MGT Capstone exam 2 Flashcards
Centralized organization
- top down strategic planning
- problems go up the hierarchy, decisions flow down
- CEO makes decisions, lower levels implement them
pros: consistency in strategy, organizational coherence
cons: communication difficulties across levels
decentralized organization
- regional / local managers empowered to make decisions
pros: decision makers positioned closer to local markets, manager motivation, decision making speed and efficiency
cons: lack of organizational coherence
4 types of horizontal organizational structure
functional
multidivisional
simple
matrix
horizontal organizational structure - functional
- employees grouped into functional areas based on domain expertise and which usually correlate to steps in value chain
- leaders of functional areas report to CEO who coordinates and integrates work of each function
- works best when firm has narrow focus and small geographic footprint
pros: expertise in each function, high performance units, increased focus and accountability
cons: lack of organizational cohesiveness, hard to communicate across units, too many specialists dont produce well rounded ceos/ managers get siloed
horizontal organizational structure - multidivisional
- structure used as firm diversifies products and locations
- organization is a collection of semi autonomous SBUs
- each sbu: has profit and loss responsibility, operates largely independently
led by unique ceo who is responsible for sbu strategy and operations
horizontal organizational structure - simple
- founders/ceos make all of the strategic decisions and run day-to-day operations
- professional managers and strategic systems are usually not in place
- low degree of formalization and specialization
horizontal organizational structure - matrix
- organizing both by product function AND location
- used to be more popular but has become less popular because not intuitive to have more than one organizing principle
vertical integration: backwards vs. forward integration
backwards
- owning inputs of the value chain like raw materials
- costco example: buying their own chicken farm
forwards
- owning/internalizing activities closer to the customer (distribution, sales, service)
- ex. coke and pepsi becoming their own bottlers, apple creating their own retail stare
vertical integration
benefits
risks
most useful when
most companies are not fully integrated because it is expensive and hard to maintain
benefits: improved quality, ease of scheduling and planning, allows for investments in specialized assets, securing critical supplies and distribution channels
risks: increased costs, reduced quality in learning stages, reduced flexibility, increased regulatory scrutiny
useful when: there are quality/scarcity issues with raw materials, to enhance consumer experience by eliminating annoyances and porr interfaces
four types of diversification
single business
dominant business
related diversification
unrelated diversification
single business
diversification
- most companies start like this
- company receives more than 95% of revenue from one product/market
- susceptible to economic downturns in a specific market
dominant business
diversification
- operates in multiple segments, but one does most of the revenue generating
- 70% < 1 product < 95%
related
diversification
- no more than 70% revenue from one single product/market
- has many different products, but that are similar in some way
benefits:
- value chain similarities (suppliers and customers)
- economies of scope (benefits to one company for making two products)
- synergy: the whole is greater than the sum of the parts
drawbacks:
- may miss out on good industries
- risk exposure (any one of the products could drive down whole ecosystem)
highest mean performance; lowest variation/most predictable performance
unrelated
diversification
- has many products/operates in many markets with no obvious link between them
benefits: risk mitigation–odds that a downturn in one would correlate with a downturn in another? low. pure corporate strategy approach, only caring if its a good industry or not
drawbacks: hard to manage, shareholders could do this themselves
strategic alliance definition
agreements between two or more entities to cooperate in some way
involves the sharing of knowledge, resources, and capabilities to develop products, services, or processes
why do strategic alliance
- I want to do more of what im already doing
- Im trying to learn how to do more and I want to learn to do it from your company (harder to do, why would the other company want to share knowledge–less incentive)
- strengthen competitive position
- enter new markets
- hedge against uncertainty
- access critical complementary assets
- learn new capabilities
cage framework outline
distance is the main cost and risk of expansion. cage is acronym for different types of distance
cultural
administrative and political
geographic
economic
cage–cultural
- disparity between a firms home and host country, specifically social norms, morals, beliefs, values
- consists of power distance, individualism, uncertainty avoidance, long-term orientation
cage–administrative and political
- captured in factors such as shared monetary/political associations, political hostilities, weak or strong legal and financial institutions
- administrative and political barriers include tariffs, quotes, restrictions
cage–geographic
physical size, within country distance to borders, topography, time zone, public infrastructure
cage–economic
- wealth and per capita income of consumers
- wealthy counties trade with wealthy countires
four models of global strategy
global standardization
multidomestic model
international model
transnational model
global strategy–global standardization
- high cost reduction, low local responsiveness
- based on wherever resources/capabilities have the lowest cost
- products are standardized across national markets, one version of the product is sold worldwide to achieve economies of scale
- operations are rationalized with centralized coordination and control; centralized decision making authority in worldwide division headquarters
ex. consumer electronics, luxury products, pharmaceuticals
global strategy–multi domestic model
- low cost reduction, high local responsiveness
- local consumers ideally perceive products as local
- business units in one country are largely independent of each other
- strategy and operating decisions are decentralized to SBUs in each country
- con: can be costly and inefficient, duplication of business functions across countries
ex: consumer products, food products, european markets
