• Reduces costs of communication and coordination: business level decisions confined to divisional level (reduces decision making at the top). • Global, rather than local optimization:[r]
(1)Managing the Multibusiness Corporation
Managing the Multibusiness Corporation
• Structure of the Multidivisional Company
o Theory of the M-form
o The divisionalized firm in practice
• The Role of Corporate Management
• Managing the Corporate Portfolio
o Portfolio planning techniques
o Value-creation through corporate restructuring
• Managing Individual Businesses
• Managing Internal Linkages
• Recent Trends
(2)The Multidivisional Structure: Theory of the M-Form
The Multidivisional Structure: Theory of the M-Form Efficiency advantages of the multidivisional firm:
• Recognizes bounded rationality—top management has limited decision-making capacity
• Divides decision-making according to frequency:
—high-frequency operating decisions at divisional level
—low-frequency strategic decisions at corporate level
• Reduces costs of communication and coordination: business level decisions confined to divisional level (reduces decision making at the top)
• Global, rather than local optimization:- functional organizations encourage functional goals M-form structure encourages focus on profitability.
• Efficient allocation of resources through internal capital and labor markets
(3)The Divisionalized Firm in Practice
The Divisionalized Firm in Practice
• Constraints upon decentralization
– Difficult to achieve clear division of decision making between corporate and divisional levels
– On-going dialogue and conflict between corporate and divisional managers over both strategic and operational issues.
• Standardization of divisional management
– Despite potential for divisions to develop distinctive strategies and structures—corporate systems may impose uniformity.
• Managing divisional inter-relationships
– Requires more complex structures, e.g matrix structures where functional and/or geographical structure is imposed on top of a product/market structure.
(4)The Functions of Corporate Management
The Functions of Corporate Management
—Decisions over diversification, acquisition, divestment
—Resource allocation between businesses.
— Business strategy formulation
—Monitoring and controlling business performance
—Sharing and transferring resources and capabilities
Managing linkages between businesses Managing the
individual businesses Managing the
(5)The Development of Strategic Planning Techniques: General Electric in the 1970’s
The Development of Strategic Planning Techniques: General Electric in the 1970’s
Late 1960’s: GE encounters problems of direction, coordination, control, and profitability
Corporate planning responses:
Portfolio Planning Models —matrix-based frameworks
for evaluating business unit performance, formulating business strategies, and allocating resources
Strategic Business Units —GE reorganized around
SBUs (business comprising a strategically-distinct group of closely-related products
PIMS —a database which quantifies the impact of
strategy on performance Used to appraise SBU
(6)Portfolio Planning Models: Their Uses in Strategy Formulation
Portfolio Planning Models: Their Uses in Strategy Formulation
• Allocating resources the analysis indicates both the
investment requirements of different businesses and their likely returns
• Formulating business-unit strategy the analysis yields simple strategy recommendations (e.g : “build”, “hold”, or “harvest”)
• Setting performance targets the analysis indicates likely performance outcomes in terms of cash flow and ROI
(7)
H A
R V
E S T H O
L D
B U I L D
Low Medium
High
Low Medium High
In d u st ry A tt ra ct iv en es s
Portfolio Planning Models: The GE/ McKinsey Matrix
Portfolio Planning Models: The GE/ McKinsey Matrix
Industry Attractiveness Criteria Business Unit Position
- Market size - Market share (domestic, - Market growth global, and relative)
- Industry profitability - Competitive position - Inflation recovery - Relative profitability - Overseas sales ratio