Corporate Strategy Notes PDF

Business strategy (how to compete in a distinct business or industry -- competitive strategy) **corporate strategy** (foundation of firm economic performance). For each business, a company's economic performance results from two distinct drivers: A diagram of a company structure Description automa...

Business strategy (how to compete in a distinct business or industry -- competitive strategy) **corporate strategy** (foundation of firm economic performance). For each business, a company's economic performance results from two distinct drivers: A diagram of a company structure Description automatically generated Industry structure: **Porter's five forces** - Threat of new entrants - Threat of substitutes - Rivalry among existing competitors - Bargaining power of suppliers - Bargaining power of buyers Determinants of long-term industry profitability. Common traps: - Apply in a firm-centric way (this is an industry level too) - Define industry too broadly to be meaningful Relative position within the industry: sources of competitive advantage -- activities & value chain  **Levels of strategy** A diagram of a business strategy Description automatically generated **Premises of corporate-level strategy** - Competition occurs at the business level - Being part of a diversified company involves inevitable costs for business units - Shareholders can diversify directly at lower cost The central issue in corporate strategy is how the corporation adds competitive value to its businesses. Premises of corporate-level strategy: **1+1\>2** **Module flow** A diagram of a company structure Description automatically generated **Part 1: key concepts in corporate strategy** Unilever acquiring gsk (consumer healthcare) diversifying into health, beauty, hygiene. **Part 2: modes of corporate development** Build/buy/ally/other -- what combination? What order?  **Part 3: after the deal: managing corporate strategy** Amazon and Zappos example. This flow is important because: - Mirrors the key responsibilities of a corporate strategist - Module puts you in the corporate strategist's shoes Corporate strategy mathematics 1+1\2 A diagram of a company Description automatically generatedP&G example (diversification) Disney example **Creating corporate value added (CVA)** Ongoing corporate competitive advantage depends fundamentally on the presence of concrete and robust interrelationships across the value chains of business units. - Transfer proprietary knowledge and skills in performing activities - Share activities across businesses - Successful corporate strategy presupposes that organizational mechanisms are in place so that cross-unit cooperation and integration actually occur. **Disney's tactics for creating CVA** Persuasive activity sharing and supporting coordination in every part of the value chain: - Deliberate, controlled use of key corporate resources (Disney name, brand positioning, characters, advertising time) - Central imagineering division creates special effects for films, then matching characters, attractions, and products for theme parks, retail stores and online stores. - Active cross-marketing of the array of Disney products and services - Limited-edition merchandise from consumer products offered though theme parks, Disney stores, other select channels - Transfer prices are negotiated between businesses, CEO resolves disputes Horizontal mechanisms enable highly effective coordination and sharing - Synergy group reporting to CEO coordinates projects cross divisions - Corporate events department coordinates special events across divisions - Disney university provides consistent training for employees across the company; synergy boot camp for executives - Credit card, online stores, streaming designed to capture customer data across divisions - Senior personnel transferred across divisions - Monthly operating meeting to discuss cross-divisional projects -- synergies tied to financial bonus. Later acquisitions and organic start-ups involved far weaker interrelationships. Transferring capabilities within a firm is tough, because internal capability transfer can be a major source of competitive advantage (internal stickiness). **Types of diversification** A diagram of a company Description automatically generated **Porter's three tests for diversification** a. How attractive is the industry that the firm is considering? b. How much will it cost to enter the industry? c. Will the business be better off? Parent and/or unit Tips and tricks: - Take a dynamic view - These tests are interconnected  A diagram of a company strategy Description automatically generated  READINGS week 1 Article 1 The main concept outlined in the document is **strategic management**, which revolves around crafting and executing plans that guide an organization toward long-term success and sustainability. **Key Components of Strategic Management:** 1. **Understanding the Environment:** - Tools like **SWOT analysis** (Strengths, Weaknesses, Opportunities, Threats) help organizations evaluate internal capabilities and external market conditions. - External factors such as political, economic, social, technological, legal, and environmental dynamics are assessed through **PESTLE analysis**. 2. **Competitive Advantage:** - The cornerstone of strategic success lies in achieving and maintaining a **competitive advantage**. This might come from: - **Cost leadership** (being the lowest-cost producer in the market), - **Differentiation** (offering unique products or services), or - **Focus strategies** (targeting niche markets). - Real-world examples likely highlight businesses like **Walmart** (cost leadership) and **Apple** (product differentiation). 3. **Adapting to Market Dynamics:** - Staying relevant requires **agility** to respond to rapid market changes, technological advancements, and evolving customer preferences. - Organizations that failed to adapt, like **Blockbuster**, serve as cautionary tales, while companies such as **Netflix** illustrate the power of adaptability and innovation. 4. **Leadership and Decision-Making:** - Effective leaders play a critical role in crafting and communicating a vision that aligns organizational efforts toward shared goals. - Strategic decision-making balances short-term pressures with long-term priorities. 5. **Innovation and Change Management:** - **Innovation** is essential for growth, allowing organizations to disrupt markets or avoid being disrupted themselves. - Companies like **Tesla** are noted for their ability to innovate in established industries, driving significant competitive advantages. - Managing change requires overcoming resistance and creating a culture that embraces new opportunities. 6. **Stakeholder Engagement:** - Success isn't only about profits but also about engaging with various stakeholders---customers, employees, investors, and the community. - Frameworks like stakeholder analysis help prioritize and address these diverse needs effectively. **Illustrative Examples:** - Companies that excel with strategic management are often used as success stories: - **Southwest Airlines**: Known for operational efficiency and cost leadership. - **Amazon**: Mastery in customer-centric innovation and logistical excellence. - Failures, such as **Kodak**, underline the dangers of ignoring market trends (e.g., digital photography). Article 2 **Core Idea** The article focuses on the challenges organizations face when transferring best practices or critical knowledge internally. This difficulty is termed **\"internal stickiness\"**---the barriers and impediments that hinder the smooth flow of knowledge within a company. **Simplified Breakdown** 1. **Definition of Internal Stickiness** - Internal stickiness refers to the challenges in replicating successful practices or transferring critical knowledge between units within an organization. - This process involves more than just sending information; it requires the recipient to adopt and effectively use the transferred knowledge. 2. **Barriers to Knowledge Transfer** The study identifies key impediments to effective knowledge transfer, grouped into four categories: - **Knowledge-related barriers:** - **Causal Ambiguity:** The recipient may not fully understand why a practice works, making replication difficult. - **Unproven Knowledge:** Lack of a clear track record for the practice reduces confidence in its utility. - **Source-related barriers:** - Lack of motivation to share knowledge or fear of losing competitive advantage within the organization. - Perceived lack of credibility or expertise of the source unit. - **Recipient-related barriers:** - **Absorptive Capacity:** The recipient's ability to understand and apply new knowledge is crucial. - **Retentive Capacity:** The ability to institutionalize the transferred knowledge into routine processes. - **Contextual barriers:** - **Arduous Relationships:** Communication difficulties or strained relationships between source and recipient units. - **Barren Organizational Context:** A lack of support systems or enabling environments to foster transfer. 3. **Stages of Knowledge Transfer** - **Initiation:** Identifying the need for transfer and recognizing the knowledge source. - **Implementation:** Adapting and beginning to use the knowledge. - **Ramp-up:** Overcoming unexpected problems and refining usage. - **Integration:** Institutionalizing the practice into everyday routines. 4. **Empirical Findings** - Based on data from 122 best-practice transfers in eight companies, knowledge-related barriers like causal ambiguity and absorptive capacity were found to be more significant than motivational factors. - Companies like **Xerox** and **General Motors** were highlighted as examples of both successful and challenging knowledge transfers. 5. **Practical Insights** - Merely incentivizing knowledge-sharing is insufficient. Organizations must: - Build learning capacity within units. - Foster better relationships and communication channels. - Systematize and clarify best practices for easier replication. **Illustrative Examples** - **Success Stories:** Organizations like Xerox have documented internal benchmarking processes that identify knowledge gaps and help in best-practice transfers. - **Challenges:** General Motors faced difficulties transferring manufacturing practices across divisions due to contextual and relational barriers. **Takeaway** For organizations to fully leverage internal knowledge, they must go beyond motivation-focused solutions and address the structural and relational barriers that create internal stickiness. This involves fostering better relationships, enhancing learning capacities, and making knowledge more accessible and understandable. LECTURE 2 Transferring capabilities within a firm is tough, but very important for competitive advantage. Search for potential sources of **internal stickiness** across the four stages of best practice transfer (initiation, implementation, ramp-up, integration). Key drivers of internal stickiness are due to knowledge barriers (lack of recipient "absorptive capacity", causal ambiguity on behalf of recipient, difficult source-recipient relationship). Common diversification question: how can you assess whether a firm is making a smart diversification move? (Porter offers one approach) **Porter's three tests for diversification** a. How attractive is the industry that the firm is considering? b. How much will it cost to enter the industry? c. Will the business be better off? Parent and/or unit **Good, bad and ugly reasons why firms diversify** - Resource view - Excess capacity in productive factors (+ indivisibilities) - Firm learning - Economies of scope - Agency view - Empire building - Managerial entrenchment - Reduce employment risk - Market power view - Increase bargaining power - Cross-subsidization - Mutual forbearance - Risk and control view - Co-insurance of risks - Revenue stability - Address market failures - Transaction costs of mkt \> coordination and bureaucratic costs within firm **Firm learning** In running its core business, Amazon learns how to operate servers with massive amounts of data very well amazon web services. Jumbo wants to move beyond the low-margin world of grocery into the high-margin world of food experiences, but it needs to learn and build capabilities in this area la place. **BCG matrix** A chart with cartoon animals and a star Description automatically generated **Cross-subsidization examples**  **Types of corporate value added**  **1. Active Portfolio Management (Red Box)** - **Objective**: This model focuses on enhancing the value of each business unit by implementing robust **planning, budgeting, and management disciplines**. The parent company actively manages its portfolio of business units, providing strategic oversight and setting performance targets. - **Mechanism**: The parent company engages with each business unit autonomously, ensuring that it follows structured financial and operational processes. This model adds value by enforcing discipline, setting clear objectives, and ensuring efficient resource allocation. - **Example**: A holding company may set annual goals and budgets for each subsidiary, evaluate their performance closely, and provide guidance on meeting benchmarks. **2. Restructuring (Yellow Box)** - **Objective**: In this model, corporate value is created by **restructuring poorly performing units**. The parent company might focus on turning around underperforming businesses or reconfiguring industries where the company operates. - **Mechanism**: Restructuring involves significant changes, which can include streamlining operations, introducing new leadership, divesting non-core assets, or realigning the strategic focus. This value-added approach can improve the performance of business units that are struggling to meet targets or need revitalization. - **Example**: An investment firm acquiring a failing business, replacing management, and improving operational efficiency before selling it or reintegrating it as a stronger unit. **3. Proprietary Skill Transfer (Blue Box)** - **Objective**: The goal here is to create value by **transferring unique skills** from one business unit to another within the corporate structure. This could include sharing best practices, technical expertise, or proprietary methods. - **Mechanism**: Skill transfer relies on specialized knowledge that one unit has developed, which can benefit other units if successfully applied across the organization. The parent company facilitates this exchange, promoting efficiency and innovation across units. - **Example**: A technology company might have developed an advanced software solution in one division, which it can implement across other divisions to enhance productivity or streamline operations. **4. Activity Sharing (Green Box)** - **Objective**: In this model, corporate value is enhanced by **sharing significant activities** across different business units, particularly where economies of scale or scope exist. Examples include sharing sales forces, distribution networks, or logistics operations. - **Mechanism**: Activity sharing can lower costs and enhance coordination by consolidating similar functions across units. This model emphasizes collaboration between units to exploit synergies in operations, reducing redundancy, and leveraging shared resources for collective benefit. - **Example**: A conglomerate may have a centralized logistics network that serves multiple business units, reducing the need for each unit to establish its own logistics operations. **Parent-Unit vs. Unit-Unit Operations** - **Parent-Unit**: The first two models (Active Portfolio Management and Restructuring) operate through a **Parent-Unit** relationship, where the parent company directly engages with each business unit individually, providing oversight and support. - **Unit-Unit**: The latter two models (Proprietary Skill Transfer and Activity Sharing) focus on **Unit-Unit** relationships, fostering collaboration between business units to add value through shared knowledge or resources. Restructuring: Private equity - **High level private equity activities** A diagram of a company cycle Description automatically generated - Private stakeholders  READINGS -- week 2 Article 1 **Definition of Absorptive Capacity**: It is the ability of a firm to recognize, assimilate, and apply external knowledge for commercial purposes. This depends heavily on prior related knowledge. **Development Factors**: Absorptive capacity grows through R&D investments, manufacturing operations, and direct training. Learning is cumulative, and knowledge diversity enhances both assimilation and innovation. **Individual vs. Organizational Level**: At the organizational level, absorptive capacity is not a simple sum of individual capacities but involves communication structures, expertise distribution, and internal knowledge transfer. Diversity in expertise within organizations fosters innovation by enabling novel connections between ideas. **Path Dependence**: Past investments in knowledge influence future absorptive capacities, making development history-critical. Lack of early investment can result in \"lockout,\" where firms struggle to engage with emerging opportunities. **Role of R&D**: R&D not only produces new knowledge but also enhances the ability to absorb external knowledge. Factors like the difficulty of learning environments and external spillovers influence R&D investment levels. **Implications for Innovation**: Absorptive capacity explains why firms invest in basic research and collaborate in R&D despite knowledge spillovers. It is crucial for adapting to and exploiting technological advancements. **\ Article 2** **1. Resource** **-Based View (RBV) Framework** - Focuses on how a company\'s unique resources drive performance in a competitive environment. - Combines internal resource analysis with external market demands. - Explains why some companies are more profitable and how resources underpin competitive advantage. **2. Characteristics of Strategically Valuable Resources** - **Inimitable:** Hard to copy (e.g., patents, brand equity, organizational culture). - **Durable:** Depreciates slowly, sustaining competitive advantage over time. - **Non-Substitutable:** Cannot be easily replaced by alternatives (e.g., steel replaced by aluminium). - **Controlled:** The company must own or control the resource, not external stakeholders. - **Superior:** Offers advantages over competitors\' similar resources. **3. Types of Resources** - **Tangible:** Physical assets like prime locations or specialized equipment. - **Intangible:** Brand equity, technological know-how, or customer relationships. - **Capabilities:** Embedded routines and processes, such as lean manufacturing. **4. Application in Strategy** - Resources must align with market forces, including demand, scarcity, and appropriability. - Competitive superiority arises from understanding relative strengths against competitors. **5. Importance of Continuous Investment** - Companies must upgrade resources to maintain competitive advantage. - Examples: Disney\'s revival of animation (e.g., *Who Framed Roger Rabbit*) and Sharp's development of LCD technology. **6. Diversification and Leverage** - Leveraging resources across markets can unlock value. - Pitfalls include overestimating resource transferability and ignoring industry dynamics. **7. Lessons from Case Studies** - Companies like Newell and Disney succeeded by leveraging and investing in unique capabilities. - Failure examples include Xerox\'s complacency and Masco's entry into unattractive markets. **8. Managerial Implications** - Effective strategies integrate insights from capabilities and competition. - Managers must rigorously evaluate resources using market tests and adjust to changing dynamics. LECTURE 3 Key **tools for corporate strategy execution**: - Internal development (R&D) - Corporate venture capital (CVC) - Alliances - Acquisitions - Divestitures Module flow A diagram of a company structure Description automatically generated Modes of **corporate development**. What tools should the firm use to achieve it? How should the firm deploy these tools? When should the firm engage in these tools? **How can you ensure that your tool(s) implementation does not lead to 1+1\ - **Loss of Revenue:** Selling parts of the business can reduce total revenue. - **Cultural Impact:** Divestitures can disrupt company culture, especially if teams are split or employees are let go. - **Market Perception:** Investors may have concerns about the company's future, especially if divestitures suggest financial issues or a lack of direction. - Costs to the corporations - Costs to the business unit - Depressed exit price LECTURE 4 SYNERGIES - Diversified firms need to generate CVA such that 1+1\2 - Sharing- and transfer-style mechanisms are one way to get there -- but there are others! Types: 1. **Operational** (value chains) - Requires coordinated decisions about operations - Centres around value chain activities - Joint operations more valuable than each alone a. Consolidate (similar resources, high modification) - Eliminate redundancies - Modify value chain activities by disposal and/or better use of underutilized resources or excess capacity - E.g. headcount reduction, factory closures, Disney consolidating their foreign offices into larger regional offices b. Combine (similar resources, low modification) - Increase bargaining power by pooling the unmodified activities/resources of the value chain activities - E.g. Newell pools resources to build negotiation power with Walmart, gain bargaining power relative to suppliers by increasing procurement volume. c. Customize (dissimilar resources, high modification) - Modifying the value chain activities though specializing them to each other to increase their combined value - R&D customized to manufacturing - Software customized to hardware - Solution selling (tailor combined offering to customer's needs) - Joint product development d. Connect (dissimilar resources, low modification) - Pooling the outputs of unmodified value chain activities to increase their value - Cross-selling (banks offer savings accounts, insurance) - Product bundling - Sharing brands - Linking product development of one business unit to distribution channels of another. A diagram of several types of operational synergies Description automatically generated 2. **Financial** (nothing to do with value chains) - Acquire company to: - Have the size needed to access capital markets on better terms - Access a market listing - Move corporate domicile to a low tax location - Benefit from tax arbitrage - Build internal capital markets - Fill institutional voids - Cross-subsidization **Absorptive capacity** The ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends. Critical to the firm's innovative capabilities. R&D creates new knowledge, but also contributes to the firm's absorptive capacity. Using the R&D tool in combination with the acquisition tool. **Tool combinations for value generation** - R&D and acquisitions - Absorptive capacity - Divestitures & acquisitions - Shrink to grow - Make room in the firm - Remove excess baggage - Alliances & acquisitions - Date before you get married - Transaction execution capability transfer Many companies view acquisition and alliances as interchangeable strategies for driving growth. But each strategy has unique advantages and disadvantages. Consequently, they take over firms they should have collaborated with and ally with those they should bought, making a mess of both acquisitions and alliances. **Borrow (alliance) vs buy (acquisition)**  A diagram of a company\'s strategy Description automatically generated **CATEGORIZING M&A** **Five types of M&A, each with distinct challenges**  **Post-acquisition integration** A diagram of a process Description automatically generated **Unsuccessful integration**  **Successful integration** A white background with text and blue arrows Description automatically generated **Developing your post-acquisition integration approach** 1. **Define the acquisition's objectives** a. What are the strategies goals of the acquisition? what do you need to get out of this transaction? Why are you doing this deal? 2. **Identify the boundary/starting conditions** b. What is the degree of integrative complexity associated with this acquisition? technical, organizational. What is the level of uncertainty? Technical, market. 3. **Design the post-acquisition integration plan** c. What are the trade-offs to be made between more versus less integration? Ground your design decision 1 and 2. Six key factors to consider in your design. **Integration involves trade-offs**  A diagram of a process Description automatically generated with medium confidence **Case activity: Zappos** Company culture more important. But acquisition important, because of cash flow needed, however keeping the culture stays important also after acquisition by Amazon. **WRAP-UP**  **Module highlights** A diagram of company logos Description automatically generated LECTURE 5 -- CORPORATE STRATEGY, SENIOR LEADERSHIP AND PARADOX When buying a small corporation, you need to be careful to not kill the innovation cycle of the smaller one. Those words often cannot be combined effectively. Another perspective: bird is the corporation, and normally they are not very aggressive, and a new business model (snake) can take it away, be a danger to it. They often do not see any danger, as they think they were so successful in the past, find it hard to manage exploration and exploitation. But also the corporation does not know the new business model that exists (its new), they do not know it is danger, as we do not know about it. Snakes can be startups, or even companies working in a different industry.  GROFIT (growth and profit) shows what companies do and their market size. If you focus on revenue growth, the market capitalization grows from -14 to 10 or 0 to 23. You can also focus on profits, going from -14 to 0 or 10 to 23. Best option is to go diagonal, going from -14 to 23. Best organizations try to do both (growth - invest and improving the profit) at the same time. **From a contingency perspective** Contingency theory offers one response to tensions, assuming that organizational systems are more effective when they achieve alignment or fit among internal elements and with the external environment, this approach explores conditions for selecting among competing demands. A diagram of a cost-effective leadership Description automatically generated with medium confidence Nowadays, you should move away from the contingency perspective, as most successful organizations combine both components and do them at the same time, moving to a **paradox perspective** -- long term sustainability requires continuous efforts to meet multiple, divergent demands. A paradox has two contractionary things: - Underlying tensions -- that is, elements that seem logical individually but inconsistent and even absurd when juxtaposed - Responses that embrace tensions simultaneously - Two different things that need one another. Example: Coolblue - customer satisfaction and profitability is fundamental explanation of their success -- paradox - they have moved away from e-commerce company, venturing out into new areas for growth (energy, solar and charging, media consultancy) Transitions require companies to host exploration and exploitation over time. Transitions have considerable impact on the way incumbents operate: they need to rigorously overhaul their R&D process, redesign structures, and improve the quality of leadership.  **Exploration**: strategic initiatives emerging outside scope of current strategy. Aimed at entering new product-market domains. Creating new options for future growth; dealing with emerging competitive forces. (differentiation advantage) **Exploitation**: strategic initiatives within the scope of current strategy. Aimed at extending current product-market domains. Maximizing short term profits; dealing with existing competitive forces. (cost advantage) Managing the horizons and associated innovation portfolios means that the adjacent markets of today become the core of tomorrow's organization: A diagram of a business diagram Description automatically generated iPod example: Sony had the market leadership, and Apple was just producing computers, but it took market leadership from Sony. Organizations may become trapped in **reinforcing dynamics of learning and performance.** **Failure trap:** exploration over exploitation leads to high cost of experimenting, new business development, however, without gaining benefits. **Success or competence trap**: exploitation leads to short term benefits but long term obsolescence. Organizations may undermine their ability to renew. Exploration and exploitation require fundamentally different and inconsistent architectures and competences that create paradoxical challenges. Navigating transitions and balancing strategic paradoxes over time is difficult. Don't only look the mirror by focusing on financial ratios, but anticipate early warning signals and emerging problems around... attracting and developing talent, differentiating value proposition, eroding market relevance.  But we do know that organizations that host entrepreneurial and exploratory activities alongside ongoing businesses -- or ambidextrous organizations -- are associated with up to nine times higher performance levels. **Balance is key -- how to balance exploration and exploitation over time** A diagram of a function Description automatically generated with medium confidence **Organizational ambidexterity as a dynamic capability** Refers to the routines and processes by which ambidextrous organizations mobilize, coordinate, and integrate dispersed contractionary efforts and allocate, reallocate, combine and recombine resources and assets across differentiated exploratory and exploitative units. **Ambidexterity and strategic transitions leads to strategic paradoxes**. The pursuit of exploration and exploitation involve contradictory or inconsistent products, markets, technology, or associated resources, yet they both may be necessary for long term organizational success, and in fact they can reinforce one another.  They need to navigate between collaboration and competition. Leaders need to find within themselves the capacity to navigate strategic paradoxes or surround themselves with people who can. The stakes are simply too high for them not to. A diagram of a diagram Description automatically generated **A dynamic equilibrium model proposes a combination between acceptance and resolution**: paradoxical resolution denotes purposeful iterations between alternatives in order to ensure simultaneous attention to them over time. **Doing so involves consistent inconsistency** as managers frequently and dynamically shift decisions. Actors therefore make choices in the short term while remaining acutely aware of accepting contradiction in the long term. **Embracing Tensions at the Top of the Organization** - **Ambidexterity Challenges**: Top management teams (TMTs) face conflicts in balancing exploratory (innovation-driven) and exploitative (efficiency-driven) actions. - **Role Conflicts**: TMTs need to manage self-interest and align it with broader organizational strategies. - **Flexibility**: Embrace variability and local adaptation within units to foster innovation and exploration. **Supporting Others in Exploration and Exploitation** - **Strategic Coherence**: TMTs should allow deviations from core activities to promote innovation. - **Cross-fertilization**: Synergize ongoing exploitative activities with exploratory initiatives for balance. - **Resource Allocation**: Distribute resources to support both exploration and exploitation, while preventing over-commitment to mature, exploitative businesses. **Balancing Acts within Senior Teams of Ambidextrous Organizations** 1. **Shared Vision**: - Encourages consideration of diverse perspectives. - Fosters conflict resolution and common purpose. 2. **Social Integration**: - Enhances cooperation and collaborative problem-solving. - Supports open platforms for discussion, reducing interpersonal conflicts. 3. **Contingent Rewards**: - Link rewards to interdependent tasks. - Direct attention towards achieving collective goals, supporting integrative value. **Role of the CEO within the senior management team of an ambidextrous organisation** - Encourage senior executives to work as a team - Enhance senior team effectiveness - Recognise conflicts between agendas - Facilitate discussion and debate about possible synergies CEO's transformational leadership behaviours - Inspirational motivation - Individualized considerations - Intellectual stimulation - Idealized influence Framework explaining the mergence of organizational ambidexterity  **Research about Ambidexterity and leadership implications and takeaways** **Importance of Leadership and Team Attributes** - Senior executives are crucial in ambidextrous organizations; leadership and team cohesion matter. When the leadership is good, the team is doing better. - **Shared Vision**: Helps bridge gaps within diverse units. - **Social Integration**: Supports team interdependence but may limit open conflict discussions. - **Contingency Rewards**: Shared pay fosters a firm-wide perspective. **Transformational Leadership Insights** - Transformational leaders boost ambidexterity through intrinsic motivation, reducing dependence on performance-based rewards. - Social integration\'s impact on ambidexterity is stronger with transformational leadership. **Study Limitations** - Tested within one financial firm; more long-term studies needed to establish causality and performance impact. **CEO's position in resolving paradoxes** A diagram of a company Description automatically generated LECTURE 6: ORGANIZATIONAL CHANGE, TMT HEURISTICS AND SCALING To grow profitability over the long term, companies need a strategy that addresses three key decisions: how fast to grow (rate of growth); where to seek new sources of demand (directions of growth); and how to collect the resources needed to grow (method of growth). **Corporate longevity forecast**: creative destruction is accelerating. S&P 500 lifespans continue to shrink, requiring new strategies for navigating disruption. Few companies are immune to creative disruption. The 33-year average tenure of companies on the S&P 500 in 1964 narrowed to 24 years by 2016 and is forecasted to shrink to just 12 years by 2027. A gale force warning of leaders: at the current churn rate, about half of S&P 500 companies will be replaced over the next ten years. This means that it will be harder to maintain competitive advantage over time, however it shows the huge capability of scaling (start-ups in 12 years can become one of 500 biggest companies over time). **So, what is a high growth firm?** According to the OECD, a high growth firm is an enterprise with average annualized growth greater than 20 per cent per annum, over a three year period, and with ten or more employees at the beginning of the observation period (5% of Dutch firms). Not the exclude smaller firms, definition has been extended: a firm either with a minimum of 10 employees and an average annualized growth greater than 20 percent per year in terms of employees or turnover over a period of three years or with less than 10 employees and a growth of eight or more employees over a period of three years. Uncovering what it means to scale-up and persist high growth over time, also means acknowledging that there is no such things as the 'high growth firm'.  **So, the sky is the limit?** No, taking a strategic perspective means that companies choose a target growth rate that reflects their capacity to effectively exploit opportunities. A graph with a red line Description automatically generated **Difference between growing and scaling** Scaling -- you grow your revenues faster than your costs, it is possible for your growth. High growth firms need to transition from (platform) growth to scaling to persist and survive. We capture platform growth as an increase in the number of users and overall value generated on the platform, whereas platform scaling is associated with the ability to accommodate growth and to add revenues without equally increasing costs. It is scaling that allows for extracting profits when growing; and to gain market leadership without becoming vulnerable to disruptive changes in consumer and competitive behaviour, or other unexpected challenges.  Amazon example A graph of growth on a white background Description automatically generated  What elements of the business model, reinvent one another? This is critical, because it shows us the most critical elements of your business' success. It also shows you where you should invest the money, example -- customer experience leads to better traffic on the platform and so on. Reinvesting the money again in the platform is important! So what do persistent high growth firms do when transitioning from growth to scaling? Or more specific, their leaders? - **Increased Complexity**: - As firms expand, leaders (TMT members) face growing complexity and must make quick strategic decisions. - **Use of Heuristics**: - Leaders benefit from using **simple decision rules (heuristics)**, consolidating past learning to handle new challenges. - These heuristics help in **selecting opportunities** and **mobilizing actions**. - **Heuristics Origin**: - Concept by **Herbert Simon** on **bounded rationality**: - Leaders don't optimize but make \"good enough\" decisions based on limited information. - Known as \"satisficing\" (satisfy + suffice). - **Advantages of Heuristics**: - Allow for **fast, adequate decisions** without exhaustive data. - Help leaders act without complex calculations. - **Disadvantages of Heuristics**: - Speed may lead to **decisions with risks** due to limited data. - Some decisions may suffer from the lack of thorough analysis. Example: A food in a container Description automatically generated Focus too much on (high) growth may lead to stalling and/or exit. Transitioning from growth to scaling can be realized though cultivating complementary network effects over time.  A diagram of a network Description automatically generated Over time, they moved away from platform only, to also delivery. By doing their own delivery, they are being able to use more restaurants, but also to increase the quality of the restaurants on the platform, which do not have their own delivery. This was by using heuristics -- decision rules. The mergence of data network effects **Definition**: - Platforms leverage **machine learning and AI** to enhance value creation through user data. **User Data Utilization**: - Data from user engagement improves **targeting**, **predictive analytics**, and **process optimization**. I**mpact**: - Enables platforms to **personalize experiences** and enhance offerings. **Complement to Traditional Effects**: - Data network effects **add to** and **enhance traditional network effects**.  **Implications** **Scaling Beyond Growth**: Growth (more users and interactions) is essential at the start, but for long-term success, platforms need more than just user numbers. They must adapt to new opportunities and challenges over time. **Importance of Data Network Effects**: Besides traditional growth tactics (like marketing), platforms should focus on using data to: - Customize user experiences - Increase order value - Improve user and partner retention **Micro vs. Macro Success Factors**: Instead of just looking at big-picture (macro) factors for platform success, it's crucial to consider micro-level actions. This includes how leaders make quick, effective decisions. **Role of Decision-Making Heuristics**: Leaders use and adapt a set of simple decision-making rules (heuristics) to manage scaling. This helps them seize opportunities and react to changes effectively. Over time, refining these rules becomes vital for guiding efficient decision-making as the platform grows and scales. LECTURE 7 -- Purpose and emotions in corporate decision-making Example: LEGO What is the core purpose (value added) of our whole organization? They did not identified as a toy company, but being a company that is able to spur creativity and imagination. Identifying yourself with a broader purpose encourages the organization to come up with new ways to create value and growth. It does not limit you.  A white background with black text Description automatically generated Scholars have documented numerous challenges to innovation adoption, including resource allocation, technological demands, and business model incompatibilities. However, an additional factor -- the process by which TMTs frame innovations -- has received less attention, despite of the recognized need for such work. We purpose that the TMT's framing, i.e., the interpretation, packaging, an organizing of information related to a focal innovation, play a pivotal role in their decision to adopt an innovation. Companies may hit a wall when failing to successfully redefine their core (change identity). Example: Shell -- struggle to move away from the oil company. When discovering beyond the horizon, you also need to adjust the identity of the organization. So, who you are. How people should see and perceive your future 'being'. **Framing and adopting non-incremental innovations** **Cognitive framing** -- is a process of thinking, providing the mental templates that individuals impose on an information environment to give it form and meaning. **Emotional framing** -- is a process of feeling, providing a felt alignment of a frame with the audience's passions, desires or aspirations. As an organization your have to move away from a fixed mindset -- you need to try to crate some room for the company to mauver. This is important to motivate your people for new innovation and move away from the core. Intrinsic motivation of people plays a really important role -- so emotional framing plays a crucial role. Cognitive frame flexibility functions to categorize a seemingly incompatible innovation as complementary with the organization's existing identity, competencies, and competitive boundaries, as the TMT reclassifies the innovation and/or reinterprets the firm's legacy strategy to bring them into greater alignment. Emotional frame flexibility enables an innovation to be seen as resonant, with a felt positive, emotionally engaging connection to the firm's strategy (opportunity vs threat). Flexibility in both cognitive and emotional framing of an innovation leads to perceptions of greatest strategic alignment and consequently increases the likelihood of its adoption.  **Important for the exam!!** Articles talks about cognitive frames: - Capability development - Identity - Competitive boundaries **Capability development: co-existence vs consistency** - Coexistence orientation expands the TMT's cognitive frame because it embraces incongruous capabilities and innovation agendas ( paradoxical thinking). - Consistency orientation contracts the TMT's cognitive frame because it privileges a focal innovation's uniformity with or similarity to existing capabilities. **Organizational identity: less versus more elasticity (plays a really important role)** An organization's identity is the collectively agreed upon set of central, distinctive and enduring characteristics that define an organization. The elasticity of the identity is rooted in two basic elements: who we are and what we do. Inelastic identity offers little interpretive variation between the conceptualization of who we are and what we do. When an identity is more elastic, who we are and what we do are more loosely coupled. A diagram with arrows and blue and red arrows Description automatically generated Competitive boundary filter: narrow vs wider scanning. Who is your competitor? And what problems do you solve? Industry convergence makes broader search more relevant and important for firms to survive.  Purpose if the core reason for being, it clarified what a company stands for, provides an impetus for action and is aspirational. It shows what the company stands for., providing direction, for people to move forward -- motivation is important, especially for employees. While investments in such acts slightly reduces the likelihood of chief executives being dismissed when financial performance is good, it greatly increases the chance they will be shown the door when their company underperforms. Add sustainability while the stock also performs well. Example: Danone -- last CEO wanted to put corporate responsibility high on the agenda and move towards a mission-driven sustainably company. However the share price did not uphold compare to peers. At the end the CEO was fired. This shows that there is a thin line between the two subjects -- it is important to put sustainability and corporate responsibility in equilibrium by profits. **Purpose may have long-lasting impact on sustaining profitable growth** -- many successful companies use purpose to generate sustainable profitable growth, stay relevant in a rapidly changing world and deepen ties with their stakeholders. That enables them to overcome the challenges of slowing growth and declining profitability.  Purpose and profit as winning aspiration A diagram of a core ideology Description automatically generated **A shift from profit to 'profit from purpose' often means divergent change and resistance.** Sustainable product development in a large company as an instance of divergent change -- that is, a change that challenges existing deeply entrenched norms. Organization theory suggests that such divergent changes are more likely to trigger intense resistance because they break from taken-for-granted ways of thinking and acting. To develop sustainable products, a large company needs to depart from taken-for-granted norms to explore new capabilities; learn new ways of doing things and content with fundamentally different risks, complexities, trade-offs, institutional voids and non-traditional partnerships.  Example: Unilever **Linking leadership practices and sustainable product development** A diagram of components of product Description automatically generated Simplicity is very important! Purpose X profit and launching sustainable products within a corporate environment requires forgetting, borrowing and learning.  Forgetting Borrowing  Learning: - Stretch combined with discipline - Fast fail is good, because you learn - Hypothesis driven, budget light - Build-measure-learn cycles Purpose X profit should be the norm; however it leads to resistance both internal and external to organizations. Senior management should carefully approach and manage tensions to sustain purpose and profit over time. By enabling experimentation with and anchoring of sustainable initiatives with core operations and nurturing forgetting, borrowing and learning within organizations. LECTURE 8 -- STRATEGIC RENEWAL AND THE TMT-MM INTERFACE The traditional media model:  A diagram of a network Description automatically generated Middle management -- in between upper management and operations. They represent the decision maker cadre linking the strategic apex and operating core of organizations.  Top performing middle managers create strong relationships that enhance team performance and drive effective operations. They help turn an organization's vision and strategic goals into reality, and they are on the front lines of the competition for talent. Middle managers are an integral part of organizational health, which years of McKinsey research shows is linked to strong performance. A green background with blue arrows Description automatically generated Strategic renewal however is not easy to achieve. Over the past decade, approximately 90% of companies worldwide failed to achieve sustained, profitable growth. Let's turn two common pitfalls that may serve as important opportunities for your organization: 1. Too many companies leave money on the table in their core business. Let's find the untapped value creation potential and optimize your operating model in your core businesses. - Optimize and maximize your core: - **Effectuate and scale:** strengthen impact of activities and actions (**replicate across markets**). Example Takeaway.com -- one platform for everything.  - **Learn and improve**: continuous improvement and learning. Example: Coolblue -- everyday a little bit better. - **Differentiate**: generate additional added value. Example: Coolblue -- uncovering value through deep customer analytics, reducing churn though customer obsession. 2. While companies in mature markets need to expand their horizons, too often they diversify too far in pursuit of fast growth. Let's expand from a strong core into adjacencies.  The more you move out of the core, the lower the possibility to borrow and the higher the changes of failure. Example: homestudios -- moving beyond the core though generating value for new customer segments in the value chain.  Strategic renewal is an evolutionary process associated with promoting, accommodating, and utilizing new knowledge and innovative behaviour in order to bring about change in an organization's core competencies and/or change in its product/market domains. A person holding a hula hoop Description automatically generated **Disruptive change and strategic renewal: what are main challenges for middle management?** a. There are different roles to be played by leaders across levels  Managers' roles in the organization -- a role is a set of behaviours that others expect of individuals in a certain context. Primary roles are related to day-to-day activities. Secondary roles are related to organization's broader objectives strategy process for instance. Fundamental assumption: roles associated with a given management position will vary according to a specific hierarchical level (operational, middle and top management) as well as across different dimensions of strategic renewal (exploration and exploitation).... and middle managers are required to engage in most complex patterns of behaviours, which increases their behavioural complexity substantially. A diagram of a business process Description automatically generated Strategic arena and goals for obtaining profitable growth  b. The TMT\_MM interface needs to embrace ambiguity under constraints The TMZ and MMs have to process unstructured streams of information and find solutions under conditions of unclear cause-and-effect relationships. MMs are linking pins between the TMT and lower organizational echelons, and they therefore fulfil a double role in their interaction with the TMT: being the accomplice of the TMT and being representative of organizational unit. The interaction possibilities between the TMT and MMs are restricted because of the time constraints and differences in schedules that are inherent in these managers' functions at the organization's highest echelons. **Episodes of contact between the TMT and MM and without contact may lead to potential role conflicts** A close-up of a diagram Description automatically generated So what do those interactions between TMT and MM as well as specific roles associated with renewal processes mean if the environment changes and organizations need to engage in exploration alongside their mainstream businesses?  A yellow arrow with red and green text Description automatically generated Strategic role conflicts between individuals: Proposition 1: middle managers are more likely to experience within individual strategic role conflicts than managers at other hierarchical levels. Proposition 2: strategic role conflict between individuals of different management levels is more likely to occur when environmental conditions are dynamic. Proposition 3: strategic role conflict between individuals is more likely to occur in exchanges within operating-level management than in exchanges within top management. **Managing role conflicts: performance management X social support.** Performance management: stimulate people to perform, incentivize, challenge them and make them accountable for their results. Social support: give people the resources and social support they need. Provide trust and give people the latitude they need to perform. Takeaways: - Organizations need to maximize their core and engage in accessible adjacencies (not in the exam) - Strategic renewal is necessary, however, may lead to strategic role conflicts, especially for middle management. - Middle manages may face most complex behavioural requirements; especially in changing environments paradoxical mindset. - Combining performance management (clarity) as well as social support helps overcoming strategic role conflicts. Exam prep example  Example answer: - Briefly explain what growth is and how is connected to scaling and why it would be more relevant to the organization. If you focused on growth, you can become more vulnerable, to outside factors, pressure from shareholders, change in environment. If you are only focused on growth, you do not have any resources for profit. Scaling the costs do not grow as fast as the revenues, meaning that you are profitable. - Explain the logic of the framework being presented. LECTURE 9 -- strategy in a global environment: survival and prosperity \  **1. Globalization** - **Meaning**: The business becomes part of the global market and tries to understand the global environment. - **Challenges**: - **Unclear Boundaries**: It's hard to define where the business ends and where the global market influence begins. - **Political and Localization Issues**: Different countries have different rules, cultures, and market needs. - **Firm/Government Influence**: Governments may impact business operations with policies or regulations. **2. Internationalization** - **Meaning**: The business begins to expand beyond its home country into other countries. - **Challenges**: - **Models/Adaptation/Implementation**: The company must choose the right business model and adapt its operations to fit different markets. **3. Non-Market Stakeholders** - **Meaning**: These are people or organizations that impact the business but aren't customers or competitors (e.g., governments, NGOs, communities). - **Challenges**: - **Politics of Change or Permanence**: The business must decide how to handle political changes or maintain its current strategy. **4. Networks and Influence** - **Meaning**: Building relationships and influencing others (e.g., partnerships, alliances, lobbying). - **Challenges**: - **Pushback and Setting an Agenda**: The business might face resistance and needs to actively shape its strategic goals and influence others **Strategic Shift (Top Triangles)** - This shows the **overall change in strategy** as the business moves through globalization, internationalization, managing non-market stakeholders, and building influence. **In Simple Terms:** 1. **Globalization**: The business starts thinking globally and faces challenges with rules and boundaries. 2. **Internationalization**: The business expands into other countries and needs to adapt. 3. **Non-Market Stakeholders**: The business deals with people or groups outside its customers who can influence it. 4. **Networks and Influence**: The business builds connections and tries to influence outcomes. **How to respond to shifting global political and economic forces?** a. **Global vs local** Trade pacts (free-trade agreements (USA-Columbia), Andean pact, Bilateral agreements (EU-Norway)) European union (cross boarded trade, movement of labour, open markets and movement of good, high barriers to trade outside of union) Key arguments: - From an international (countries trading with each other) to a transnational (regions and companies operating beyond national boarders) economic system - Driven by regional economic growth - Emergence of regional powers: China, Brazil, Saudi Arabia, India, Mexico - How to manage this change? Companies and governments need strategies to deal with this new economic system - Dealing with economic governance based on regional agreements - Factional political authority (political authority is becoming fragmented and unpredictable) - Changing political winds (political changes and shifting policies can create uncertainty for businesses) - Emergence of non-developed economy multinationals (big companies are coming from countries that weren't traditionally known for producing large, influential businesses) - Shifting consumer and societal priorities - Sustainability - Conservation and protection (of resources and the environment) **Globalization and the state** - The state: failing institution (traditional powerful countries are struggling to maintain control and influence) -- superpowers (whole countries like US) vs regiopowers (specific regions with influence) - Declining US and post-soviet Russia influence. - Europe as the old weak but rich meddler (wealthy but lost much of the political power) - Japan in no-mans-land (economically strong, but doesn't have clear global leadership or influence) - The rise of the emergent: new world order around regional economic powers (BRICS, Indonesia, Mexico, Saudi Arabia, Korea, Vietnam) becoming significant players in global trade, politics and economics. **The non-governmental world** Institutionalization of financial power (financial power is increasingly controlled by international financial institutions rather than governments): IMF (international monetary fund), World bank, investment funds, sovereign wealth funds. The NGO-fiction of global political decision making (global political decisions are influenced by NGOs and international bodies, not just individual countries): UN, EU, international accords, WTO, international arbitration and courts Non-globalization of governance (while world is economically interconnected, governance remains national or regional): treaties, ratifications (each country decides whether to accept or reject international agreements), jurisdictions (legal authority is still divided by country). b. **The firm** A new world order: public authorities engage directly in economic activities through state-owned or controlled companies and private firms take on public functions such as setting standards or providing health care. **The digitalization, networks and the new order** Creation, transfer, control, use of information -- world with no borders. Networks are supranational. Most deals are with imperfect information, stakeholder pressures, institutional pressure. **Institutional issues (emerging nations)** A table with numbers and text Description automatically generated Enterprise activity - In India, it costs more and takes longer to start a business, enforce a contract and close a business than other BRIC countries. - However, India does rank much better when it comes to protecting the rights of investors. - In Russia, it is easier to set up a new business, register property and enforce contracts than other BRIC countries. - However, in China it is easier to run a business and engage into international business but recently it has suffered from increased government interference. BRICS = Brazil, China, Egypt, Ethiopia, India, Iran, Russia, South Africa, UAE **Glocal, institutional factors, governance and internationalization:** - The efficiencies of global markets (MNEs, M&As, supply chains, start-ups and scale-ups) - The local market and institutional demands (consumer shifts, nationalism) - Non-market factors (political shifts, regulations, sentiment and enforcement) Foreign direct investment (FDI): an ownership stake in a foreign company or project made by an investor, company or government from another country. A company from one country invests in or buys a business in another country -- money flows out of the home country to invest in a business abroad. Inward direct investment: all liabilities and assets transferred between resident direct investment enterprises and their direct investors. When a company from a different country invests in a business within your own country -- money flows into your country from a foreign business. FDI inflows have continued to grow but its direction has changed towards Asia. China is now the fourth largest FDI. Vietnam and Indonesia are projected to be two of the fastest growing economies. **Impact on strategy** - The 8.5\$bn legal battle shaking the US fashion industry -- federal trade commission has sued to block the owner of Coach buying rival brand Micheal Kors. - Vodafone and Three move to allay regulator concern in merger push -- Vodafone's domestic business and CK Hutchison's Three UK have offered further potential remedies to the UK competition regulator in a bid to enhance the merger. - EU antitrust policy has long been lauded for protecting against abuses of market dominance and monopolistic price-gouging. But is it stifling the creation of European world-beaters? - Internationalization, M&A activity, scaling. **Rapid geopolitical environment** - Biden and Kamala blocked the takeover of US steel by a Japanese company. The US is continuing a protectionist approach, meaning they are protecting business by preventing foreign takeovers. - Trump warned that countries must trade using the US dollar of face a 100% tariff. He wants to protect the US economy by making it expensive for other countries to trade if they don't use the US dollar. - Chinese EV manufacturers want to expand their sales to Europe and the US. Despite potential US tariffs on Chinese goods, China is looking for ways to sell their cars in other markets, continuing the trade competition. - Big investment firms are reducing their investments in China due to new restrictions by the Chinese government and US limits on investing in China. Investments in China have slowed down because of regulatory crackdowns (strict rules) and political tensions between the U.S. and China. **Sanctions** - The U.S. introduced new rules to stop foreign banks, like those in China, from doing business with Russia. The goal is to make it harder for Russia to access global financial services and to pressure other countries to stop supporting Russia economically. - Unilever, a big consumer goods company, plans to sell its Russian business to a company called Arnest. This is a major change for Unilever, and it shows that international companies are pulling out of Russia due to the war. - The European Union (EU) imposed sanctions on almost 200 companies from China, India, and other countries for helping Russia's military. These sanctions aim to weaken Russia\'s ability to wage war by limiting the support it receives from international companies. - Heineken, a major beer company, finally left the Russian market, but this delay cost them €300 million. Heineken's decision to leave was criticized for being too slow after the invasion of Ukraine, and it led to financial losses. **Internationalisation of medium and medium/high country multinational enterprises** Medium and medium/high nations' economic growth has led to domestic firms integrating themselves into the global economy. - Inward: supply chains - Outward: market seeking/defensive moves These new emerging multinationals face limited resources, information access and experience challenges especially yin developed markets, which are essential for their growth, taking into account some of the cultural, economic and environmental differences between home and host markets, strategic adaption is imperative for them to succeed.  A table with text and numbers Description automatically generated **Summary and conclusion** - Emerging economies: low-income, rapid-growth -- using economic liberalisation. - Lots of opportunities for FDI but challenges also exist - Goldman Sach investment is FPI (foreign portfolio investment) not FDI - No lasting interest - Motive is quick gain - EMNEs are catching up - Lessons to learn from the growth of EMNEs - Opportunities for research - Globalization - Maybe more local than global - Trends are polarizing voters, consumers, activists - The global corporation faces strong headwinds - Non market issues - Political backlash - Consumer resistance - Environmental issues - Governance issues - Key aspects to consider for internalization (net session) - Why? Motives - What? Value chain and competitive advantage - Where? Location(s) aspects - How? Entry modes and CCRR considerations - Access to data and information is key to making informed decisions. LECTURE 10 -- STRATEGY IN A GLOBAL ENVIRONMENT (survival and prosperity) **INTERNATIONALIZATION STRATEGIES**  Lobbying is regulated, but we have two groups: - Industry (not being able to take care of everyone, each specific firm) - Companies All of these factors are needed to think about when a firm is making a decision. Why go international? - Opportunities, growth - If competitors are going, you need to be there - Growing demand - Seeking greater operational efficiency - Communication with: operations, customers, suppliers, competitors or R&D - Proximity to: operations, customers, suppliers, competitors or R&D - Seeking new markets - Proactive (driving the change, idea) vs reactive (reacting to the idea, change) - Direct vs indirect - Seeking new resources - Physical vs intangible **The liability of foreignness** (you are not one of us) Key elements for companies to go overseas -- more restrictions, lack of networks. The further you are away from home, the greater the liability of foreignness you have. A diagram of a diagram Description automatically generated How do you go international?  - Make or buy? It depends on the industry, the prices. What are the pitfalls? - Spent too much, got too little - Partner from hell (most alliances do not work) - Arrested for bribery **Phases in traditional global strategy development** A diagram of a process Description automatically generated **Triggers to each stage of international development**  International strategy: - Do something well - Get that something from where it is to where you want it - Make it profitable at its new location - Get ready to move quickly to point C (or someone else will) **Scale ups --** rapid growth, while remaining competitive and replicate companies that are working well abroad. A screenshot of a computer screen Description automatically generated **Levels of strategy and organizational structure**  **Conflicting globalization pressures: how to react?** A diagram of a diagram Description automatically generated **Dimensions of international organization structure**  How should the global value chain be organised? A diagram of different types of parts Description automatically generated with medium confidence The fundamental problem: Potentially, each component of the value chain will have different underlying pressures (GI, LR; TC) facing it: - In each product/market - At each value chain link in each product/market - Across products/markets This implies that these fundamental pressures will create a complex organizational pressure to "mix and Match". **Position in international competition**  Carrefour and Walmart (structural positioning) A white background with black text Description automatically generated  **Setting the global strategy: goals and tools at the MNE level** Goals: - Efficiency of operations (profit) - Management of risk(financial and operations) - Innovation, learning and adaption (renewal) Tools: - Exploiting national differences - Cost differences (comparative) - Customer segmentation (competitive) - Exploiting economics of scale - Exploiting economies of scope (synergies) - Exploiting intangible assets (knowledge and expertise) **Implications for synthesizing global strategy** A white table with black text Description automatically generated **A framework for synthesizing global strategy**  **Segmentation, targeting and positioning (STP)** - Segmentation by: - What they want - Who they are - How they purchase/use - Targeting via... - Positioning versus - Local - Global - Out of category Internationalization models and theories (selected) A diagram of a model Description automatically generated Foreign market entry modes: types  FDI = foreign direct investment **Internationalization theory** - **International Business Strategy:** - Focuses on external environments of MNEs, including: - Global innovation. - International oligopolistic rivalry. - Foreign market entry strategies. - **International Management:** Deals with internal organization, coordinating key areas like HR, finance, and IT services. (Cassons, 2022) - **Ronald Coase\'s Contribution:** - Firms emerge when it is profitable to plan team activities rather than relying on market mechanisms. - MNEs evolved by applying this idea to distribute plants across borders and create global firms. (Coase, 1937; Cassons, 2022) - **Buckley and Casson\'s Model (1976):** - MNEs internalize activities to: - Exploit Firm-Specific Advantages (FSAs) in knowledge and intermediate products. - Avoid market failure (knowledge as a public good). - Internalization is a governance mechanism to develop FSAs, offering an alternative to using external markets. (Rugman & Verbeke, 2008)... across national frontiers A screenshot of a computer Description automatically generated  **Uppsala model** **Internationalization of firms -- conflict of markets** A diagram of a diagram Description automatically generated If you are a Spanish firm, you do not go to France first, since it is not culturally so close. They tend to go where the culture is the most similar, for example Latin America. **No free lunch: entry mode trade-off**  Power is nothing without control. **Entry modes and the eclectic paradigm (OLI)** All three (O-L-I) advantages must be present for FDI to take place. **OLI framework**  Factors affecting the internationalization process of the firm: A diagram of a process Description automatically generated - Domestic business: when all three tenets (O-L-I) are absent. You won't survive the competition. The first thing is to have O advantage. - Exporting: If the host location is not advantageous than home. Why go abroad \>\>\> work from home. - Contractual entry modes: if internalisation is not advantageous. Let the market do it for you \>\>\> outsourcing. - FDI: when all three tenets (O-L-I) are present \>\>\> offshoring. Applications of the theories: - These simple ideas - Internalise or buy - Least cost location - Lead to two simple, but powerful decision rules: - Where should an activity be located - How should each activity be controlled? Final thoughts - Emerging economies: low-income, rapid-growth... using economic liberalisation - Lots of opportunities for FDI but challenges also exist - Goldman Sach investment is FPI 8foreign portfolio investments) not FDI - No lasting interest - Motive is quick gain - EMNEs are catching up - Lessons to learn from the growth of EMNEs Workshop 10 **Case: Lipton** a. Who are the major players (competitors) and are their current strategies to market models Major **Competitors**: - **PepsiCo** (Lipton's competitor with its **Pure Leaf** and **Brisk** iced tea brands). - **Coca-Cola** (with its **Fuze Tea** and **Honest Tea** brands). **Current Strategies**: - **PepsiCo**: - Uses **joint ventures** (e.g., with Unilever for Lipton iced tea). - Focuses on **local market adaptation** while leveraging global brand recognition. - **Coca-Cola**: - Standardizes its **core soda products globally** but adapts products like **tea and iced tea** to local preferences. - Partners with local distributors and bottlers to expand into new markets. K**ey Point**: - While **Coca-Cola** can standardize products like soda globally, this approach doesn't work well for **tea** due to varying cultural preferences for taste, sweetness, and consumption habits. b. What if any will cultural differences have in launching a new category such as iced tea - **Taste Preferences**: Different countries prefer different levels of sweetness, flavors, and tea types (e.g., **black tea** in Turkey, **green tea** in Japan). - **Consumption Habits**: Some cultures prefer **hot tea** (e.g., China, India), while others are more open to **iced tea** (e.g., the U.S.). - **Brand Perception**: In some countries, **iced tea** may be seen as a **healthier alternative** to soda, while in others, it may be unfamiliar. - Would any of this imply a shift in a firm's strategy - A **standardized global approach** may not work for iced tea; instead, a strategy that allows for **local adaptation** is needed. - Companies may need to conduct **market research** to understand local preferences before launching. - What could be the organizational implications for Unilever in either scenario - **Product Development**: Teams need to develop **region-specific flavors** and packaging. - **Marketing Strategy**: Adapt messaging to highlight local values (e.g., health benefits, natural ingredients). - **Supply Chain**: Establish flexible supply chains that can cater to different market needs. c. You group will need to decide how to proceed strategically: - Develop the bring in-house using existing resources and/or investigate new ones - **Why This Makes Strategic Sense**: - **Control**: More control over **quality, brand image, and operations**. - **Knowledge Retention**: Keep **firm-specific advantages** (FSAs) within the company. - **Flexibility**: Easier to **adapt products** to local markets based on insights from in-house teams. - **Upsides**: - **Consistency**: Maintain a consistent global brand identity. - **Innovation**: Faster innovation and product development. - **Learning**: Accumulate knowledge and expertise internally. - **Downsides**: - **Cost**: Higher investment in infrastructure, marketing, and distribution. - **Risk**: Greater risk if the product launch fails. - **Slower Expansion**: May take longer to enter new markets. - Or continue to pursue a franchise model - **Why This Makes Strategic Sense**: - **Speed**: Faster market entry by leveraging **local partners**. - **Cost Efficiency**: Lower upfront investment. - **Local Expertise**: Benefit from the **local knowledge** of franchisees. - **Upsides**: - **Scalability**: Easier to expand to multiple markets simultaneously. - **Risk Reduction**: Share financial risks with franchise partners. - **Adaptation**: Local partners can adapt products to cultural preferences. - **Downsides**: - **Loss of Control**: Less control over product quality and brand consistency. - **Knowledge Leakage**: Firm-specific knowledge may be shared with franchisees. - **Dependence**: Reliance on franchise partners for success - You must be prepared to argue from either point of view and prepare accordingly. To be include but not limited to: - Why your scenario makes more strategic sense (think of previous lectures as well as internationalization theories) - Potential upsides and downsides Summary - In-house for existing market **In-House Development**: - Best for markets where **brand control, quality, and innovation** are critical. - Works well when Unilever wants to leverage its **dynamic capabilities** and keep FSAs internal. - **Franchise Model**: - Best for **rapid expansion** in markets where **local knowledge** is essential, and Unilever wants to **reduce risk and investment**. and a franchise for the new markets, but after a while they can turn into a in-house. ------------- ---------------- -------------------- **Concept** **Definition** **Lipton Example** ------------- ---------------- -------------------- -------------------------- ------------------------------------------------------ ----------------------------------------------------- **Foreign Market Entry** Joint ventures, acquisitions, greenfield investments Joint ventures with local partners for distribution -------------------------- ------------------------------------------------------ ----------------------------------------------------- ------------------------ --------------------------------------- ----------------------------------------------------------- **Global Integration** Standardizing products for efficiency Core tea products and branding remain consistent globally ------------------------ --------------------------------------- ----------------------------------------------------------- ---------------------- --------------------------------------- ------------------------------------------------------- **Local Adaptation** Customizing products to local markets Offering masala chai in India and black tea in Turkey ---------------------- --------------------------------------- ------------------------------------------------------- -------------------------------- ------------------------------------------------------------ ----------------------------------------------- **Global Value Chains (GVCs)** Sourcing, manufacturing, and distribution across countries Sourcing tea from India, Kenya, and Sri Lanka -------------------------------- ------------------------------------------------------------ ----------------------------------------------- --------------------- ------------------------------------------------------ ------------------------------------------------ **Risk Management** Managing political, economic, and supply chain risks Diversifying suppliers to mitigate disruptions --------------------- ------------------------------------------------------ ------------------------------------------------ -------------------------- ------------------------------------------------ ------------------------------------------------- **Dynamic Capabilities** Adapting and innovating to meet market changes New product development and health-focused teas -------------------------- ------------------------------------------------ ------------------------------------------------- LECTURE 11 -- non-market environments and firm strategy (external environment) **Part 1: internationalization and non-market environments** Internationalization models and theories  Foreign market entry modes: types A diagram of a company Description automatically generated **Strategy/management at the subsidiary level: operationalization at the market level**  **The roles for country/regional organisations** A diagram of a marketing strategy Description automatically generated We want to be in contributor -- good teams and good functions in the local operations, as well as big markets (India, China, Brazil). You do not want to be in the black hole. You want high competence in important market. **Setting the environmental conditions**  **Globalization pressures** A diagram of a diagram Description automatically generated **Is there a thing called international strategy?** Not really. International strategy is strategy in a more complex environment. - Rather on one set of economic environment you have many big implications for financing, market, accounting. - Rather than one set of cultural environments you have many big implications for marketing and human resources - Rather than one set of political environment you have many big implications for all aspects of business subject to political risk. International strategy with more complex managerial choices. - Organizational form is more complex and requires an interaction between more players both inside and outside the firm. - Trade-offs between centralized and decentralized models of organizational design have never been solved - Alliances, licensing/franchising, FDI, exporting and a plethora of mixtures of this are always on the table - International Strathy should be an integral part of implementing the corporate strategy. **How do you become a successful MNE (multinational enterprise)?** No one really knows how to do it. We do know, however to what it is related: - More successful MNEs have a greater percentage of intangible assets (the belief is that this is easier to transfer across boundaries). - More successful MNEs establish a dominant organizational culture that allows it to be less effected organizationally (firms normally do this by the method od hiring within a country. Employees of most MNEs differ markedly form the general population in most countries). - More successful MNEs are better at disaggregating their value chain (the pressures for centralized vs decentralized structures varies by activity. The better able you are to separate value chain activities the better your efficiency). **Managerial response** Essence of international operations is: - The expansion of managerial control (expertise and knowledge) - Through governance and structure - Through value chain integration - Through market coverage and integration---multi-market, multi-point competition - The simultaneous - Exploitation of existing advantage - Exploration for future advantage The development of distinctive MNE competences - The creation of mobile intangible assets - The development of a global managerial mindset - Management of far-flung operations - Ability to engage in effective environmental scanning & assessment The ability to exploit internal and external networks\ System-wide optimization **Managerial and organizational factors leading to international success** - The firm sees itself as a MNE led by a TMT that is comfortable on the world stage - Have TMTs that are international in composition - Have a global character - Develop integrated strategies that are costly and difficult to duplicate - Aggressively implement these strategies with large investments - Understand that knowledge and innovation is a global imperative - Exploration is as valuable as exploitation - Operate as if the world was one market - Have organizational structures designed to handle world problems - Have systems that keep them abreast of political/environment developments - Are well managed---stick close to customers, run a lean organisation, and encourage autonomy and entrepreneurial activity - MNEs must be able to accommodate their natural disadvantage, the cost of managing far flung operations **The product development function within the context of global strategy**  **Internationalization in context** A diagram of a company Description automatically generated Why a global (international) strategy and non-market strategy thinking: 1. It's un-avoidable - MNEs and Regio-nationals will face regulatory bodies across a wider spectrum of nations than ever before - Diverse societal view points driven by custom or political opportunism 2. It has more benefits than downsides - Efficient supply chains - Access to global financing - Access to value added resources: technology, labour, raw materials, know-how - Extend brand power - Lower overall cost/higher quality - Downside: liability of foreignness, risks 3. It maximizes synergies across its stakeholder base - CRS: corporate social responsibility - CPA: corporate political activity 4. An integrated international economy (brands, supply chain, sales, route to market) - Fragmented non-market environment (political disharmony, power segmentation -- variance as the rule, conflicting multinational viewpoints -- environment, CSR) - World ban classification: constantly changing (mostly growing) - Dark green: high income, purple: low income. MHIMNE's - Non necessarily following the historic patterns and models (Uppsala, OLI) - Hybrid approaches: - New tech driven: globalization of skills and knowledge transfer - Service rather than manufacturing - Fed by global financial flows and prospering domestic markets - BRICS as a model - Export driven - Specialization - Industrialization of commodities (mining, agriculture) **The newer breed of multinational** Regional vs multinational (Asia, Latin America, Pacific, CIS, Europe), regional exporter (Tsai), global ex/import, regional tech/service specialist (Brown), multinational challenger, OEM design/manufacturer. **Regional example: SLATAM MNEs are also flexing their muscles** Mexican manufacturing is resurging thanks to its increasingly competitive labour rates\ vis-à-vis China and its logistical cost advantage as the neighbour to the US. Mexican export assembly is particularly competitive with physically heavy products\ like aerospace, white goods and automobiles. Mexico is the fastest growing\ aeronautical assembly market in the world today with over 100 manufacturers\ investing over the last eight years. In Colombia, both infrastructure and consumption booms have helped boost the\ prospects of domestic manufacturing. While strong currencies in both countries\ have curtailed their ability to export manufactured goods, the booming domestic\ market has more than made up for the loss of markets overseas." The non-market environment What is it? A white text on a white background Description automatically generated  Governance: one set of rules vs a myriad of regulations and rule. **How to respond to shifting global political and economic forces?** - Global Standardization: Standardize to reduce costs. - Transnational: Balance efficiency and local needs. - International: Minimal adaptation, focus on exporting. - Localization: Customize for each market **Social theories --** networks in which individuals or institutions, and this the individuals embedded in these, share and receive information, contacts, interests, favor or other items that enhance each actor's value at both ends of the transaction giving advantages to these actors that are not found outside such networks. - Social capital is the value gained from relationships and networks. - Companies with strong, well-connected networks can share knowledge better and perform more effectively than those without. Theories as an explanatory pathway to CPA - Resource dependency theory - Institutional theory focuses on understanding how **institutions** (rules, norms, and practices) shape the behaviour of organizations and individuals over time. Institutions are **long-lasting rules, norms, and practices** that shape how we act in society and organizations. They provide structure, meaning, and stability to social behaviour. - Social movement theory - Social capital theory - Political capital theory **Institutional governance**  - **Market Governance**: - **Key Idea**: Decisions driven by **market forces** with **minimal state involvement**. - **Best For**: Stable economies where industries can grow naturally. - **Example**: **Free markets** with little regulation. - **Corporate Governance**: - **Key Idea**: Managed by large **corporations** with some state intervention. - **Best For**: Rapidly growing industries needing **hierarchical management**. - **Example**: **Multinational corporations** coordinating global operations. - **State Governance**: - **Key Idea**: The **state controls** industry decisions through regulations and cooperation. - **Best For**: Industries needing **long-term stability** or facing economic challenges. - **Example**: **Government-run sectors** like healthcare or utilities. - **Joint Governance**: - **Key Idea**: **Collaboration between state and corporations** to transform industries. - **Best For**: **Global markets** or industries facing **economic turbulence**. - **Example**: **Public-private partnerships** in large infrastructure projects. Exporting CSR - Institutional pressures driven by the home culture and laws - Internal: - Anti-corruption act -- ACA (lobbying, campaign funding) - External - US Federal corrupt practices act - EU, Canada and UK have similar acts - Enforcement is the key issue - Other nations starting to create and enforce their own - Issues with transparency application and varying degrees of enforcement. CPA (=corporate political activity) / SCR substitutionally Some evidence focus on one replacing the other: - Consider location: need for more of one vs the other - Societal norms and pressures: higher value on CSR - Time element - Rapid change: loss of CPA - Destruction: loss of CPA **Nonmarket forces and strategy -** To succeed, businesses must balance their economic goals with social and political engagement, proactively shaping their environment and committing to long-term strategies that combine market and nonmarket activities. - Subsidiaries are the frontline to regional and local non-market forces - MNEs may need to adjust/change/reexamine their overall strategies due to these forces - This may be a direct relationship between market importance, non-market forces and strategic shift **Businesses Are Social and Political** - Companies aren't just focused on making money; they are influenced by **social and political factors**. - They need to respond to **laws, regulations, public pressure, activism, and public perception**. - **Example**: Companies facing environmental regulations or public backlash need to adjust their strategies accordingly. **Engage Proactively** - Management should actively engage with their **social and political environment**. - By doing so, they can help **shape the rules** and avoid being restricted by outside influences. - **Example**: Firms lobbying for regulations that benefit their industry or engaging in community support to build goodwill. **Long-Term Commitment to Nonmarket Strategy** - Few companies invest th