MGMT450: Strategy and Competitive Analysis

MGMT450: Strategy and Competitive Analysis

MGMT450: Strategy and Competitive Analysis

1) General Industries, Inc. is a large U.S. conglomerate with operations around the globe, including Australia, Germany, China, and the U.S. Their product lines include industrial chemicals, construction machines, and food/beverages. Growth has occurred primarily through acquisition. Performance as of late has been somewhat lackluster. They are currently organized by region with regional product managers reporting to regional VPs, who then report to headquarters. Based on your limited knowledge of the situation,

 

    a) What problems might you expect? (4 points)

First, General Industries must understand that there are inherent risks with cross boarder acquisitions. Regions such as China are challenging business environments from a political, social and competitive standpoint. Second, business customs may differ across regions causing corporate complexity. This is common in corporate finance. While the general use of the product General Industries sell, the specific needs of each region may vary. Food and beverages is are a prime example of this.

Feeding off of this point, international acquisitions require a significant investment in order to reap long term rewards. The nature of the investment depends on the technology or product, but in most cases, high investment is required. For example, construction machines are far more technical products than food and beverages. This type of product may require tacit knowledge the acquiring company may only possess and thus have to invest in passing on that knowledge to the acquired company.

General Industries may also face internal corporate governance issues with the implementation of regional product managers. Regional managers are often incentivized to only support their specific reason. If your region does well, you and your employees get paid accordingly. This compensation method may cause issues when developing new products that do not fit the established sales model of the region. This can make new product development a huge challenge.

 

    b) How would you rectify the situation? What weaknesses does your solution have? (4 points)

To mitigate governance issues and new enhance the acceptance for new product development, I would have the top managers be separated by product division and then by region. That way the progression from customer demand to product development is more natural. I would then put financial and strategy controllers on the corporate and regional levels to ensure that each region is operating effectively individually and as a whole. This may be a challenge across multiple regions with varied product lines.

The only legitimate way to mitigate regional specific product preferences or translating tacit production techniques is to adequately invest monetary and human resources in each respective region. Corporate governance can also mitigate this issue. The downside to this is that the investment required may not be worth the potential return. If this is the case, General Industries may want to investigate licensing, or outsourcing as they are more cost effective.

 

2) Superstar Electronics (SE) is a diversified consumer electronics company. Its product line includes television, Blue-ray players, household appliances (e.g., washer, drier, fridge, etc.), smartphones, and so on. Because the consumer electronics industry evolves fast, it has created a Corporate Venturing Group (CVG) that overlooks internal new product development efforts that are related to SE’s existing products (but not necessarily newer versions of existing products) and a corporate venture capital (CVC) arm that invests in external startups that might help SE’s businesses in the future. The Vice President in charge of these endeavors is a long-time company man who has never worked outside SE and asked for your advice in structuring these two groups. Specifically,

 

    a) Based on what you have learned from the ART case and in-class lecture, what will be the challenges in fostering corporate entrepreneurship at SE? (4 points)

Entrepreneurship is risky. 99% of business concepts fail and 95% of new ventures fail. In order to achieve high levels of innovation, individuals and companies must take large structural risks in the investigation and development of new products. In certain industries, failure to innovate and adapt can be catastrophic. The fall of physical media and the rise of streaming media is case and point. Thus constant investigation of new products must be a core part a company.

In the ART case, ART initially developed concepts like 20% time and fostered new business initiatives. However, the business case behind these ideas was not always properly vetted. As a result, ART established a “phase gate” system where ideas had to be vetted at each phase of their development so bad ideas could be more easily recognized and killed before they became costly mistakes. SE needs to balance a system like this and still promote internal entrepreneurial spirit.

As previously stated, SE is in the fast evolving consumer appliances sector. In the ART case, ART’s business was more diversified and none consumer facing. Industrial manufacturing customer needs typically move slower than consumer demands and thus the requirement for rapid innovation may not have been as fundamental for ART. In addition, industrial products require higher lead times and intensive manufacturing apparatuses, also not conducive to rapid innovation. SE needs to investigate their own business operations and ask whether it can financially and logistically afford embracing various levels of entrepreneurship.

 

    b) Discuss aspects of the cultural differences and incentive systems that you may need to insert into these units (in comparison to existing business units of SE). Also compare and contrast similarities and differences between CVG and CVC groups. What roles do they play in fostering entrepreneurship at SE? (3 points) (Hint: Think about centralization vs. decentralization and how this will match with related vs. unrelated product innovation)

SE may do well to avoid the internal cannibalization experienced by Corning in the Corning Glass Work Case. While the two cases are not directly applicable, Corning was dealing with regional teams competing with product teams, some of the root causes of the Corning case are applicable to potential scenarios SE may be faced with. Corning typically rewarded their regional managers for sales in their particular region and products offered in their particular region. This essentially incentivize Corning’s divisions to look after themselves. In addition, product managers did not have the authority to correct this issue. Avoiding this experience should translate well in forming SE’s cultural and incentive systems.

Both the CVG and CVC groups should play a cooperative or relational roll in fostering entrepreneurship. If CVG invests in new disc reading technology, while CVC invests in advanced streaming protocols, those investments are not complementary and potentially cannibalistic. This could lead to two product divisions fighting each other. It may be beneficial for decentralized teams to investigate these initiatives, but SE should still maintain a level of centralized oversight to ensure fiscal responsibility. The Corning and ART cases should both be points of reference.