Business Strategy Cases

Question 1

What are the strategy dimensions?

Answer 1

1. Organisational purpose (impetus for strategy activities, input) - eg. B corps / profit –> pay/avoid tax?
2. Strategy Process (flow of strategy activities, throughput)
3. Strategy content (Result of strategy activities, output)
4. Strategy context (conditions surrounding strategy activities)

Question 2

What are the aspects of the strategy process? What strategy tensions do they have?

Answer 2

1. Strategic thinking (strategist) –> logic (defining success) v creativity (differentiate yourself): rational reasoning perspective v generating reasoning perspective
2. Strategy formation (strategy) –> deliberateness (plan!) v emergence (rough idea, adjust as things come up): Stategic planning perspective v strategic incrementalism perspective
3. Strategic change (organisation) –> revolution v evolution

Question 3

What are the aspects of the strategy content? What strategy tensions do they have?

Answer 3

1. Business level strategy (between functional units within 1 business unit e.g. HR, sales, R and D, logistics…) –> starting point of markets (opportunity) v resources (your strengths)
2. Corporate level strategy (between business units of 1 company) –> Responsiveness v Synergy
3. Network level strategy (between companies) –> Competition v Cooperation (learn from each other), e.g. software and hardware

Question 4

What are the aspects of the strategy context? What strategy tensions do they have?

Answer 4

1. Industry context –> compliance v choice
2. Organisational context –> control v chaos
3. International context –> globalisation v localisation

Question 5

What is the strategy tension of organisational purpose?

Answer 5

Profitability v Responsibility

Question 6

How can you structure strategy tensions as strategy paradoxes?

Answer 6

Graphs: y-axis = tension for A; x-axis = tension for B

1. Tension as a puzzle (one optimal solution point) - “find the best”
2. Tension as a dilemma (two either-or solution points - “make a choice” (A or B)
3. Tension as trade-off (one optimal solution line) - “strike a balance”
4. Tension as a paradox (multiple innovative reconciliations) - “Get the best of both worlds”

Question 7

What are the advantages to taking a dialectical approach?

Answer 7

1. Range of ideas: presenting opposite perspectives frame the full set of views on the topic
2. Points of contention: ‘contrast function’ - brings points of contention into sharper focus
3. Stimulus for bridging: ‘integrative function’ - stimulates reader to seek a way to get the best of both worlds
4. Stimulus for creativity: ‘generative function’ - stimulates innovative ideas

Question 8

What is the strategy synthesis model?

Answer 8

Graph:
x-axis: Pressure for A
y-axis: Pressure for B
Line between top left and bottom right = trade-off line
Above trade-off line is 'synthesis area'
Top left = Antithesis
Bottom right = Thesis

Question 9

What is strategic reasoning about? What are its components?

Answer 9

Issue = what is the power and limitations of the human mind?

Components:

1. Cognitive activities: application level (mental reasoning) - what are the intended mental tasks to increase the strategist’s knowledge
2. Cognitive abilities: hardware level (mental faculties) - to what degree is the human brain limited in what it can know?) e.g. good/bad memory, fast/slow, talk/read, get advice? Know your limits!
3. Cognitive maps: operating system level (mental models - what type of platform/language is “running” on our brain?) - maps of a person of how the world works

Question 10

What are the cognitive activities?

Answer 10

Defining:

1. Identifiying
2. Diagnosing

Solving:

3. Conceiving
4. Realising

These often occur at the same time

Question 11

What cognitive activities does ‘defining’ include?

Answer 11

1. Identifying (recognising - logical, sense-making - creative) - becoming aware of challenges and acknowledging their importance - what is a problem? Objective observation v subjective interpretation (see from a particular angle)
2. Diagnosing (analysing - logical, reflecting - creative) - understanding the structure of the problem and its underlying causes - what is the nature of the problem? Explicit analysis v intuitive reasoning

Question 12

What cognitive activities does ‘solving’ include?

Answer 12

3. Conceiving (formulating - logical, imagining - creative) - come up with solutions, select the most promising - how should the problem be addressed? Select, discover and figure out v invention. If can’t objectively prove which is best (calculation), use judgment
4. Realising (implementing - logical, acting - creating) - problem-solving, evaluating whether consequences are positive; planning and controlling implementation activities - what actions should be taken. Can act before other steps to test certain assumptions in practice and experiment.

Question 13

What are the limitations to cognitive abilities?

Answer 13

1. Limited information sensing ability - due to physical inability to be everywhere, all the time, noticing everything - human senses can’t directly identify the way the world works and the underlying causal relationships; only see the phyiscal consequences –> using circumstantial evidence
2. Limited information processing capacity - limited data processing abilities (could a computer help?): thinking through problems remains tacit (guided by knowledge they have acquired in the past) . Humans hardly ever think through a problem with full use of all available data. Cognitive heruistics focus a person’s attention on a number of key variables believed to be most important and present a number of simple decision rules to rapidly resolve an issue –> set of possible solutions to be considered is also limited in advance. Analytical thinking v intuitive (informal so based on non-explicit assumptions, variables and causal relationships, and holistic - not unravelling the problem into its parts, but retaining an integrated view)
3. Limited information storage capacity - limited memory –> people store information selectively and organize the information so it can be easily retrieved when necessary. Cognitive heuristics (rules of thumb) make it more manageable.

Question 14

What are cognitive maps?

Answer 14

Mental models: maps of a person of how the world works

• Formed by your experience of the world
• By exchanging interpretations of what you see, you enact a shared reality (group’s dominant logic or belief system)
  e. g. Germans scared of inflation due to past experience

Nb. based on mutually inclusive nature of group membership, these paradigms can be complementary, overlapping yet consistent, or be inconsistent.

Question 15

What are the problems with cognitive maps?

Answer 15

Things can change:

• “Believing is seeing” - people significantly overestimate the value of information that confirms their cognitive map and underestimate disconfirming information, and actively seek out evidence that supports their beliefs.
• high level of rigidity - they become resistant to signals that challenge their conceptions
• Leads to shared reality/world view - “group think”; deviation from the dominant logic might have adverse social and political ramifications within the group, and the individual has no ‘intellectual sounding board’ for teasing out new ideas

Question 16

How can you overcome a cognitive map?

Answer 16

• Logical thinking: review and test key assumptions on which a strategist’s cognitive map has been based against dvelopments in the firm and its environment.
• Think about it, question it.
• Travel
• Bring in new people

Question 17

What is the paradox for strategic reasoning?

Answer 17

Logical thinking (rational reasoning perspective) v creativity (generative reasoning perspective)

Logical thinking (rational reasoning perspective): ability of managers to critically reflect on the assumptions they hold and make their tacit beliefs more explicit

• If managers base strategic decisions on heavily biased cognitive maps –> poor results –> logical thinking helps managers escape the confines of their cognitive maps
• But does everyone come to the same strategy? But could you be quicker and so more successful through higher production, economies of scale?

Creativity: ability of managers to abandon the rules governing sound argumentation and generate new understanding

Question 18

What are the indicia of the rational reasoning perspective (strategic reasoning)?

Answer 18

Logical-AFRO-CHICS

• Logic over creativity
• Cognitive activities are RAFI: recognising (identifying), analysing (diagnosing), formulation (conceiving) and implementation (realising)
• Objective, (partially) knowable - uses objective observations to identify problems
• Uses formal, fixed rules and vertical thinking that is deductive and computational (each step in an argument follows from the previous, based on valid principles)
• Consistency and rigor (break away from habits that may no longer be valid, and develop new approaches)
• Has incomplete information, but articulates assumptions based on known facts that can be debated
• Calculation, not judgment when selecting a solution (conceiving)
• Strategy as science

Question 19

What are the indicia of the generating reasoning perspective (strategic reasoning)?

Answer 19

Creative-AISIRJA

• Creativity over logic (note wicked nature of strategic problems)
• Cognitive activities are: Reflecting (identifying), sense-making (diagnosing), imagining (conceiving) and doing (realising)
• Uses intuition, adhering to the current cognitive map, so is subjective and (partially) creatable (helps identify and diagnose problems)
• Informal, variable rules with lateral thinking, inductive and imaginative, using unorthodoxy and innovativeness (takes leaps of imagination, without being able to support the validity of the mental jump to generate new understanding outside the cognitive map but without objective proof)
• Judgment, not calculation when selecting a solution (conceiving)
• Strategy as an art (not science)

Question 20

What is the solution to the paradox of analytical thinking v intuition in strategic reasoning?

Answer 20

Employ both intuitive and analytical thinking.
Intuitive pros:
- necessary and beneficial (managers have much tacit knowledge that can only be superficially tapped by analytical thinking)
- cut corners, avoid ‘paralysis by analysis’

Intuitive cons:

• risk of drawing faulty conclusions
• managers are inherently biased, as they focu attention on only a few variables and interpret them in a particular way, even when inappropriate.

Question 21

What should you use - logical or creating thinking?

Answer 21

They are partially incompatible; both require such a different mindset and range of cognitive skills that in practice it is very difficult to achieve simultaneously, both for the individual and for teams, departments and the overall firm. Commonly, conflicting styles lead to conflicting people, so a blend is not that simple. Nevertheless, both are required.

Question 22

Chapter 3: Strategy formation: what is the issue of realised strategy?

Answer 22

How can a successful course of action be realised in practice?

2 aspects:

• Strategy formation activities (the elements of the strategic reasoning process)
• Strategy formation roles (how will the strategy formation activities be carried out):
  a) top vs middle vs bottom roles
  b) line vs staff roles
  c) internal vs external roles

Question 23

List the strategy formulation activities

Answer 23

M-AEIO-O-AP
Identifying
1. Mission setting
2. Agenda setting

Diagnosing:

3. External assessment
4. Internal assessment

Conceiving:

5. Option generation
6. Option selection

Realising:

7. Action taking
8. Performance control (how well did you implement it?)

Question 24

Describe the strategy formulation activities under “identifying”

Answer 24

Identifying:

1. Mission setting: this strongly colours the filtering of what the organisation sees as a strategic issue
2. Agenda setting CMCCPP:
   - Cognitive maps of strategists influence which environmental and organisational developments are identified as issues.
   - Group culture impacts upon which issues are discussable or off-limits to open debate, and under what conditions discussions take place.
   - Other influences: communication, political skills, sources of formal and informal power.
   - -> These determine which issues make it onto the organisational agenda to be discussed and looked into further.

Question 25

Describe the strategy formulation activities under “diagnosing”

Answer 25

Diagnosing:
3. External assessment: investigate structure and dynamics of environment surrounding the organisation: scan of direct (market) environment and the broader (contextual) environment, including what makes the system tick, and in what direction are things developing?
4. Internal assessment: investigating the capabilities and functioning of the organisation. Includes assessment of the:
- business system - (resources, value chain), and
- organisational system (org structure, processes used to control and coordinate, org culture)
AND compare to rival firms

Question 26

Describe the strategy formulation activities under “conceiving”

Answer 26

Conceiving:

5. Option generation: creating potential strategies, can be specified at varying levels of detail
6. Option selection: Evaluate options. Criteria could be perceived risk, anticipated benefits, organisations’s capacity to executve, expected competitor reactions and follow-up possibilities). Sometimes formally articulated, but generally at least partially based on experience and judgment of decision-makers involved. Called “strategic decision-making”.

Question 27

Describe the strategy formulation activities under “realising”

Answer 27

Realising:

7. Action taking: perform tangible actions to realise the strategy; from setting up and operating the business system to getting the organisational system to function on a day-to-day basis
8. Performance control (how well did you implement it?): Measure whether the actions being taken are in line with the option selected, and whether the results are in line with what was anticipated; can be formal or informal. Incentives, targets, performance indicators, corrective steps. Deviation could be a signal to re-evaluate the original solution or problem definition.

Question 28

When is there a realised strategy?

Answer 28

If there is a clear pattern to the organisation’s actions

Question 29

How does the allocation of strategy formation roles vary?

Answer 29

The main variations in division of labour are along the following dimensions.

a) Top vs middle vs bottom roles: How much empowerment of middle and lower levels is beneficial for the organisation?
- Diagnosing (external and internal assessment): more common in bottom roles
- Option selection: top management (at least decision)
b) Line vs staff roles: Which should be responsible for the strategy formation process?
- Line managers: responsible for realisation –> sometimes also given role of conceiving. Could do all strategy formation activities without staff support.
- Staff from all existing departments may provide input
- Can use staff in strategy departments: varies from general process facilitation to process ownership to full responsibility for strategy formulation.
c) Internal vs external roles: Keep strategy formation activities in-house or outsource them?
- External: diagnosis activities (external and internal assessment), or facilitate strategy formation process. Some have responsibility for option generation.

Question 30

What are the arguments for a more or less formal strategy formation process?

Answer 30

For more formal e.g. strategic planning system with tasks, responsibilities, decision-making authority, budget, evaluative mechanisms Coordination-Control-RAP-Function:

• Easier coordination, especially of a large organisation.
• Top management has more control
• Unambiguous responsibilities, clearer accountability and stricter review of performance generally leads to a better functioning organisation.

For less formal:

• Formal planning systems have difficulty with essential strategy-making activities that are difficult to capture in procedures, e.g. ILIPSE creating new insights, learning, innovation, building political support, entrepreneurship
• Once established, planning bureaucracies create rules, regulations, procedures, checks, paperwork etc, making the system inflexible, unresponsive, ineffective and demotivating.

Question 31

What is the paradox in strategy formation?

Answer 31

1. Deliberate strategising: the ability to act intentionally; think before acting
2. Strategy emergence: The ability to think and act at the same time and let strategy (a coherent pattern of action) emerge

Central thought: duality of wanting to intentionally design the future, while needing to gradually explore, learn and adapt to an unfolding reality. Few strategies are purely deliberate or emergent, but usually a mix between the two.

Question 32

What are the pressures for deliberate strategising?

Answer 32

DC-COP

1. Direction: Without plans and objectives, the organisation would be adrift, unable to judge what is effective behaviour
2. Commitment: Plans enable early commitment to a course of action –> can invest resources and mobilise themselves, and dare to take actions that are difficult to reverse and have a long payback period.
3. Coordination: Plans coordinate strategic initiatives within a firm into a cohesive pattern, avoiding overlapping, conflicting and contradictory behaviour
4. Optimisation: Plans facilitate optimal resource allocation by managers evaluating and choosing the optimal course of action before committing resources to the most promising strategy and initiatives
5. Programming: Plans are a means for programming all organisational activities in advance for better precision, and more reliability and efficiency.
   - -> good for stable environment

Question 33

What are the pressures for strategy emergence?

Answer 33

1. Opportunism: keep an open mind to grab unforeseen opportunities and respond rapidly to new conditions
2. Flexibility: Keep options open and don’t commit the organisation too early to irreversible actions and investments.
3. Learning: The best way to find what works is to give it a try and learn
4. Entrepreneurship: Different people in the firm will have different strategic ideas. Provide inviduals, teams or units with enough autonomy to pursue innovative initiatives. Facilitative various divergent projects simultaneously, increasing commitment or closing them down as their potential unfolds.
5. Support: Getting things done in firms includes understanding the political and cultural dynamics of the organisation to build enough support to move forward and seeing where side steps or reversals are needed, pragmatically shaping strategy depending on what is feasible, not the ideal.
   - -> good for dynamic environment

Question 34

What is the strategic planning perspective

Answer 34

HAD DIFF

• Hierarchical - implemented top-down
• Advantages (DC-COP); gives organisation direction, can make commitments and prepare, achieve optimal resource allocation and coordination, programme the organisation
• Deliberateness over emergence
• Intentionally designed and executed - think first, then act
• Formally structured and comprehensive
• Forecast and anticipate, figure out the solution

Question 35

What is the strategic incrementalism perspective?

Answer 35

Approach:

• Emergence over deliberateness
• Gradually shaped (incrementalism), finding out the solution, thinking and acting intertwined, unstructured and fragmented strategy formation
• FLE - Postpone commitments, stay flexible, experiment with and learn through parallel initiatives and increase commitments as ideas gradually prove their viability in practice

Why incrementalism: It acknowledges that strategy formation is a process of innovation and organizational development in the face of wicked problems in an unknown future.

1. Wicked problems (unique, complex, linked to other problems, can be defined and interpreted in many ways, no correct answers, no delimited set of possible solutions, are interactive)
   - -> action will change the problem, so the plan is outdated as soon as implementation starts.
   - -> planning leads to paralysis by analysis - you are never done analysing a wicked problem!
2. Innovation process –> can’t plan it
3. Disruptive process of organisational change –> requires broad cultural and cognitive shifts. Changing people’s cognitive maps requires complex processes of learning and unlearning. Cultural and political changes are also difficult to programme.

Question 36

What is strategic renewal? What is the issue of strategic renewal?

Answer 36

Strategic renewal is the process of constantly enacting strategic changes to remain in harmony with external conditions.

Issue of strategic renewal: How can a path of strategic changes be followed to constantly renew the firm and avoid a situation whereby the firm ‘drifts’ too far away from the demands of the environment?

Question 37

What is strategic change?

Answer 37

Strategic changes are directed at renewing the business and organisational systems to create a new fit between the basic set-up of the firm and the characteristics of the enviornment. They are fundamental alterations to the business system or the organisational system

E.g. a reorganisation, a diversification move, a shift in core technology, a business process redesign, a product portfolio reshuffle.

Question 38

What aspects should be considered in strategic renewal?

Answer 38

1. Areas: Does the strategic change take place in the business system or in the organisational system?
2. Magnitude: What is the scope (how broad) and amplitude (how big) of the strategic change
3. Pace: What is the speed and timing of change? Need to keep the firm in step with the shifting opportunities and threats in the environment. Move quickly in a short period of time, or move more gradually over a longer time span?

Question 39

What are the areas of strategic renewal?

Answer 39

• Business system: the way a firm conducts its business; the specific configuration of resources, value-adding activities and product/serivce offerings directed at creating value for customers.
• Organisational system: the way the organisation has been configured; how the individuals populating a firm have been configured, and relate to one another, with the intention of facilitating the business system.

Question 40

How does the business and organisational system relate to each other?

Answer 40

1. Organisational members hold up:
2. Organisational system, comprising organisational:
   a) structure
   b) processes
   c) culture
   …which holds up:
3. The business system

Question 41

What are the components of an organisational system?

Answer 41

1. Organisationl structure: (anatomy) (division of tasks and responsibilities)
2. Organisational processes: (physiology) linking individuals and coordinating tasks
3. Organisational culture: (psychology), including joint beliefs, values and norms

Question 42

Which categories of criteria can be used to structure the organisation?

Answer 42

1. Input-based
2. Throughput-based
3. Output-based

Question 43

What input-based criteria can be used to structure the organisation?

Answer 43

1. Supply-based structure: based on different core inputs (e.g. oil division, gas division, renewables division)
2. Supply channel structure: based on different supply channels (e.g. direct purchasing unit, auction-focused unit, intermediary-based unit)
3. Supplier-based structure: based on different core suppliers (e.g. supplier Bosch unit, supplier Siemens unit)

Question 44

What throughput-based criteria can be used to structure the organisation?

Answer 44

1. Functional structure: based on value-adding activities (e.g. marketing, HR)
2. Technology-based structure: based on different core technologies (e.g. mechanical technology unit, electronic unit, digital unit)
3. Geographic structure: based on location of activities (e.g. European division, Asia/Pacific division, Americas division)

Question 45

Which output-based criteria can be used to structure the organisation?

Answer 45

(MAP-BBC)

1. Market segment structure: based on different groups of clients served (e.g. consumer market unit, small business unit, large business unit)
2. Account-based structure: based on different major clients served (e.g. BMW, Daimler)
3. Product group structure: based on different products being focused on (e.g. savings and loans unit, stocks and bonds unit, foreign currencies unit)
4. Business unit structure: based on different product-market combinations being focused on (e.g. retail banking unit, private banking unit, investment banking unit)
5. Brand-based structure: based on different brands being used (e.g. premium brand unit, B-brand unit, private labels unit)
6. Channel-based structure: based on different distribution channels being used (e.g. onling retailing unit, retail stores unit, franchisee support unit)

Question 46

What are the most important questions pertaining to organisational structure?

Answer 46

How many management layers needed?

How much authority to delegate to lower level sof management?

Question 47

What do organisational processes comprise?

Answer 47

• Def: The arrangements, procedures and routines used to control and coordinate the various people and units within the organisation.
• They can be institutionalised as ongoing integration mechanisms (e.g. financial budgeting and reporting processes) or just needed for a short period (e.g. task forces, committees, project teams).
• They can be more or less formal (e.g. communication via hallway gossip, personal networking, influencing decision-making through informal negotiations)

Question 48

What does organisational culture comprise? What effect does it have.

Answer 48

• Def: The worldview and behavioural patterns shared by the members of the same organisation. It encompasses the values and norms of the organisational members.

Effect:

• It offers a filter to make sense of things
• Culture can act as a strong integration mechanism, controlling and coordinating people’s behaviour.
• BUT an organisation culture is not always homogeneous; strongly divergent sub-cultures might arise in certani units, creating ‘psychological’ barriers within the organisation.

Question 49

How might the strategic renewal path look like in terms of change steps?

Answer 49

1. A few large change steps (discontinous or disruptive change)
2. Numerous small change steps (continuos change path)

Question 50

What does the concept of the magnitude of change ecnompass?

Answer 50

1. Scope of change: Narrow/broad. Broad if many aspects and parts of the firm are altered at the same time (could be comprehensive). Narrow when you focus change on a specific organisational aspect (e.g. new product development processes) or department (e.g. marketing)
2. Amplitude of change: High/low. High if change is a radical departure from previous situation. Low when only a moderate adjustment

• If comprehensive and radical change –> large magnitude
• If narrow and moderate change –> small magnitude
• If a focused radical change (narrow, high) –> medium-sized change steps
• If a comprehensive moderate change (broad, low) –> medium-sized change steps

Question 51

What does the concept of the pace of change encompass?

Answer 51

1. Timing of change: (when changes are initiated) intermittent (stop/go) or constant. If intermittent, need to determine the right moment to start. If constant, swhen to start is less important, as long as there is no peak at any one point in time.
2. Speed of change: (Time span within which changes take place) high or low.

Question 52

What is the paradox within strategic change?

Answer 52

Revolutionary change v Evolutionary change

• Revolutionary change: Change processes that do not build on the status quo, but overthrow it. Disruptive change - radical, high speed change
• Evolutionary change: Change processes whereby a constant stream of moderate changes gradually accumulates over a longer period of time. Incremental

To fundamentally transofrm the organization, a break with the past is needed, starting with a clean slate. But there is value in continuity, buildign on past experiences, investments and loyalties; to achieve lasting strategic renewal, people in the organisation will need time to learn, adapt and grow into a new organisational reality.

Question 53

What are the two main reasons for a revolutionary change process?

Answer 53

1. When organisational rigidity is so deeply rooted that smaller pushes doe not bring the firm into movement,
2. When large change is needed in a short time

Question 54

When might organisational rigidty be so deeply rooted that smaller pushes doe not bring the firm into movement, and so a revolutionary change process is neded?

Answer 54

PC-PICSS

• psychological resistance to change
• cultural resistance to change - where culture perpetuates obsolete assumptions about the market or organisation –> hard to reshape the organisational belief system
• political resistance to change (winners and losers)
• Investment lock-in (invested a lot into a certain product portfolio, activity system or technology)
• competence lock-in - the better a firm becomes at something, the more it focuses on becimnig even better. But if the firm’s competence based threatens to become outdated due to market or technolgoice changes?
• Systems lock-in: e.g. to an open standard (GAAP accounting rules) or a proprietary system (e.g. SAP)
• Stakeholder lock-in: long-term contracts, commitments to governments/communities…

Question 55

Why might large change be needed in a short time, justifying a revolutionary approach to change?

Answer 55

1. Competitive pressure (market position eroding quickly)
2. Regulatory pressure
3. First mover advantage: be the first, build entry barriers for late-movers, capitalise quickly on know-how that is dissipation-sensitive or for which the patent period is limited

Question 56

What are the reasons for evolutionary change?

Answer 56

1. Where strategic renewal hinges on widespread organisational learning (time is needed to experiment, reflect, discuss, test and internalise).
2. Power may be too dispersed for revolutionary changes to be imposed upon the firm

Question 57

What is the discontinuous renewal perspective to strategic change?

Answer 57

• Revolution over evolution (supporting role)
• Radical (high amplitude), comprehensive (broad scope), dramatic, sudden break with status quo
• Abrupt, unsteady, intermittent; stable and unstable states alternative
• Creative destruction; pursuing revolutionary change to gain a competitive advantage (breakthrough technology, new business model) or change industry rules –> a break with the past is needed before new methods can be adopted
• Disruptive innovation (turnaround)
• Shock therapy to fundamentally change people’s cognitive maps, solve lock-in problems.
• Under pressure things become fluid; In a crisis, people become more receptive to necessary, painful changes.
• Punctuated equilibrium; stability punctuated by episodes of revolutionary change; stability is not inherently harmful, as it allows people to get to work; downside = organisational rigidity

Question 58

What is the continuous renewal perspective for dealing with strategic change? (Kaizen)

Answer 58

• Evolution over revolution (fall-back if all else fails); revolutionary change commonly leads to the need for further revolution at a later time; it creates its own boom-and-bust cycle through a strong organisational yearning for stability
• Uninterrupted improvement, gradual, steady, constant, continuous adjustment, persistent transient state, gradual development (long term view), organic adaptation
• Moderate, piecemeal, undramatic
• In the cold everything freezes (a crisis blunts their motivation for expeirmenting and learning as they brace for an imminent shock and seek security)

Conditions: everyone must be motivated to continuously improve (reject stability, accept bounded instability), learn and adapt

Question 59

Business level strategy: what is the issue?

Answer 59

Competitive advantage: How can a company be successful? This depends on the unique business system it has developed to relate itself to its business environment, whereby the resource base, activity system and product/service offering are all aligned to provide goods and/or services with a superior fit to customer needs

Question 60

What is the business system comprised of?

Answer 60

The configuration of:
1. Product/service offering: value proposition (output)
2. Activity system: value chain (throughput, an integrated set of value creation processes leading to the supply of product and/or service offerings)
3. Resource base: stock of assets (inputs, all means at the disposal of the organisation for the perofrmance of value-adding activities
…intended to create value for the customers
= The way a firm conducts its business

Question 61

What are the risks of an unfocused approach to the product offering?

Answer 61

1. Low economices of scale
2. Slow organisational learning (for specific knowledge and capabilities)
3. Unclear brand image (stand for nothing)
4. Unclear corporate identity (difficult to explain why its people are together in the same company, lack of internal identity)
5. High organisational complexity (not a simple and manageable organisation)
6. Limits to flexibility: less specialised firms are often forced into certain choices due to operational necessity (can’t alter the many standard products) due to specific procedures, routines, systems and tools

Question 62

What are the key product offering questions?

Answer 62

Which products should be developed?
Which markets should be served?
–> limit focus on a limited number of businesses and within each business on a limited group of customers and a limited set of products

Question 63

What is a business?

Answer 63

A set of related product-market combinations. A business is delineated in both industry and market terms

Question 64

How can industries be defined?

Answer 64

A group of firms:

• making a similar type of product (airline industry, Swatch in watch industry)
• employing a similar set of value-adding processes (e.g. consulting, mining industries, Swatch in fashion industry so focus on fashion design and marketing)
• employing a similar set of resources (e.g. oil industry, IT industry)

Question 65

How can industries be delineated?

Answer 65

1. Traditionally defined industries
2. Upstream industries (extration/growing of raw materials and their conversion into inputs for the manufacturing sector) v downstream industries (takes output of manufacturing companies and brings them to clients, often adding services)

Question 66

How can the market be segmented?

Answer 66

1. Buyer attributes/demographics (as predictors of buying criteria or buying behaviour), e.g. by geophraphy, age, education.
2. Buying criteria/needs, e.g. price, purpose, style
3. Buyer behaviour/actions, e.g. adoption (early or late), purchase location, use (how often)

Can have a narrow or broad market definition in each of these categories

Question 67

How can a business be delineated?

Answer 67

• Industry (e.g. airlines railways, shipping)
• Market (e.g. London-Paris transport, London-Jamaica Transport, London-Barcelona Transport)

Typically, a business is narrower than the entire industry and the set of markets served is also limited.

e. g. ferry business (part of shipping industry serving London-Paris transport market)
e. g. Charter business (part of airline industry serving London-Jamaica and London-Barcelona Transport market, but not London-Paris)

Question 68

How must companies focus their efforts?

Answer 68

1. Select a limited number of businesses: analyse the structural characteristics of interesting businesses to judge whether they are attractive (Porter’s five forces analysis)
2. Focus within each selected business on distinct market segments and target a few special product offerings to meet their needs, aligned with a focused activity system and resource base –> product positioning

Question 69

What is the issue of competitive scope?

Answer 69

• Competitive scope is about determining in which product-market combinations within a business a firm wants to be involved (where to compete, and how).
• Can be widely-oriented or very tightly focused.

How can it be focused:

• Broad scope: large number of segments within a business, with varied product offerings, e.g. sport products for many segments
• Narrow scope:
• – segment focus (1 market segment, multiple products)
• – product focus (multiple market segments, 1 product)
• – niche focus (few customer segments and limited product line)

Question 70

What are the product bases for competitive advantage?

Answer 70

• Price –> need low cost product offering, activity system and resource base
• Features –> different intrinsic functional characteristics (but others can copy) - need different specialised resources and activitiy systems
• Bundling - a pcakage of products/services ‘wrapped together’ e.g. Apple products, kindle, bundle with warranties or financing
• Quality - better usability, reliability, durability (through materials used, people involved, manufacturing process employed, quality assurance procedures or distribution system)
• Availability (distribution) - available at right place at right moment in right way (e.g. out-of-doors impulse ice cream purchases, emergency)
• Image - logo can double the price, e.g. Lacrosse, good reputation –> trusted business partner
• Relations (with customers) –> more intimate knowledge of the product offering), customer gains more influence on what is offered (e.g. Daimler-Bosch)

Question 71

What is the Porter value chain?

Answer 71

Primary activities (on bottom): (IOOMS)

• in-bound logistics (receiving, storing, disseminating outputs)
• operations (transofrming inputs into final products)
• out-bound logistics (collecting, storing, distributing products/services to buyers)
• marketing and sales (providing a means by which buyers can purcahse the product and inducing them to do so)
• service (providing service to enhance or maintain the value of products)

Secondary/Support activities (on top) (FiHT-P)
Firm infrastructure (all general activities that support the entire value chain, e.g. planning, legal, accounting), HR Management, Technology development, procurement (purchasing inputs)

To the right: Margin

Question 72

What is the value of the Porter value chain?

Answer 72

The activities can provide the basis for a competitive advantage. Its uniqueness will usually not depend only on few specialised activities, but on the extraordinary configuration of the entire activity system.

Question 73

How can the resource base be classified?

Answer 73

1. Tangible resources (land, buildings, materials, money) - these can be purchased
2. Intangible resources (these must usually be developed):
   a) Relational resources: relationships, reputation
   b) Competences: aligned:
   - knowledge: rules and insights that can be extracted from and help make sense of information (e.g. market insight, competitive intelligence, technological expertise)
   - capability: the organisational’s potential for carrying out a specific activitiy or set of activities
   - attitude: the mindset prevalent within an organisation

Question 74

What is an example of an organisational competence?

Answer 74

Virgin’s service competence combining customer knowledge, adaptation capabilities and a customer-oriented attitude

Question 75

When is a competitive advantage sustainable?

Answer 75

If it cannot be copied, subsituted or eroded by the actions of rivals, and is not made redundant by developments in the environment.

So sustainability depends on two main factors:

• Competitive defendability: difficult for rival to imitate, or rivals can’t find an alternative route of attack. Could include ability to outpace rivals, staying one step ahead.
• Environmental consonance: all kinds of environmental influences can undermine the fit between the firm’s competitive advantage and the environment itself (e.g. analogue printing competence is no longer relevant)

Question 76

What is the paradox in the context of business level strategy?

Answer 76

Market adaptation v Resource leveraging

Market adaptation: the ability to understand the rules of the game in the market where one is operating

Resource leveraging: Creating value by controlling, disseminating assets across the busines and organisational system

Question 77

What are the two perspectives in the context of business level strategy?

Answer 77

Outside-in perspective (market adaptation)
v
Inside-out perspective (resources leveraging)

Question 78

What is the outside-in perspective?

Answer 78

MAIS-PR

• Markets over resources
• Adaptation to environment, opportunity-driven (external potential and positioning), driven by market demand
• Understand industry structure, incl bargaining power and mobility barriers
• Need to acquire necessary resources
• To attain advantageous position

Question 79

What is the inside-out perspective?

Answer 79

R-DRIBS-MPT

• Resources over markets (the starting point of the strategy formaiton process is the question of whcih resource base it wants to have. Acquiring or refining difficult-to-imitate competences and exclusive assets requires major investments and will to a large extent determine the culture and identity of the organisation).
• Attaining and building distinctive and superior resources and creating imitation barriers
• Strength-driven (internal potential) focus on resource base and activity system
• Adaptation of environment to the firm
• Market positioning is tactical based on a resource-driven strategy

Question 80

Corporate level strategy: What is the issue of corporate configuration?

Answer 80

What should be the profile of the corporation? This involves:

1. Corporate composition: in what lines of business should the corporate be active
2. Corporate management: What organisational system is required to run the corporation?

Question 81

Of what does the corporate composition comprise?

Answer 81

1. Corporate scope: In how many businesses should the corporate be active?
2. Corporate distribution: What should be the relative weight of each line of business, allocating resources accordingly

Question 82

What aspects are there of corporate management?

Answer 82

1. Integration Mechanisms: How should synergies between businesses be realised
2. Management mechanisms: Who should ensure that synergies between businesses are realised?

Question 83

How can a business increase revenue outside the realm of one business?

Answer 83

Diversification: when a corporation enters another line of business. This can be:

• horizontal diversification (market development) (to another related business within the industry (integration) or outside the industry (horizontal diversification), e.g. Bosch moving into e-bikes)
• vertifical diverisfication (backward vertical to integrate supplier business, forward vertical integration to integrate buyer business, e.g. Hugo Boss moving from textile into retail (risky, as with Magna (BMW manufacturer) considering buying Opal from VW))

Question 84

How can the corporation composition be depicted?

Answer 84

Boston Consulting Group matrix:
x-axis: relative competitive position
y-axis: business growth rate
size of bubble: copmpany’s sales in a line of businesses

General Electric Business Screen:
x-axis: competitive position
y-axis: industry attractiveness
size of bubble: total business size
shaded bit of bubble: firm's share of the business

Number of bubbles: corporate scope
Relative size of bubbles (or shaded bits of bubbles): corporate distribution

Question 85

What are the key inegration mechanisms used by corporate management?

Answer 85

1. Centralisation: physically bringing resources and activities together into one organisational unit
2. Coordination: orchestration of resources, activities and/or product offerings split between different business units
3. Standardisation: creating a common norm for resources, activities and/or product offering characteristics across business units to achieve economies of scale and rapid competence development (powerful, but how much?)

Question 86

What are the key management mechanisms used to ensure that integration is carried out and synergies are realised?

Answer 86

1. Control: the power to enforce integration on the basis of formal authority (division or corporate level manager). Could be through direct supervision (telling business units what to do) or indirect (giving themobjectives that must be met or discussing variables). Various levels of authority: from full decision-making power to coordinator or liaison officer with limited formal power.
2. Cooperation: achieving integration by means of mutual adjustment between business units; it may be in the business unit’s interests, or they see the overall corporate interests, e.g. exchange ideas, have joint initiatives

Question 87

What are the three general corporate control styles?

Answer 87

• Financial control style: control only through financial objectives
• Strategic control style: Some central services, some standardised systems and activities, centre tries to coordinate activities that reach beyond business unit boundaries. Control though strategic objectives
• Strategic planning style: strategic business units have relatively little autonomy from the corporate centre. Many key activities are cnetralised or standardised, corporate centre secures cross-business coordination. Control by direct supervision.

Question 88

What is the paradox within corporate strategy?

Answer 88

Business responsiveness v Multi-business synergy

Business responsiveness: The ability to respond to the competitive demands of a specific business area in a timely and adequate manner (internal communication and control distracts from this)

Multi-business synergy: The additional value created by working in two or more business areas, over and above the sum of the business parts (synergies are not automatic, they take hard work!)

Question 89

What are the sources of synergy between strategic business units?

Answer 89

1. Leveraging resources (resource base)
2. Integrating activities (Activity system, value chain)
3. Aligning positions for the product offering

Question 90

How can leveraging resources create synergies?

Answer 90

Achieving resource:

a) allocation (e.g. money and personnel) and
b) replication (e.g. knowledge and capabilities)

Question 91

How can integrating activities create synergies?

Answer 91

Where integration of value chains is more efficient or effective than if totally separated:

a) linking value-adding activities: vertically related business units with an internal customer-supplier relationships –> vertical integration of sequential value-adding activities to meet a specific type ofcustomer demand
b) sharing value-adding activities (business units combine them, e.g. logistics, production, marketing –> scale advantages or quality improvements). Corporate centre may organise certain support activities centrally, e.g. HR, IT support, procurement

Question 92

How can aligning positions for the product offering create synergies?

Answer 92

Improving:

a) bargaining position (offering a broad package of related products and servces to specific customer groups)
b) competitive position (prevent business units from competing against on another, support each other to attack a third party (e.g. through a common standard or aggresively pricing selected products)

Question 93

What are the major business problems of multi-business firms / arguments for business responsiveness?

Answer 93

HSS-DD

1. High governance costs (from coordinating activities, bureaucracy)
2. Slower decision-making (more layers of management, more coordination meetings)
3. Strategy incongruence (misfit of strategy) with business demand, e.g. VW Skoda (low end) and Bentleigh (high end)
4. Dysfunctional control (corporate centre misses specific business know-how needed to judge business unit strategies, activities and results) - frustrating, good people leave, business steered in wrong direction
5. Dulled incentives (lack of autonomy has a negative impact on motivation, compounded by poorly delineated responsibilities, lack of clear accountability and ‘captive’ internal customers)

Question 94

What are the two perspectives related to organisational level strategy?

Answer 94

Portfolio perspective

Integrated perspective

Question 95

What is the portfolio perspective?

Answer 95

RAUSIC-FS-CAPc-BP

• Responsiveness over synergy
• Acquisitions are simple to accommodate
• Potentially unrelated (diverse) composition
• Collection of business shareholdings: portfolio of highly autonomous business units in which the corporation has a financial stake –> responsiveness
• Low, incidental coordination between BUs (e.g. if purchasing same thing, coordinate)

Pursue financial synergies only using capital allocation and performance control to:
- Strive for a balanced portfolio of mature cash producers and high potential return on investment cash users, at an acceptable level of overall risk.

Question 96

What is the integrated perspective?

Answer 96

SRIAS-DaMS-JC

• Synergy over responsiveness
• Tightly related (focused) composition
• Highly integrated (interdependent) with high, structural coordination between BUs
• Acquisitions and divestitures are difficult

Setting direction and managing multi-business synergy:

• Joint strategy development
• Strong central core of integrated or shared resources, activities and/or product offerings, with business applications

Question 97

Network level strategy: What is the issue of inter-organisational relationships?

Answer 97

What should be the nature of the relationship between a firm and other organisations in its surrounding?

• Relational actors: with which groups or firms can, or must, the company interact? (e.g. Daimler working with google for google maps naviation system)
• Relational objectives: what expectations and objectives do organisations have wrt an external relationship (ask them to state them explicitly)
• Relational factors: Which factors also have an impact on how relationships between companies unfold?
• Relational arrangements: What is the precise coordination or dispute settlement mechanism between the cooperating companies? (legal agreement? Hand-shake?)

Question 98

Relational actors: What are the main categories of industry actor relatinoships in a network level strategy?

Answer 98

1. Upstream vertical (supplier) relations: providers of raw materials, parts, machinery and services (or suppliers of all production factors), but also with suppliers further upstream in the industry –> to gain better quality, reliability, process improvement, influence the product, e.g. natural resources and Honda
2. Downstream vertical (buyer) relations: Customers (actul users or intermediaries trading the output), e.g. get retailer’s market data
3. Direct horizontal (industry insider) relations: competitors - e.g. to standardise the car plug so they can all be used; lobby infrastructure suppliers for electric cars, fundamental research, economies of scale
4. Indirect horizontal (industry outsider) relations: Complementors: relationships with companies outside the firm’s industry, e.g. marketing things together around a lifestyle, packaging, software + hardware

Question 99

What are the main categories of contextual actor relationships in a network level strategy?

Answer 99

PEST:

• Political/regulatory actors: organisations setting or influencing the regulations under which companies must operate, e.g. governments, lobbyists, parties, regulatory bodies, international institutions)
• Economic actors: organisations that influence the general state of affiars with which the firm interacts, e.g. tax authorities, central banks, employer’s federations, stock exchanges, unions
• Socia-cultural actors: individuals or organisations with a significant impact on societal values, norms, beliefs and behavrious, e.g. community groups, media, opinion leaders, religious organisations –> better PR
• Technology actors: organisations that influence the pace and direction of technology developemtn and the creation of knowledge, e.g. patent offices, universities, research institutes, standardisation bodies

Question 100

What are the relational objectives in an inter-organisational cooperation?

Answer 100

1. Leveraging resources - e.g. Telecom + Vodafone using each other’s networks, but still competing
2. Integrating activities
3. Aligning positions on the product offering.
   between companies

Question 101

How can firms leverage resources to improve their shared postions at the network strategy level?

Answer 101

Improve either the quantity or quality of the resources at their disposal through:

1. Learning: objecitve is to exchange knowledge and skills, or engage in the joint pursuit of new know-how.
2. Lending: If a firm cannot make full use of its resource, it can lend them to others, e.g. for technology, copyrights and trademarks –> licencing. Physical resources can also be lent.

Question 102

How can firms integrate activities to improve their shared positions at the network strategy level?

Answer 102

1. Linking: Relationships where products/services are exchanged, e.g. vertical link between a buyer and a seller. Enables focus on a limited number of value-adding activities
2. Lumping: Firms bring similar activities together to gain economies of scale, e.g. sharing operations (airline alliances), logistics systems (e.g. postal partnerships) or payment facilities (e.g. inter-bank settlement agreements). Usually between industry insiders.

Question 103

How can firms align their positions to improve their shared positions at the network strategy level?

Answer 103

1. Leaning: Firms get together to improve their bargaining position vis-a-vis other industry actors (e.g. standards) e.g. more bargaining power with suppliers, offer a more attractive package of products and services to buyers, developing industry standards with insiders. Could heighten entry barriers for interested industry outsiders
2. Lobbying: firms cooperate with one another to gain a stronger position vis-a-vis contextual actors (e.g. want stricter or less regulation) - stronger voice towards political and regulatory actors, put pressure on standard setting bodies, tax authorities, universities etc.

Question 104

What are the relational factors (what influences the relationship between the relational actors)?

Answer 104

1. Legitimacy: Relations are highly impacted by what is deemed to be legitimate (written and unwritten codes of conduct). Which agenda is chosen and how interaction is take place are decided by what both parties acept as ‘the rules of engagement’. There is ‘trust’ when it is expected that the other organisation will adhere to these rules.
2. Urgency: Relations develop differently if one or both parties are under time pressure to achieve results
3. Frequency: Relations depend on the frequency of interaction and the expectations of future interactions with each other (one-off transaction or a more structural relationship with multiple interactions) –> strong impact on outcomes, influenced by level of urgency and how much is going in parallel
4. Power: the ability to influence others’ behaviour in inter-organisational relationships. A firm can derive power from having resources the other needs.

Question 105

How can inter-organisational power be categorised?

Answer 105

1. Balanced, loose relationship: mutual independence - full freedom to act in accordance with own objectives, can break off the relationship without any penalty. Neither organisation has significant influence over the other
2. Balanced, tight relationship: mutual dependence (or interdependence) (fine): mutually dependent with mutual sway.
3. Unbalanced, loose relationship: unbalanced independence –> powerful firm is more independent, giving it more freedom to act; the other is independent, but can be influenced by the other firm.
4. Unbalanced, tight relationship: Unbalanced dependence (could be critical): where there is asymmetrical dependence, one part can dominate the other. The organisation with the lower level of dependence will have more freedom to manoeuvre and impose its conditions –> need a good contract. E.g. where supplier is not dependent on you as a customer, but you are on them –> can come close to the hierarchy-type relationship found within a firm

Question 106

How can relational arrangements be distinguished from each other

Answer 106

Bilateral v Multilateral agreements
Non-contractual arrangements v contractual arrangements v equity-based arrangements

Nb: In equity-based arrangements, it involves taking a financial stake in each other or in a new joint venture

Question 107

What are some examples of non-contractual relational arrangements?

Answer 107

Multilateral:

• lobbying coalition (e.g. European Roundtable of Industrialists
• Joint standard setting (e.g. Linus coalition)
• Learning communities (e.g. Strategic Management Society

Bilateral agreements:

• Cross-selling deal (e.g. between pharma firms)
• R and D staff exchange (e.g. between IT firms)
• Market information sharing agreement (e.g. between hardware and software makers)

Question 108

What are some examples of contractual relational arrangements?

Answer 108

Multilateral arrangements:

• Research consortium (e.g.Symbian in PDAs)
• International marketing alliance (e.g. Star Alliance in airlines)
• Export partnership (e.g. Netherlands Export Combination)

Bilateral:

• Licensing agreement (e.g. Disney and Coca-cola
• Co-development contract (e.g. Disney and Pixar in movies)
• Co-branding alliance (e.g. Coca-cola and McDonalds

Question 109

What are some examples of equity-based relational arrangements?

Answer 109

Multilateral arrangements:

• Shared payment system, e.g. Visa
• Construction consortium (e.g. Eurotunnel)
• Joint reservation system (e.g. Galileo)

Bilaterial arrangements:

• New product joint venture (e.g. Sony and Ericsson in mobile phones)
• Cross-border joint venture (e.g. Daimler Chrysler and Beijing Automotive
• Local joint venture (e.g. CNN Turk in Turkey)

Question 110

What is the purpose of collaborative arrangements?

Answer 110

To profit from some of the advantages of vercial and horizontal integration without incurring their costs.

It also facilitates co-specialisation to become more effective and efficient, clustering firms into more or less permanent networks. When trust and reciprocity has been achieved, relations can move beyond simple contractual obligations.

Question 111

What are the disadvantages of co-specialisation through collaboration agreements? What can help to cure this problem?

Answer 111

Disadvantages of such co-specialisation:

• could combine the weaknesses of hierarchy and markets
• the mutual dependence might become skewed, shifting the balance of power to one of the partners.

Partial cure: use a contract to clearly define objectives, responsibilities, authority and expected results. Still the risk of deception, abuse of trust and exploitation of dependence though

Question 112

What are the advantages and disadvantages to hierarchy relations?

Answer 112

Hierarchy benefits: structural coordination of activities. Parties collaborate on a long-term basis to realise a common goal.

Hierarchy weaknesses: bureaucracy - creating red tape, unnecessary coordination activities and dulled incentive to perform

Question 113

What are the advantages and disadvantages to market relations

Answer 113

Market benefits: Flexibility and motivation:

• flexibility to have multiple relationships of varying length and intensity, easy to change
• motivation to be efficient and optimise the pursuit of the organisation’s self-interest –> spurs risk-taking, innovation and change

Market weaknesses: opportunism: self-interest seeking with guile, often the incomplete or distorted disclosure of information calculated to mislead, distort, disguise, obfuscate or confuse.

Question 114

What is the paradox relevant to the network level strategy?

Answer 114

Inter-organisational competition v inter-organisational cooperation

Inter-organisational competition: The act of working against each other, where two or more organisations’s goals are mutually exclusive

Inter-organisational cooperation: The act of working together with each other, wehre two or more organisations’ goals are mutually beneficial, e.g. Lenovo (hardware) + Microsoft (software)

Question 115

What are the two different perspectives relating to the network level strategy?

Answer 115

Discrete organisation perspective v embedded organisation perspective

Question 116

What is the discrete organisation perspective?

Answer 116

C-SIM-NDBA-L-Z-P-TC-C

• Competition over cooperation; every organisation pursues own self-interest.
• Remain independent and interact with other companies under market conditions as much as possible.
• No network level strategy, discrete organisations (atomistic): distinct and defended boundaries, arm’s length and transactional relations to facilitate clear and business-like interactions –> have a contract and a believable threat to enforce them, avoid information leaking to the other firm
• Vertical transactions are mainly zero-sum (win/lose); players with stronger bargaining power earn more of the economic rent.
• Build a powerful position, wield it in a calculated and eficient manner and avoid resource dependence.
• Temporary coalitions as a tactics for weaker companies to create power blocks
• Limited, well-defined, contract-based working together
  e. g. Steve Jobs, Apple

Question 117

What is the embedded organisation perspective?

Answer 117

• Cooperation over competition
• Business is about value creation (a mainly positive-sum activity) –> increase the pie (win/win). By specialising in a certain area, the firm can gain scale and experience advantages much faster. Complementary resources will usually be of higher quality and lower price than if done independently.
• Reap significant benefits by surrendering part of their independence and developing close long-term cooperative arrangements with a group of other organisations.
• Network level strategy: Interdependence, embedded organisations (networked) (companies have outsourced non-core activities).
• Durable partnerships (strategic): close and structural relations with fuzzy and open boundaries based on trust and reciprocity; they are broad, open and relationship-based
  e. g. Android platform, Bill Gates

Question 118

What is the issue of a corporate mission?

Answer 118

How to send the firm in a particular direction. There are two components to this issue:

1. Corporate mission, consisting of its elements and functions
2. Corporate governance, consisting of its functions and forms

Question 119

Organisational purpose: what is a corporate mission?

Answer 119

The broader set of fundamental principles giving direction to strategic decision-making, of which organisational purpose is the central element.

The corporate mission consists of the fundamental principles that mobilise and propel the firm in a particular direction

Question 120

What is ‘corporate governance’

Answer 120

All tasks and activities (can be limited to the those of the board of directors, or include government, societal groups etc) that are intended to supervise and steer the behaviour of top management
–> ensure they pursue strategy in line with the corporate mission

Question 121

What is the organisational purpose?

Answer 121

The reason for which an organisation exists

Question 122

What are the elements of the corporate mission?

Answer 122

PB values defined

1. Organisational purpose at its heart: why does the firm exist
2. Organisational beliefs: what are the driving ideas and assumptions about the nature of the environment and what the firm needs to do to be successful in its business, influenced by their collective cognitive map
3. Organisational values –> what is of fundamental importance? It determines what they see as worthwhile activities, ethical behaviour and moral responsibilities; it also contributes to corporate identity. To be influential, it must become embodied in the organisation’s culture. This can also change over time (IBM was arrogant–> needed to change to develop a service culture)
4. Business definition –> where does the firm operate? Often loosely defined, e.g. mobility solutions, not automotive company. Can focus direction, but could result in missed opportunities if too narrowly defined –> could change somewhat over time

Question 123

What does the strength of a corporate mission depend on?

Answer 123

Whether the four elements of organisational purpose, organisational beliefs, organisational values and business definition fit together and are mutually reinforcing

Question 124

What is the difference between a vision, mission, objective and target?

Answer 124

Mission: fundamental principles guiding stratregic choices (business principles)

Vision: A broad conception of a desirable long-term future state, of which the details remain to be determined; long-term business aim)

Objective: medium-term aim, more specific than a vision

Target: short-term aim, more specific than an objective

Question 125

What are the functions of a corporate mission?

Answer 125

It can provide:
1. Direction: Defining the boundaries within which strategic choices and actions must take place
2. Legitimisation: Conveying to all internal and external stakeholders that the firm is pursuing valuable activities in a proper way –> acceptance, support, trust (also legitimises staff lay-offs!)
3. Motivation: Inspiring individuals to work together in a particular way
NB: what is seen as a legitimate and motivating organisational purpose is strongly contested.

Question 126

What are the functions of corporate governance?

Answer 126

1. Forming function: Shaping, articulating and communicating the fundamental principles that will drive the organisation’s activities
2. Performance function: Contributing to the strategy process with the intention of improving the future performance of the corporation
3. Conformance function: ensuring corporate conformance to the stated mission and strategy

Question 127

What forms of corporate governance are there?

Answer 127

1. Board structure: one-tier (US, Britain) or two-tier (Germany) board structure or free to choose (France, Switzerland).
   - Two-tier: formal division of power with management board with top executives and a supervisory board with non-executives with the task of monitoring and steerig the management board. Slower, Supervisory Board not so well informed, but better checks and balances.
   - One-tier: executive and non-executive directors sit on one board. Quicker, everyone better informed, but agency problem
2. Board membership: Legal requirements (Germany –> half represent the workers, half the shareholders), also other differences (number, stature and independence of non-executive directors)
3. Board tasks: could be limited (just vote on proposals, little power to contradict CEO’s will). Others meet regularly and formulate proposals, practively select new top managers and determine objectives and incentives. Depends largely on how proactive non-executive directors define their role.

Question 128

What is the paradox of the corporate mission?

Answer 128

Economic profitability v Social responsibility

Profitability: To be an attractive investment, a firm must earn a higher return on the shareholders’ equity than could be realised at a bank. (Profitability is not only a result, but also a source, of competitive power. It provides a company with the financial leeway to improve its competitive position and pursue its ambitions)

Responsibility: Acting in the interest of others, even when there is no legal imperative.

Firms require a certain measure of economic profitability to compete and survive, and they need to exhibit a certain amount of social responsibility if they are to retain the trust and support of key stakeholders.

In countries with a market economy, it is generally agreed that companies should pursue strategies that ensure economic profitability, but that they have certain social responsibilities that must be fulfilled as well. Here endeth the consensus.

Question 129

What are the two perspectives on organisational purpose

Answer 129

Shareholder value perspective v Stakeholder value perspective

Question 130

What is the shareholder value perspective?

Answer 130

Corporations are established to serve the purposes of their owners, generally being to raise the share price and dividends, and the long term profitability too. Corporations are instruments to create economic value

• Profitability over responsibility
• Challenge = getting agent to pursue principal’s interest (principle-agent problem) –> most important players in corporate governence are independent outside directors, preferably with a significant amount of company shares
• Pursuing self-interest; recognising that it is expedient to pay attention to stakeholders does not mean it is the corporation’s purpose to serve them (there is no moral obligation to do so). Serving stakeholers as a means, not an end

Question 131

What is the stakeholder values perspective?

Answer 131

Corporations are joint ventures between shareholders, employees, banks, customers, suppliers, governments and the community with the intention of increasing their common wealth (so serve the interests of all parties involved) –> serving stakeholders is an end in itself. No reason why the supplier of one ingredient in an economic value-creation process has a stronger moral claim on the organisation than the providers of other inputs.
- Responsibility over profitability
- argument for stakeholder representation on the board, and stengthening CSR.
- Balancing interest of various stakeholders; how essential is its input to the organisation’s economic success? How legitimate is their claim?
- Pursuing joint interests motivates. Cooperation is more effective than competition.
Most supporters of the stakeholder values perspective acknowledge that organisations have a moral responsibility towards secondary stakeholders too, e.g. local communities, governments, the environment and society in general, but opinions differ whether it should be a part of the organisation’s purpose to serve this broader body of constituents.

Question 132

Industry context: what is the issue of industry development?

Answer 132

What are the drivers propelling industry development, and what patterns of development do industries exhibit?

Question 133

What are the aspects of the issue of industry development?

Answer 133

1. Dimensions (state): which elements can be characterised, causing a shift in industry rules?
2. Paths (direction): which development paths can be distinguished along the various dimension?
3. Drivers (determinant): which factors in the environment can change and influence the direction of the industry development?
4. Inhibitors (determinant): what are the sources of industry rigidity that oppose industry change?
   e.g. electric cars: expensive, range, lack of infrastructure
   Industry development is the result of a change in one or more of the underlying factors determining the behaviour of Porter’s five forces

Question 134

What are the structural dimensions of industry development?

Answer 134

CC-VH-IE / CEVICH

1. Convergence v divergence: of business models, e.g. convergence of airline industries, copying Ryan Air for domestic flights. Mutation to compete on a different basis v selection (less successful firms adapting to the dominant industry design)
2. Concentration v fragmentation: of market share. Concentration of aircraft and food retailing industries. Fragmentation of airline and telecom service industries.
3. Vertical integration v vertical fragmentation: integration of media and IT service providers, fragmented semiconductor industry since 1980s
4. Horizontal integration v horizontal fragmentation: integration (where boundaries between different buisnesses in an industry become increasingly fuzzy (e.g. consumer electronics and defence industries). Fragmented (construction and airlines). Inter-industry integration where producers of different products and services are complementary or converge on a common standard or platform; or fragmentation from neighbouring sectors, e.g. accountancy
5. International integration v international fragmentation: integration of food retailing and business education. Fragmentation if increasingly confined to a region (internet retailing)
6. Expansion v contraction: in demand. Can be cyclical.

Question 135

Describe four general patterns of industry development in terms of convergence and divergence (of business models)

Answer 135

1. Gradual development (equilibrium environment): one dominant business model, slowly replaced by an alternative that is a slight improvement –> firms have little trouble adjusting, competition is based on the shared rules of the game, so advantage for established firms
2. Continuous development (fluctuating equilibrium environment): relatively frequent but modest changes to the dominant business model. Advantage for rapid adapters
3. Discontinuous development (punctuated equilibrium environment): one dominant business model for a long time, suddenly displaced by a radically better one. Advantage for rule breakers (with the new business model) (insider or new entrant)
4. Hypercompetitive Development (Disequilibrium environment): Business models are frequently pushed aside by radically better ones. Constantly changing rules of the game, so impossible for firms to build up a sustainable competitive advantage. Advanage for rule breakers.

Question 136

What are the drivers of industry development in the contextual environment?

Answer 136

Drivers in the contextual environment (PEST):

• Political/regulatory drivers (e.g. new trade regulations,environmental protection laws, privatisation moves)
• Economic drivers (e.g. changing exchange rates, economic growth, labour productivity)
• Socio-cultural drivers (e.g. changing health needs, environmental awareness, consumption habits)
• Technological drivers (e.g. new scientific breakthroughs, innovative technologies, communication standards)

Internal drivers in the industry

Question 137

What are the drivers of industry development in the industry (not the contextual environment)?

Answer 137

1. Incumbent rivals (e.g. improved competences, new products, new brand positioning)
2. Suppliers (e.g. innovative products, new foreign entrants, consolidation)
3. Buyers (e.g. changed needs, increased price sensitivity, lower brand loyalty)
4. Substitutes and complementors (e.g. changed rpoduct range, new technological standard)
5. New entrants (e.g. new business model, diversification strategy, new alliance)

Question 138

When can a firm claim industry leadership?

Answer 138

When that one firm is the major driver of industry development.

If there is not industry leader and the evolution of the industry is due to the complex interaction of many different change drivers, the industry dynamics determine the path of industry development

Question 139

What are the inhibitors of industry development?

Answer 139

Industry rigidity factors (that fix the rules of the game and competitive positions) include:
1. Underlying conditions: Some structural industry factors can be inherent to the industry and resist attempts to change, e.g. economies of scale (airplane manufacturing), buyer concentration (defence systems), buyers valuing product differentiation (clothing) or price (chemicals, construction)
2. Industry integration: Some industries can be locked into a specific structure for a long time due to the complex linkages between various aspects; e.g. music industry needed internet delivery methods, new standards, copyright protection…
3. Power structure: Powerful industry incumbents have little to gain and much to lose if the rules of the game change
4. Risk averseness: of companies, customers, suppliers and distributers.
5. Industry recipes: The common understanding of the rules of the game can limit people’s openness to rule changes (cognitive map of industry incumbents)
6. Institutional pressure: Firms can experience strong pressures from all kinds of institutions prescribing behavioural standards. This gives companies legitimacy, but makes them less willing to question industry conventions.
The industry evolution is path dependent - the path that the industry has travelled in the past will strongly limit how and in which direction it can develop in the future.

Question 140

What is the paradox in the industry context

Answer 140

Firm compliance v Strategic choice

Firm compliance: The ability of companies to understand and adapt themselves to their environments (or be selected out).

Strategic choice: the ability to act without regarding the rules of the game to gain significant competitive advantages

Question 141

What are the two perspectives in the industry context?

Answer 141

Industry dynamic perspective v Industry leadership perspective

Question 142

What is the industry dynamic perspective?

Answer 142

Industry development is an autonomous process, whch individual firms can hardly hope to shape. Adjust or risk being selected out.
Industries are complex systems, with a large number of forces interacting simultaneously, none of which can significantly sdirect the long-term development of the whole.
- Compliance over choice; play by the rules, adapt.
- Uncontrollable evolutionary process
- Environment selects fit firms (as in Darwinism)
- Success due to fitness to industry demands
- Low and slow ability to change industry
- Convergence to dominant design
- Profit is largely industry-dependent
- Changing the rules of the game is extremely difficult, slow and hazardous, and should be left up to those ‘high rollers’ willing to play for ‘high stakes’ with only a low chance of success (venture capitalists and entrepreneurs).

Question 143

What is the industry leadership perspective?

Answer 143

The industry can be shaped in an infinite variety of ways by innovative firms within the bounds of the possible. Therefore, industry development can be driven by firms willing and able to take a leading role.

• Choice over compliance
• Firm creates fitting environment
• Success due to manipulation of industry demands; if a vision of the industry of tomorrow is compelling enough, people inside and outside the company will start to anticipate, making it a self-fulfilling prophecy. A firm must then work out a new competitive business model. If it seems to offer a competitive advantage, this can attract sufficient custoemrs and support to gain ‘critical mass’. The better the firm is at builing new competences and setting new standards, the more power it will have to determine the direction of industry development.
• High and fast ability to change industry
• Change the rules (innovate)
• Divergence, create new design
• Profit is largely firm-dependent

Question 144

The organisational context: what is the issue of organisational development?

Answer 144

How can leaders get power, and how and where can they exert it?

Question 145

What are the aspects of the issue of organisational development?

Answer 145

1. Sources of leadership influence: What are the sources that leaders can derive their influence from?
2. Levers of leadership influence: What are the generic ways for leaders to seek influence and where do they have to focus on?
3. Arenas of leadership influence: Where do leaders need to direct their influence to achieve strategic changes?

Question 146

What are two categories of the sources of leadership influence?

Answer 146

1. From the position (determined by the their position and their willingness to exert them - it must be a credible threat)
2. From the person (depends on perceptions of people being led)

Question 147

What are the sources of leadership influence stemming from the position?

Answer 147

1. Legitimate power: When a person has the formal authority to determin certain organisational behaviours and other employees agree with this situation, e.g. authority to assign work, spend money, and demand information
2. Coercive power: Capability to punish or withhold rewards to achieve compliance, e.g. giving a poor performance review, withholding a bonus, dismissing employees
3. Reward Power: Ability to offer something of value to a person in return for compliance, e.g. giving praise, awarding wage raises, promoting employees

Question 148

What are the sources of leadership influence stemming from the person?

Answer 148

1. Expert power: Has superior knowledge or skills in an important area so others want to comply. Can be based on specific knowledge of function areas (e.g. marketing, finance), technologies (e.g. IT), geographic areas or businesses. Also skills: e.g. sees the issue/solution, asks the right questions
2. Referent power: Has charismatic appeal by which he can influence other persons, e.g. due to likeableness, forcefulness, persuasiveness, visionary qualities and image of success
   Nb: probably need both

Question 149

What is leadership?

Answer 149

The act of influencing the views and behaviours of organisational members with the intention of accomplishing a particular organisational aim; the act of getting organisational members to follow.

Leaders are individuals who have the ability to sway other people in the organisation to get something done.

Question 150

What is power?

Answer 150

The capability to influence

Question 151

What are the levers of leadership influence?

Answer 151

1. Input control (highest leverage, least direct impact)- selecting the right people and environment
2. Throughput control (lowest leverage, highest direct impact- getting involved hands-on in the activities of others (should be more the exception)
3. Output control - e.g. management by objectives; reaching agreement on performance targets, monitoring how well they are being achieved.

Question 152

What are the arenas of influence?

Answer 152

The parts of the organisation most resistant to change

1. The political arena: managers must build widespread political support to impose their strategic agenda and get ensure acceptance and compliance for implementation
2. The cultural arena - manages must be able to change people’s belief and associated behavioural patterns to change an organisation; visionary (new image of desired future state of the firm) and missionary (new set of beliefs and values to guide the firm) and teaching, using rational persuasion, inspirational appeal, symbolic actions, motivational incentives and subtle pressure
3. The psychological areana - leaders must win the hearts and minds of people to change the organisation. People must be willing to ‘follow the leader’, prerferably actively, with commitment, courage and even passion –> need respect and trust of colleagues, and must meet emotional need for certainty, clairty and continuity.

Question 153

What is the paradox in the organisational context?

Answer 153

Control (imposition) v Chaos (initiative)

Control: the ability of managers to shape ther own future and that of their firm

Chaos: the level of authority given to the employees to do things differently, weigh situations, solve problems and take initiatives. Argues a period of disorganisation is often a prerequisite for strategic renewal - to unfreeze existing structures, processes, routines and beliefs, and open people up to different possibilities and provoke creativity. It also encourages self-organisation, e.g. in the market (invisible hand). Managers who want to release the energy, creativity and entrepreneurial potentil pent up in their organisation must be willing to let go and allow some chaos to exist.

Question 154

What are the two perspectives related to the organisational context?

Answer 154

The organisational leadership perspective v Organisational dynamics perspective

Question 155

What is the organisational leadership perspective?

Answer 155

Top management can - and should - take charge of the organisation (visible hand). Organisational inertia and a growing misfit between the organisation and its environment are not inevitable, but result from a failure of leadership. If people are left to sort things out by themselves, this inevitably degenerates into strategic drift.

• Control over chaos
• Authoritarian, top-down, imposed organisation
• Controllable creation process (doesn’t have to be leader’s ideas, but he needs to have control)
• Leaders shapes new behaviour using their vision and skill
• High, fast malleability
• Strategise, then organise

Question 156

What is the organisational dynamics perspective?

Answer 156

Managers rarely have the ability to shape their organisations at will. The political, cultural and learning dynamics leave top manageres with relatively little direct power over the system the want to steer. Focus on facilitating the process of self-organisation, releasing creative and entrepreneurial potential. Managers can encourage empowerment, stimulate learning and innovation, bring people together, take away bureaucratic hurdles. Ensure the invisible hand of self-organisaiton functions property and does not lead to out-of-hand disorganisation. Organisations develop according to their own dynamics.

• Chaos over control
• Uncontrollable evolutionary process
• Democratic, bottom-up, self-organisation
• New behaviour emerges from interactions
• Low, slow
• Strategy follows organisation

Question 157

International context: what is the issue of international configuration?

Answer 157

How should the firm organise its activities across borders?

Question 158

What are the aspect of the issue of international configuration?

Answer 158

1. Dimension of globalisation: what is global?
2. Levels of globalisation: what is the subject of globalisation?
3. Internal composition: In which countries does a company want to be active in, and how much involved do they want to be?
   a) International scope: which countries are selected to do business in
   b) International distrubiton: how are the value adding activities distributed across the selected countries
4. International management: How should a company organise itself todeal with its border-spanning nature. Three integration mechanisms: standardisation, coordination, centralisation

Question 159

What are the dimensions of globalisation?

Answer 159

Global means one or more of the following:

1. Worldwide scope: Spatial dimension - a geographic term, and being more than international. Globalisation as the process of international expansion on a worldwide scale. McDonalds globalising, not global (in half the countries, but often in only a few cities, half revenue from USA)
2. Worldwide similarity: Variance dimension - homogeneity around the world. Globalisation as increasing worldwide similarity. e.g. global product v locally tailored product. McDonalds relatively global (some leeway on menue and interior design)
3. Worldwide integration: Linkages dimension - the world as one tightly linked system (e.g. GFC). Globalisation as increasing worldwide integration. Global market if events in one country are significantly impacted by events in other geogrphic markets. McDonalds only slightly global (some activities are centralised or coordinated, but generally relatively little need for concerted action.

Question 160

What is localisation?

Answer 160

Opposite of the process of globalisation; characterised by decreasing international scope, similarity and integration

Question 161

What is internationalisation?

Answer 161

Increasing international scope (not increasing worldwide scope, which would be globalisation)

Question 162

What are the levels of globalisation?

Answer 162

1. Globalisation of economies - macro level: Are the world’s economies generally experiencing a convergence trend?
2. Globalisation of businesses - meso level: Are customer demands similar around the world? Do producers compete with one another on a global scale? Distinguish globalisation of industries with markets
3. Globalisation of companies - micro level: Do individual firms compete on a global scale?

Question 163

What is the issue of international composition? What are its aspects?

Answer 163

In which countries does a company want to be active in and how involved is it?
1. International scope - geographic spectrum: In how many countries does the company want to be active in, and which countries should these be?
2. International distribution - distribution of value adding activities: How can resources and activities best be divided across the various countries?
–> Use advantages of the different countries - labour cost, capital cost, productivity, high/low tech, e.g. semiconductor industry.
Decision will alrgely depend on the strategic motives that stimulated the firm to enter the international arena in the first place.

Question 164

What are some typical international growth options (from low to high investment)

Answer 164

1. Export via agent or distributor (sales)
2. Export via sales subsidiars (marketing, sales, service overseas)
3. Foreign production subsidiary (product, assembly)
4. Integrated foreign subsidiary (R and D, production, assembly, marketing, sales, service overseas)

Question 165

How can a business’s portfolio of foreign sales markets be displayed in a portfolio matrix?

Answer 165

GE business screen, but use:
x-axis: competitive position (of the business)
y-axis: country attractiveness (low, medium high): incorporates market growth, competitive intensity, buyer power, customer loyalty, government regulation and operating costs

Question 166

What is the issue of international management? What are its aspects?

Answer 166

Internationalisation is only economically rational if ‘the international whole is more than the sum of teh country parts’ - if cross-border synergy can be reaped. to offset the extra cost of foreignness and distance. The firm therefore needs integration mechanisms.

Question 167

What are the most important ingetration mechanisms used in international management?

Answer 167

1. Standardisation: Equalising activites in each country to achieve economies of scale or to serve border crossing customers who want a predictable offering, e.g. B2B, travelers
2. Coordination: Aligning activites in different countries to serve border-crossing clients in a coordinated manner, to counter the border-crossing client’s policy of playing off the firm’s subsidiaries gainst one another (cross-border price shoping), or to respond to or attack competitors using cross-subsidisation.
3. Centralisation: Integrating activities at one central location to gain economies of scale or use the competitive advantage of a particular country. Centralisation of knowledge intensive activities is sometimes also needed to guard quality or ensure faster learning.

Question 168

What are the four generic organisational models for international firms?

Answer 168

1. Decentralised federation - ‘multinational’
2. Coordinated federation - ‘international’
3. Centralised hub - ‘global’
4. Integrated network - ‘transnational’
   Depends on the type of cross-border synergies the strategists envisage

Question 169

What are the characteristics of a decentralised federation

Answer 169

• Decentralised federation - ‘multinational’
• Organised along geographic lines
• Subsidiaries are autonomous, low level of standardisation and coordination, few centralised activities, strategic decisions decentralised
• Loose simple controls
• Mainly financial flows between HQ and subsidiary

Question 170

What are the characteristics of a coordinated federation

Answer 170

• Coordinated federation - ‘international’
• Organised along geographic lines
• Close HQ-subsidiary relationship - some standardisation and coordination
• Core competences, technologies, processes and products are developed centrally –> mainly knowledge flows (technolgy, systems, processes) between HQ and subsidiary.
• Formalised control systems (i.e. planning, budgeting, administration).

Question 171

What are the characteristics of a centralised hub?

Answer 171

• Centralised hub - ‘global’
• National units relatively unimportant (all main activities in home country)
• High levels of standardisation and centralisation; strategic decisions are centralised
• Coordination directed by HQ - tight simple controls
• Mainly flows of goods between HQ and subsidiary

Question 172

What are the characteristics of an integrated network?

Answer 172

• Integrated network - ‘transnational’
• Close HQ-subsidiary AND subsidiary-subsidiary relationships
• Each national unit can become the worldwide centre for a particular competence, technology, process or rpoduct.
• Low level of centralisation
• Complex coordination (strategic decision-making shared)
• Some standardisation
• Large flows of inofrmation, components, products, resources and people.

Question 173

What is the paradox in the international context?

Answer 173

Global synergy (globalisation) v local responsiveness (localisation)

Global synergy (globalisation): The ability to create value by leveraging resources, integrating activities and aligning product offerings across two or more countries.

Local responsiveness (localisation): The ability to remain attuned to specific national market demands, responding adequately and timely to unique characteristics

Question 174

What cross-border synergies can be achieved?

Answer 174

Leveraging resources:

1. Achieving resource reallocation: money, machinery, people relocated abroad; e.g. managers specialising in market development go to new subsidiaries, older machinery to less advanced markets
2. Achieving resource replication: replicate intangible resources such as knowledge and capabilities, thereby leveraging know-how wrt technology, production, marketing, logistics and sales.

Integrating activities:

3. Reaping scale advantages: pooling certain activities. Can be used for production, logistics, procurement, R and D. Can achieve by standardising and coordinating activities across borders, or by centralisation
4. Reaping location advantages: country specialises in what they do best, e.g. inexpensive or specialist inputs (labour, raw materials, infrastructure), attractive buyers or related industries

Aligning positions

5. Dealing with cross-border customers: provide standard products, one global account, counter cross-border price shopping, playing the subsidiaries off against each other
6. Dealing with cross-border competition: through cross-subsidisation, attach in a few national markets

The wider the geographic scope, the greater the potential benefit.

Question 175

What are the most important differences between countries that pressure international firms to be attuned to distinct characteristics of particular countries?

Answer 175

Differences in:

1. Market structure
2. Customer needs: cultural expectations, incompatible techical systems, languages
3. Buying behaviour: types of information they use, relationship with supplier
4. Substitutes: tea or softdrinks as beer substitutes?
5. Distribution channel: number of layers, sophistication, concentration, negotiating power
6. Media structure: for marketing communication - e.g. number of TV stations, regulation, cost and effectiveness
7. Infrastructure: do products rely on digital telephone, high-speed motorways, national healthcare system? Do services require an efficient postal service, electronic banking?
8. Supply structure: availability, quality and price of materials, components, labour, management, capital, facilities, machinery, research, information and services
9. Government regulations

Question 176

What are the two perspectives in international context?

Answer 176

Global convergence perspective v International diversity perspective

Depends on the business; some are more suited to a globalised approach than others.

Question 177

What is the global convergence perspective?

Answer 177

(Like a US corporation)

• Globalisation over localisation
• Growing international similarity
• Growing integration of international linkages
• Technology and communication
• Diversity is costly: convergence can be encouraged
• Global synergy focus
• Standardise/centralise
• Centre for global innovation
• Global structure (centralised hub)

Question 178

What is the international diversity perspective?

Answer 178

• Localisation over globalisation
• Fostering international diversity
• Cultivating fragmentation of international linkages
• Cultural and institutional identity
• Diversity is reality: divergence can be exploited
• Local responsiveness focus
• Adapt/decentralise
• Locally leveraged innovation (exploit country’s competitive advantage)
• Transnational structure (integrated network)