulate the impact of changing strategic variables. - Allocating investment funds between businesses — PIMS Strategic Attractiveness Scan comparison different business units ' strategic attractiveness and their cash flow characteristicsSL KEY ISSUE—How does the corporate center add value to the business? BASIS OF BUSINESS LINKAGES—Sharing of resources and capabilities. SHARING OCCURS AT TWO LEVELS: * Corporate level—c ommon corporate services + Business level_sharing resources, transferring capabilities PORTER'S ANALYSIS OF BUSINESS LINKAGES AND CORPORATE STRATEGY TYPES + Portfolio management —Parent creates value by operating an internal capital market + Restructuring —Parent create value by acquiring and restructuring Inefficiently - managed businesses + Transferring skills. —Parent creates value by transferring capabilities between businesses + Sharing activities —Parent creates value by sharing resources between businesses ROLE OF DOMINANT LOGIC—importance of corporate managers’ perception of linkages.Sr erly re re CMU UE CM lena Porter’s “Concepts of Corporate Strategy” (1) Portfolio Management + Using superior information and analysis toa quire attractive companies at favorable prices (e.g. Berkshire Hathaway) . + Minimizing cost of capital (e.g. GE) + Create efficient t internal system for capital allocation (e.g. Exxon-Mobil) + Efficient monitoring of business unit performance (e.g BP-Amoco) . (2) Restructuring : Intervening to cut costs and divest under performing assets (e.g. Hanson during 1980s & early 1990s) (3) Transferring skils —Transferring best practices (e.g. Hewlett-Packard) —Transferring innovations (e.g. Sharp) —Transfer ring key personnel between businesses (e.g. Sony) (4) Sharing activities : —Common corporate services (e.g. 3M) —Sharing operational resources and functions (e.g. sale: manufacturing facilities).eS eR UU SU eMC Less perc) Corporations: Bartlett & Gh oshal’s Analysis of Key Management Processes Managing the tension | RENEWAL PROCESS between short-term ambition Creating and maintaining _ [Shaping and embedding _ ‘organizational trust corporate purpose Managing operational | INTEGRa;S=—————_| interdependencies and ‘GRATION PROCESS —— ersonal networks e Linking skills, knowledge, rurture eral 1nd resources ENTREPRENESSS ss —_| values Creating and Pursuing 'NTREPRENEURIAL PROGESS|———" nities ~ opp Reviewing, developing, and | Establishing supporting initiatives strategic mission penne performance standards Front-ine Management | Middle Management Top Management- All credits to the sources used and based from. 051721. -