Chapter 8

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Chapter 8. The Strategic Management Process. External Analysis. Strategic Choice. Strategy Implementation. Competitive Advantage. Mission. Objectives. Internal Analysis. Implementing Corporate Diversification. How Information Flows. Where and By Whom are Decisions Made.
Chapter 8The Strategic Management ProcessExternalAnalysisStrategicChoiceStrategyImplementationCompetitiveAdvantageMissionObjectivesInternalAnalysisImplementingCorporateDiversificationHow Information FlowsWhere and By Whom are Decisions MadeHow to Influence the Behavior of PeopleImplementation Issues• how can the interests of employees be aligned with the interests of the firm?The Need for Organizational StructureInformation Processing Requirements• as organizations become larger and more complex, information processing requirements exceed individual capacity • bounded rationality• satisficing• organizational structure divides information processing into manageable blocks (span of control)Interests of Owners andManagers May DivergeThe Agency RelationshipA Trade OffM-Form StructureDivides InformationProcessing RequirementsInto Manageable BlocksDivides OwnersFrom ManagersThe Agency RelationshipManaging AgencyPrincipalsMonitorsAgentsDivisionGeneralManagersIndividualShareholdersSeniorExecutivesBoardOfDirectorsSharedActivityManagersInstitutionalShareholdersCorporateStaffDualRoleThe Office of the PresidentChairmanof theBoard(monitoring)ChiefExecutiveOfficer(strategy formulation)ChiefOperatingOfficer(strategy implementation)The Office of the PresidentInformation Filtering• information about the divisions’ businesses is filtered as it rises to the senior executive• the senior executive can ‘manage’ the information flow• information flow should not exceed the bounded rationality of managers at any level in the organization• information should flow should be matched with decision-making authorityTransferringIntermediateProductsEvaluatingDivisionalPerformanceAllocatingCapitalManagement Controls3 IssuesMeasurement:Playing Games:Setting Prices:• accounting• managers want to look good• negotiation• economic value added (EVA)• cost• zero-based budgeting• market-basedAmbiguity:• dual pricing• allocating costs & revenuesCompensation PoliciesCompensation CommitteeIn theory…• represents interests of owners in setting compensation of top executive team• sets compensation based on performance or marketIn practice…• sometimes appear to be beholden to executives• compensation decisions often bear little relationship to performanceDivestAssetsSpin-offRefocusingCorporate level strategy may call for exiting a business• a conglomeration discount may exist• the corporation may lack necessary skills• expected economies of scope may not exist• the corporation may need funds for core activitiesMBOor,IPOMulti-DomesticStrategyGlobalStrategyInternational ImplementationDecentralized Federation:Centralized Hub:• highly autonomous units• facilitates global integration• very responsive locally• exploits a global productCoordinated Federation:• less autonomous• exploits scale economies• some shared activities between divisionsTransnationalStructureInternational Implementation• facilitates both local responsiveness and global integration• country managers are responsible for exploiting economies of scope• corporate HQ constantly scans the globe looking for best practicesSummarySuccessful implementation is a matter of:• appropriately breaking information processing into manageable blocks• aligning the interests of owners and managersThese can be accomplished through:• Organizational Structure• Management Controls• Compensation Policies
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