Corporate Strategy - University of Bern - HS2023

Corporate Strategy Prof. Dr. Artur Baldauf © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 1 Information about the Final Presentation (20%) Presentation Structure & Duration Presentation: 10-15 minutes (max. 15 minutes) Q&A: 10 minutes Presentation Content Part 1:...

Corporate Strategy Prof. Dr. Artur Baldauf © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 1 Information about the Final Presentation (20%) Presentation Structure & Duration Presentation: 10-15 minutes (max. 15 minutes) Q&A: 10 minutes Presentation Content Part 1: Introduction, External & Internal Analysis Part 2: Strategy Formulation & Implementation see Ilias “Instructions” Presentation Evaluation Content, application of new learnings, structure, depth of reflection, presentation style, formal requirements see Ilias “Instructions” → ILIAS: more detailed instructions © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 2 Information about the Final Presentation (20%) Group Number Value driver tree based on Du Pont scheme (see e.g., Brigham/Houston) Corporation Final Presentation Date Group 1 Victorinox 07.12.2023 Group 11 Stadler Rail 07.12.2023 Group 4 Swiss International Airlines 07.12.2023 Group 6 Flughafen Zürich AG 07.12.2023 Group 9 Roche 07.12.2023 Group 5 Die Schweizerische Post AG 07.12.2023 Group 2 Coop 14.12.2023 Group 8 Migros Aare 14.12.2023 Group 3 Logitech 14.12.2023 Group 7 Nestlé 14.12.2023 Group 10 Swisscom 14.12.2023 © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 3 Changes to the Course due to the guest lecture Date Lecture Nov. 9th (today) Guest Speaker and Muddiest Points Nov. 16th Managing the Multibusiness Corporation Nov. 23rd Creating Corporate Advantage Nov. 30th Corporate Governance & Transforming the Corporation Dec. 7th Final Presentation (1) Dec. 14th Final Presentation (2) © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 4 Content topics (muddiest point) Value driver tree based on Du Pont scheme (see e.g., Brigham/Houston) What does appropriability mean? Potential Agency stipulation problem Horizontal diversification = unrelated diversification? Difference between theories of economy of scale, scope, horizontal, vertical integration, diversification – just different point of view? Three dimensions of scope = diversification opportunities? © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 5 Discussion Disney Case © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 6 Discussion Disney Case Question 1: Name examples of businesses within Disney. Ilias: Disney Theme Parks and Resorts, Studio Entertainment, Media Networks, Consumer Products, Streaming Services, Cruise Ships © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 7 Discussion Disney Case Question 2: What resources do you believe Disney can leveraged across these businesses? Ilias: Intellectual Property, Brand Recognition and Trust, Content Creation, Distribution Networks, Innovation and Technology, Talent, Marketing and Advertising Expertise, Cross-Promotion, Customer Loyalty, Characters © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 8 Session 6: Managing the Multibusiness Corporation Prof. Dr. Artur Baldauf © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 9 Chapter 6: Contents Introduction The Administrative Context Organization Structure Systems and Processes Practice: Roles of the Corporate Office Vision Resource Guardian General Overhead Functions Setting the Administrative Context © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 10 Introduction Strategic Triangle Competitive Advantage VISION GOALS STRUCTURE SYSTEM Coherence Corporate Advantage © Artur Baldauf l Department of Management l University of Bern PROCESS Control Corporate Strategy 11 Introduction Managing the Multi-business Firm: Regulation and Coordination Mechanisms Corporate Strategy: “The way a company seeks to create value through the configuration and coordination of its multimarket activities.” (Collis & Montgomery, 2005, p. 193) Center Agency Problems Control SBU1 Coordination Control SBU2 Control Coordination SBU3 Synergies … … … Central Issues: Centralization vs. Decentralization © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 12 Introduction Sharp Corporation 1912-2000 Creation of the Corporate Advantage via: Configuration Coordination Coherence Creation of Core Competencies via: Resource Identification Resource Investment Resource Upgrading Resource Leverage © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 13 Management Activities (particularly regarding implementation) Resource allocation reduce capital costs Configuration and maintenance of an efficient organization (e.g. creation of SBUs) Define Strategic leadership Establishment of strategysupporting methods, management of relations between business units Corporate Strategy Formation of a corporate culture Linking of rewards to the achievement of central goals © Artur Baldauf l Department of Management l University of Bern Institutionalization of best practices to attain continuous improvement Design of supporting systems to perform the strategic role (infrastructure). Corporate Strategy 14 Administrative Context (AC) Reasons to identify the AC: Top-Managers cannot make all decisions by themselves Various complex problem areas Information deficit (bounded rationality) Top-Managers lead corporations through structure, processes and systems: Corporate Control (primarily via business units) Corporate Coherence (the composition of business units (portfolio) has to make sense) Bower (1970) Study: The role of corporate management at capital budgeting Top managers do not make decisions (e.g. investment) directly, but control them over the administrative context. Functional Managers identify projects, SBU-Managers pursue promising projects Top-Managers make final decisions © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 15 Administrative Context McKinsey 7-S Model Structure Which organizational structure matches the corporation? Strategy Systems What kind of control systems? What does the corporation wants to achieve? Shared Values How does organizational culture look like Skills Style Do the employees have the necessary skills? Which management style is cultivated? Staff What characteristics of employees are required? „Hardware“ „Software“ © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 16 Organization Design Structure, Systems, Processes – Major Elements Organization Structure Planning and Control System Organization Chart Strategic Planning Corporate Functions Budgeting Ad hoc Teams MIS Conflict-resolution Mechanisms Resource Allocation, Capital Budgeting Transfer Prices HR Management Culture and Style Personnel Selection and Training Top-Management Role Reward/Incentive Schemes Culture Measurement Variables Symbolic Actions Management Style © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 17 Organization Design Some Major Questions to Answer … How should the formal organizational structure be arranged? (by function, product, division, matrix?) Should incentive systems reward corporate, business, group, or individual performance? Should long and/or short term results be considered? Should qualitative and/or quantitative variables be used? … © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 18 Administrative Context Principles – Designing the Context „Internal Alignment“ Each element of organizational structure, systems, and processes needs to be designed to reinforce rather than conflict with the signals and motivations provided to managers by other aspects of the administrative context E.g.: Incentive system „Contingent Design“ There is no organizational design that is optimal for each corporation or strategy Contingency Theory: Adaptation to the environment (administrative context such as wage system should be determined based on corporate resources) Problem: Principles do not provide concrete guidelines (which structures, systems and processes lead to lowest administrative costs/generate the highest value) © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 19 Administrative Context Form and Function: Resource Tree (Sharp) laptop Memory storage computers Wizard camcorders LCD projectors Flash memory Laser disk players HDTV converters refrigerators television calculators Product/service markets (SBUs) Opto-electronic devices Custom integrated circuits COS mfg. Manufacturing capacity Financial capital © Artur Baldauf l Department of Management l University of Bern Identifying customer preferences Liquid Crystal Displays Research labs Core Competence Human capital Resources Corporate Strategy 20 Administrative Context “Organizational Economics” Information Theory Decisions are based on (good) information Information transfer causes costs „Bounded Rationality“ Decision authority should be located where information processing takes place General Knowledge: can be easily transferred Specialized Knowledge: difficult, and costly to transfer Agency Theory: self-interest („cheating“) – costs (e.g., for monitoring) occur Design Principles – “rules of the game” Allocation of the decision rights (Who will make decision?) Information structure (Which information does a decision maker need?) Incentive structure (How will a decision maker be paid considering the outcomes?) Practical problem: conceptualization and measurement © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 21 Organization Structure (OS) General Purpose: Implementation of Strategies Definition of units and subunits Allocation/leverage of resources and capabilities Responsibility Effective Organization Structures: Discrete units with sufficient decision power (interdependence) Possibilities of specialization Responsibility/power/motivation/rewards Principle of „Suboptimality“ © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 22 Organization Structure Alfred Chandler “Strategy and Structure 1960” M-form is a reaction to diversification (structure follows strategy) Chandler: Historian, analyzed corporations like: DuPont, Sears, GM. Change from functional or geographical organization to decentralized, product based, forms: Coordination costs for every unit decline Resource allocation is tightened Alfred D. Chandler, https://www.azquotes.com/quote/1267626 © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 23 Organization Structure Evolution of the Modern Organization 1890 Simple Organization 1910 Functional Organization Productivity 1930 Decentralized Organization Systems 1950 Structure Strategy 1970 Culture Innovation 1990 Neo-Contingency Organization 2010 Dynamic Network Organization 2015 Holacracy Leadership Complexity Matrix Organization Simplicity Flexibility © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 24 Organization Structure Structure - Types Simple Structure Owner/Manager Owner/Manager makes all essential decisions Lower degree of specialization Less formal design Single products/single markets Focus strategy Employee Employee Employee Employee Employee Employee First phase after “Simple Structure” Single/dominant-business corporation Specialization / experience curve Avoid owner/manager problems Functional area manager reports to the CEO, who makes corporate decisions Risks: short-sighted functional area manager Functional Structure General Manager Finance Production R&D Controlling Sales & Marketing HR © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 25 Organization Structure Characteristics of Different M-Forms Structural characteristics Cooperative M-Form SBU M-Form Competitive M-Form Types of Strategy RelatedConstrained RelatedLinked Unrelated (H-Form) Degree of Centralization Centralized at Corporate Headquarters Centralized in SBUs Decentralized at division Utilization of Integration Mechanisms Extensive Synergies Moderate Synergies Non-existent Synergies Performance Appraisal Subjective/ Strategic (behavior-oriented) Strategic & Financial (behavior- and outcomeoriented) Financial (outcome-oriented) Division Incentive System Connected to corporate success Connected to corporate, divisional & SBU success Connected to divisional success © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 26 Systems and Processes Control Systems Control: How can delegated decision making be controlled? Coherence: How can resources be deployed throughout structural different units? Control: centralization versus decentralization? Three essential control types: Market Control Bureaucratic Control Clan Control Three control systems: Outcome Behavior Input Which control type/system is adequate? Other control systems © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 27 Systems and Processes Control Systems Market Control Is based on price and competition of external markets for control of transaction costs Many suppliers develop fair prices, if a free flow of information exists Market control can also be applied within an organization (competitive M-Form) Transactions must be internalized if a market failure occurs Bureaucratic Control Transactions are controlled through the organization‘s hierarchy Control mechanisms are: Profound job description and performance appraisal systems Budgeting and accounting systems Standard Operating Procedure (SOPs) Clan Control Based on standards, values and opinion systems of employees Does not eliminate all transaction costs, but reduces opportunity problems Organizations that behave organically could use clan control © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 28 Systems and Processes Control Targets Control Target = f (Characteristics of tasks) High Knowledge of the Transformation Process (Task Programmability) Perfect Behavior or Output Measurement (Apollo Program) Ability to measure output Low Behavior Measurement (Tin can Plant) Source: Ouchi (1979), S. 843 © Artur Baldauf l Department of Management l University of Bern Imperfect Output Measurement (Women´s Boutique) Ritual and Ceremony, „Clan Control“ (Research Laboratory) Corporate Strategy 29 Systems and Processes Coordination Activities (Coherence) Advantages in value creating activities Economies of Scale Experience Curve Effects Coordination of Market Positions Coordination of the Multimarket Competition Leveraging Resources Transfer of Skills and Resources Development and maintenance of a resource or skill that is made available to and then independently used by different divisions e.g., Corporate Brand Name Coordination of Activities Involves some degree of direct sharing in the performance of an activity by multiple divisions e.g., Purchasing Department, Agents © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 30 Systems and Processes Costs-Benefits of Coherence Costs Benefits Compromise Costs (suboptimal decisions) Economies of Scope Inflexibility Costs (lack of control) Economies of Scale Coordination Costs Synergy Incentive Costs Multipoint Advantage Complexity Costs Result: Corporate Value © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 31 The Size of the Corporate Office Company Sharp Cooper Industries Newell KKR Assets ($ billions) 16 5 1.5 40 Employees in Corporate Office 1,500 300 250 90 The costs of the „Corporate Centers“ are on average between.66 to.75 % of the assets, or 1 % of sales. © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 32 9 Critical Tests for Designing an Organization Getting the FIT right Market Advantage Test – attention to sources of competitive advantage in market Parenting Advantage Test – does it help corporate parent to add value People Test – appropriate for reflecting strengths/weaknesses of people Feasibility Test – all constraints taken into account Refining the Design Specialist Cultures Test – protect units that need distinct cultures Difficult-Links Test – coordination solutions Redundant Hierarchy Test – too many parent levels Accountability Test – support effective controls Flexibility Test – facilitating development of new strategies © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 33 PRACTICE System of the Value Chain Upstream Value Chain Activities, costs and gains of the suppliers Downstream Value Chain Corporationspecific Value Chain Internal Activities, costs and gains Costs, quality etc. of inputs influence the costs and quality of the produced products © Artur Baldauf l Department of Management l University of Bern Activities, costs and margins of forward supported strategic partners Buyer/seller Value Chain Costs and gains of upstream levels influence not only the price for the (end) buyer, but also their satisfaction … Corporate Strategy 34