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Chapter 8 - PowerPoint PPT Presentation


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Chapter 8. The Strategic Management Process. External Analysis. Strategic Choice. Strategy Implementation. Competitive Advantage. Mission. Objectives. Internal Analysis. Implementing Corporate Diversification. How Information Flows. Where and By Whom are Decisions Made.

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Presentation Transcript
slide2

The Strategic Management Process

External

Analysis

Strategic

Choice

Strategy

Implementation

Competitive

Advantage

Mission

Objectives

Internal

Analysis

Implementing

Corporate

Diversification

slide3

How Information Flows

Where and By Whom are Decisions Made

How to Influence the Behavior of People

Implementation Issues

• how can the interests of employees

be aligned with the interests of the firm?

slide4

The Need for Organizational Structure

Information Processing Requirements

• as organizations become larger and more complex,

information processing requirements exceed

individual capacity

• bounded rationality

• organizational structure divides information

processing into manageable blocks (span of control)

slide5

M-Form Structure

Board of Directors

Senior Executive

Corporate

Human

Resources

Corporate R&D

Corporate Marketing

Corporate Finance

Strategic Planning

Division

Division

Division

Engineering

Accounting

Production

Finance

Sales &

Marketing

Human

Resources

slide6

Interests of Owners and

Managers May Diverge

The Agency Relationship

A Trade Off

M-Form Structure

Divides Information

Processing Requirements

Into Manageable Blocks

Divides Owners

From Managers

slide7

Principals

Monitors

Agents

The Agency Relationship

Managing Agency

Division

General

Managers

Individual

Shareholders

Senior

Executives

Board

Of

Directors

Shared

Activity

Managers

Institutional

Shareholders

Corporate

Staff

Dual

Role

slide8

Chairman

Chairman

CEO

COO

Chairman

CEO

CEO

COO

Chairman

CEO

COO

COO

The Office of the President

Chairman

of the

Board

(monitoring)

Chief

Executive

Officer

(strategy formulation)

Chief

Operating

Officer

(strategy implementation)

slide9

The Office of the President

Information Filtering

• information about the divisions’ businesses

is filtered as it rises to the senior executive

• the senior executive can ‘manage’ the information

flow

• information flow should not exceed the

bounded rationality of managers at any

level in the organization

• information should flow should be matched

with decision-making authority

slide10

Division General Managers

Senior Executive

Corporate

Human

Resources

Corporate R&D

Corporate Marketing

Corporate Finance

Strategic Planning

Division

Division

Division

Engineering

Accounting

Production

Finance

Sales &

Marketing

Human

Resources

slide11

Division

Engineering

Engineering

Production

Production

Finance

Finance

Sales &

Marketing

Human

Resources

Shared Activity Managers

Division

Division

Cost Centers

Shared

Activities

Profit Centers

slide12

Transferring

Intermediate

Products

Evaluating

Divisional

Performance

Allocating

Capital

Management Controls

3 Issues

Measurement:

Playing Games:

Setting Prices:

• accounting

• managers want

to look good

• negotiation

• economic value

added (EVA)

• cost

• zero-based

budgeting

• market-based

Ambiguity:

• dual pricing

• allocating costs

& revenues

slide13

Compensation Policies

Compensation Committee

In theory…

• represents interests of owners in setting compensation

of top executive team

• sets compensation based on performance or market

In practice…

• sometimes appear to be beholden to executives

• compensation decisions often bear little relationship

to performance

slide14

Compensation Policies

Aligning Incentives

Research shows…

Theory predicts…

Stock Options

Long Time

Horizon

Tied to

Performance

Stock Grants

Cash Bonus

Short Time

Horizon

Not Tied to

Performance

Salary

slide15

MBO

Divest

Assets

Spin-off

IPO

Refocusing

Corporate level strategy may call for

exiting a business

• a conglomeration discount may exist

• the corporation may lack necessary skills

• expected economies of scope may not exist

• the corporation may need funds for core activities

or,

slide16

Multi-Domestic

Strategy

Global

Strategy

International Implementation

Decentralized Federation:

Centralized Hub:

• highly autonomous units

• facilitates global

integration

• very responsive locally

• exploits a

global product

Coordinated Federation:

• less autonomous

• exploits scale

economies

• some shared activities

between divisions

slide17

Transnational

Structure

International Implementation

• facilitates both local responsiveness

and global integration

• country managers are responsible for

exploiting economies of scope

• corporate HQ constantly scans the

globe looking for best practices

slide18

Summary

Successful implementation is a matter of:

• appropriately breaking information processing

into manageable blocks

• aligning the interests of owners and managers

These can be accomplished through:

• Organizational Structure

• Management Controls

• Compensation Policies