On Tuesday, we discussed implementing strategy across multiple industries. The advantages of a multidivisional structure include enhanced corporate financial control, enhanced strategic control, profitable long-run growth and stronger pursuits of internal efficiency. However, companies often face problems when implementing multidivisional structures, such as restrictive financial controls, competition for resources, and the need to establish divisional-HQ corporate authority relationships. We also learned about the differences between related and unrelated diversification. Related diversification leads to gains derived from transfer, sharing, or leveraging across divisions. Unrelated diversification does not provide any exchange or linkage among divisions, but diversifies across different product and service lines.
We have been researching Whole Foods Market for our capstone project, and one of our strategic recommendations for the company is to invest in related diversification by creating free-standing restaurants that complement their grocery stores. Because the company already has a very strong prepared-foods section in most of their grocery stores that is laid out like a food court, we believe the next logical step is to implement actual restaurants that utilize the Whole Foods brand and will cater to their target customer base.
Another recommendation we had for the company was to expand internationally. Whole Foods must pursue a localization strategy, which requires local responsiveness and decentralized control to each country it operates in. This global-level strategy will ensure that their foreign locations cater to the tastes and preferences of the local customer base.
On Thursday, we discussed implementing strategy in single industries. Organizational design is the process of deciding how a company should create, use and combine organizational structure, control systems, and culture to pursue a business model and strategy successfully. Organizational structure assigns employees to specific value creation tasks and roles. The control system functions to provide incentives to motivate employees and to provide specific feedback on performance. Finally, the organizational culture is the values, norms, beliefs and attitudes shared within an organization.
In 2011, Hasbro was showcased in Fortune magazine’s list of the 100 Best Companies to Work For in the United States, at number 59. The awards are based on indicators such as health care provision, work-life balance, and professional training and development opportunities. Obviously, Hasbro has been effective at maintaining a positive organizational culture among its employees and has been publicly recognized as doing such. With over 5,800 employees globally, and 3,000 just in the U.S., it must have taken the company some trial and error to get to the position they’re at now. Strong corporate cultures endure over time and are identical in different locations and different divisions; therefore, Hasbro has had to work hard to implement a corporate culture that is consistent across all of their global locations. Hasbro is an example of a firm with a flat organizational structure, as the company tends toward deference to expertise and responsiveness to customers rather than deference to seniority and rule following.
On Tuesday, we discussed the case on IBM. More specifically, we focused on the company’s history and rise to success in the midst of the computer age. I was particularly interested in learning about the company’s roots as CTR (Computing Tabulating & Recording Company). Apparently, the company got its start when an engineer named Herman Hollerith invented a calculating machine that sorted cards by punched holes. This machine was sought out by organizations such as the U.S. Census Bureau, as they saw its potential in handling national data collection efforts. Charles Flint, owner of ITR (International Time Recording Company) decided to acquire Hollerith’s Tabulating Machine Company and merged the two companies to form CTR. From there, the company went through several more transitions until Thomas Watson became chairman of CTR in 1924 and renamed the company IBM (International Business Machines). By 1939, IBM was the biggest and most powerful business machine company in the United States. IBM owned about 80% of the keypunches, sorters, and accounting machines used for tabulating purposes. Around the end of the 1940’s, IBM began working on its first family of electronic computers, called the 701. The rest is history – IBM went through dozens of models for their computers, expanded into global markets, and retained a strong customer base for their products.
It always fascinates me to learn about the history of companies like IBM who have been around for over a century. Reading about their start as a tabulating company in the early 1900’s just demonstrates how much society has changed and advanced (at least technologically) in the last few decades. We don’t often take the time to study the history of companies that have been around for so long because we’re too focused on up & coming companies, or companies that are trending right now (i.e. Apple, Microsoft, etc). but there is a lot we can learn from companies that have been around for over a century. Obviously, they have been doing something right as demonstrated by their ability to adapt and stay relevant in the midst of changing social conditions.
On Thursday, we discussed performance and governance, with a focus on the importance of conducting a stakeholder impact analysis. Stakeholders are individuals or groups with an interest or claim in a company. They can be internal (i.e. employees, stockholders, members of the board of directors), or external (i.e. customers, creditors, investors, suppliers, etc). The company must consider stakeholder claims in developing and implementing their strategy by performing an impact analysis, which involves identifying the stakeholders’ interests and concerns and the resulting strategic challenges.
Another major topic from the lecture was the importance of ethics and strategy. Ethics are accepted principles of right or wrong governing conduct of a person, a profession, and/or an organization. Companies will often face ethical dilemmas when forming their strategy. Such dilemmas can include self-dealing, anticompetitive behavior, opportunistic exploitation, substandard working conditions, environmental degradation, and corruption.
Hasbro, in particular, is proud to have an ethical approach to doing business embedded into the company’s culture, values and day-to-day work environment. The company started a formal ethics program in 1991, when they introduced a comprehensive Code of Conduct with mandatory training for employees. In 1994, Hasbro’s Chief Legal Officer (CLO) also assumed the position of Chief Ethics Officer. I was particularly impressed to learn that last month, Hasbro was named as one of Ethisphere’s 2012 World’s Most Ethical Companies. In addition to the company’s ethical business practices, part of the reason for the honor was the announcement in 2011 that Hasbro’s major toy brands are now being packaged in more environmentally friendly containers.
On Tuesday, we discussed the case of Nucor, one of the world’s largest steelmakers. The case especially focused on the tenure of Ken Iverson, who eventually because the company’s chairman and CEO. The company’s cultural value was epitomized by the saying, “Failure to take risk is failure.” Nucor was very innovative and owed much of its success to its benchmark organizational style and the empowered division managers.The company’s two basic lines of business were (1) the six steel joist plants that made the steel frames seen in many buildings, and (2) the four steel mills that utilized the mini-mill technology.
Even in the midst of the U.S. steel industry’s struggle to maintain profitability in the 21st century, Nucor remained indisputably healthy and was able to take advantage of the weakened conditions. The company had been profitable every single quarter since beginning operations in 1966. Nucor was also able to make a couple of large acquisitions and continued its expansion to increase market share and capacity in steel. Nucor expanded globally through acquisitions and joint ventures, and benefitted greatly from this aggressive geographic expansion.
Nucor is a prime example of a company that was able to adjust and adapt successfully to changing trends and market conditions. The company was able to continue to use innovative processes and processes to maintain profitability. In addition, the company enjoyed the benefits of successful leadership under Ken Iverson and other managers such as Dave Aycock, who promoted the philosophy of low cost differentiation. Nucor is definitely a company to look up to when analyzing business and management strategy.
On Tuesday, we discussed corporate-level strategies such as horizontal and vertical integration. Horizontal integration is acquiring or merging with industry competitors, while vertical integration is expanding operations backward into industries that produce inputs for a company or forward into industries that distribute a company’s products. Other corporate-level strategies include strategic alliances, which are short term contracts that replace vertical integration, and strategic outsourcing, which is letting some value creation activities within business be performed by an independent entity.
If Hasbro were to pursue a strategy of horizontal integration, it would consider acquiring or merging with other toy-maker competitors such as Mattel. A couple months ago, I reported on how Hasbro had partnered with digital game-maker Zynga, the company known for creating popular Facebook games such as FarmVille and Words with Friends, to create physical board-game versions of these games. This is an example of the company’s corporate-level strategy and is a cross between horizontal integration and a strategic alliance. I haven’t heard too much about whether Hasbro has ever pursued a strategy of vertical integration, or expanded into strategic outsourcing, but I imagine they probably have, at least to a small extent. As a toymaker, they might find it beneficial and even cost-efficient in some cases to be able to control operations for their inputs and distribution of their output to retail stores.
On Thursday, we discussed a case on McDonald’s. We learned about the evolution of the fast food restaurant under Ray Kroc, who promoted uniformity and simplicity in training and operational efficiency, to Fred Turner, who began advertising with Ronald McDonald and created a detailed training manual for employees, to Jack Greenberg, who has simply been known as a corporate mistake for his attempts at horizontal diversification. It was really interesting to learn more about the company’s history and growth under different leadership.
Today, McDonald’s is faced with a lot of problems in the wake of society’s rekindled interest in health and nutrition, as the restaurant has never been acclaimed for its healthy food options. Critics have also been very vocal about McDonald’s targeting advertising at young children and promoting unhealthy food options to children at a young age. What can McDonald’s do in the long-term to continue to sustain business and success? In class, we came up with 4 solutions: (1) Perform a stakeholder impact analysis and anticipate complaints, to proactively address them rather than passively react to them, (2) Develop nutritious food alternatives to satisfy critics, (3) Use their power and influence to educate people about the need to eat healthy, and (4) Hold meeting with critics.
I don’t know the future of the fast food industry, and I don’t know if McDonald’s will be able to ever overcome its reputation as THE fast food maverick, but it won’t hurt for them to take some proactive steps towards healthier food options, since that is where society is trending towards these days, as demonstrated by the popularity of organic food markets like Whole Foods and Trader Joe’s.
On Tuesday, we had our midterm exam for BUS 475. We were given a case study on microfinance lenders such as Banco Compartamos and the Grameen Bank, and asked to analyze: (1) their strategy, (2) their industry, and (3) the key resources and distinctive competencies necessary for a firm to be successful in the microfinance industry. Overall, I thought the exam was very fair and straightforward, because Professor Tuggle had warned us ahead of time that we would be given broad questions and asked to use the terms and definitions we had learned over the semester to analyze the case. The one thing that threw me off a little was the fact that microfinance lenders are quite a different industry from any of the cases we’ve analyzed in class. Microfinance lending is much more of a social cause. I’m not sure if it would exactly qualify as a non-profit, but the cases we had analyzed in class (Bally, Wynn, Apple, TiVo, etc.) were all clearly for-profit businesses. I was just a little thrown off by whether microfinance lenders would still be following the same general strategy, industry analysis and key resources and distinctive competencies that for-profit businesses follow (for example, cost leadership vs. differentiation?)
On Thursday, we learned about strategy in the global environment. When deciding to go global, companies have four basic global strategies to choose from:
Globalization standard – reaping cost reductions from economies of scale and location for standardized products & services.
Localization – customizing goods & services to provide good match to tastes and preferences in different national markets.
Transnational – a business model that simultaneously achieves low costs, differentiates across markets and fosters a flow of skills between subsidiaries.
International – multinational companies sell products & services serving universal needs and don’t face significant competitors.
Another concept that I found really interesting was the choice of entry modes available for companies who want to expand globally. The basic entry modes available are: exporting, licensing, franchising, joint ventures and wholly-owned subsidiaries.
In the case of Hasbro, the company has already expanded internationally. Since 2007, the company has opened offices in Brazil, Russia, the Czech Republic, Romania and China. In 2010, the company opened offices in Peru and Korea, and in 2011, they opened an office in Colombia. Hasbro has also been targeting the emerging markets through joint ventures in Chile, Turkey, Poland and India. One of the company’s long-term goals is to establish a global market presence by developing business in key emerging markets. So far, Hasbro seems to be doing well with their international expansion plan, although the main focus of their business is definitely still on domestic sales in the U.S.
On Tuesday, we reviewed the case on TiVo, Inc., the company that is largely known for its creation and innovation of DVR (digital video recording). However, this case was different from the other cases we’ve analyzed because it was an example of a company that was unable to leverage its innovative new technology into a successful and profitable business model. It is pretty unfortunate, but it was a surprise for me to learn that the company hasn’t been profitable. I had always been under the impression that because TiVo was so popular when it initially came onto the market, that it must have been successful. I guess it’s never safe to assume that popularity, or a large amount of word-of-mouth, always translates into success.
The lesson we learned from this case is that just because a company has invented a revolutionary new technology doesn’t mean that the company is always going to be successful. The company must decide what strategy they are going to pursue in order to capitalize on their technology and popularity. In the case of TiVo, the company chose to go at it alone, but failed to gain traction when competitors began copying their technology, developing new features and offering cheaper prices. In the case of TiVo, the company might have experienced more success had it pursued a joint venture, licensing or partnership strategy. Partnering with other companies might have saved the company from such fierce competition. I think this is a great case to keep in mind when considering the type of strategy a new company should pursue. You can never be certain of how something will turn out, but it is usually more risky to go at it alone.