Global Enterprise and Competition

66.511.202
Fall 2006
Ashwin Mehta, Visiting Faculty

Session 6

Global Enterprise Management

Culture
Strategy
Standards
Coordination

Global/Regional
(standardization)

Local
sales

Production
Logistics

Marketing
Frontline cust support

Procurement
R&D

Call Centers
Backend customer svc

Session 6

IMPORTANCE OF INTEGRATING CORPORATE,

BUSINESS & INTERNATIONAL STRATEGIES
Consistency requirements - purposes/goals
Resource Allocation
Internal Financing
Portfolio Balance
Growth & Profit
Guide Business Strategy Formulation
Set Business Performance Objectives
Develop Business Performance Criteria

Potential Issues
Communication between Corporate & Businesses
Role of Business in Corporate Portfolio
Clarity of Business Strategies
Performance Metrics and Incentives
Structures

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Global Leader*

Global Leaders=Top 3 companies in the industry on effectiveness in conducting

business globally
*: Fortune Feb 2006

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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

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Multinational Firms Organizations

International Division
Underneath geographical structures
Most common and is simple
greater 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 division
good for companies with many different offers (like consumer goods companies)
Redundancies

Geographical division
More popular with companies having large International presence

Matrix division
Better coordination/communication and information sharing
Complex
Potential for a politicized
Session 6

Groupe Bull
(France)

Product Line
Mgmt (PLM)

Strategy

Staff

Bull HN
(US)
R&D
Mfg
Mktg
Admin
Geographic
UK
Italy
International
Canada
Pacific

Global Corporate/Business Strategy

PLM mainly R&D focused
Products global
Mission 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

Bull
(France)
R&D
Mfg
Mktg
Admin
Sales
France
Germany
etc.
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Geographic Area Structure for a Multinational Corporation

Board of Directors

President

Corporate
Staff

R&D

Operating
Companies
U.S.

Product
Group
A

Operating
Companies
Europe*

Product
Group
B

Operating
Companies
Latin
America

Product
Group
C

Operating
Companies
Africa

Operating
Companies
Asia*

Product
Group
B

*Note: Because of
space limitations,
product groups for
only Europe and Asia
are shown here.

Product
Group
D

Session 6

Global/MNEs
Before established companies adapted to new global environment
incremental markets view
Now --- new companies and industries are born global
primarily from developing countries (e.g. India)
home markets too small and moving to go global
Primary markets view
Accessing scarce resources (specially human)

Session 6

Global/Multinationals Challenges
Country Managers

CEO
SBU head

Business managers

Functional managers

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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 Orgn)
Purpose Specialization --- Output based (Divisional, Product,
Geographic, Customer)

Session 6

Measuring impact of structures

Functional
Benefits

Costs

Divisional

Expertise, critical mass

Economy of scale and scope
Efficiency
Avoid duplication of resources
Career benefits

Focus
Effectiveness
Fewer coordination issues
Quick response to changes

Coordination costs
Functional myopia
Loss of big picture
Bureaucracy

Duplication of scarce resource

Potential loss of economics and
efficiency

Session 6

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
Doing Things Right

Divisional Structures
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 organizations
Right mix
Sequential Decision Process
Efficiency and Effectiveness requirements
Centralization/Decentralization mix
Tall Vs Flat Organizations
Inertia
Expertise issue
Responsibility
Lateral Communication
The Corporate Center
Primarily includes efficiency (HR, Legal, Purchasing, IT, etc.)
Expanded Center: Strategic Management function;
Executive Ed function; and Centers of Excellence
Session 6

Relationship between Strategy and Structure

Demands of Strategy
Low cost
Focus
Differentiation
Mix
Global
Strategic Drivers of Structure Choice
Type of Strategy
Need for Efficiency/Effectiveness
Market and Technology Relatedness
Size/Growth

Session 6

Effective Coordination and Information Sharing

Integration/Coordination required between organizations
to completely execute strategy
Structures give static view
Integration makes structures work
Dell
Focused Systems of Activities to
Reduce costs
Improve Delivery
Improve customer service
Create a competitive advantage
Activity Systems
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Effective Coordination and Information Sharing

Information/Knowledge Sharing
GE Work Out
Challenge and Stretch
Learning Culture
Structure and Process of Work Out
An example of Reciprocal Interdependence

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Effective Coordination and Information Sharing

Issues with Information/knowledge Sharing
Formal Vs Informal
Open Vs Guarded
Power and Influence
Filtered

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Effective Coordination and Information Sharing

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

Session 6

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

Session 6

Use of Expats
Pros
- Product/culture knowledge
- Easy & Efficient corporate
relationships
-Technical/business skills not locally
available
-Transferable skills
-Protects/promotes company interests
in JVs, 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
Session 6

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 IPs
-Control of JVs (loyalty concern)

Session 6

Session 6

Incentives

Incentives
Good objectives --- measurable
Incentives tied to objectives
Motivating objectives and incentives
Objectives should not be all or nothing
Reward the right things

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Incentives
Evaluation Controls
Strategy and Objectives

Actual performance

Significant deviation?

Cause-effect analysis/learning
Continue

Rewards/corrections Actions/change

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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)

Session 6

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 behaviors
Management of operation
Managers must study and understand cultures before launching a
Global business
Session 6

Cultures Importance in Strategy Implementation

-Dell launched a new web site in Japan with black borders
Black 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 on
food package labels.
-Workers Participation in work planning may not work everywhere

-Going Global and Acting Local

Session 6

Customer Country and Competitor

Country Features
P&G JAPAN SKII
Professor Daniel F. Spulber

Session 6

P&G Internationalization Evolution

1930 1970s
Strategy:
International Market
Expansion
Country level focus
-Tailor to meet needs
-Common structures,
Policies, practices
Issues:
Cost
Global introduction

1980s
Cost
Innovation

Coordinating
Regional orgns
-overlapping structures
To minimize differences

1990s
New untapped
markets

Global management
-strategy
-technical programs
-marketing

O2005
Innovation

- GBU taking
over profit

Country level
-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)
Session 6

Organization 2005:
Objective: transform Global planning and management system into a
more innovative and quicker system
Old structure:
countries

Global area design, organizing around country or

O2005: organize around products or product groups

convert 4 geographically based business units to 7 global BUs
around products
create 8 market development orgns 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 months
multi-department effort
Session 6

Global business unit (GBU)

Extends strategic business unit (SBU)
organization to international business
Headquarters
Division managers
create and implement
strategies
on a global basis

GBU 1

GBU 2

GBU 3

Division managers responsible for products, pricing, marketing,

sales, R&D, financing, procurement on a global basis

Session 6

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

The Legend

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.

http://sk2us.com/index.htm

For the following five and a half years, intensive

research was undertaken to understand more about
this magical seemingly 'age-defying' liquid.

Session 6

The Discovery

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.
Session 6

The Ritual

Visualize
Empty 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 skins 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.
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

Session 6

Making the case for SKII

Incremental revenues
Addresses prestige market segment
Diversifies P&Gs 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 and

Competitor 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 quickly
responsibility issues/concerns
BUs competing with each other
Resistance by employees
morale, defection
Status 2004:

Jager was forced out, replaced by Lafley

Stopped the changes
Adopted global matrix organization blend of
geographical and product BUs

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

Session 6