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

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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

Session 6

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

Session 6

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.

Session 6

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)

Session 6

Country Managers

Business managers Functional managers

CEOSBU head

Global/Multinationals Challenges

Session 6

“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

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 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

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

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

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 IP’s-Control of JV’s (loyalty concern)

Session 6

Session 6

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)

Session 6

Culture

Company/Corporate Culture

Sub-cultures and Managing Differences

National/Regional Culture

Work Vs Customer Implications

Session 6

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

Session 6

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)

Session 6

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

Session 6

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

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

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

Session 6

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”