Cooperation and Autonomy: Managing Interrelationships docx

373 CHAPTER OUTLINE CASE 1 The Hewlett-Packard Company CASE 2 Hitachi Corporation of Japan Introduction Cooperation and Autonomy within the Organization Distinctive Competence Organizational Structure Off-Line Coordinators Staffing Reward and Performance Measurement Systems Shared Values and Corporate Culture Achieving Strategic Alignment The Nature of Interrelationships Varying Emphasis on Cooperation Shifting the Balance between Cooperation and Autonomy Factors Promoting Closer Cooperation Change in Product Usage Technological Convergence The Rise of Multipoint Competition Reduced Emphasis on Acquisitions Increased Global Expansion Activity Factors Promoting Greater Autonomy Increased Acquisition Activity Need to Avert Creeping Bureaucratization Environmental Turbulence Technology Fusion The Problem of Internal Resistance Resistance to Greater Cooperation Resistance to Greater Autonomy Dealing with Resistance to Change Ethical Dimension Fine-Tuning a Delicate Balance Summary Discussion and Exercise Questions Cooperation and Autonomy: Managing Interrelationships WHAT YOU WILL LEARN • The importance of interrelationships in sustaining competitive advantage • The need to balance cooperation and autonomy in supporting interrelationships • Factors that promote the need for greater cooperation • Factors that promote the need for greater autonomy • The concept of “technology fusion” • Sources of internal resistance to organizational change 374 PART 4 Sustaining and Renewing Advantage The Hewlett-Packard Company was founded in the 1930s to manufacture sophisticated electronic test and measurement instruments such as oscilloscopes (used to visually display elec- tronic wave lengths), electronic counters (used to measure the frequencies of emissions broadcast by radio stations), and audio-oscillators (used to control the sound tracking in motion pictures). Engineers and scientists in the radio, television, and defense industries use these products daily. Now, Hewlett- Packard (or H-P) is a diversified technology company that is a leader in designing and producing a broad array of sophisti- cated electronics-based products and services, including per- sonal computers, servers, electronic test equipment, laser and ink-jet printers, specialized semiconductors, and even imaging and word-processing software. As of 1997, H-P’s revenues were close to $43 billion (profits of $2.2 billion). Life cycles for many of H-P’s products are short because of rapid technological change. Competitive success requires a high rate of technological innovation and fast product develop- ment to accelerate time-to-market. Hewlett-Packard’s founders believed the best way to encourage innovation was giving sub- units freedom to try new approaches. They devised a highly autonomous divisional system defined by (1) small units (most included fewer than 1,000 employees, even after the company had grown to substantial size); (2) extensive decentralization (each division conducted its own product development, manu- facturing, and marketing); (3) small corporate staffs (so as not to interfere with divisional autonomy); and (4) delegation of major decisions to divisions. This arrangement served Hewlett-Packard well for many years. However, the company was eventually forced to modify it in favor of encouraging more cooperation among subunits. Its growing involvement in computers was the chief development leading to this change. By the 1990s, nearly half of Hewlett- Packard’s forty divisions produced computers or computer- related products. Many opportunities for cooperation among divisions existed. For example, divisions could achieve product compatibility, conduct joint marketing efforts, and share pro- duction. The company’s highly autonomous organization offered few incentives to facilitate joint efforts. Developments in the company’s test instruments business also increased the need for cooperation. By 1980, customers were no longer using electronic test instruments as independent, stand-alone items. Instead, they were incorporating them into larger computer-controlled and integrated systems. As a result, making test equipment and computers work together spurred the need for cooperation and coordination divisional activities. Additionally, during the mid-1980s, Hewlett-Packard entered the related field of engineering workstations and RISC-based microprocessors. These two areas require tight linkages between functional and divisional activities. Hewlett-Packard’s response to these developments was to modify its organizational style to encourage greater divisional cooperation. It involved the following changes to the company’s formal structure: • Consolidating several computer subunits exhibiting high potential to build interrelationships • Grouping all computer units into a single large “subgroup” • Forming a new unit to develop software for all Hewlett- Packard computers Hewlett-Packard also instituted a number of other changes not directly related to formal structure: • Program managers were assigned to direct projects needing cooperation from several divisions. • Task forces were created to manage initiatives involving more than one division. • Strategic plans were developed outside of specific divisions for multi-unit programs. Not all Hewlett-Packard employees were pleased with these changes. Divisional managers viewed them as intrusions on their cherished independence. Many senior executives feared that changes would undermine H-P’s innovative spirit, which had been a long-standing competitive advantage. Employees exhibited considerable ambivalence about the move to greater interdivisional cooperation. Many aspects of the company’s tra- ditional highly autonomous organization were firmly in place. The reduction in autonomy created substantial tension through- out the company. Divisions now had to battle corporate man- agement for permission to introduce new products. Also, more decisions were made in committees, which often resulted in no decision or selection of the weakest of all alternatives. While encouraging interrelationships, these changes created a new set of problems. Several of H-P’s product introductions during the early 1990s were overpriced. Products could not compete with those of more nimble rivals, including Sun Microsystems and even IBM. The rise of new distribution chan- nels that sell personal computers directly to the consumer made H-P’s centralized price-setting policies obsolete overnight. The use of product development committees slowed response to (Case 1) The Hewlett-Packard Company 1 CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 375 changing markets. The evolution of new technologies such as RISC threatened to render obsolete many of H-P’s newest prod- ucts. In short, the move toward greater coordination made H-P more bureaucratic at the same time that emerging technologies, evolving distribution channels, Internet on-line ordering sys- tems, and new competitors (Intel, Sun Microsystems) were eroding H-P’s market position. Now, Hewlett-Packard is in the midst of returning to its entrepreneurial roots. In the process, many of the steps taken earlier to promote interdivisional cooperation are being reversed. These changes are enabling H-P’s various business units to accelerate the pace of new product development to out- maneuver and outgun Japanese rivals in such products as laser printers, color printers, electronic instruments, calculators, and office equipment. In the past two years, H-P has introduced a new line of hand-held computers to enter the market for per- sonal digital assistants (PDAs). It has also regained market share in sophisticated workstations from Digital Equipment and is currently gunning for Sun Microsystems in specialized UNIX-based and even Java-based applications. Its worksta- tions use the latest RISC-based microprocessor technology to help scientists and designers conceive and test new products. Moreover, H-P has become a growing force in the personal computer market; the company has become one of the top five PC sellers. H-P has further strengthened its position in laser printers, with faster introduction of its extremely popular and versatile Laserjet series. Equally important, H-P remains a world leader in the field of ink-jet printer technology, a prod- uct popular in Europe and for industrial applications. Now, Hewlett-Packard is rapidly gaining strength and stature as a leading designer of customized computer chips used in various commercial applications. For example, Hewlett-Packard’s microcontroller chips are used in many laser printers and instruments produced by its Japanese rivals and alliance part- ners, including fast-moving Canon. Canon and Hewlett- Packard have long collaborated in producing the “engines” that are the mechanical workhorses of laser printers. Hewlett- Packard is even teaming up with rivals IBM and Sun Microsys- tems to develop fiber-optic networks that lay the foundation for taking advantage of the convergence between telecommunica- tions and computer networks. H-P has also begun working with software giant Microsoft to combine new technologies that are required to build set-top boxes and control devices that will operate tomorrow’s interactive television systems. These H-P-led ventures promise to accelerate video, data, and voice communications along the Internet between users of telecom- munications and consumer electronic applications. Many of these network and Internet-related businesses are beginning to replace H-P’s traditional measuring instruments as the “flag- ship” products of the company for the next millennium. Hitachi is one of Japan’s largest industrial companies. It manu- factures everything from electrical-generating equipment to high-speed trains, robotics, semiconductors, and consumer electronics. Hitachi has been called Japan’s “General Electric” because of its breadth of products, size, innovation, and long history. Since its founding in 1910, Hitachi has become a $63 billion company with over 750 subsidiaries and 300,000 employees. Hitachi is an excellent model of Japanese corporate management. Its tightly interwoven diversification strategy, interactive management processes, interunit cooperation, and technology are considered first rate by many management ana- lysts. Hitachi’s diversification is based on core technologies from which all of its key business units draw. These core tech- nologies form the basis for new products that often require cut- ting-edge research and development in both basic and applied sciences. Despite recent economic difficulties in Japan and Southeast Asia, Hitachi remains viewed as a formidable com- petitor and technological leader by all of its global competitors. By encouraging strong technological interrelationships and sharing among its business units, Hitachi has built a strong sense of corporatewide mission and purpose. Hitachi’s empha- sis on promoting a high level of interdivisional cooperation has enabled it to invest in leading-edge technologies faster than its competitors, since the business units share the costs of projects and new manufacturing technologies that no one unit could afford on its own. Despite the company’s strong corporatewide policy of fostering interdivisional cooperation and sharing among business units, Hitachi is nimble enough to enter new markets quickly. As one of Japan’s leading companies in its commitment to innovation, Hitachi spends more than 6 percent of sales on R&D annually. Hitachi pours money into basic science and exotic new (Case 2) Hitachi Corporation of Japan 2 376 PART 4 Sustaining and Renewing Advantage technologies, such as biotechnology, artificial intelligence, and advanced materials. It is one of Japan’s leading earners of U.S. patents for a range of technologies. Hitachi’s corporate vision for the future can be summed up in two words: synergy and inte- gration. Both words are found in all of Hitachi’s laboratories. They show that the company intends to build on the shared capa- bilities of its many subunits. In its pursuit of synergy and integration, Hitachi executives contend that size and flexibility are not incompatible. Many of Hitachi’s business units are very large; some are comparable in size to major U.S. corporations. Its computer and semiconduc- tor division alone is equal in size to Motorola, a leading U.S. semiconductor company. Its high-speed trains, robotics, power generation systems, and heavy industrial equipment businesses equal the size of European giant ABB. In its Japanese home market, Hitachi is the number two computer maker. It is right below rival Fujitsu and just a notch ahead of IBM Japan. The $7 billion consumer electronics operation is a global giant in its own right. How does Hitachi balance its huge, broad-based diversifi- cation with fast innovation of new products and ideas? While stressing integration, Hitachi practices careful decentraliza- tion. Hitachi is a paradox when examining the management practices of diversified companies. It combines strong decen- tralization with a corporate push for synergy and cross-unit sharing among its many businesses. Some of the key manage- ment practices that support this careful balance include the following: • A long-standing corporate culture that fosters decentralization and individual initiative, especially in basic scientific research: This format is rare in a Japanese society accustomed to hierarchy and conformity. • Encouragement of individual Hitachi companies to operate on their own: Business units are free to pursue their own agendas and markets as they see fit; their only constraint is to exploit new opportunities for interrelationships and synergy with other Hitachi business units when they arise. • Strong cooperation between labs and factories on applied research or giant projects: Cooperation between laboratories and factories helps accelerate time-to-market for new products or technologies that no one lab or business unit can develop on its own. • Frequent sharing of ideas among managers in highly fraternal meetings: Despite the high level of autonomy fostered among scientists, Hitachi managers and scientists frequently meet in informal discussion sessions to talk about their research and potential commercial applications that may ensue. In this way, both scientists and managers are better able to view their counterparts’ ideas and agendas for channeling corporate resources and effort into new technologies. Hitachi encourages its scientists to invite their foreign coun- terparts to work in the company’s labs. It also prides itself on keeping every division, even when it sustains losses. Hitachi’s senior management believes that all businesses, no matter how mature they are, have intrinsic technological value. Even when they lose money, these businesses are retained because of their unique experiences and insights into a given set of products. Over time, if new technologies are available to resuscitate an older, declining product, those same Hitachi managers and resources are available to exploit the opportunity. Hitachi believes, as many Japanese companies do, that all technologies, no matter how old they are, have a future life to them. Old and new technologies can be blended to create new products, which may prove useful at a future time to some part of the organization. INTRODUCTION In this chapter, we focus on the issue of how senior managers can balance the need for interdivisional cooperation and strong divisional autonomy within the organization. Find- ing the right balance between cooperation and autonomy is crucial. Firms compete as col- lective entities of people, businesses, and bundles of resources. Autonomy and coordina- tion are required to build, and more importantly, to sustain competitive advantage. Finding and striking the right balance between cooperation and autonomy determines how well firms manage the interrelationships of activities among their subunits. Interrelationships refer to value-adding activities, skills, technologies, or resources which are shared among the firm’s subunits. 3 Interrelationships result when the firm’s divisions or other subunits work with one another to sustain competitive advantage for the entire firm. Building and managing interrelationships that span a number of business units are especially pertinent topics for large firms with many subunits. Even when a firm has selected an organizational structure that seems to best fit its overall strategy, managers need to carefully balance divisional cooperation and autonomy interrelationships: the sharing of activities, technologies, skills, and resources among a firm’s subunits, particularly divisions or strategic business units. CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 377 to foster interrelationships. Interrelationships are horizontal in nature, in that they involve value-adding activities that cut across divisions and businesses. Successful management of interrelationships that span divisions depends largely on how well senior management can “tilt” or orient the firm toward the right balance of cooperation and autonomy. Man- aging this balance effectively requires blending the right structure with specific organi- zation design practices that facilitate the right blend of autonomy and coordination. 4 Strong interrelationships are key to sustaining corporatewide competitive advantage. Careful management of value-adding activities across divisions is needed to enable the firm to strengthen and reinforce its distinctive competences systemwide. The complex and ongoing task for senior managers is to know when to shift the balance toward increased cooperation or increased autonomy when the organization faces new develop- ments. Successful management of interrelationships is key to building a coherent corpo- rate advantage. We begin by showing how a firm can use its organizational structure and supporting design practices to promote cooperation or autonomy. We then consider how a firm’s strat- egy should influence the balance it strikes between these opposing organizational orienta- tions. Finally, we consider developments that can oblige a firm to shift its organizational emphasis toward either greater cooperation or greater autonomy, and we examine likely sources of resistance to shifts of this kind. COOPERATION AND AUTONOMY WITHIN THE ORGANIZATION A variety of organizational structures and design practices can affect the degree to which cooperation or autonomy is promoted within the firm. Exhibit 11-1 portrays how a firm can position itself along a continuum ranging from high levels of cooperation to high lev- els of autonomy. Let us examine how each of these organizational practices influences the tilt toward cooperation or autonomy. Distinctive Competence The nature of a firm’s distinctive competence plays an important role in influencing the degree of cooperation or autonomy required to sustain competitive advantage. Clearly, a distinctive competence that extends across multiple lines of businesses or subunits height- ens the need for cooperation to sustain corporatewide competitive advantage. Distinctive competences, skills, or technologies that are shared systemwide call for greater interunit cooperation, particularly within firms that emphasize internal development of new tech- nologies and skills. A high level of cooperation is necessary to manage interactions among activities performed in different parts of the firm. This is especially important as the firm seeks to gain scale economies of operations and learning. Conversely, a distinctive competence that is internal to any one particular division and not easily shared with other units heightens the need for autonomy. Fast response tends to be more important than scale economies. Firms whose competitive advantage is derived from fast response, creativity, and product customization are likely to give their divisional managers greater decision-making power. Competences, skills, and technologies that are not easily shared systemwide require increased divisional autonomy to sustain competitive advantage at the divisional level. Organizational Structure As mentioned in Chapter 9, modifications of the basic product division structure can do much to promote greater cooperation. For example, placement of strategic business units 378 PART 4 Sustaining and Renewing Advantage (SBUs) into groups and sectors will generally enhance cooperation. Product divisions facing similar markets or using similar technologies or joint production facilities are likely to cooperate more when they are placed within the same SBU. Matrix structures, despite their numerous disadvantages, also engender high levels of cooperation among divisions or subunits. On the other hand, the conglomerate or holding company structure enhances divisional autonomy. Conglomerate structures emphasize a lean staff with few management layers between divisions and corporate headquarters. They make no attempt to group or link busi- ness units together under larger SBUs. The conglomerate structure facilitates a high level of autonomy, enabling division managers to run their own operations. As noted in Chapter 6, firms such as Tyco International, Textron, and Tenneco give their divisions great leeway in planning and implementing individual division strategies. Geographic structures by their very nature promote a high degree of subunit autonomy. Recall that geographic structures work best when one market is unlike the next and when local conditions (requiring product customization and modifications) weigh heavily in strategy. Within this context, the use of a geographic structure facilitates the high degree of autonomy needed to build competitive advantage at local levels. Geographic structures thus promote the fast response capabilities needed to adapt to local market requirements and changes. exhibit(11-1) Spectrum of Cooperation versus Autonomy Cooperation Autonomy 1. Distinctive Competence 2. Structure 3. Staffing 4. Reward and Performance Measurement Systems 5. Shared Values and Corporate Culture Shared and developed among SBUs Sizable corporate staff; large divisions, SBUs, sectors Personnel rotated periodically across division lines Performance measured somewhat subjectively; rewards based in part on subjective measures and on overall performance of the enterprise (hierarchy-based) Subunits are members of a team; strong values emphasize belonging and cooperation among subunits Competence specific to each division or SBU "Lean" corporate staffs; small divisions, holding company format, or geographic structures Personnel remain in same division throughout career Performance measured objectively; rewards based entirely on performance of own division (performance- based) Subunits are rivals competing for top performance; strong divisional identity and emphasis on individual performers CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 379 Off-Line Coordinators A firm can increase cooperation among divisions by assigning individuals or committees outside of the formal hierarchy to coordinate activities among subunits. These individuals and groups, often experienced managers and staff personnel, are referred to as off-line coordinators. The job of an off-line coordinator is to ensure that the firm’s interrelation- ships are coordinated across divisional boundaries. Off-line coordinators help oversee the tasks of sharing resources, technologies, and skills between businesses. They are “off-line” in the sense that they are responsible only to corporate headquarters and thus do not owe an allegiance to any one business unit or division. These coordinators must work exten- sively with personnel within subunits to achieve informal cooperation. Off-line coordinat- ing committees typically include all managers of a firm whose products have some bear- ing on the skill or resource that is being shared. Another device for increasing cooperation is use of informal integrators. Informal integrators serve a role similar to that of off-line coordinators. Informal integrators act as internal “referees” to resolve disputes and conflicts between divisional managers. Conflict may result from divisions pursuing different strategies and goals. For example, at Procter and Gamble, corporate facilitators encourage autonomous brand management teams to share their knowledge of competitors and retailers with other teams. P&G managers are initially reluctant to share their ideas and insights, since many of them compete for the same shelf space in grocery stores and other outlets. P&G facilitators persuade managers to share their insights by providing strong internal incentives for working together, such as opportunities to lead the development and marketing of new products. Facilitators also emphasize that sharing does not necessarily result in cannibalization, loss of prestige, or loss of market share for any concerned manager. Yet another device for fostering cooperation among subunits is use of internal task forces. Internal task forces serve as bridges that forge stronger interrelationships among divisions. Companies such as Allied-Signal, Chaparral Steel, Citizen Watch, Kodak, Motorola, Nissan, and Procter and Gamble use internal task forces to achieve smoother coordination of design and manufacturing of products among divisions. For example, Motorola encourages its division managers in R&D, manufacturing, and marketing to serve on temporary task forces. These task forces then plan new strategies for sharing tech- nologies and production resources for individual products. This joint effort helps acceler- ate time-to-market for new products and facilitates sharing of insights that may be valu- able in designing new products that no one manager may have thought of individually. NEC of Japan uses many corporate-sponsored product planning committees and forums to identify core technologies that could serve as the basis for building systemwide interre- lationships. It also uses both off-line integrators and product forums to encourage cooper- ation between businesses. Off-line integrators play an essential role in reconciling the dis- parate needs of many businesses on a daily basis. From a corporate perspective, the purpose of numerous NEC product and technology development committees is to identify new sources of potential interrelationships. These NEC committees investigate, for exam- ple, how new semiconductor-based technologies can be applied across computers, com- munications, and consumer electronics. NEC’s committees show how the innovations of one business unit can be used to fertilize new products and markets in other divisions. They also try to convince divisional managers of the merits of sharing resources and ideas, and of the benefit they can derive from innovations from other parts of the company. While off-line coordinators and internal task forces are used in many types of compa- nies, they can be particularly helpful whenever a high level of coordination among func- tions, divisions, or business units is desired. They are particularly suitable when outright off-line coordinator: senior corporate staff member whose job is to manage and coordinate interrelationships among division or business units. informal integrator: people who work to resolve potential sources of conflict or to promote better understanding of key issues between managers, usually at a divisional or SBU level. internal task force: committees whose purpose is to share knowledge and to encourage joint development of technologies and products across divisions or business units. 380 PART 4 Sustaining and Renewing Advantage consolidation of existing divisions and/or business units is unwarranted because opportu- nities for cooperation are too few to warrant full-scale consolidation or when combined entities would be too large for effective supervision. Off-line coordinators and internal task forces offer ways to foster cooperation without drastically altering the firm’s divisional structure. Extensive use of off-line coordinators will tilt a company’s organization toward the left of the continuum shown in Exhibit 11-1; conversely, general avoidance of using such coordinators will tilt it toward the right. Staffing The methods a firm uses to select and develop its managers and employees can do much to influence the tilt between cooperation and autonomy over time. Firms can use manage- ment development programs to make the idea of systemwide thinking and cooperation for managers easier to accept. For example, development programs can emphasize the need to share resources across business units. Development programs can be used to show how parts of the company need to work together to build interrelationships to achieve goals that no single business unit can manage alone. The degree to which firms actively rotate their managers across divisions may also influence the cooperation/autonomy balance. 5 Transfer of managers throughout the com- pany can instill an appreciation for systemwide cooperation and thinking. Managers who serve in different divisions throughout their careers are better able to understand and build interrelationships. On the other hand, firms that keep their managers and personnel in the same division for long periods foster personal commitment and loyalty to the division, as opposed to the company. Managers then feel less obligation to share resources or ideas with their counterparts in the company, especially if managers are competing against each other for promotions and rewards. Reward and Performance Measurement Systems Hierarchy-based reward systems, with their emphasis on close superior–subordinate rela- tionships, work well to promote cooperation and interrelationships among subunits. 6 Recall that hierarchy-based systems use informed subjective criteria and judgment to eval- uate performance. Qualitative and quantitative performance metrics are used. Oftentimes, division managers are evaluated according to both corporate, systemwide measures of per- formance and the performance of their own subunits. On the other hand, performance-based reward systems facilitate high divisional auton- omy. Recall that performance-based systems focus predominantly on objective, narrowly defined measures of output and results. Bonuses and promotions are based on achievement of individual divisions, with little attention paid to subjective factors, such as cooperation across subunits. Shared Values and Corporate Culture Shared values and corporate cultures that cherish a sense of corporatewide feeling and belonging encourage systemwide cooperation and building of interrelationships. Compa- nies such as Motorola, IBM, and Unilever teach and promote values that orient managers to think of the company’s larger interests before those of their divisions. This emphasis on the overall company makes identifying and building useful interrelationships an easier task. On the other hand, values that cherish individual initiative and strong independence foster divisional autonomy. At companies such as Johnson & Johnson (J&J) and PepsiCo, values CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 381 based on risk taking and initiative spur competition between divisions, regions, and product brands. Systemwide cooperation is not considered nearly as critical as local initiative to build and sustain competitive advantage. J&J allows its 50-plus business units to cultivate distinctly separate cultures. This autonomy fosters strong initiative and risk taking at the divisional level. Thus, firms can use many different organization design practices to promote coopera- tion or autonomy. The way a firm uses such practices will position it somewhere along the continuum shown in Exhibit 11-1. ACHIEVING STRATEGIC ALIGNMENT The position a firm chooses along this continuum must be carefully aligned with the strategies a firm pursues in two key areas: diversification and international expansion. To explore the nature of this alignment, we consider here two broad approaches in each of these areas. With respect to diversification, we consider strategies of related and unre- lated diversification; with respect to international expansion, we focus on global and multidomestic strategies. In general, related diversification and a global approach to conducting worldwide business require a position toward the left of the continuum shown in Exhibit 11-1, while unrelated diversification and a multidomestic approach to conducting worldwide business require a position toward the right of the continuum. If we now combine these four different strategies, the matrix shown in Exhibit 11-2 results. As discussed in more detail below, each of the four quadrants, or cells, of this matrix necessitates a somewhat different balance between cooperation and autonomy to man- age interrelationships most effectively. (See Exhibit 11-3 for summary.) The Nature of Interrelationships Companies in Cell 1 of Exhibit 11-3 pursue a combination of related diversification and a global strategy to sustain systemwide competitive advantage. Examples of companies in Cooperation and Autonomy: Various Routes to Diversification and Global Expansion Cell 1 • IBM • Motorola • Honda • Sony • Caterpillar • Komatsu • Intel Cell 2 • ITT Industries • Thom-EMI • Westinghouse • Tenneco Cell 3 • Procter & Gamble • Kao • Coca-Cola • PepsiCo • Unilever Cell 4 • Hanson PLC • Seagram • Diageo • Times Mirror • Tyco International Global Global Expansion Multidomestic Diversification Strategy UnrelatedRelated exhibit(11-2) 382 PART 4 Sustaining and Renewing Advantage Cell 1 include Sony, Honda, Motorola, Ericsson, IBM, Lucent Technologies, Intel, Komatsu, Toshiba, NEC, and Sharp. These firms have developed a series of distinctive com- petences and technologies that span their divisions and subsidiaries around the world. Many of the interrelationships found among their divisions are based on tight sharing of R&D capabilities and production facilities and on joint investment in cutting-edge technologies that can only be commercialized and developed at the corporate level. Thus, these interre- lationships extend across multiple divisions and business units. Moreover, they form the basis of new core technologies and product components that are then incorporated in end products. Companies in Cell 2 pursue a combination of unrelated diversification and a global strat- egy. Examples of companies in Cell 2 include the former Westinghouse Electric, Thorn- EMI, ITT, and Tenneco. These companies are positioned in a broad range of unrelated, non- linked businesses, many of which share little potential for building strong interrelationships among them. Since unrelated diversification is not based on extending an underlying dis- tinctive competence, few interrelationships can be built and used to sustain systemwide competitive advantage. Several of the business units in these firms have attempted to pur- sue a global strategy. For example, when it was owned by Tenneco, J.I. Case pursued a global strategy to build a stronger market presence outside the United States against com- petitors such as Caterpillar, Komatsu, Allis-Chalmers, and Hitachi. Likewise, during the 1970s and 1980s, several Westinghouse units (power transmission and distribution, robot- ics, and motors) have pursued a global strategy to build market share abroad. Companies in Cell 3 of Exhibit 11-3 pursue a combination of related diversification and multidomestic strategies of expansion. These companies include Coca-Cola, Pep- siCo, Black and Decker, Colgate-Palmolive, Hershey Foods, Procter and Gamble, Henkel, Unilever, and Kao. Many of these consumer goods companies have built a wide array of personal and health care products. However, building strong interrelationships exhibit(11-3) Cooperation and Autonomy: Managing Interrelationships Synergy based on technological, production, and/or marketing interrelationships. Competencies, skills, and technologies are system wide. Cross-subsidization tactics to compete globally. Marketing-based interrelationships lay the groundwork for potential cooperation. Shared image, product quality, and multipoint competition in U.S. Compete in individual markets locally and separately. Cell 1 Cell 2 Cell 3 Competencies and skills are specific to each division or SBU. No system-wide sharing or interrelationships. Financial orientation of divisions or SBUs may deter sustained investment needed for global strategy. No underlying competence or skill to define sharing or interrelationships. Compete in individual markets locally and separately. Cell 4 Global Global Expansion Multidomestic Diversification Strategy UnrelatedRelated [...]... important role in diversification • Global expansion increases CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships makes it easier for users of H-P’s equipment (aircraft and electronic firms) to cut down their own product development time This development has greatly expanded the need to build interrelationships and increase cooperation among various Hewlett-Packard subunits H-P divisions now... the home, office, and even outdoors through advanced digital and wireless systems means that businesses and consumers will steadily increase their demand for “bandwidth” and other means to link up their once separate products and needs Consumers can already send e-mail and faxes through their personal computers by use of telephonebased modems and will soon be able to communicate and access the Internet... may then be able to detect minute cracks and flaws in painted surfaces (automobiles) and structures (bridges and concrete beams) All of these combinations represent innovative ways to achieve technological fusion Cooperation and Autonomy: Managing Interrelationships CHAPTER 11 401 Technology fusion has important implications for managing the balance between cooperation with autonomy (Exhibit 11-8)... resistance to shifts in an organization’s balance between cooperation and autonomy is common If not effectively countered, resistance can delay and even CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships erode the firm’s competitive advantage as its environment changes At the same time, a major shift in the balance between cooperation and autonomy also presents an opportunity for a firm to... shares across families of products Procter and Gamble, Colgate-Palmolive, and J&J all practice multipoint competition against each other along such products as disposable diapers, toothpastes, mouthwashes, personal care items, and lotions Firms engaged in such competition need close cooperation among their business units CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships Reduced Emphasis on... corporate and consumer applications The business productivity unit will focus on developing new versions of Office 97 and 2000 software that are needed by corporate customers and their knowledge workers This unit also is charged with developing new software that will blunt CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 399 the impact of IBM’s newest versions of Lotus Notes and Domino... applicable to producing popular and successful films For both Japanese giants, few real opportunities to build and manage interrelationships between the film and the electronics business were available Nevertheless, both Sony and Matsushita believe that films and television shows would form the “software” that could be shown on Japanese-made televisions and VCRs for global distribution and provide the basis... constant “balancing act” between cooperation and autonomy Technology Fusion and the Balance between Cooperation and Autonomy Need for Cooperation Need for Autonomy • Economies of scale • Creative product ideas • Shared R&D costs • Experimentation • Joint production efforts • Customization of products • Tight management of interrelationships • Search for internal synergy • Understanding needs of local end... computers, telecommunications, and CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships consumer electronics to enter new markets with innovative products AT&T hopes that these new products will enable it to create a higher set of skills and capabilities to compete with the continued growth of the Internet Technological convergence offers AT&T new opportunities to build interrelationships among... Coordinators and task forces can be used to supplement other design practices, such as consolidation and grouping of divisions into larger units CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships SUMMARY • Firms experiencing change in the way their products are used, technological • • • • • • convergence, growth in multipoint competition, reduced emphasis on acquisitions, and increased . (J&J) and PepsiCo, values CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 381 based on risk taking and initiative spur competition between divisions, regions, and product brands personal and health care products. However, building strong interrelationships exhibit(11-3) Cooperation and Autonomy: Managing Interrelationships Synergy based on technological, production, and/ or. particularly divisions or strategic business units. CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 377 to foster interrelationships. Interrelationships are horizontal in nature, in that