Description

‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية اإللكترونية‬

Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University

College of Administrative and Financial Sciences

Assignment-3
Strategic Management (MGT 401)
Due Date: 26th April 2025 @ 23:59
Course Name: Strategic Management

Student’s Name:

Course Code: MGT401

Student’s ID Number:

Semester: 2nd

CRN:
Academic Year:

For Instructor’s Use only
Instructor’s Name: Dr. Hanen Louati
Students’ Grade: X /Out of 10

2024-25

Level of Marks: High/Middle/Low

General Instructions – PLEASE READ THEM CAREFULLY
•
•
•
•
•
•
•
•

Restricted – ‫مقيد‬

The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be reduced for
poor presentation. This includes filling your information on the cover page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.

Learning Outcomes:
1.

Describe the different issues related to environmental scanning, strategy formulation, and strategy
implementation in diversified organizations. (CLO2)

2.

Explain the contribution of functional, business, and corporate strategies to the competitive advantage of
the organization. (CLO3)

3.

Distinguish between different types and levels of strategy and strategy implementation. (CLO4)

4.

Communicate issues, results, and recommendations coherently, and effectively regarding appropriate
strategies for different situations. (CLO6)

I.

Discussion questions
1.

How should a corporation strive to achieve synergy among its functions and
business units? Give examples. (Chapter 9)
2. How is the cellular/modular structure different from the network structure? (Chapter
9)

3. In what ways can corporate culture be changed? Why is understanding national
cultures vital in strategic management? (Chapter 10)
4. Is the evaluation and control process suitable for a corporation that prioritizes
creativity? Can control and creativity coexist? Give examples (Chapter 11)
Notes:
–

–

Your answers must include at least 4 scholarly, peer-reviewed references, following a proper referencing
style (APA). Please note that these scholarly references can be accessed through the Saudi Digital Library
(SDL).
Ensure that you support your statements with logic and arguments, citing all referenced sources.
1.5 marks each question.

II.

Case study

From a real national/international market, choose an example of acquisition or merger between
companies and answer the following questions:
1) Present your chosen companies and explain the reasons for this acquisition/merger.
2) What is the method used by the company to manage the culture of
the acquired/merged company? Justify.
3) Assess the cultural compatibility of the companies.
4) Is this acquisition/merger successful? Why or why not? Discuss the competitive position
of the company (after acquisition/merger).
Notes:
✓
✓

Restricted – ‫مقيد‬

1 mark for each question
Max 400 words

Answers

Restricted – ‫مقيد‬

Chapter

9

Strategy
Implementation:
Global Strategy
Environmental
Scanning:

Strategy
Formulation:

Strategy
Implementation:

Evaluation
and Control:

Gathering
Information

Developing
Long-range Plans

Putting Strategy
into Action

Monitoring
Performance

External

Mission

Natural
Environment:

Reason for
existence

Resources and
climate

Societal
Environment:

Objectives
What
results to
accomplish
by when

General forces

Task
Environment:

Industry analysis

Strategies
Plan to
achieve the
mission &
objectives

Policies
Broad
guidelines
for decision
making

Internal

Programs
and Tactics
Activities
needed to
accomplish
a plan

Budgets
Cost of the
programs

Procedures
Sequence
of steps
needed to
do the job

Structure:

Chain of command

Culture:

Performance
Actual results

Beliefs, expectations,
values

Resources:

Assets, skills,
competencies,
knowledge

Feedback/Learning: Make corrections as needed

Pearson MyLab Management®
Improve Your Grade!
Over 10 million students improved their results using the Pearson MyLabs. Visit mymanagementlab.com
for simulations, tutorials, and end-of-chapter problems.
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Learning Objectives
After reading this chapter, you should be able to:
9-1. Describe the means of entry by which an
organization can do business in another
country
9-2. Explain the elements of International Strategic Alliances that lead to success
9-3. Discuss the stages of International
Development

9-4. Explain how companies can improve their
staffing efforts as they expand beyond
their home country
9-5. Discuss the unique issues related to Measuring Organizational performance that
are presented with the administration of
a truly international company

UNIQLO – From Japan to Asia to the World
Founded in 1949, UNIQLO, a Japanese fashion retailer from the Fast Retailing group, opened a unisex casual wear store in Fukuro-machi, Naka-ku,
Hiroshima, under the name “Unique Clothing Warehouse,” and later
converted to its current brand name. As of November 2016, UNIQLO
Japan had 841 stores. By 2016, UNIQLO has over 1,700 stores worldwide
and around 40,000 global employees.
Fast Retailing adopted a set of strategies from the American retailer
GAP Inc. known as “SPA” (specialty-store/retailer of private-label apparel),
under which they produce their own clothing and sell it exclusively. By having a SPA business model, UNIQLO could deliver high-quality, affordable, and
innovative apparel to consumers. The concept of this brand is “Made for All.” It
means UNIQLO offers a basic casual outfit that everyone can wear daily.
There has been major growth in Asia, with 497 stores in Greater China (Mainland China,

H o n g

Kong, and Taiwan), 178 in South Korea, and 248 in Southeast Asia and Oceania. However, the Fast Retailing
group currently ranks as the forth place as global fashion retailer, just behind Inditex (Zara), H&M, and GAP.
The company’s global mission is to grow from a Japanese company to a Japan-born global firm. They strive to
be the best apparel manufacturer retailer from Japan, to Asia, and to the world by 2020. To achieve this goal
UNIQLO needs to employ and nurture managers to develop business throughout the world. However, UNIQLO is
known as a company that has a traditionally Japanese working culture. It has a company standards manual book,
which is translated into various languages and is distributed globally to ensure that everyone follows the same
global standards. The main principles include Global One (“global approach”) and Zen-in Keiei (“all employees
with the mindset of a manager”). UNIQLO trains employees to embody these standards in their work. While
it makes sense for a global company to share same standards and regulations, due to cultural differences and
management styles, it leads to a high turnover ratio especially overseas. In order to tackle this diversity issue,
UNIQLO supports women’s progress, and gives importance to advancing a regional regular employee program,
allowing temporary employees to become permanent employees.
SOURCES: Based on information from Fast Retailing Website, accessed February 8, 2017;
and Tadashi Yanai, “The Fast Retailing in 2020: My Views on Management,” Fast Retailing,
eng/ir/library/pdf/presen080903_Yanai.pdf, accessed February, 2017.

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PART 4    Strategy Implementation and Control

One of the most competitive and difficult aspects of Strategy Implementation is a
move to extend business operations outside of the home country of the company.
Global Strategy is the sum total of the activities that an organization takes in order
to compete in markets outside its home country. Given that one of the three pillars
of this text is globalization you will note that we have crafted a global issues section
into every chapter, have utilized global organizations as examples and have addressed
unique concerns that arise with the operation of a global organization. Many companies
start with sales outside the country in which the business begins and virtually every
company eventually has sales in many other countries. However, running a truly global
organization is far more than simply selling goods & services around the world, it is an
operational mindset that has its own unique issues and concerns.
In this chapter, we will address some of the unique issues that arise in the move to
and the running of a truly global business. This will include means of entry, international
coordination, stages of international development, international employment and measurement of performance.

International Entry
Research indicates that shareholders reward companies who grow faster outside of the
United States and that growing internationally is positively associated with firm profit9-1. Describe the
ability.1 Tumi (the high-end luggage company) aggressively pushed a global expansion
means of entry by
strategy and reported record sales and earnings in 2016, despite foreign exchange issues.2
which an organization
A corporation can select from several strategic options regarding the most appropriate
can do business in
method for entering a foreign market or establishing facilities in another country. The
another country
options vary from simple exporting to acquisitions to management contracts.
Some of the most popular options for international entry are as follows:
Exporting: A good way to minimize risk and experiment with a specific product is
exporting, shipping goods produced in the company’s home country to other countries for marketing. The company could choose to handle all critical functions itself,
or it could contract these functions to an export management company. Exporting is
popular for small businesses because of the Internet and rapid advance of overnight
express services, which has reduced the once-formidable costs of exporting. About
10% of the sales of High West Distillery in Park City, UT comes from exports to the
United Kingdom, Canada, Australia, Hong Kong and others.3
■■ Licensing: Under a licensing agreement, the licensing firm grants rights to another
firm in the host country to produce and/or sell a product. The licensee pays compensation to the licensing firm in return for technical and sometimes marketing
expertise. This is an especially useful strategy if the trademark or brand name is
well known but the company does not have sufficient funds to finance its entering the country directly, the technology is unique and not easily replicable or if
the country makes entry via investment difficult or impossible. Rovi Corporation
(guides and recommendation engines for online searches) signed a license agreement with Funai Electric Co. Ltd., covering Japan and Europe that enabled Funai
to use Rovi’s patent portfolio for digital consumer electronics.4 This strategy is also
important if the country makes entry via investment either difficult or impossible.
■■ Franchising: Under a franchising agreement, the franchiser grants rights to another
company to open a retail store using the franchiser’s name and operating system.
In exchange, the franchisee pays the franchiser a percentage of its sales as a royalty.
Franchising provides an opportunity for a firm to establish a presence in countries
■■

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where the population or per capita spending is not sufficient for a major expansion
effort.5 However, the more important element of franchising is the ability of the franchisor to expand rapidly with minimal capital investment. Franchising has enabled
McDonald’s to grow to a worldwide powerhouse. More than 80% of their worldwide
locations and nearly 90% of the locations in the United States are franchised.6
■■ Joint ventures: Forming a joint venture between a foreign corporation and a domestic company has been one of the most popular strategies used to enter a new country.7
Companies often form joint ventures to combine the resources and expertise needed
to develop new products or technologies. A joint venture may be an association
between a company and a firm in the host country or a government agency in that
country. A quick method of obtaining local management, it also reduces the risks
of expropriation and harassment by host country officials. A joint venture may also
enable a firm to enter a country that restricts foreign ownership. The corporation can
enter another country with fewer assets at stake and thus lower risk. Under Indian
law, for example, foreign retailers are permitted to own no more than 51% of shops
selling single-brand products, or to sell to others on a wholesale basis. These and other
restrictions deterred supermarket giants Tesco and Carrefour from entering India.
As a result, 97% of Indian retailing is composed of small, family-run stores. Eager
to enter India, Wal-Mart’s management formed an equal partnership joint venture
in 2007 with Bharti Enterprises to start wholesale operations. Under the name Best
Price, they opened their first store in 2009 and had opened 21 retail stores by 2016.8
■■ Acquisitions: A relatively quick way to move into an international area is through
acquisitions—purchasing another company already operating in that area. Synergistic benefits can result if the company acquires a firm with strong complementary
product lines and a good distribution network. For example, Belgium’s InBev purchased Anheuser-Busch in 2008 for US$52 billion to obtain a solid position in the
profitable North American beer market. Before the acquisition, InBev had only a
small presence in the United States, but a strong one in Europe and Latin American,
where Anheuser-Busch was weak.9 Research suggests that wholly owned subsidiaries are more successful in international undertakings than are strategic alliances,
such as joint ventures.10 This is one reason why firms more experienced in international markets take a higher ownership position when making a foreign investment.11 Cross-border Merger and Acquisitions amounted to more than US$441
billion in the first half of 2015, up 136% from the same time period in 2014.12 In
some countries, however, acquisitions can be difficult to arrange because of a lack
of available information about potential candidates. Government restrictions on
ownership, such as the U.S. requirement that limits foreign ownership of U.S. airlines
to 49% of nonvoting and 25% of voting stock, can also discourage acquisitions.
■■ Green-field development: If a company doesn’t want to purchase another company’s problems along with its assets, it may choose green-field development and build
its own manufacturing plant and distribution system. Research indicates that firms
possessing high levels of technology, multinational experience, and diverse product
lines prefer green-field development to acquisitions.13 This is usually a far more
complicated and expensive operation than acquisition, but it allows a company
more freedom in designing the plant, choosing suppliers, and hiring a workforce.
For example, Nissan, Honda, and Toyota built auto factories in rural areas of Great
Britain and then hired a young workforce with no experience in the industry. BMW
did the same thing when it built its auto plant in Spartanburg, South Carolina, to
make its Z3 and Z4 sports cars. In early 2016, BMW announced it had exported its
2,000,000 vehicles built in South Carolina. Seventy percent of the vehicles made in
Spartanburg are shipped around the world through the Port of Charleston.14

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Production sharing: Coined by Peter Drucker, the term production sharing generally refers to the process of combining the higher labor skills and technology
available in developed countries with the lower-cost labor available in developing
countries. Often called outsourcing, many companies have moved data processing,
programming, and customer service activities “offshore” to Ireland, India, Barbados,
Jamaica, the Philippines, and Singapore, where wages are lower, English is spoken,
and strong telecommunications networks are in place. Payroll outsourcing is the
fastest growing segment of global human resource outsourcing. It is expected to
grow at a compound annual growth rate of 4.4% between 2016 and 2020.15
■■ Turnkey operations: Turnkey operations are typically contracts for the construction of operating facilities in exchange for a fee. The facilities are transferred to
the host country or firm when they are complete. The customer is usually a government agency of a country that has decreed that a particular product must be
produced locally and under its control. For example, Fiat built an auto plant in
Togliatti, ­Russia, for the Soviet Union in the late 1960s to produce an older model
of Fiat under the brand name of Lada. MNCs that perform turnkey operations
are frequently industrial equipment manufacturers that supply some of their own
equipment for the project and that commonly sell replacement parts and maintenance services to the host country. They thereby create customers as well as future
competitors. Interestingly, Renault purchased a 25% stake in the same Togliatti
factory and in 2013 was allowed to purchase a majority stake in the business along
with their partner Nissan. By 2016 it employed more than 44,000 people.16
■■ BOT concept: The BOT (Build, Operate, Transfer) concept is a variation of the
­turnkey operation. Instead of turning the facility (usually a power plant or toll road)
over to the host country when completed, the company operates the facility for a
fixed period of time during which it earns back its investment, plus a profit. It then
turns the facility over to the government at little or no cost to the host country. In 2013
the State of North Carolina contracted with the Spanish firm Cintra Infraestructuras
to build toll lanes on I77. They had previously built the Chicago Skyway and the Indiana East-West Toll Road. North Carolina will contribute $88 million toward the $655
million project with Cintra paying the remaining amount. For that, Cintra will receive
toll revenues for 50 years before turning it back over the State. Construction work
began in late 2015 and is expected to be completed within three-and-a-half years.17
■■ Management contracts: A large corporation operating throughout the world is likely to
have a large amount of management talent at its disposal. Management contracts offer
a means through which a corporation can use some of its personnel to assist a firm in
a host country for a specified fee and period of time. Management contracts are common when a host government expropriates part or all of a foreign-owned company’s
holdings in its country. The contracts allow the firm to continue to earn some income
from its investment and keep the operations going until local management is trained.18
■■

International Coordination
An international company is one that engages in any combination of activities, from
exporting/importing to full-scale manufacturing, in foreign countries. A multinational
9-2. Explain the elecorporation (MNC), in contrast, is a highly developed international company with a
ments of International
deep involvement throughout the world, plus a worldwide perspective in its manageStrategic Alliances
ment and decision making. For an MNC to be considered global, it must manage its
that lead to success

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worldwide operations as if they were totally interconnected. This approach works best
when the industry has moved from being multidomestic (each country’s industry is
essentially separate from the same industry in other countries) to global (each country
is a part of one worldwide industry).
The global MNC faces the dual challenge of achieving scale economies through
standardization while at the same time responding to local customer differences.
The design of the organization is strongly affected by the sophistication of its international activities and the types of industries in which the company is involved. Strategic
alliances may complement or even substitute for an internal functional activity.

International Strategic Alliances
Strategic alliances, such as joint ventures and licensing agreements, between an MNC
and a local partner in a host country are becoming increasingly popular as a means by
which a corporation can gain entry into other countries, especially countries that limit
foreign ownership. The key to the successful implementation of these strategies is the
selection of the local partner. Each party needs to assess not only the strategic fit of
each company’s project strategy but also the fit of each company’s respective resources.
A successful joint venture may require years of prior contacts between the parties.
A prior relationship helps to develop a level of trust, which facilitates openness in sharing knowledge and a reduced fear of opportunistic behavior by the alliance partners.
This is especially important when the environmental uncertainty is high.19
Research reveals that firms favor past partners when forming new alliances.20
Key drivers for strategic fit between alliance partners are the following:
Partners must agree on fundamental values and have a shared vision about the
potential for joint value creation.
■■ Alliance strategy must be derived from business, corporate, and functional strategy.
■■ The alliance must be important to both partners, especially to top management.
■■ Partners must be mutually dependent for achieving clear and realistic objectives.
■■ Joint activities must have added value for customers and the partners.
■■ The alliance must be accepted by key stakeholders.
■■ Partners contribute key strengths but protect core competencies.21
■■

Stages of International Development
9-3. Discuss the stages
of International
Development

Corporations operating internationally tend to evolve through five common stages,
both in their relationships with widely dispersed geographic markets and in the manner
in which they structure their operations and programs. These stages of international
development are:
■■

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Stage 1 (Domestic company): The primarily domestic company exports some of its
products through local dealers and distributors in the foreign countries. The impact
on the organization’s structure is minimal because an export department at corporate headquarters handles everything. Eden Brewery is a UK microbrewery that
joined a trade mission organized by UK Trade and Investment, after Eden identified Japan as a potential market for its craft beer. While there the company met
with distributors and outlets interested in importing the beer to Japan.22 The whole

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process can take some time to set up, but is run fairly simply from an organizational
perspective.
■■ Stage 2 (Domestic company with export division): Success in Stage 1 leads the company to establish its own sales company with offices in other countries to eliminate
the middlemen and to better control marketing. Because exports have now become
more important, the company establishes an export division to oversee foreign sales
offices.
■■ Stage 3 (Primarily domestic company with international division): Success in earlier
stages leads the company to establish manufacturing facilities in addition to sales
and service offices in key countries. The company now adds an international division
with responsibilities for most of the business functions conducted in other countries.
■■ Stage 4 (Multinational corporation with multidomestic emphasis): Now a fullfledged MNC, the company increases its investments in other countries. The company establishes a local operating division or company in the host country, such as
Ford of Britain, to better serve the market. The product line is expanded, and local
manufacturing capacity is established. Managerial functions (product development,
finance, marketing, and so on) are organized locally. Over time, the parent company
acquires other related businesses, broadening the base of the local operating division. As the subsidiary in the host country successfully develops a strong regional
presence, it achieves greater autonomy and self-sufficiency. The operations in each
country are, nevertheless, managed separately as if each is a domestic company.
■■ Stage 5 (MNC with global emphasis): The most successful MNCs move into a fifth
stage in which they have worldwide human resources, R&D, and financing strategies. Typically operating in a global industry, the MNC denationalizes its operations
and plans product design, manufacturing, and marketing around worldwide considerations. Global considerations now dominate organizational design. The global
MNC structures itself in a matrix form around some combination of geographic
areas, product lines, and functions. All managers are responsible for dealing with
international as well as domestic issues.
Research provides some support for stages of international development, but it does
not necessarily support the preceding sequence of stages. For example, a company may
initiate production and sales in multiple countries without having gone through the steps
of exporting or having local sales subsidiaries. In addition, any one corporation can be at
different stages simultaneously, with different products in different markets at different
levels. Firms may also leapfrog across stages to a global emphasis.

International Employment
9-4. Explain how
­companies can
improve their staffing
efforts as they expand
beyond their home
country

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Implementing a strategy of international expansion takes a lot of planning and can
be very expensive. Nearly 80% of midsize and larger companies send some of their
employees abroad – known as expatriation and the employees are known as expats. The
Economist reported that over three-quarters of companies report spending two to three
times an expat’s annual salary on a typical assignment.23 Research tells us that between
20% and 45% of expatriate assignments are failures with managers sent abroad returning early because of job dissatisfaction or difficulties in adjusting to a foreign country. Of
those who stayed for the duration of their assignment, nearly one-third did not perform
as well as expected. One-fourth of those completing an assignment left their company

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within one year of returning home—often leaving to join a competitor.24 One common
mistake is failing to educate the person about the customs and values in other countries.
Primarily due to cultural differences, managerial style and human resource practices must be tailored to fit the particular situations in other countries. Only 11% of
human resource managers have ever worked abroad, most have little understanding
of a global assignment’s unique personal and professional challenges and thus fail to
develop the training necessary for such an assignment.25 This is complicated by the fact
that 90% of companies select employees for an international assignment based on their
technical expertise while ignoring other areas.26 A lack of knowledge of national and
ethnic differences can make managing an international operation extremely difficult.
One such example that shows the issues that have to be dealt with exists in Malaysia.
Three ethnic groups live in Malaysia (Malay, Chinese, and Indian), each with their
own language and religion, attending different schools, and a preference to not work in
the same factories with each other. Because of the importance of cultural distinctions
such as these, multinational corporations (MNCs) are now putting more emphasis on
intercultural training for managers being sent on an assignment to a foreign country..27
To improve organizational learning, many MNCs are providing their managers with
international assignments lasting as long as five years. Upon their return to headquarters, these expatriates have an in-depth understanding of the company’s operations in
another part of the world. This has value to the extent that these employees communicate this understanding to others in decision-making positions. Research indicates
that an MNC performs at a higher level when its CEO has international experience.28
Global MNCs, in particular, emphasize international experience, have a greater number
of senior managers who have been expatriates, and have a strong focus on leadership
development through the expatriate experience.29 Unfortunately, not all corporations
appropriately manage international assignments. While out of the country, a person
may be overlooked for an important promotion (out of sight, out of mind). Upon his
or her return to the home country, co-workers may discount the out-of-country experience as a waste of time. The perceived lack of organizational support for international
assignments increases the likelihood that an expatriate will return home early.30
Recent work on the subject has led to a set of recommendations to improve the
entire expatriation process:
Have a compelling reason for sending a current employee to a new country. Vague
ideas about broadening a person will quickly lead to frustration and loss of productivity. A business case should be made for every assignment.
■■ Choose individuals who are open to the assignment and committed to adapt to the
new environment.
■■ Assign sponsors/mentors in both the home country and the new country.
■■ Develop a means of maintaining very open, frequent communication throughout
the assignment.
■■ Design a plan for repatriation. Communication should begin six months before the
end of the assignment to discuss the process. The employee should outline the top
skills, qualifications, and insights achieved during the assignment and express how
he or she would like to incorporate them at the home office (or in some cases on
the next assignment).
■■ Craft an approach for sharing the experiences and lessons learned within the company. One organization asks assignees to blog about their experiences — both during and after the assignment. These posts are shared via internal social media and
commented on by others throughout the company.31
■■

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Once a corporation has established itself in another country, it generally hires and
promotes people from the host country into higher-level positions. For example, most
large MNCs attempt to fill managerial positions in their subsidiaries with well-qualified
citizens of the host countries. One of the fastest growing MNCs in the past few years
has been Uber. Uber had grown to almost 400 cities worldwide by 2016 and tries to hire
general managers with local experience.32 This policy serves to placate nationalistic governments and to better attune management practices to the host country’s culture. The
danger in using primarily foreign nationals to staff managerial positions in subsidiaries
is the increased likelihood of suboptimization (the local subsidiary ignores the needs
of the larger parent corporation). This makes it difficult for an MNC to meet its longterm, worldwide objectives. To a local national in an MNC subsidiary, the corporation
as a whole can be an abstraction. Communication and coordination across subsidiaries
become more difficult. As it becomes harder to coordinate the activities of several international subsidiaries, an MNC will have serious problems operating in a global industry.
Another approach to staffing the managerial positions of MNCs is to use people
with an “international” orientation, regardless of their country of origin or host country
assignment. This is a widespread practice among European firms. For example, Electrolux, a Swedish firm, had a French director in its Singapore factory. Using third-country
“nationals” can allow for more opportunities for promotion than does Uber’s policy of
hiring local people, but it can also result in more misunderstandings and conflicts with
the local employees and with the host country’s government.
MNCs with a high level of international interdependence among activities need
to provide their managers with significant international assignments and experiences
as part of their training and development. Such assignments provide future corporate
leaders with a series of valuable international contacts in addition to a better personal
understanding of international issues and global linkages among corporate activities.33
Research reveals that corporations using cross-national teams, whose members have
international experience and communicate frequently with overseas managers, have
greater product development capabilities than others.34 Executive recruiters have
reported that more major corporations are now requiring candidates to have international experience.35
Since an increasing number of multinational corporations are primarily organized
around business units and product lines instead of geographic areas, product and SBU
managers who are based at corporate headquarters are often traveling around the world
to work personally with country managers. These managers and other mobile workers are being called stealth expatriates because they are either cross-border commuters
(especially in the EU) or the accidental expatriate who goes on many business trips or
temporary assignments due to offshoring and/or international joint ventures.36

Measurement of Performance
The three most widely used techniques for international performance evaluation are
9-5. Discuss the unique ROI, budget analysis, and historical comparisons. In one study, 95% of the corporate
officers interviewed stated that they use the same evaluation techniques for foreign
issues related to
­Measuring Organizaand domestic operations. Rate of return was mentioned as the single most important
tional performance
measure.37 However, ROI can cause problems when it is applied to international operathat are presented with
tions: Because of foreign currencies, different accounting systems, different rates of
the administration of
inflation, different tax laws, and the use of transfer pricing, both the net income figure
a truly international
and the investment base may be seriously distorted.38 To deal with different accounting
company

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systems throughout the world, the London-based International Accounting Standards
Board developed International Financial Reporting Standards (IFRS) to harmonize
accounting practices. The Financial Accounting Standards Board (FASB) oversees the
Generally Accepted Accounting Principles (GAAP) that is used in the United States.
For over a decade, these two groups worked to merge their systems and there was hope
that there would be a single set of standards by 2015, however much like bringing the
metric system to the United States, implementation has not gone as planned. More
than 116 countries worldwide adopted IFRS while the United States and seven other
countries have maintained their own standards.39
Nevertheless, enforcement and cultural interpretations of the international rules
can still vary by country and may undercut what is hoped to be a uniform accounting
system.40
A study of 79 MNCs revealed that international transfer pricing from one country
unit to another is primarily used not to evaluate performance but to minimize taxes.41
Taxes are an important issue for MNCs, given that corporate tax rates vary from 40%
in the United States to 33% in Japan, 35% in India, 30% in Mexico, 20% in the United
Kingdom, 24% in South Korea, 26% in Canada, 25% in China, 17% in Singapore, 15%
in Albania, and 0% in Bahrain and the Cayman Islands.42 Recently there has been an
uproar about the issue with companies moving operations / headquarters to Ireland with
its 12.5% corporate tax rate. In 2016, Apple was being investigated by regulators who
had accused the iPhone maker of using subsidiaries in Ireland to avoid paying taxes on
revenue generated outside the United States.43
Parts made in a subsidiary of a Japanese MNC in a low-tax country such as
­Singapore could be shipped to its subsidiary in a high-tax country like the United States
at such a high price that the U.S. subsidiary reports very little profit (and thus pays few
taxes), while the Singapore subsidiary reports a very high profit (but also pays few taxes
because of the lower tax rate). A Japanese MNC could, therefore, earn more profit
worldwide by reporting less profit in high-tax countries and more profit in low-tax countries. Transfer pricing can thus be one way the parent company can reduce taxes and
“capture profits” from a subsidiary. Other common ways of transferring profits to the
parent company (often referred to as the repatriation of profits) are through dividends,
royalties, and management fees.44
Among the most important barriers to international trade are the different standards for products and services. There are at least three categories of standards: safety/
environmental, energy efficiency, and testing procedures. Existing standards have
been drafted by such bodies as the British Standards Institute (BSI-UK) in the United
­Kingdom, the Japanese Industrial Standards Committee (JISC), AFNOR in France,
DIN in Germany, CSA in Canada, and the American Standards Institute in the United
States. These standards traditionally created entry barriers that served to fragment
various industries, such as major home appliances, by country. The International Electrotechnical Commission (IEC) standards were created to harmonize standards in the
European Union and eventually to serve as worldwide standards, with some national
deviations to satisfy specific needs. Because the European Union (EU) was the first to
harmonize the many different standards of its member countries, the EU shaped standards for the rest of the world. In addition, the International Organization for Standardization (ISO) published detailed international standards. These standards provided a
foundation for regional associations to build upon. CANENA, the Council for Harmonization of Electrotechnical Standards of the Nations of the Americas, was created in 1992
to further coordinate the harmonization of standards in North and South America.45
Authorities in international business recommend that the control and reward
­systems used by a global MNC be different from those used by a multidomestic MNC.46

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A MNC should use loose controls on its foreign units. The management of each
geographic unit should be given considerable operational latitude, but it should be
expected to meet some performance targets. Because profit and ROI measures are
often unreliable in international operations, it is recommended that the MNC’s top
management, in this instance, emphasize budgets and non-financial measures of performance such as market share, productivity, public image, employee morale, and
relations with the host country government.47 Multiple measures should be used
to differentiate between the worth of the subsidiary and the performance of its
management.
A global MNC, however, needs tight controls over its many units. To reduce costs
and gain competitive advantage, it is trying to spread the manufacturing and marketing operations of a few fairly uniform products around the world. Therefore, its key
operational decisions must be centralized. Its environmental scanning must include
research not only into each of the national markets in which the MNC competes but
also into the “global arena” of the interaction between markets. Foreign units are thus
evaluated more as cost centers, revenue centers, or expense centers than as investment
or profit centers because MNCs operating in a global industry do not often make the
entire product in the country in which it is sold.

End of Chapter S U M M AR Y
Addressing global issues is simply an expectation of the modern organization. The question becomes how and when to expand operations beyond the borders of the company’s
home country. Six Flags theme parks were looking for a means of expanding their
opportunities outside of their core parks in North America (United States, Canada &
Mexico). In 2016 they announced a licensing arrangement with NaVi Entertainment
in Vietnam to build a theme park and a water park in Vietnam using the Six Flags and
Six Flags Hurricane Harbor brand names, respectively. The move allows the largest
regional theme park company to expand outside the borders while minimizing the
downside risk.48
This approach is often a prelude the full-blown multi-national company. Zara
Stores are the flagship operation of Inditex and headquartered in the Spanish coastal
town of A Coruña. Zara had expanded to over 7,000 stores worldwide by early
2016. Sales grew by more than 15% from the previous year driven by sales outside
of Spain. The company runs an MNC on the retail side of the business growing not
only their store footprint (they added over 300 new stores worldwide in 2015), but
also growing an extensive set of innovative Internet Shopping sites that were in 29
market locations, many of which were in Asia. The company controls the fundamental elements of the business from Spain. All textile design, manufacturing and
distribution facilities are located in Spain.49 MNC’s that operate in many countries
with full resources within those countries include companies such as Coca-Cola,
Wal-Mart, and BMW.

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291

K E Y TER M S
Acquisition (p. 283)
BOT (Build, Operate, Transfer)
concept (p. 284)
Exporting (p. 282)
Franchising (p. 282)
Green-field development (p. 283)

Joint venture (p. 283)
Licensing (p. 282)
Management contracts (p. 284)
Multinational Corporation
(MNC) (p. 284)
Production sharing (p. 284)

Stages of international
­development (p. 285)
Global strategy (p. 285)
Turnkey operations (p. 284)

Pearson MyLab Management®
Go to mymanagementlab.com for the following Assisted-graded writing questions:
9-1. What are the nine means by which a company can enter a new international market?
9-2. What are the advantages of using a Strategic alliance when operating in a new country?

DISCUSSION QUESTIONS
9-3. What are the stages of International Development?
9-4. How can an expat program be improved to the
benefit of the organization?

9-5. Why is strategic flexibility important for strategy
formulation when an organisation is at the growth
stage?

Notes
1. J. Cryan, “4 Real Benefits from International Expansion,” Chief Executive, April 16, 2012 (
net/4-real-benefits-from-international-expansion/); A. Delios
and P. W. Beamish, “Geographic Scope, Product Diversification, and the Corporate Performance of ­Japanese Firms,”
Strategic Management Journal (August 1999), pp. 711–727.
2. “Tumi Holdings Inc. Earnings: Global Expansion Fuels
Profit Growth,” The Motley Fool, February 26, 2016 (http://
www.fool.com/investing/general/2016/02/26/tumi-holdings
-inc-earnings-global-expansion-fuels.aspx).
3 K. Kulp, “Your local booze gets the world drunk,” The
Daily Beast, March 19, 2016 (
.com/articles/2016/03/19/how-craft-distillers-are-selling
-their-drinks-to-the-world.html).
4. “Rovi Extends Product and Entertainment Discovery
­Patent License Agreement to Funai,” Multichannel News,
July 29, 2015 (
-extends-product-and-entertainment-discovery-patent
-license-agreement-funai/392591).
5. E. Elango and V. H. Fried, “Franchising Research: A Literature Review and Synthesis,” Journal of Small Business
Management (July 1997), pp. 68–81.
6.
/business-model.html.
7. J. E. McCann III, “The Growth of Acquisitions in Services,”
Long Range Planning (December 1996), pp. 835–841.
8.
9. A Bid for Bud,” The Economist (June 21, 2008), p. 77.

M09B_WHEE5488_15_GE_C09.indd 291

10. B. Voss, “Strategic Federations Frequently Falter in Far
East,” Journal of Business Strategy (July/August 1993),
p. 6 S. Douma, “Success and Failure in New Ventures,”
Long Range Planning (April 1991), pp. 54–60.
11. A. Delios and P. W. Beamish, “Ownership Strategy of
­Japanese Firms: Transactional, Institutional, and Experience Approaches,” Strategic Management Journal ­(October
1999), pp. 915–933.
12. “Recovery in Cross-Border Mergers and ­Acquisitions,”
Global Investment Trends Monitor, United Nations
(UNCTAD), November 17, 2015 (unctad.org/en
/publicationslibrary/webdiaeia2015d5_en.pdf).
13. K. D. Brouthers and L. E. Brouthers, “Acquisition or
Greenfield Start-up? Institutional, Cultural, and Transaction Cost Influences,” Strategic Management Journal
­(January 2000), pp. 89–97.
14. K. Bolster, “SCPA and BMW celebrate two-millionth
vehicle export,” Wistv.com, March 18, 2016 (
.wistv.com/story/31497619/scpa-and-bmw-celebrate
-two-millionth-vehicle-export).
15. “Global Payroll Outsourcing Market 2016-2020,”
PRNewswire, February 15, 2016 (www.prnews
wire.com/news-releases/global-payroll-outsourcing
-­market-2016-2020-300220297.html)..
16. G. Jackson, “Renault profit up but headlights on struggling Russian unit,” Yahoo!News, February 12, 2016
(news.yahoo.com/Renault-net-profit-russian-unitdrag-091727015.html).

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17. S. Lyttle, “NC has a bidder for I-77 toll lanes,” The Charlotte Observer, April 11, 2014 (www.charlotteobserver.com
/news/local/article9111983.html); J. Naisbitt, Megatrends
Asia (New York: Simon & Schuster, 1996), p. 143 http://
www.ncdot.gov/projects/I-77ExpressLanes/.
18. For additional information on international entry
modes, see D. F. Spulber, Global Competitive Strategy
­(Cambridge, UK: Cambridge University Press, 2007) and
K. D. Brouthers and J-F Hennart, “Boundaries of the Firm:
Insights from International Entry Mode Research,” Journal of Management (June 2007), pp. 395–425.
19. R. Krishnan, X. Martin, and N. G. Noorderhaven, “When
Does Trust Matter to Alliance Performance,” Academy of
Management Journal (October 2006), pp. 894–917.
20. S. X. Li and T. J. Rowley, “Inertia and Evaluation Mechanisms in Interorganizational Partner Selection: Syndicate
Formation Among U.S. Investment Banks,” Academy of
Management Journal (December 2002), pp. 1104–1119.
21. M. U. Douma, J. Bilderbeek, P. J. Idenburg, and J. K. Loise,
“Strategic Alliances: Managing the Dynamics of Fit,” Long
Range Planning (August 2000), pp. 579–598; W. Hoffmann
and R. Schlosser, “Success Factors of Strategic Alliances
in Small and Medium-Sized Enterprises—An Empirical
Survey,” Long Range Planning (June 2001), pp. 357–381;
Y. Luo, “How Important Are Shared Perceptions of Procedural Justice in -Cooperative Alliances?” Academy of
Management Journal (August 2005), pp. 695–709.
22. “Cumbrian micro-brewery aims to start exporting to
Japan,” The News and Star, March 23, 2016 (
.newsandstar.co.uk/news/business/Cumbrian-micro
-brewery-aims-to-start-exporting-to-Japan-c886f335-dc68
-4c8c-b36e-2b773fc15c29-ds).
23. “Expatriate costs and assignments,” The Economist, July 24, 2012 (.economist.com/blogs
/graphicdetail/2012/07/focus-3).
24. S. Mahoney, “Can you afford to throw away £2 million
of your organisation’s money on a failed Expat Assignment?” Business Reporter, May 21, 2015 (
-million-of-your-organisations-money-on-a-failed-expat
-­assignment/); J. S. Black and H. B. Gregersen, “The Right
Way to Manage Expats,” Harvard Business Review.
25. Ibid, p. 54.
26. J. I. Sanchez, P. E. Spector, and C. L. Cooper, “Adapting
to a Boundaryless World: A Developmental Expatriate
Model,” Academy of Management Executive (May 2000),
pp. 96–106.
27. R. L. Tung, The New Expatriates (Cambridge, MA: Ballinger,
1988); J. S. Black, M. Mendenhall, and G. Oddou, “Toward
a Comprehensive Model of International Adjustment: An
Integration of Multiple Theoretical Perspectives,” Academy
of Management Review (April 1991), pp. 291–317.
28. M. A. Carpenter, W. G. Sanders, and H. B. Gregersen,
“Bundling Human Capital with Organizational Context:
The Impact of International Assignment Experience on
Multinational Firm Performance and CEO Pay,” Academy
of Management Journal (June 2001), pp. 493–511.
29. P. M. Caligiuri and S. Colakoglu, “A Strategic Contingency Approach to Expatriate Assignment Management,”
Human Resource Management Journal (Vol. 17, No. 4,
2007), pp. 393–410.

M09B_WHEE5488_15_GE_C09.indd 292

30. M. A. Shaffer, D. A. Harrison, K. M. Gilley, and D. M. Luk,
“Struggling for Balance Amid Turbulence on International
-Assignments: Work-Family Conflict, Support, and Commitment,” Journal of Management (Vol. 27, No. 1, 2001),
pp. 99–121.
31. A. Molinsky & M. Hahn, “5 Tips for Managing Successful
Overseas Assignments,” Harvard Business Review, March 16,
2016 (
-­successful-overseas-assignments).
32. E. Huet, “Uber’s Global Expansion In Five Seconds,”
Forbes, December 11, 2014 (.forbes.com
/sites/ellenhuet/2014/12/11/ubers-global-expansion
/#1f91997f7a7a);
33. K. Roth, “Managing International Interdependence:
CEO Characteristics in a Resource-Based Framework,”
­A cademy of Management Journal (February 1995),
pp. 200–231.
34. M. Subramaniam and N. Venkatraman, “Determinants
of Transnational New Product Development Capability: Testing the Influence of Transferring and Deploying
Tacit Overseas Knowledge,” Strategic Management Journal
(April 2001), pp. 359–378.
35. J. S. Lublin, “An Overseas Stint Can Be a Ticket to
the Top,” The Wall Street Journal (January 29, 1996),
pp. B1, B2.
36. “Expatriate Employees: In Search of Stealth,” The Economist (April 23, 2005), pp. 62–64.
37. S. M. Robbins and R. B. Stobaugh, “The Bent Measuring
Stick for Foreign Subsidiaries,” Harvard Business Review(September–October 1973), p. 82.
38. J. D. Daniels and L. H. Radebaugh, International Business, 5th ed. (Reading, MA: Addison-Wesley, 1989),
pp. 673–674.
39. R. Ball, “IFRS – Ten Years Later: The Perspectives In
2005 & 2015,” University of Chicago via ValueWalk,
March 10, 2016 (.valuewalk.com/2016/03
/ifrs-global-accounting/).
40. D. Henry, “A Better Way to Keep the Books,” BusinessWeek (September 15, 2008), p. 35 “International Accounting: Speaking in Tongues,” The Economist (May 19, 2007),
pp. 77–78; C. Hackett, “Convergence of U.S. GAAP
and IFRS: Where Do Things Stand?” (.cshco.
com/News/-Articles/Convergence_of_U.S._GAAP_and
_IFRS%3A_Where_do_things_stand%3F/).
41. W. A. Johnson and R. J. Kirsch, “International Transfer
Pricing and Decision Making in United States Multinationals,” International Journal of Management (June 1991),
pp. 554–561.
42. KPMG’s Corporate Tax Rate Table 2016, (
kpmg.com/xx/en/home/services/tax/tax-tools-andresources/tax-rates-online/corporate-tax-rates-table
.html).
43. R. McHugh, “Apple Irish tax controversy continues,”
BusinessWorld, January 15, 2016 (
44. J. M. L. Poon, R. Ainuddin, and H. Affrim, “Management
Policies and Practices of American, British, European, and
Japanese Subsidiaries in Malaysia: A Comparative Study,”
International Journal of Management (December 1990),
pp. 467–474.

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CH A PTER 9   Strategy Implementation: Global Strategy
45. .canena.org/about-canena/international-and
-regional-partners/ (accessed March 16, 2016); M. Egan,
“Setting Standards: Strategic Advantages in International
Trade,” Business Strategy Review (Vol. 13, No. 1, 2002),
pp. 51–64; L. Swatkowski, “Building Towards International
Standards,” Appliance (December 1999), p. 30.
46. C. W. L. Hill, P. Hwang, and W. C. Kim, “An Eclectic
Theory of the Choice of International Entry Mode,” Strategic Management Journal (February 1990), pp. 117–128;
D. Lei, J. W. Slocum, Jr., and R. W. Slater, “Global Strategy and Reward Systems: The Key Roles of Management
Development and Corporate Culture,” Organizational
Dynamics (Autumn 1990), pp. 27–41; W. R. Fannin and
A. F. Rodrigues, “National or Global?—Control vs. Flexibility,” Long Range Planning -(October 1986), pp. 84–188.

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47. A. V. Phatak, International Dimensions of Management,
2nd ed. (Boston: Kent, 1989), pp. 155–157.
48. “International Expansion Accelerates as Two Six FlagsBranded Parks to Open in Vietnam,” Financial Content,
March 21, 2016 (
/stocks/news/read?GUID=31759161).
49. “Zara owner’s profits soar on higher sales, expansion,”
The Peninsula: Qatar’s Daily Newspaper, March 9, 2016
( .inditex.com/en/our_group
/facilities.
50. .inc.com/inc5000/

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Chapter

10

Strategy
Implementation:
Organizing and
Structure
Environmental
Scanning:

Strategy
Formulation:

Strategy
Implementation:

Evaluation
and Control:

Gathering
Information

Developing
Long-range Plans

Putting Strategy
into Action

Monitoring
Performance

External

Mission

Natural
Environment:

Reason for
existence

Resources and
climate

Societal
Environment:

Objectives
What
results to
accomplish
by when

General forces

Task
Environment:

Industry analysis

Strategies
Plan to
achieve the
mission &
objectives

Policies
Broad
guidelines
for decision
making

Internal

Programs
and Tactics
Activities
needed to
accomplish
a plan

Budgets
Cost of the
programs

Procedures
Sequence
of steps
needed to
do the job

Structure:

Chain of command

Culture:

Performance
Actual results

Beliefs, expectations,
values

Resources:

Assets, skills,
competencies,
knowledge

Feedback/Learning: Make corrections as needed

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Learning Objectives
After reading this chapter, you should be able to:
10-1. Describe the major issues that impact
­successful strategy implementation
10-2. Explain how you would develop programs, budgets, and procedures to implement strategic change
10-3. List the stages of corporate development
and the structure that characterizes each
stage

10-4. Explain how matrix, network and
­modular structures are used to implement strategy
10-5. Discuss the issues related to centralization versus decentralization in structuring
organizations

Tesla Drives to Change the Structure of an Industry
Every car manufacturer who sells in the United States does so through
a network of locally-owned dealerships. The car manufacturers have
structured their business to deal with the only sales channel allowed
by law in most states. Into this arena comes Tesla. Much to the surprise
of many, Tesla was not founded by Elon Musk, but by Martin Eberhard
and Marc Tarpenning in 2003 with the goal of utilizing an AC induction motor patented in 1888 by Nikola Tesla to prove that battery-powered
cars could be better than gas-powered cars. Their primary investor was PayPal
­co-founder Elon Musk who then served as Chairman until 2008 when he also became
the CEO.
While certainly not a mass-market car (the Tesla Roadster started out at US$109,000), the company had no
problem selling every car they made. Tesla opened car information locations at malls in the United States where
customers would learn about the car, its features, and how to order one. Customers can use a Web site to select the
features they want, pay a deposit, and wait for Tesla to build their car. Tesla offers financing and accepts third-party
loans, but delivers the cars directly to the customer that ordered it. The organization has been structured around
a retail concept that is more oriented toward providing information rather than selling. The price of the vehicle is
not negotiated and every feature is clearly labelled on the Web site. There are no teams of employees working with
franchisees, no logistics teams negotiating car allotments, no sales groups crafting the next “big” sale/marketing
campaign.
General Motors has almost 4,900 franchise dealers in North America and the company is prohibited from
selling directly to consumers because of contracts with those dealers and state laws that protect the dealerships from factory competition. General Motors has invested significant resources in attempting to prevent
Tesla from entering markets. They successfully prevented a move into Michigan, but failed in the courts of
Massachusetts.

295

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If Tesla is forced to deal through a franchise dealer system it will radically affect the
structure and design of the organization. Sometimes the reality of the markets dictates
how a company is organized.
SOURCES: “Tesla Takes on the Dealerships—and GM,” Bloomberg BusinessWeek, March 7–13, 2016,
pp. 28–32; N. Chambers, “Tesla is Turning the Car Sales Model on Its Head,” AutoTrader, November
2011 (.autotrader.com/car-news/tesla-is-turning-the-car-sales-model-on-its-head-132587);
B. Schreiber, “Tesla Motors,” Encyclopedia Britannica (.britannica.com/topic/Tesla-Motors);

Strategy Implementation
10-1. Describe
the major issues
that impact successful strategy
implementation

Strategy implementation is the sum total of the activities and choices required for the
execution of a strategic plan. It is the process by which objectives, strategies, and policies are put into action through the development of programs and tactics, budgets,
and procedures. Implementation should be evaluated as strategy is being formulated
although many companies separate the two. Implementation is the key part of strategic
management for without implementation we have nothing. Strategy formulation and
strategy implementation should be considered as two sides of the same coin.
Poor implementation has been blamed for a number of strategic failures. Merger
and acquisitions activities are clear types of very visible implementations. Some studies have shown that half of all acquisitions fail to achieve what was expected of them
while recent studies have reported that 83% of companies fail to achieve the goals of a
merger.1 The most mentioned problems reported in post-merger integration were poor
communication, unrealistic synergy expectations, structural problems, missing master
plans, lost momentum, lack of top management commitment, and unclear strategic fit.
A study by A. T. Kearney found that a company has just two years in which to make
an acquisition perform. After the second year, the window of opportunity for forging
synergies has mostly closed. Kearney’s study was supported by further independent
research by Bert, MacDonald, and Herd. Among the most successful acquirers studied,
70% to 85% of all merger synergies were realized within the first 12 months, with the
remainder being realized in year two.2
The implementation process requires strategy makers to consider these questions:
Who are the people who will carry out the strategic plan?
■■ What must be done to align the company’s operations in the new intended direction?
■■ How is everyone going to work together to do what is needed?
■■

These questions and similar ones should have been addressed initially when the pros
and cons of strategic alternatives were analyzed. They must also be addressed again
before successful implementation plans can be made. Unless top management can
answer these basic questions satisfactorily, even the best planned strategy is unlikely to
provide the desired outcome.
A survey of 93 Fortune 500 firms revealed that more than half of the corporations
experienced the following 10 big issues when they attempted to implement a strategic
change. These problems are listed in order of frequency.
1. Implementation took more time than originally planned.
2. Unanticipated major problems arose.
3. Activities were ineffectively coordinated.

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297

4. Competing activities and crises took attention away from implementation.
5. The involved employees had insufficient capabilities to perform their jobs.
6. Lower-level employees were inadequately trained.
7. Uncontrollable external environmental factors created problems.
8. Departmental managers provided inadequate leadership and direction.
9. Key implementation tasks and activities were poorly defined.
10. The information system inadequately monitored activities.3

Who Implements Strategy?
Depending on how a corporation is organized, those who implement strategy will
probably be a much more diverse set of people than those who formulate it. From
large, multi-industry corporations to small entrepreneurial ventures, the reality is
that the implementers of strategy are everyone in the organization. Vice presidents
of functional areas and directors of divisions or strategic business units (SBUs) work
with their subordinates to put together large-scale implementation plans. Plant managers, project managers, and unit heads put together plans for their specific plants,
departments, and units. SaaS-based company presidents work with their project
managers and developers to meet the latest needs of their customers. Therefore,
every operational manager down to the first-line supervisor and every employee is
involved in some way in the implementation of corporate, business, and functional
strategies.
Many of the people in the organization who are most crucial to successful strategy
implementation probably had little to do with the development of the corporate and
even business strategy. Therefore, they might be entirely ignorant of the vast amount of
data and work that went into the formulation process. Unless changes in mission, objectives, strategies, and policies and their importance to the company are communicated
clearly to every person in the organization, there can be a lot of resistance and footdragging. Some line managers might hope to influence top management into abandoning its new plans and returning to its old ways. This is one reason why involving people
from all organizational levels in the formulation and implementation of strategy tends
to result in better organizational performance.4

What Must Be Done?
10-2. Explain how you
would develop programs, budgets, and
procedures to implement strategic change

The managers of divisions and functional areas work with their fellow managers to
develop programs, budgets, and procedures for the implementation of strategy. They
also work to achieve synergy among the divisions and functional areas in order to establish and maintain a company’s distinctive competence.

Developing Programs, Budgets, and Procedures
Strategy implementation involves establishing programs and tactics to create a series
of new organizational activities, budgets to allocate funds to the new activities, and
procedures to handle the day-to-day details.

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Programs and Tactics
The purpose of a program or a tactic is to make a strategy action-oriented. As we discussed in Chapter 1, the terms are somewhat interchangeable. In practice, a program
is a collection of tactics and a tactic is the individual action taken by the organization
as an element of the effort to accomplish a plan. For example, when Xerox Corporation undertook a turnaround strategy, it needed to significantly reduce its costs and
expenses. Management introduced Lean Six Sigma. This program was developed to
identify and improve a poorly performing process. Xerox first trained its top executives
in the program and then launched around 250 individual Six Sigma projects throughout
the corporation. The result was US$6 million in savings in one year, with even more
expected the next.5 (Six Sigma is explained later in this chapter.)
Most corporate headquarters have around 10 to 30 programs in effect at any one
time.6 The U.S. Army instituted the Lean Six Sigma Excellence Awards Program,
known as LEAP to celebrate the successes within the Army. One project applied distance learning practices, eliminated all travel temporary duty assignment from the training delivery and achieved the removal of 97% of recurring labor hours and reduced
process cycle time from 124 days to five days.7 Apple used a program to find a recycled
and yet elegant pulp tray to hold the original iPhone that became the inspiration for
a business out to change the way bottles are produced. For more information on this
innovative approach to bottle design, see the Sustainability Issue feature.

Competitive Tactics
Studies of decision making report that half the decisions made in organizations fail
because of poor tactics.8 A tactic is a specific operating plan that details how a strategy

SUSTAINABILITY issue
A BETTER BOTTLE—ECOLOGIC BRANDS
Some of the ideas that
transform business practice
are born in the simplest of
places. Julie Corbett’s started
when she bought her first
iPhone in 2007. She was fascinated
by the paper pulp tray that it arrived in. The tray was elegant, sturdy, and biodegradable. She immediately thought
of how it could be used to reduce the vast amounts of plastic needed for plastic bottles holding liquids. Combining
the sturdiness of the paper pulp with an interior bladder to
hold the liquid, she created Ecologic Brands.
Winner of the 2012 Gold Award from the Industrial
Designers Society of America, the “bottle” is instantly recognizable as eco-friendly and yet extremely comfortable to
touch and use. The bottles use 70% less plastic than regular ones and are the first of their type to hit store shelves.
In addition, the bottle shells are made from 100% recycled
cardboard and newspaper. The company didn’t need to
use any exotic materials or techniques to create the bottles.

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However, they have patents on the processes for connecting the components and have new products on the way.
Ecologic is creating a demand for pulp paper in an industry
that has been battered for many years.
Seventh Generation Laundry Detergent was one of the
first brands to use the bottles and saw a 19% increase in
sales after switching. The company has designed packaging for such widely varying companies as Bodylogix protein
powder and Truett Hurst wine.
The company has received several significant rounds of
funding and in 2013 opened a 60,000 square foot facility
in an economically depressed area of California. They are
on a path to make the Ecologic bottle comparable in cost
to the plastic competition.
SOURCES: J. Griffin, “Good things come in reusable packages,”
Entrepreneur, January 13, 2015 (entrepreneur.com/article/241059);
“Bottles Inspired by the iPhone,” Bloomberg ­Businessweek,
October 29, 2012, p. 45 .ecologicbrands.com
/about_eco.html; .fastcodesign.com/1664838
/tk-years-in-the-making-a-cardboard-jug-for-laundry-detergent.

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is to be implemented in terms of when and where it is to be put into action. By their
nature, tactics are narrower in scope and shorter in time horizon than are strategies.
Tactics, therefore, may be viewed (like policies) as a link between the formulation and
implementation of strategy. Some of the tactics available to implement competitive
strategies are timing tactics and market location tactics.

Timing Tactics: When to Compete
A timing tactic deals with when a company implements a strategy. The first company
to manufacture and sell a new product or service is called the first mover (or pioneer).
Some of the advantages of being a first mover are that the company is able to establish
a reputation as an industry leader, move down the learning curve to assume the costleader position, and earn temporarily high profits from buyers who value the product or
service very highly. A successful first mover can also set the standard for all subsequent
products in the industry. A company that sets the standard “locks in” customers and is
then able to offer further products based on that standard.9 Microsoft was able to do
this in software with its Windows operating system by being the first to commercialize the product successfully. Research does indicate that moving first or second into a
new industry or foreign country results in greater market share and shareholder wealth
than does moving later.10 Some studies have found that being first provides a company
profit advantages for about 10 years in consumer goods and about 12 years in industrial
goods.11 This is true, however, only if the first mover has sufficient resources to both
exploit the new market and to defend its position against later arrivals with greater
resources.12 Gillette, for example, has been able to keep its leadership of the razor category (70% market share) by continuously introducing new products.13
Being a first mover does, however, have its disadvantages. These disadvantages
can be, conversely, advantages enjoyed by late-mover firms. Late movers may be able
to imitate the technological advances of others (and thus keep R&D costs low), keep
risks down by waiting until a new technological standard or market is established, and
take advantage of the first mover’s natural inclination to ignore market segments.14
Research indicates that successful late movers tend to be large firms with considerable resources and related experience.15 Microsoft is one example. Once Netscape had
established itself as the standard for Internet browsers in the 1990s, Microsoft used
its huge resources to directly attack Netscape’s position with its Internet Explorer. It
did not want Netscape to also set the standard in the developing and highly lucrative
intranet market inside corporations. By 2004, Microsoft’s Internet Explorer dominated
Web browsers, and Netscape was only a minor presence. Nevertheless, research suggests that the advantages and disadvantages of first and late movers may not always
generalize across industries because of differences in entry barriers and the resources
of the specific competitors.16

Market Location Tactics: Where to Compete
A market location tactic deals with where a company implements a strategy. A company
or business unit can implement a competitive strategy either offensively or defensively.
An offensive tactic usually takes place in an established competitor’s market location.
A defensive tactic usually takes place in the firm’s own current market position as a
defense against possible attack by a rival.17
Offensive Tactics. Some of the methods used to attack a competitor’s position are:
■■

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Frontal assault: The attacking firm goes head to head with its competitor. It matches
the competitor in every category from price to promotion to distribution channel.
To be successful, the attacker must have not only superior resources, but also the

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willingness to persevere. This is generally a very expensive tactic and may serve
to awaken a sleeping giant, depressing profits for the whole industry. This is what
Kimberly-Clark did when it introduced Huggies disposable diapers against P&G’s
market-leading Pampers. The resulting competitive battle between the two firms
depressed Kimberly-Clark’s profits.18
■■ Flanking maneuver: Rather than going straight for a competitor’s position of
strength with a frontal assault, a firm may attack a part of the market where the
competitor is weak. Texas Instruments, for example, avoided competing directly
with Intel by developing microprocessors for consumer electronics, cell phones,
and medical devices instead of computers. Taken together, these other applications
are worth more in terms of dollars and influence than are computers, where Intel
dominates.19
■■ Bypass attack: Rather than directly attacking the established competitor frontally or
on its flanks, a company or business unit may choose to change the rules of the game.
This tactic attempts to cut the market out from under the established defender by
offering a new type of product that makes the competitor’s product unnecessary.
For example, instead of competing directly against Microsoft’s Pocket PC and Palm
Pilot for the handheld computer market, Apple introduced the iPod as a personal
digital music player. It was the most radical change to the way people listen to music
since the Sony Walkman. By redefining the market, Apple successfully sidestepped
both Intel and Microsoft, leaving them to play “catch-up.”20
■■ Encirclement: Usually evolving out of a frontal assault or flanking maneuver, encirclement occurs as an attacking company or unit encircles the competitor’s position
in terms of products or markets or both. The encircler has greater product variety
(e.g., a complete product line, ranging from low to high price) and/or serves more
markets (e.g., it dominates every secondary market). For example, Steinway was a
major manufacturer of pianos in the United States until Yamaha entered the market with a broader range of pianos, keyboards, and other musical instruments. The
company was taken private in 2013 and focuses almost exclusively on the very high
end of the market producing their 600,000th piano in 2015.21 Oracle is using this
strategy in its battle against market leader SAP for enterprise resource planning
(ERP) software by “surrounding” SAP with acquisitions.22
■■ Guerrilla warfare: Instead of a continual and extensive resource-expensive attack
on a competitor, a firm or business unit may choose to “hit and run.” Guerrilla warfare is characterized by the use of small, intermittent assaults on different market
segments held by the competitor. In this way, a new entrant or small firm can make
some gains without seriously threatening a large, established competitor and evoking some form of retaliation. To be successful, the firm or unit conducting guerrilla
warfare must be patient enough to accept small gains and avoid pushing the established competitor to the point that it must respond or else lose face. Microbreweries,
which make beer for sale to local customers, use this tactic against major brewers
such as AB InBev.
Defensive tactics. According to Porter, defensive tactics aim to lower the probability
of attack, divert attacks to less threatening avenues, or lessen the intensity of an attack.
Instead of increasing competitive advantage per se, they make a company’s or business
unit’s competitive advantage more sustainable by causing a challenger to conclude that
an attack is unattractive. These tactics deliberately reduce short-term profitability to
ensure long-term profitability.23

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■■

301

Raise structural barriers. Entry barriers act to block a challenger’s logical avenues
of attack. Some of the most important, according to Porter, are to:
1. Offer a full line of products in every market segment to close off any entry
points (for example, Coca-Cola offers unprofitable non-carbonated beverages
to keep competitors off store shelves).
2. Block channel access by signing exclusive agreements with distributors.
3. Raise buyer switching costs by offering low-cost training to users.
4. Raise the cost of gaining trial users by keeping prices low on items new users
are most likely to purchase.
5. Increase scale economies to reduce unit costs.
6. Foreclose alternative technologies through patenting or licensing.
7. Limit outside access to facilities and personnel.
8. Tie up suppliers by obtaining exclusive contracts or purchasing key locations.
9. Avoid suppliers that also serve competitors.
10. Encourage the government to raise barriers, such as safety and pollution standards or favorable trade policies.

Increase expected retaliation: This tactic is any action that increases the perceived
threat of retaliation for an attack. For example, management may strongly defend
any erosion of market share by drastically cutting prices or matching a challenger’s
promotion through a policy of accepting any price-reduction coupons for a competitor’s product. This counterattack is especially important in markets that are very
important to the defending company or business unit. For example, when Clorox
Company challenged P&G in the detergent market with Clorox Super Detergent,
P&G retaliated by test marketing its liquid bleach of the time, Lemon Fresh Comet,
in an attempt to scare Clorox into retreating from the detergent market. Research
suggests that retaliating quickly is not as successful in slowing market share loss as
a slower, but more concentrated and aggressive response.24
■■ Lower the inducement for attack: A third type of defensive tactic is to reduce a
challenger’s expectations of future profits in the industry. Like Southwest Airlines,
a company can deliberately keep prices low and constantly invest in cost-reducing
measures. With prices kept very low, there is little profit incentive for a new entrant.25
■■

Budgets
After programs and tactical plans have been developed, the budget process begins.
Planning a budget is the last real check a corporation has on the feasibility of its selected
strategy. An ideal strategy might be found to be completely impractical only after specific implementation programs and tactics are costed in detail. Mondelez is the world’s
largest buyer of cocoa and in 2012 made a commitment to dramatically increase the supply of sustainably grown cocoa in the six big cocoa producing countries. The company
budgeted US$400 million to reach over 200,000 cocoa farmers by 2022.26

Procedures
After the divisional and corporate budgets are approved, procedures must be developed. Often called Standard Operating Procedures (SOPs), they typically detail the
various activities that must be carried out to complete a corporation’s programs and
tactical plans. Also known as organizational routines, procedures are the primary means

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by which organizations accomplish much of what they do.27 Once in place, procedures
must be updated to reflect any changes in technology as well as in strategy. For example,
a company following a differentiation competitive strategy manages its sales force more
closely than does a firm following a low-cost strategy. Differentiation requires long-term
customer relationships created out of close interaction with the sales force. An in-depth
understanding of the customer’s needs provides the foundation for product development and improvement.28
In a retail store, procedures ensure that the day-to-day store operations will be
consistent over time (that is, next week’s work activities will be the same as this week’s)
and consistent among stores (that is, each store will operate in the same manner as the
others). Properly planned procedures can help eliminate poor service by making sure
that employees do not use excuses to justify poor behavior toward customers.
Before a new strategy can be successfully implemented, current procedures may
need to be changed. For example, in order to implement The Home Depot’s strategic
move into services, such as kitchen and bathroom installation, the company had to first
improve its productivity. Store managers were drowning in paperwork designed for a
smaller and simpler company. “We’d get a fax, an e-mail, a call, and a memo, all on the
same project,” reported store manager Michael Jones. One executive used just three
weeks of memos to wallpaper an entire conference room, floor to ceiling, windows
included. Then CEO Robert Nardelli told his top managers to eliminate duplicate communications and streamline work projects. Directives not related to work orders had
to be sent separately and only once a month. The company also spent US$2 million on
workload-management software.29

Achieving Synergy
One of the goals to be achieved in strategy implementation is synergy between and
among functions and business units. This is the reason corporations commonly reorganize after an acquisition. Synergy is said to exist for a divisional corporation if the
return on investment of each division is greater than what the return would be if each
division were an independent business. According to Goold and Campbell, synergy can
take place in one of six forms:
Shared know-how: Combined units often benefit from sharing knowledge or skills.
This is a leveraging of core competencies. One reason that Procter & Gamble purchased Gillette was to combine P&G’s knowledge of the female consumer with
Gillette’s knowledge of the male consumer.
■■ Coordinated strategies: Aligning the business strategies of two or more business
units may give a corporation significant advantage by reducing interunit competition and developing a coordinated response to common competitors (horizontal
strategy). The merger between Comcast and NBC Universal in 2011 gave the combined company significant bargaining strength and flexibility with advertisers in the
increasingly competitive television media industry.
■■ Shared tangible resources: Combined units can sometimes save money by sharing
resources, such as a common manufacturing facility or R&D lab. The big pharmaceutical companies were all looking for savings with the big mergers in the industry,
such as Pfizer-Wyeth, Novartis-Alcon, and Roche-Genentech.
■■ Economies of scale or scope: Coordinating the flow of products or services of one
unit with that of another unit can reduce inventory, increase capacity utilization, and
improve market access. This was a reason United Airlines bought Continental Airlines.
■■

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Pooled negotiating power: Units can combine their volume of purchasing to gain
bargaining power over common suppliers to reduce costs and improve quality. The
same can be done with common distributors. The acquisitions of Macy’s and the
May Company enabled Federated Department Stores (which changed its name to
Macy’s) to gain purchasing economies for all of its stores.
■■ New business creation: Exchanging knowledge and skills can facilitate new products
or services by extracting discrete activities from various units and combining them
in a new unit or by establishing joint ventures among internal business units. Google
has acquired more than 100 companies over the past five years.30
■■

How Is Strategy to Be Implemented?
Organizing for Action
Before plans can lead to actual performance, a corporation should be organized to take
advantage of its competitive advantages, programs should be adequately staffed, and
10-3. List the stages
activities should be directed toward achieving desired objectives. (Organizing activiof corporate developties are reviewed briefly in this chapter; staffing, directing, and control activities are
ment and the structure that characterizes discussed in Chapters 10 and 11.)
each stage
Any change in corporate strategy is very likely to require some sort of change in the
way an organization is structured and in the kind of skills needed in particular positions.
Managers must, therefore, closely examine the way their company is structured in order
to decide what, if any, changes should be made in the way work is accomplished. Should
activities be grouped differently? Should the authority to make key decisions be centralized at headquarters or decentralized to managers in distant locations? Should the
company be managed like a “tight ship” with many rules and controls, or “loosely” with
few rules and controls? Should the corporation be organized into a “tall” structure with
many layers of managers, each having a narrow span of control (that is, few employees
per supervisor) to better control his or her subordinates; or should it be organized into a
“flat” structure with fewer layers of managers, each having a wide span of control (that
is, more employees per supervisor) to give more freedom to his or her subordinates?

Structure Follows Strategy
In a classic study of large U.S. corporations such as DuPont, General Motors, Sears,
and Standard Oil, Alfred Chandler concluded that structure follows strategy—that is,
changes in corporate strategy lead to changes in organizational structure.31 He also
concluded that organizations follow a pattern of development from one kind of structural arrangement to another as they expand. According to Chandler, these structural
changes occur because the old structure, having been pushed too far, has caused inefficiencies that have become too obviously detrimental to bear. Chandler, therefore,
proposed the following as the sequence of what occurs:
1. New strategy is created.
2. New administrative problems emerge.
3. Economic performance declines.
4. New appropriate structure is created.
5. Economic performance rises.

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Chandler found that in their early years, corporations such as DuPont tend to have a
centralized, functional, organizational structure that is well suited to producing and
selling a limited range of products. As they add new product lines, purchase their own
sources of supply, and create their own distribution networks, they become too complex
for highly centralized structures. To remain successful, this type of organization needs
to shift to a decentralized structure with several semiautonomous divisions (referred to
in Chapter 5 as divisional structure).
Alfred P. Sloan, past CEO of General Motors, detailed how GM conducted such
structural changes in the 1920s.32 He saw decentralization of structure as “centralized
policy determination coupled with decentralized operating management.” After top
management had developed a strategy for the total corporation, the individual divisions (Chevrolet, Buick, and so on) were free to choose how to implement that strategy.
Patterned after DuPont, GM found the decentralized multidivisional structure to be
extremely effective in allowing the maximum amount of freedom for product development. Return on investment was used as a financial control. (ROI is discussed in more
detail in Chapter 11.)
Research generally supports Chandler’s proposition that structure follows strategy
(as well as the reverse proposition that structure influences strategy).33 As mentioned
earlier, changes in the environment tend to be reflected in changes in a corporation’s
strategy, thus leading to changes in a corporation’s structure. In 2016, TiVo (the company that brought the world more control over their viewing options) announced a
change in their strategy in response to strong moves by their competitors. They reorganized the company around just three areas—partnerships, international expansion, and
innovation. The goal was to take the already growing firm and accelerate that growth
around its core strengths.34
Strategy, structure, and the environment need to be closely aligned; otherwise,
organizational performance will likely suffer.35 For example, a business unit following
a differentiation strategy needs more freedom from headquarters to be successful than
does another unit following a low-cost strategy.36
Although it is agreed that organizational structure must vary with different environmental conditions, which, in turn, affects an organization’s strategy, there is no agreement about an optimal organizational design. What was appropriate for DuPont and
General Motors in the 1920s might not be appropriate today. Firms in the same industry
do, however, tend to organize themselves similarly to one another. For example, automobile manufacturers tend to emulate General Motors’ divisional concept, whereas
consumer-goods producers tend to emulate the brand-management concept (a type of
matrix structure) pioneered by Procter & Gamble Company. See the Innovation Issues
feature to see how P&G’s structural decisions ended up derailing their innovation
efforts. The general conclusion seems to be that firms following similar strategies in
similar industries tend to adopt similar structures.

Stages of Corporate Development
Successful, large conglomerate organizations have tended to follow a pattern of structural development as they grow and expand. Beginning with the simple structure of the
entrepreneurial firm (in which everybody does everything), these organizations tend to
get larger and organize along functional lines, with marketing, production, and finance
departments. With continuing success, the company adds new product lines in different industries and organizes itself into interconnected divisions. The differences among
these three structural stages of corporate development in terms of typical problems,

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INNOVATION issue
THE P&G INNOVATION MACHINE STUMBLES
As we have discussed
throughout this text, innovation is a key ­
e lement
needed to organically grow a
company. Developing an
ever-widening portfolio of busi­
nesses has been a strategic approach used by many companies. None has been more successful with this approach
than Procter & Gamble (P&G). Their 175-year history is filled
with consumer-oriented product innovations including Ivory
Soap (1879), Crisco (1911), Dreft which became Tide (1933),
Crest (1955), Pampers (1961), Pringles (1968), F­abreze
(1993), Swiffer (1998), and Crest Whitestrips (2002).
Known for their heavy investment in research and development, the company invested more than US$2 billion in
R&D in 2012. For most of its history, the company used a
highly centralized R&D group to generate new ideas. This
all came to an end in 2000 when then-CEO A. G. Lafley
decentralized the operations to the operating units and
opened product innovation to outside partners. Taking his
cue for the dramatic growth in social media and crowdsourcing, Lafley sought to have 50% of innovative new
products generated from people not employed by the company. The operating units were expected to be more closely
tied to the consumers and thus be in a better position to
know the potential for each new product idea.
Between 2003 and 2008, the sales of new launches
shrank by half. The company’s pipeline became focused
on reformulating old products, adding scents to successful
product lines, and adjusting the sizes that were sold.
In 2009, new CEO Bob McDonald started recentralizing
R&D operations in an attempt to reverse the deterioration

of innovation at the company. By 2012, between 20 and
30% of R&D had been centralized. The loss of focus cost
the company a decade of innovations while competitors
rolled out new products in virtually every product category
in which P&G competes. There is no single means for generating innovative ideas or for turning those ideas into a
blockbuster new product. Companies seek to organize
their businesses so they can own the next big thing.
Big changes were in store for the company. In 2014
they announced a dramatic restructuring of the organization into four large industry groups and plans to sell off half
the brands in the company portfolio. The company wanted
to focus on specific areas of strength and then grow those
areas with innovation. Whereas centralization failed to
generate organic growth under the old structure, tightly
focused areas could benefit from specifically-focused R&D
facilities. In 2015, P&G announced plans to build a 500,000
square foot research and development center specifically
for its new Beauty Division. It will be interesting to see if
this carefully restructured organization grows its innovation
engine again.
SOURCES: B. Brunsman, “P&G to build massive R&D center in
Mason,” Cincinnati Business Courier, March 17, 2015 (bizjournals.com/Cincinnati/news/2015/03/17/p-g-to-build-massive-rd-center-in-mason.html); “Procter & Gamble to sell off half its
brands,” Associated Press via CBC News, August 1, 2014 (http://
www.cbc.ca/news/business/procter-gamble-to-sell-off-half-its
-brands-1.2725214); pg.com/en_US/downloads/investors/annual_
reports/2013/2013_auunualreport.pdf; L. Coleman-Lochner and
C. Hymowitz, “At P&G, the Innovation Well Runs Dry,” Bloomberg Businessweek (September 10, 2012), pp. 24–26;
.pg.com/en_US/brands/index.shtml

objectives, strategies, reward systems, and other characteristics are specified in detail
in Table 10–1.

Stage I: Simple Structure
Stage I is typified by the entrepreneur or a small team, who founds a company to promote an idea (a product or a service). The entrepreneur or team tends to make all the
important decisions and is involved in every detail and phase of the organization. The
Stage I company has little formal structure, which allows the entrepreneur or team to
directly supervise the activities of every employee (see Figure 5–3 for an illustration
of the simple, functional, and divisional structures). Planning is usually short range or
reactive. The typical managerial functions of planning, organizing, directing, staffing,
and controlling are usually performed to a very limited degree, if at all. The greatest
strengths of a Stage I corporation are its flexibility and dynamism. The drive of the

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TABLE 10–1

Factors Differentiating Stage I, II, and III Companies

Function

Stage I

Stage II

Stage III

1. Sizing up: Major
problems

Survival and growth
dealing with shortterm operating
problems

Growth, rationalization,
and expansion of resources,
­providing for adequate
attention to product
problems

Trusteeship in management
and investment and control of
large, increasing, and ­diversified
resources. Also, important to
diagnose and take action on
problems at division level

2. Objectives

Personal and
subjective

Profits and meeting
f­ unctionally-oriented budgets
and performance targets

ROI, profits, earnings per share

3. Strategy

Implicit and
­personal; exploitation of immediate
opportunities seen
by owner-manager

Functionally oriented moves
restricted to “one product”
scope; exploitation of one
basic product or service field

Growth and product
­diversification; exploitation of
general business opportunities

4. Organization:
Major characteristic
of structure

One unit, “one-man
show”

One unit, functionally
­specialized group

Multiunit general staff office
and decentralized operating
divisions

5. (a) Measurement
and control

Personal, subjective
control based on
simple accounting
system and daily
communication and
observation

Control grows beyond
one person; assessment
of f­ unctional operations
­necessary; structured control
systems evolve

Complex formal system geared
to comparative assessment of
­performance measures, ­indicating
­ pportunities and
problems and o
assessing management ability of
division managers

5. (b) Key performance indicators

Personal criteria,
relationships with
owner, operating
efficiency, ability
to solve operating
problems

Functional and i­nternal
criteria such as sales,
­performance compared
to budget, size of empire,
status in group, personal,
­relationships, etc.

More impersonal ­application
of comparisons such as
­profits, ROI, P/E ratio, sales,
market share, productivity,
­product leadership, ­personnel
­development, employee
­attitudes, public responsibility

6. Reward–punishment system

Informal, personal,
subjective; used to
maintain control
and divide small
pool of resources
for key performers
to provide personal
incentives

More structured; usually
based to a greater extent on
agreed policies as opposed
to personal opinion and
relationships

Allotment by “due process” of a
wide variety of different rewards
and punishments on a formal
and systematic basis. Companywide policies usually apply to
many different classes of managers and workers with few major
exceptions for individual cases.

SOURCE: Donald H. Thain, “Stages of Corporate Development,” Ivey Business Journal (formerly Ivey Business Quarterly), Winter
1969, p. 37. Copyright © 1969, Ivey Management Services. One-time permission to reproduce granted by Ivey Management Services.

entrepreneur energizes the organization in its struggle for growth. Its greatest weakness is its extreme reliance on the entrepreneur to decide general strategies as well as
detailed procedures. If the entrepreneur falters, the company usually flounders. This is
labeled by Greiner as a crisis of leadership.37
Stage I describes the early life of Oracle Corporation, the computer software firm,
under the management of its co-founder and then CEO Lawrence Ellison. The company

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adopted a pioneering approach to retrieving data, called Structured Query Language
(SQL). When IBM made SQL its standard, Oracle’s success was assured. Unfortunately,
Ellison’s technical wizardry was not sufficient to manage the company. Often working
at home, he l…
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