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.