Can someone do my Week 5 Discussion plus comments in Strategic Planning for Organizations?

Diversified, Global, and Other
Types of Organizations

Learning Objectives

By the time you have completed this chapter, you should be able to do the following:

• Understand the added complexities involved in strategically managing both multibusiness and diversified
corporations.

• Appreciate the different strategies an international corporation can use to expand its markets and the dif-
ficulties involved in the strategic management of international and global corporations.

• Appreciate the differences between a business plan and strategic planning for startup companies.
• Learn how small businesses with meager resources can do strategic management (and why they don’t).
• Understand how strategic management of nonprofit organizations differs from that of for-profit corporations.

11

© Belinda Images/SuperStock

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CHAPTER 11Section 11.1 Multibusiness and Diversified Corporations

Chapter Outline

11.1 Multibusiness and Diversified Corporations

11.2 International Corporations

11.3 Global Corporations

11.4 Startups and Small es

11.5 Nonprofit Organizations

The discussion to this point through the first 10 chapters has intentionally focused on single-
business, single-country corporations, which are the least complex of organizations to illustrate
the model of strategic management and strategic planning expounded in this book. That knowl-
edge can help you work through the additional complexities presented by multibusiness and
diversified corporations, and international and global corporations.

Entrepreneurial organizations have to be focused on entering the market with a better product or
service and in fact need a business plan, not a strategic plan. Small businesses, whether intent on
growth or “Mom and Pops,” are handicapped by insufficient funds and experience of the owners.
Finally, nonprofit organizations lack a profit motive, are financed in part or wholly by third par-
ties (principally grants or philanthropy), and are driven by causes; they present a very different
strategic-management challenge.

11.1 Multibusiness and Diversified Corporations
This discussion so far has focused on single-business corporations or strategic business units
(SBU) that compete in a specific industry with specific competitors. They require unique strategies
and financial resources to enable them, with someone, typically the CEO, accountable for what is
achieved. Both multibusiness and diversified corporations operate more than one business, that
is, have more than one strategic business unit (SBU). By extension, a multibusiness corporation is
one that owns more than one SBU or is in more than one business.

Why might a company want to operate a second SBU? It might want to pursue an opportu-
nity in another industry or follow through on a different application of a technology it owns.
Running a second SBU typically means being in a different industry or a substantially differ-
ent segment of the same industry. If a men’s jeans manufacturer wants to produce jeans for
women, is that another business? No. If the same men’s jeans manufacturer wants to produce
denim jackets for men, is that another business? Again, the answer is no. However, in the latter
case, it would morph from a jeans manufacturer into an apparel manufacturer to reflect the
change. Since jeans is apparel, the “business” it’s in wouldn’t change. But manufacturing or
even distributing anything that wasn’t apparel would mean getting into another business. For
example, Levi’s did not create another business with the creation of its Dockers brand; the new
identity still represented a presence in the apparel industry. However, Sara Lee, a frozen and
prepackaged foods company, pursued a new industry when it bought Hanes—a manufacturer
of hosiery and clothing.

A diversified corporation also called a conglomerate owns businesses that are unrelated to each
other. Take the case of Honda. It is an auto manufacturer—all its different models of cars and trucks

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CHAPTER 11Section 11.1 Multibusiness and Diversified Corporations

and manufacturing plants and international markets don’t change that. But it also manufactures
motorcycles, power equipment (generators, lawnmowers, pumps, snowblowers, tillers, and trim-
mers), marine engines, and jet engines (HondaJet)—all different businesses (Honda.com, n.d.).

So it is a multibusiness company. But
is it diversified? No. All of its busi-
nesses have a common element—
in fact its core competence—and
that is engines and engine design.
It doesn’t produce anything that
doesn’t have an engine in it.

Consider another example. Disney
Corp. is broadly in the entertain-
ment industry, and is in animated
and live moviemaking (and DVDs),
TV broadcasting (ABC, ESPN, Disney
Channel), theme parks (Walt Disney
World and Disneyland and other
resorts worldwide), cruise lines,
licensing its trademarked characters
to other companies, and its own
stores that sell everything Disney,
including books, toys, and branded
merchandise (Disney, n.d.). Yes, it’s
a multibusiness corporation, but is it

diversified? To answer this question, use the definition as a guide, notwithstanding they are all in the
“entertainment” industry. You will find that they are basically unrelated businesses—they have differ-
ent competitors, demand different strategies and financial investments, and need different people to
run them. Multibusiness corporations can encompass businesses that are related but still SBUs, like
Wrigley’s chewing gum and its acquisition of Lifesavers and Altoids from Kraft Foods. Related SBUs
can benefit from shared expertise and resources and thus have high potential to add more value
to the corporation. Multibusiness corporations can also own different companies that constitute a
complete value chain, like the global, 100% vertically integrated oil companies that find and drill for
oil, transport it via pipeline or tanker to their refineries, refine the crude into many different products,
and sell some of those products directly to consumers (for example, gas and home heating oil).

Management Challenges

Managing a corporation with multiple businesses involves everything we have discussed so far
and more. Certainly, each business should be managed strategically and do strategic planning.
One major difference is that these divisions or subsidiaries cannot go outside the corporation for
financing, either to get a bank loan or any equity investment; they must ask the (parent) corpo-
ration for the financing they need. It is the parent that must make sure it has sufficient financial
resources for the needs of all its companies.

As we know, companies at different stages of their lifecycle vary in their need for capital. Young
growing and expanding companies are voracious in their appetite for funds, while those that are

Yoshikazu Tsuno/AFP/Getty Images

An excellent example of an international diversified corporation
is Disney, who has diversified in the entertainment industry by
producing movies, TV broadcasting, theme parks, cruise lines,
and stores all around the world.

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CHAPTER 11Section 11.1 Multibusiness and Diversified Corporations

mature and doing well are throwing off cash but still need funds for innovation. Knowing this
about a corporation’s businesses helps it to anticipate funding needs and preempts it from treat-
ing all its companies the same way. A useful way of arraying a corporation’s portfolio of companies
and their financial needs was created by the Boston Consulting Group (BCG) (Figure 11.1).

Low Market Follower Market Leader

“Dogs”
(Declining)

“Cash Cows”
(Mature)

High

In
d

u
s

tr
y

G
ro

w
th

R
a

te

Relative Market Share

1.0 High

“Question Marks”
(Emerging)

“Stars”
(Growth)

Figure 11.1: BCG portfolio matrix

The matrix is used to array both a portfolio of products as well as a portfolio of companies. In
the latter case, the “industry-growth-rate” axis applies to different industries. Both products and
companies begin life as “question marks,” a capital-intensive state, ideally growing in market share
until they are the market leaders (relative market share 1.0) and become “stars.” Over time, as
the industry matures and they still retain market leadership, they become “cash cows,” throwing
off cash that is often used to fund new “question marks.” The last quadrant, “dogs,” although a
nickname given by the Boston Group, is a misnomer. For example, in any mature industry, only
one company can be market leader; does that make all the other companies “dogs”? Is Ford
Motor Company, currently in number-two position in the automobile industry, a “dog”? While it
is entirely possible for products and companies to go from “question marks” to “dogs” and still be
profitable, BCG is really saying that companies should aim for and nurture “stars” and “cash cows.”

The value for a multibusiness corporation is to use the tool to help manage the portfolio. A port-
folio with too many “question marks” is going to require huge amounts of cash; however, with
several cash cows to finance those needs, the overall pressure to raise capital is reduced. Also,
a portfolio heavy with cash cows has no future stars on the horizon, jeopardizing the company’s
long-term future. So the need is to have a balanced portfolio.

There are four principal management challenges: (a) ensuring that the right person is heading
up each company, (b) ensuring that each company is following the right strategy to perform to
expectations, (c) getting as balanced a portfolio of companies as possible, and (d) maximizing the

Source: Adapted from Alan J. Rowe, Richard O. Mason, Karl E. Dickel, Richard
B. Mann, and Robert J. Mockler, Strategic Management: A Methodological
Approach, Fourth Edition (Reading, MA: Addison-Wesley Publishing Company,
1994) 253. Reprinted by permission of Pearson Education.

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CHAPTER 11Section 11.1 Multibusiness and Diversified Corporations

synergy or advantages (also called “spillover effects”) created through related businesses (Saloner,
Shepard, & Podolny, 2001). Even though the parent may have acquired a company with a CEO
already at the helm, once the parent owns it, this becomes the parent company’s responsibility.
Both company performance and reports from other senior and middle managers can provide a
better indication. And the only way to check on the appropriateness of the strategy is to insist
the company engages in strategic planning, read its strategic plan, and then grill the CEO and the
key executives on its contents. If the answers are satisfactory, the parent company need only give
them the capital they need, get out of the way, and let them perform. If the answers are not sat-
isfactory, then there is a problem and management will have to work through to a new solution.

The kinds of questions to ask should be familiar by now:

• Is your current strategy working? Why or why not?
• How are your industry, competitors, markets, and technologies changing?
• How are these changes impacting the company? How are you planning to cope with these

impacts?
• Do you have a competitive advantage? If not, are you trying to develop one?
• Do you have any financial problems, and, if so, how are you fixing them?
• What are the key strategic issues facing your company?
• What other strategic options did you consider? Why did you reject them?
• What makes you believe your strategy will work?
• What will you need ($ amount) to implement your strategy?
• What could go wrong as you move ahead, and how might you cope with that?

Strategic-Management Complexities

Assuming that the SBU companies in a diversified corporation’s portfolio do the kind of strategic
planning described in this book, what does the corporation’s top management do? It cannot do
strategic planning because the companies in its portfolio are in different industries. Instead, it can
do two things:

• Set corporate-wide annual
objectives that are typi-
cally financial and profit-
related, such as 15% ROE
or 10% NPM.

• Sell any company in its port-
folio that is preventing the
corporation from achieving
its objectives and buy any
other that is a high per-
former to boost achieve-
ment of the corporation’s
objectives. The strategic
challenge becomes hav-
ing the right portfolio and
the portfolio’s ability to
achieve the required finan-
cial performance.

Comstock/Thinkstock

The track record of diversified corporations is dismal. Often,
only corporate lawyers, investment bankers, and original sellers
make a profit, rather than the shareholders.

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CHAPTER 11Section 11.2 International Corporations

As discussed earlier, a diversified corporation’s first approach should be to “rescue” a poorly per-
forming SBU, or give it a chance to right itself through following a different strategy, or even being
led by a different CEO. Only if its performance cannot be improved quickly enough should the SBU
be put up for sale. For example, conglomerate Sara Lee spun off Coach, a leading brand in leather
goods in 2000, and sold its personal care products unit to Procter and Gamble, Unilever, and SC
Johnson between 2009 and 2011 (Crown, 2006).

It is worth noting that the track record of diversified corporations or conglomerates in adding
value has been historically dismal, just as the track record of acquisitions being successful (around
20%) is also dismal. Michael Porter, as far back as the late ‘80s, asserted that in the 33 companies
he studied, only the lawyers, investment bankers, and original sellers profited from the diversifica-
tion acquisitions, not the shareholders (Porter, 1987). One factor against a conglomerate’s ability
to add value is that each acquisition is unrelated, and few synergies or economies of scale are pos-
sible. Given this record, why do firms diversify, especially into unrelated businesses? One answer
could be that it provides additional benefits to top-level executives that stockholders do not enjoy.
As firms get larger, so does executive compensation. As firms become more complex and difficult
to manage, so does executive compensation increase (Hitt, Ireland, & Hoskisson, 2007). And these
correlations are true whether or not each new acquisition adds value to the firm.

Diversified firms with related businesses, either producing different products for the same con-
sumer market nationally or internationally (like Kraft or Nestlé) or using proprietary technologies
in all its products (like Canon), have a more difficult challenge in trying to maximize synergies and
efficiencies among its portfolio companies. When they succeed, they perform beyond expecta-
tions; when they don’t, the situation is harder to correct because of the web of relationships
between and among the companies. The parent can’t just “sell off” the underperforming unit.
Diversified firms are often also international in scope, to which we turn in the next section.

11.2 International Corporations
Companies, regardless of the country in which they ordinarily do business, are driven to go
explore international opportunities for two principal reasons. One is the maturing of the home
market and a subsequent slowing of its growth rate. The other is recognition of significant growth

Discussion Questions

1. Managing a diversified corporation at some point becomes largely a financial exercise—the over-
all objectives for the corporation are financial, and the decision to buy or sell companies for the
portfolio is financial. Do you agree with this view? Why or why not?

2. If one of the portfolio companies in a diversified corporation wasn’t performing up to expecta-
tions yet provided a valuable service to society and had first-rate people among its staff, what
argument would you use to keep the company in the portfolio and get it to perform better?

3. What other kinds of expertise does a multibusiness corporation need at the top besides account-
ing and financial? Explain.

4. On what basis might staff at the corporate level be hired and fired?
5. Before acquiring a company to add to the portfolio, how might the management team really

evaluate the company, which is in another industry, besides its financial results?

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CHAPTER 11Section 11.2 International Corporations

© Belinda Images/SuperStock

For companies venturing into the foreign market, there are
management challenges involved in estimating the demand for
a product.

opportunities for the company’s product or service in one or more foreign countries. Either or
both will impel a company to expand internationally.

Becoming an international corporation is not that simple. The biggest difference is that competing
abroad is quite unlike competing at home in the United States. In each country, the rules and cul-
ture are different, the playing field is not level, competitors are ruthless, and prices demand that
costs be lower than low. For example, in an analysis of the luxury fashion industry in Brazil, which
has historically had a strong market for high-end fashion and accessories, Imran Amed (2012)
wrote, “When you try to do business here, you will eventually find yourself stuck in a morass of
government bureaucracy, corruption, and an incomprehensible system of taxation.”

Stephen Rhinesmith underscores the complexity of a global organization; managers need to
balance issues of “centralization vs. decentralization, global efficiency vs. local responsiveness,
and geographic vs. functional priorities” (Rhinesmith, 1996, p. xii). Our focus at this point is on
international, not global, corporations (which are discussed Section 11.3). International corpora-
tions include essentially domestic companies that export products to other countries through in-
country representatives or distributors (requiring no knowledge of foreign markets), international
corporations that have an international division with foreign subsidiaries or divisions, and multi-
national enterprises that establish mini-replicas of their domestic business in each foreign market,
having foreign nationals manage those businesses. Nestlé of Switzerland is a good example of this
last type. In fact, multinational corporations try to look like “multidomestic” organizations so that
local regulatory authorities treat them as a local business.

Going International

In the arena of international business, the adage “know before you go” is important advice. Many
countries in the world have consulate offices in the largest U.S. cities on both coasts, and they

are well informed as to what kinds
of products are most needed in
their countries as well as a list of
products they are trying to export
to the United States. They will
also provide advice on how to go
about exporting products to their
country.

A prospective exporter must
become familiar with the laws in
that particular country, particularly
as they apply to sell products there,
pay taxes, and repatriate profits
back to the home country. Japan,
for example, is a closed market,
and entering it requires a strategic
alliance or partnership with a Japa-
nese company. But the overarching
consideration, besides potential
demand, is the country’s political
climate and stability.

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CHAPTER 11Section 11.2 International Corporations

It is incumbent on any company planning to do business abroad to get all the information it
can about the countries before deciding to expand elsewhere. Read voraciously about them and
their relationships with the United States. Generate a list of questions and then seek answers
from appropriate agencies of the federal government like the U.S. State Department. Best of all,
visit the countries in question, shop at the kind of retail outlets that will stock your product, chat
with customers, make appointments to talk with prospective business customers and distribu-
tors, and get information on bidding for government contracts if that is your market (of course,
go with a translator if you cannot speak the language). Doing anything less heightens the risk
immeasurably.

Management Challenges

For a company that has never ventured abroad before, there are considerable management chal-
lenges involved in doing so. In some respects, these challenges are similar to those that startups
face when they enter a market for the first time. The most common include the following:

• Estimating demand for its product in that country (and in every country being considered
for expansion). Obtaining data is vital; guesses or opinion are not the bases on which to
make large financial decisions.

• Knowing the current competitors, some of whom could be familiar because they probably
compete in the domestic market. And what prices and versions of the product are being
sold, and why might the company’s also fare well?

• Determining whether enough infrastructure is in place such as for transportation and tele-
communications. This can be a major issue in developing countries.

• The dominant language spoken in that country and, if not English, how you will overcome
that barrier.

• How long it will take to break even and make money. This involves knowing which interna-
tional strategy (discussed in the following section) makes most sense, particularly in the
beginning.

• Whether to hire staff in the foreign country and, if so, how to train them, reward them,
and nurture loyalty in them.

Note again that domestic companies that outsource production or other services to another coun-
try are not considered international companies if they serve only their domestic market. However,
Chinese factories, on the other hand, are international companies because most of their markets
are in other countries (Midler, 2009). While companies that license their technology or trade-
marks to foreign companies are considered international in this discussion because their custom-
ers are located in other countries, the negotiations nevertheless take place on their home turf,
and they don’t have to learn about foreign cultures or business practices, or even take the risks
that international companies do.

International Strategies

The following discussion includes different strategies that a hitherto domestic company can use
to transform itself into an international company. They can be market-entry strategies as well as
strategies to further its growth depending on available resources and what it might be facing com-
petitively. They are discussed in order of increasing complexity, commitment, and cost.

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CHAPTER 11Section 11.2 International Corporations

AP Images/James Crisp

Toyota built car-manufacturing plants in the United States
when they determined it was more profitable to build and sell
cars in the United States rather than ship them from Japan.

Exporting and Market Expansion
Exporting doesn’t require a presence in the host country, just knowledge of shipping and freight,
insurance, and custom regulations. Most of all, it needs a distributor or importer in the host country
that acts as the customer and places the orders. In an ideal situation, the importer would contact
the company (manufacturer) to make the deal, but more typically, the company has to find the cus-
tomer. With foreign consulates in the home country and the power of the Internet and telephone,
the problem is not insurmountable. However, the domestic company will discover a great deal of
pressure on prices, because it is now competing with manufacturers from all over the world.

To a large extent, how a com-
pany responds to pricing pressure
depends on the country that is
receiving the goods. The European
Union is very different from a devel-
oping country like India. Savvy U.S.
manufacturers, unless their prod-
uct is unique and proprietary, might
arrange to outsource manufacturing
to reduce the price and then have
the product shipped directly to their
foreign customers, saving even more
money. Of course, that introduces
additional risks. There is the danger
that the outsourced manufacturer
has no scruples about selling the
product to still other customers in
other countries (Midler, 2009).

A risk that cannot be avoided (except by choosing a different foreign market) is currency-exchange
fluctuations. For example, a surge of the Japanese yen against the U.S. dollar recently erased
80 billion yen ($1 billion) from Toyota’s latest (2011 Q3) quarterly net income (Associated Press,
2011, Toyota profit drops). When a company determines that too much money is being lost bring-
ing profits home, it will try to establish a manufacturing plant in the host country. That not only
reduces currency-exchange losses, but also transportation costs and pressure on the home factory
to produce for both markets. Keeping with the example of the auto industry, there is another ben-
efit to a manufacturer that decides to open a plant in different state or city. An assembly plant has
a tremendous impact on a community in numerous ways, not only in terms of lowering employ-
ment but also through an economic multiplier effect. Bringing a major automobile-assembly plant
to a community represents a coup to the immediate community and also to a broad region that
can even include bordering states. With high average wages and a job-creation multiplier of 7.5—
the highest of any industry in the United States—and capital investment that can potentially reach
$1 billion or more (McAlinden & Fulton, 2001), it is easy to see why communities battle each other
to be chosen for an automotive-assembly plant. The cost to attract such an automotive invest-
ment is high; in some cases communities have offered incentive packages to car manufacturers
reaching upward of $300 million per facility and over $100,000 per job (Car Research, 2003).

Market expansion, unlike exporting, does require a presence in the foreign market. Market expan-
sion is a way of ending dependence on a foreign distributor or importer, which doesn’t release any
market information, and eliminating the markup it charges. Companies open sales offices and staff

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CHAPTER 11Section 11.2 International Corporations

© Marka/SuperStock

Eighty percent of Coca-Cola Company’s revenues are outside
the United States, making it perhaps the biggest global fran-
chise in the world.

them with nationals of that country, because it’s easier to train a local person about the product
and company’s procedures than to transplant someone from the home market and expect them
to learn about the country, its culture, business practices, and market. Kenichi Ohmae (1990)
believes the problem is more complex than this. Companies are held back because they cannot
seem to get rid of the “headquarters” mentality. This is not just a problem of bad attitude, but
rather stems from their entrenched systems, structures, and behaviors. But these are the last
to get management’s attention because the first symptoms are local (in the host country). For
example, if advertising in the host country is not paying off as expected, the company may not
recognize that the cause could be back at its own headquarters. Lacking cultural awareness, it may
not understand what it takes to market effectively in the host country. Other possible causes for
the failure to realize anticipated results include a reluctance to make long-term, front-end capital
investments in new markets, or a failure to perform well in the central job of any headquarters
operation—the development of good people at the local level. Instead the failure may be diag-
nosed as a local problem and the company will try to “fix” that (Ohmae, 1990).

…