STRATEGIC MANAGEMENT & BUSINESS POLICY

13TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER

Integration Managers after changes, lots of issues resulting from the integration occur: Prepare a competitive profile of the company in terms of its strengths and weaknesses Draft a profile of what the ideal combined company should look like Develop action plans to close the gap between actual and ideal Establish training programs to unit the combined company and make it more competitive

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Successful Integration Managers

Deep knowledge of the acquiring company Flexible management style Ability to work in cross-functional teams Willingness to work independently Sufficient emotional and cultural intelligence to work in a diverse environment

If the co. adopts a retrenchment strategy, which employees to be fired or to be kept. Sometimes it is easier to sell or close down an entire division.
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Staffing Follows Strategy Changing hiring and training requirement

Having a new strategy, a company needs to hire different people or retrain current people to implement it. Cornings CEO Bob Hoover sorted 8,000 applications before hiring 150 people with the problem-solving skill and a willingness to work in teams. During first year, 25% of time were devoted to training.

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 One way to implement a strategy is through training and development, because it increases productivity and lower costs.

A study in the US showed that firms with training programs had 19% higher productivity, another study showed doubling of formal training per employee resulted in a 7% reduction in scraps. Training is especially important for implementing a differentiation strategy focusing on quality or service.
Motorola spent 4% of its US$17 billion sales in training by providing 40 hours of training p.a. to each employee, resulting US$30 in productivity gain for every US$ spent within 3 years.
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Matching the CEO to the strategy Dynamic industry expert a concentration strategy emphasizing vertical or horizontal growth probably need an aggressive CEO with ample experience in that industry. Analytical portfolio manager a diversification strategy may need a CEO with an analytical mind, who is knowledgeable in diversified industries and products. Cautious profit planner a stability strategy may need a conservative CEO, with production, engineering, accounting background with experience in budgeting, inventories, capital expenditures, and procedures.
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Turnaround specialist Weak companies in a relative attractive industry tend to turn to a challenge-oriented CEO to save the company.
Professional liquidator If a company cant be saved, a professional liquidator might be called. Montgomery Ward USs largest and first catalog retailer, closed its stores, after declaring chapter 11 for the second time.

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CEO Selection and Management Development Executive succession - Insider vs. outsider Prosperous firms look for outsider CEO only if they have no obvious internal candidate, 85% of the CEO selected to run S&P 500 firms were insiders. Hiring an outsider is risky, as they tend to introduce significant change and resulting high turnover among the current top management.
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Outsiders failure rate is as high as 40%-60%

- The performance of outsiders tended to be either very good or very poor - Outsiders performed much better than insiders during their first half of their tenures, and much worse in their second half - Firms in trouble overwhelmingly choose outsiders to lead them. Of 27 changes in CEO, 20 were outsiders.

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- The probability to use outsiders increases if there is no apparent heir, if the last CEO was fired, if the board is composed of outsiders. Boards realize the best way to change is to hire a CEO who has no connections to the current strategy.

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Identifying potential
Establish a sound performance appraisal system to identify good performers with promotion potential. Executive development program - 10,000 of GEs 276,000 employees take at least 1 class at the companys famous Leadership Development Center in New York. Xerox keeps a list of 100 managers in its vice-presidential levels who have been received special training to be the next generation of leaders.

Human resources system to ensure diversities in race, ethnic, or religious background.

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- Assessment center uses special interviews, management games, group discussions, cases, oral presentations to identify potentials - Job rotation. Rotates executives from one sector to completely different one to learn the skills of managing in different industries. GEs Jeff Immelt, who took over from Jack Welsh, had managed businesses in plastics, appliances, and medical systems.

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Problems in Retrenchment Downsizing - the planned eliminated of positions or jobs. Yes, the financial community may react positively in the short term, but it can damage the companys productivity and learning capability. A study also shows either wrong jobs were eliminated or blanket offers of early retirement prompted in-valuable managers to leave. Another study shows 10% reduction in people resulted to only 1.5% reduction in costs.
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 Creativity drops significantly, and its difficult to prevent good performers from leaving. In addition, costconscious executives tend to defer maintenance, skip training, delay new products, avoid risk businesses all of which lead to lower sales and lower profits eventually. Downsizing worry customers and have a negative effect on the firms reputation. Retrenchment may further weaken the company instead of strengthening it.
Research shows companies undertake cost-cutting programs are 4 times more likely than the others to costcut again. This happened at Xerox, Ford, GM during the 1990s, but 10 years later they were still downsizing and trying to regain their profitability.
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Successful Downsizing Eliminate unnecessary work instead of making across the board cuts eliminate tasks not people, eliminate administrative levels not individual positions, look for inter-dependent relationships before eliminating, and protect core competencies.

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Contract out work that others can do cheaper Bankers Trust of New York contracted out mailing room, printing services, payroll and account payables activities to Xerox. Outsourcing may be cheaper than vertical integration.
Plan for long-run efficiencies dont just eliminate postponable expenses, such as R&D, advertising, maintenance in the unjustifiable hope that the environment will become better. In the critical areas continue to hire, grow and develop Communicate the reasons for actions Tell employees why downsizing, what is it going to achieve? Why is it important for them, for the co?
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Invest in the remaining employees survivors will probably be doing different tasks, firms need to draft new job specs, performance standard, compensation packages. Identify, mentor and protect key people
Develop value added jobs to balance out job elimination i.e. work with the suppliers or vendors?

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International Issues in Staffing Culture differences 10%-20% of all US managers sent abroad returned early because of difficulties in adjusting to a foreign country. Those who stayed 1/3 did not perform as well as expected. One common mistake is failing to educate the person about customs and values of other countries

90% of companies select employees for foreign assignments based only on technical expertise.

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 A simple question: What would be your considerations, pros and cons, if you are given an opportunity of a foreign assignment?

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Only 11% of human resources managers have ever worked abroad and fail to develop necessary training for international assignment. MNCs are now putting more emphasis on inter-culture for managers being sent to foreign assignments. This is why EU and the Japanese have 6% expatriate failure rates as they emphasized more on crosscultural experiences vs. failure rate of 35% for US based MNCs. out of sight-out of mind is still a major difficulty for the expatriates who returned home from a foreign assignment.
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Most MNCs now fill managerial positions locally in the host countries to better fit into local cultures. The danger is sub-optimization - the local subsidiaries ignores the needs of the larger parent corporation. This makes it difficult for an MNC to meet its long term, worldwide objectives. Communications and coordinations across subsidiaries become more difficult. Other MNCs use people with an international orientation, regardless of their country of origin or host country assignment, i.e. send a French speaking director to English speaking Singapore, it can cause more misunderstandings and conflicts with the local employees and governments.

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MNCs with a high level of international interdependence need to provide their managers more international assignment and experiences. As part of their training and development. Research indicates that companies using crosscultural teams, whose managers have international experience and communicate frequently with overseas managers, have better product development capabilities than others.

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Managing Corporate Culture Strong cultures are resistant to change because its very reason for existence rests on preserving stable relationships and patterns of behavior. When Nardelli became CEO of Home Depot in 2000, he tried to replace the old informal collaborative culture with one of military efficiency, morale fell and customer satisfaction dropped. Nardelli was asked to leave the company in 2007.

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Optimal culture supports mission and strategies corporate culture should support the strategy. Unless culture and strategy is in complete agreement, any significant change in strategy should be followed by a modification of corporate culture Although culture can be changed but it takes long time and it requires much effort. A key job of management is managing corporate culture. Management must evaluate what a change in strategy means to the corporate culture.

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Accessing Strategy-Culture Compatibility

1.

Is the proposed strategy compatible with the companys current culture If yes, go ahead, tie the changes to the culture by identifying how these changes will achieve the missions/objectives better
If notask, Can the culture be modified to make it more compatible with the new strategy? If yes, go ahead carefully by introducing a set of cultural changing activities such as new hires and training and development. If not ask:
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Is management willing and able to make major organizational changes and accept probable delays and a likely increase in costs? If yes, manage around the culture by setting up new unit to implement the new strategy. When GM decided to build the new Saturn Division, it worked out a new agreement with the union, selected employees, trained them, and a new culture is built gradually. If not ask
Is management still committed to implementing the strategy? If yes, find a JV partner or a licensor to carry out the strategy. If not, formulate another strategy.

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Managing Cultural Change Through Communication

Communications to all levels is key to the effective management of change, through newsletters, meetings, training and development, especially if the organization is decentralized with large number of employees in different units. The CEO and top management must communicate the strategic vision throughout the organization.

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Current performance was compared to competition and constantly updated

Vision was translated into key elements needed to accomplish the vision if the vision called for the company to become a leader in service quality, pinpoint aspect of services to be improved, and appropriate measures were developed to monitor them. These measures were communicated and formally and informally rewarded

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Managing Diverse Acquisition

Cultures

Following

an

When merging with acquiring another company, especially the acquired company is in another country, top management must give considerations to a potential clash of corporate cultures. The greater the gap between the cultures, the faster executives in the acquired firm quit their jobs and talent is lost. There are 4 general ways of managing two different cultures:

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Integration - balanced give and take of cultures and no strong imposition of cultural change on either company, both preserved their own cultures. When Frances Renault bought Japans Nissan and installed Carlos Ghosn as the CEO, he allowed the company to develop a new corporate culture based on the Japaneses national culture. Assimilation - domination of one culture over the other, but domination is not forced and is accepted by the acquired firm because their previous cultures have not produced success. This was the case when Maytag bought Admiral to become Whirlpool. Admirals employees welcomed Maytags strong quality-oriented culture.
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Separation of the two cultures They are structurally separated. When Boeing bought McDonnell-Douglas, known for its expertise in military aircraft, Boeing created a separate unit to house Ms operations and Boeings own military business. Ms executives were given top posts and preserve Ms culture. On the commercial side, Ms operations were combined with Boeings in a separate unit managed by Boeings executives.
Disintegration of one culture resulting from pressure from the other to impose its culture and practices. This is the most common and destructive method of dealing with two different cultures. When AT&T bought NCR, it forced employees adhere to AT&Ts code of values (called the common bond)

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Action planning - what actions are going to be taken, by whom, during what time frame, and with what expected results. The following is the action plan of an advertising program after a companys acquisition:

1.Specific actions to be taken to make the program operational one action may ask 3 ads agencies and ask them to submit a proposal for a new campaign based on a them, Jones Surplus is now a part of Ajax.

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Dates to begin and end each action Time would have to be allotted to meet the agencies and time allowed for them to submit the proposals to the marketing director. Time also allowed for assessing the proposals.
Person responsible for carrying out each action List the person who will be in charge of the project Person responsible for monitoring the timeliness and effectiveness of each action Indicate this persons responsibilities, he/she will be the contact point for the ads agencies and report the progress to the companys marketing director every week.
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Expected financial and physical consequences of each action estimate when the new ad campaign is ready to show to top management. Estimate increase sales over a 6-month period after the campaign. Assess its effectiveness, how, when, by whom the data will be collected and analyzed
Contingency plans say how long will it take to get another acceptable proposal to top management if none of the initial proposals is accepted.

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Importance of Action plans Serve as a link between strategy formulation and evaluation and control

Specifies what needs to be done differently from current operations

Evaluation and control processes appraise performance and identify remedial actions

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Management by Objectives (MBO) - encourages participative decision making through shared goal setting and performance assessment based on achieving stated objectives. MBO is a powerful implementation technique. The process includes:

1. 2. 3. 4.

Establishing and communicating objectives Setting individual objectives Developing an action plan to achieve objectives Performance review (periodic and annual)

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MBO provides an opportunity for the firm to connect the objectives of people at each level to those at the next high level. Although it is developed in the 90s, 90% top management still feel MBO is applicable today.
Another real benefit of MBO is that it reduces internal politics, which create conflicts and divisions among the people who should be working together to implement the strategy. People knew the reward system is based not on game playing but on communicated, measurable objectives.

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Total Quality Management (TQM) - philosophy that is committed to customer satisfaction and continuous improvement, and being the best in all functions. Because TQM aims to reduce costs and improve quality, it can be used to implement a low-cost, or a differentiation strategy. About 92% manufacturing firm and 69% service firms implemented some forms of TQM, TQM and Just-InTime are the two highly ranked performance improvement programs.
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TQM has 4 major objectives Better, less variable quality of the product and service Quicker less variable response in processes to customer needs Greater flexibility in adjusting to customers shifting requirements Lower cost through quality improvement

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TQM has 5 Essential Ingredients According to TQM, the cause of defects in product quality is faulty processes, not poorly motivated employees. Inspection for quality still takes place, but the emphasis is on improving the process to prevent errors and deficiencies. Hence, quality circles or quality improvement teams are formed to identify problems and to suggest how to improve the processes.

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Intense focus on customer satisfaction Everyone, not just sales and marketing people must be approached how they will affect customer satisfaction.
Internal as well as external customers All employees must be concerned with pleasing all customers Accurate measurement of every critical variable in a companys operations Employees have to be trained what to measure, how to measure, and how to interpret data.

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Continuous improvement of products and services Everyone must realize that operations need to be continuously monitored to find ways of improvement. New work relationships based on trust and teamwork emphasize empowerment, open culture, executive commitment.

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Hofstedess Dimensions of National Culture 1. 2. 3. 4. 5. Power distance Uncertainty avoidance Individualism-collectivism Masculinity-femininity Long-term orientation

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1. What skills should a person have for managing a business unit following a differentiation strategy? Why? What should a company do if no one is available internally and the company has a policy of promotion from within? 2. When should someone form outside the company be hired to manage the company or one of its business units? 3. What are some ways to implement a retrenchment strategy without creating a lot of resentment and conflict with labor unions? 4. How can corporate culture be changes? 5. Why is an understanding of national cultures important in strategic management?

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PowerPoint created by:

Ronald Heimler Dowling College- MBA Georgetown University- BS Business Administration Adjunct Professor- LIM College, NY Adjunct Professor- Long Island University, NY Lecturer- California State Polytechnic University, Pomona, CA President- Walter Heimler, Inc

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