978-0134129945 Chapter 17 Lecture Note Part 1

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CHAPTER 17

LEADERSHIP, ORGANIZATION, AND CORPORATE SOCIAL RESPONSIBILITY

SUMMARY

A. To respond to the opportunities and threats in the global marketing environment,

organizational leaders must develop a global vision and strategy. Leaders must also be

able to communicate that vision throughout the organization and build core

competencies on a worldwide basis. Global companies are increasingly realizing that the

“right” person for top jobs is not necessarily a home-country national.

B. In organizing for the global marketing effort, the goal is to create a structure that enables

the company to respond to significant differences in international market environments

and to extend valuable corporate knowledge. Alternatives include an international

division structure, regional management centers, geographical structure, regional or

worldwide product division structure, and the matrix organization. Whichever form of

organization is chosen, balance between autonomy and integration must be established.

Many companies are adopting the organizational principle of lean production that was

pioneered by Japanese automakers.

C. Many global companies are paying attention to the issue of corporate social

responsibility (CSR). A company’s stakeholders may include nongovernmental

organizations; stakeholder analysis can help identify others. Consumers throughout

the world expect that the brands and products they buy and use are marketing by

companies that conduct business in an ethical, socially responsible way. Socially

conscious companies should include human rights, labor, and environmental issues in

their agendas. These values may be spelled out in a code of ethics. Ideological, societal,

and organizational perspectives can all be brought to bear on CSR.

LEARNING OBJECTIVES

1 Identify the names and nationalities of the chief executives at five global companies discussed

in the text

2 Describe the different organizational structures that companies can adopt as they grow and

expand globally

3 Discuss the attributes of lean production and identify some of the companies that have been

pioneers in this organizational form

4 List some of the lessons regarding corporate social responsibility that global marketers can take

away from Starbucks’ experience with Global Exchange

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OVERVIEW

Unilever, the global food and consumer packaged goods powerhouse, markets a brand portfolio

that includes such well-known names as Axe, Ben & Jerry’s, Dove, Hellmann’s, Lipton, and

Rexona. The company has approximately 167,000 employees and annual sales of almost

$59 billion; Unilever can trace its roots, in part, to the northern English town of Port Sunlight on

the River Mersey.

Before retiring at the end of 2008, Unilever Group Chief Executive Patrick Cescau wanted to

reconnect the company with its heritage of sustainability and concern for the environment (see

Exhibit 17-1). These and other values reflect Unilever’s philosophy of “doing well by doing

good”. Cescau’s vision of “doing well by doing good” manifested itself in other ways, too. For

example, he guided the company’s detergent business toward using fewer chemicals and less

water, plastic, and packaging.

This chapter focuses on the integration of each element of the marketing mix into a total plan

that addresses opportunities and threats in the global marketing environment.

Business leaders today must be capable of articulating a coherent global vision and strategy that

integrates global efficiency, local responsiveness, and leverage.

The leader is the architect of an organizational design that is appropriate for the company’s

strategy. The leader must ensure that the organization takes a proactive approach to corporate

social responsibility.

ANNOTATED LECTURE/OUTLINE

LEADERSHIP

(Learning Objective #1)

Global marketing demands exceptional leadership. As noted throughout this book, the hallmark

of a global company is its capacity to formulate and implement global strategies that leverage

worldwide learning, respond fully to local needs and wants, and draw on the talent and energy of

every member of the organization.

Overall, the leader’s challenge is to direct the efforts and creativity of everyone in the company

toward a global effort that best utilizes organizational resources to exploit global opportunities.

An important leadership task is articulating beliefs, values, policies, and the intended geographic

scope of a company’s activities.

Using the mission statement or similar document as a reference and guide, members of each

operating unit must address their immediate responsibilities and at the same time cooperate with

functional, product, and country experts in different locations.

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As noted in Chapter 1, global marketing further entails engaging in significant business activities

outside the home country.

Global marketing means exposure to different languages and cultures. In addition, global

marketing involves skillful applications of specific concepts, insights, and strategies.

Such endeavors may represent substantial change, especially in U.S. companies with a long

tradition of domestic focus.

When the “go global” initiative is greeted with skepticism, the CEO must be a change agent who

prepares and motivates employees.

Top Management Nationality

Many globally minded companies realize that the best person for a top management job is not

necessarily someone born in the home country.

The ability to speak foreign languages is one difference between managers born and raised in the

United States and those born and raised elsewhere.

U.S. Department of Education recently reported that 200 million Chinese children are studying

English. By contrast, only 24,000 American children are studying Chinese!

Table 17-1 shows examples of corporate leaders who are not native to the headquarter country.

Leadership and Core Competence

Simply put, core competence is something that an organization can do better than their

competitors.

Prahalad and Hamel note that a core competence has three characteristics:

1. It provides potential access to a wide variety of markets.

2. It makes a significant contribution to perceived customer benefits.

3. It is difficult for competitors to imitate.

Few companies are likely to build world leadership in more than five or six fundamental

competencies.

In the long run, an organization will derive its global competitiveness from its ability to bring

high-quality, low-cost products to market faster than its competitors.

To do this, an organization must be viewed as a portfolio of competencies rather than a portfolio

of businesses.

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ORGANIZING FOR GLOBAL MARKETING

(Learning Objective #2)

The goal in organizing for global marketing is to find a structure that enables the company to

respond to relevant market environment differences while ensuring the diffusion of corporate

knowledge and experience from national markets throughout the entire corporate system.

The struggle between the value of centralized knowledge and coordination and the need for

individualized response to the local situation creates a constant tension in the global marketing

organization.

A key issue in global organization is how to achieve balance between autonomy and integration.

Subsidiaries need autonomy to adapt to their local environment, but the business as a whole

needs integration to implement global strategy.

When management at a domestic company decides to pursue international expansion, the issue

of how to organize arises immediately.

Who should be responsible for this expansion?

Should product divisions operate directly, or should an international division be

established?

Should individual country subsidiaries report directly to the company president, or

should a special corporate officer be appointed to take full-time responsibility for

international activities?

After the decision of how to organize initial international operations has been reached, a growing

company is faced with a number of reappraisal points during the development of its international

business activities.

Should a company abandon its international division, and, if so, what alternative

structure should be adopted?

Should it form an area or regional headquarters? What should be the relationship of

staff executives at corporate, regional, and subsidiary offices?

Specifically, how should it organize the marketing function?

To what extent should regional and corporate marketing executives become involved

in subsidiary marketing management?

Even companies with years of experience competing around the globe find it necessary to

adjust their organizational designs in response to environmental change.

As markets globalize and as Japan opens its own market to more competition from overseas,

more Japanese companies are likely to break from traditional organization patterns.

Many of the Japanese companies discussed in this text qualify as global or transnational

companies because they serve world markets, source globally, or do both.

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No single correct organizational structure exists for global marketing.

Even within a particular industry, worldwide companies have developed different strategic and

organizational responses to changes in their environments.

Leading-edge global competitors share one key organizational design characteristic:

Their corporate structure is flat and simple, rather than tall and complex.

The message is clear: The world is complicated enough, so there is no need to add to the

confusion with a complex internal structuring.

Simple structures increase the speed and clarity of communication and allow the concentration of

organizational energy and valuable resources on learning, rather than on controlling, monitoring,

and reporting.

A geographically dispersed company cannot limit its knowledge to product, function, and the

home territory.

Company personnel must acquire knowledge of the complex set of social, political, economic,

and institutional arrangements that exist within each international market.

Many companies start with ad hoc arrangements such as having all foreign subsidiaries report to

a designated vice president or to the president.

Eventually, such companies establish an international division to manage their geographically

dispersed new businesses. It is clear, however, that the international division in the multiproduct

company is an unstable organizational arrangement.

As a company grows, this initial organizational structure frequently gives way to various

alternative structures

In the fast-changing competitive global environment of the twenty first century, corporations will

have to find new, more creative ways to organize.

New forms of flexibility, efficiency, and responsiveness are required to meet the demands of

globalizing markets.

The need to be cost effective, to be customer driven, to deliver the best quality, and to deliver

that quality quickly are some of today’s global realities.

These designs acknowledge the need to find more responsive and flexible structures, to flatten

the organization, and to employ teams.

There is the recognition of the need to develop networks, to develop stronger relationships

among participants, and to exploit technology.

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These designs also reflect an evolution in approaches to organizational effectiveness. At the turn

of the twentieth century, Frederick Taylor claimed that all managers had to see the world the

same way.

Then came the contingency theorists, who said that effective organizations design themselves to

match their conditions.

These two basic theories are reflected in today’s popular management writings. As Henry

Mintzberg has observed, “To Michael Porter, effectiveness resides in strategy, while to Tom

Peters it is the operations that count—executing any strategy with excellence.

Kenichi Ohmae recommends a type of “global superstructure” at the highest level that provides a

view of the world as a single unit.

Your authors believe that successful companies, the real global winners, must have both good

strategies and good execution.

THE CULTURAL CONTEXT

Can A New Leader Reinvent Sony, the “Apple of the 1980s,” in the Twenty-First Century?

Sony Corporation is a legend in the global consumer electronics industry. Its reputation for

innovation and engineering has made it the envy of rivals.

In 2005, a tumbling stock price resulted in the resignation of chairman and CEO Nobuyuki Idei.

Sir Howard Stringer, a Welsh-born American who had been knighted in 2000, was named as

Idei’s replacement.

One of Stringer’s first priorities was to bridge the divide between Sony’s media businesses,

which included music, games, and motion pictures, and its hardware businesses. As Stringer

himself declared, “We’ve got to get the relationship between content and devices seamlessly

managed.”

Management writers often use terms like silos, stovepipes, or chimneys to describe an

organization in which autonomous business units operate with their own agendas and a minimum

of horizontal interdependence. This was the situation at Sony, where the internal rivalries

between different engineering units—the PC and Walkman groups, for example—were ingrained

in the corporate culture and regarded as healthy.

Because Sony’s consumer electronics business accounts for more than two-thirds of Sony’s

worldwide sales, breathing new life into the unit is important.

To do this, Sir Howard developed a restructuring plan that called for cutting 10,000 jobs,

reducing the number of manufacturing sites from 65 to 54, and eliminating some unprofitable

products. Cost cutting is only part of the story. Boosting revenues with new products is also

crucial to Sony’s recovery. Sir Howard believes that Sony’s TV business will recover, thanks in

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part to the new Bravia line of HDTVs. The company has also launched an e-book reader.

Although Sir Howard had high hopes for the launch of the PlayStation 3 (PS3) game console in

mid-2006, production issues delayed the introduction until November. By 2011, Microsoft’s

Xbox 360 was the top selling console, thanks in part to its new Kinect controller. Meanwhile,

Sony was struck by a one-two punch from two calamities, one natural and the other man-made.

The earthquake and tsunami that hit Japan early in 2011 affected Sony and many other Japanese

companies. Supply chains were disrupted and the power grid in the vicinity of Tokyo was

severely compromised. Then, compounding Sony’s troubles, its online PlayStation Network was

the victim of hacker attacks. Will Sir Howard succeed in effecting a turnaround at Sony? While

some consider him an outsider, he is known for his non-confrontational style. Because of Sony’s

complexity, Sir Howard will be heavily reliant on the skills of his Japanese management team.

Sir Howard explains, “I had to do two things: develop those relationships and convince them that

the kind of changes I had in mind would be worthwhile.”

In 2012, Sir Howard relinquished he chief executive role to Kazuo Hirai (see Exhibit 17-3). In

2013, Hirai presided over the launch of the Xperia Z Smartphone, an event that provided tangible

evidence of a reduction in divisional rivalries. New CFO Kenichiro Yoshido is trying to return

the company to profitability by infusing employees with entrepreneurial spirit while trimming

the bureaucracy and speeding up decision making.

Patterns of International Organizational Development

(Learning Objective #2)

Organizations vary in terms of the size and potential of targeted global markets and local

management competence in different country markets. Conflicting pressures may arise from the

need for product and technical knowledge: functional expertise in marketing, finances,

operations, and area and country knowledge.

A company engaging in limited export activities often has a small in-house export department as

a separate functional area.

Most domestically oriented companies undertake initial foreign expansion by means of foreign

sales offices or subsidiaries that report directly to the company president.

International Division Structure

As a company’s international business grows, the complexity of coordinating and directing this

activity extends beyond the scope of a single person.

Pressure is created to assemble a staff that will take responsibility for coordination and direction

of the growing international activities of the organization.

The creation of an international division is typically the next step. (Figure 17-1)

Several factors contribute to the establishment of an international division.

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1. Top management’s commitment to global operations has increased enough to justify an

organizational unit headed by a senior manager.

2. The complexity of international operations requires a single organizational unit whose

management has sufficient authority.

3. The firm has recognized the need for internal specialists to deal with the special demands

of global operations.

4. Management’s recognition of the importance of strategically scanning the global horizon

for opportunities

Regional Management Centers

When business is conducted in a single region that is characterized by similarities in economic,

social, geographical, and political conditions, there is both justification and need for a

management center.

Thus, another stage of organizational evolution is the emergence of an area or regional

headquarters as a management layer between the country organization and the international

division headquarters.

The increasing importance of the European Union as a regional market has prompted a number

of companies to change their organizational structures by setting up regional headquarters there.

Regional management can offer a company advantages.

Many regional managers agree that an on-the-scene regional management unit makes

sense where there is a real need for coordinated, pan-regional decision-making.

Coordinated regional planning and control are becoming necessary as the national

subsidiary continues to lose its relevance as an independent operating unit.

Regional management can probably achieve the best balance of geographical,

product, and functional considerations required to implement corporate objectives

effectively.

By shifting operations and decision making to the region, the company is better able

to maintain an insider advantage.

The disadvantage of a regional center is its cost. The cost of a two-person office could be as

much as a half a million dollars per year. The scale of regional management must be in line with

the scale of operations in the region.

Geographical and Product Division Structures

As a company becomes more global, management frequently faces the dilemma of whether to

organize by geography or by product lines.

The geographical structure involves the assignment of operational responsibility for geographic

areas of the world to line managers.

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The corporate headquarters retains responsibility for worldwide planning and control, and each

area of the world—including the “home” or base market—is organizationally equal.

This structure is most common in companies with closely related product lines that are sold in

similar end-use markets around the world.

McDonald’s U.S. is organized into three geographical operating divisions and McDonald’s

International has three.

When an organization assigns regional or worldwide product responsibility to its product

divisions, manufacturing standardization can result in significant economies.

One potential disadvantage of the product approach is local input from individual country

managers may be ignored with the result that products will not be sufficiently tailored to local

markets.

The Matrix Design

In the fully developed large-scale global company, product or business, function, area, and

customer know-how are simultaneously focused on the organization’s worldwide marketing

objectives.

This type of total competence is a matrix organization.

Management’s task in the matrix organization is to achieve an organizational balance that brings

together different perspectives and skills to accomplish the organization’s objectives.

The matrix form of organization is well suited to global companies because it can be used to

establish a multiple-command structure that gives equal emphasis to functional and geographical

departments.

Professor John Hunt of the London Business School suggests four considerations regarding the

matrix design:

1. The matrix is appropriate when the market is demanding and dynamic.

2. Employees must accept higher levels of ambiguity and understand that policy manuals

cannot cover every eventuality.

3. In country markets where the command-and-control model persists, it is best to overlay

matrices on only small portions of the workforce.

4. Management must be able to clearly state what each axis of the matrix can and cannot do.

Management can expect the matrix to integrate four basic competencies on a worldwide basis:

Geographic knowledge. An understanding of the basic economic, social, cultural,

political, and governmental market and competitive dimensions of a country is essential.

Product knowledge and know-how

Functional competence in such fields as finance, production, and, especially, marketing

Knowledge of the customer or industry and its needs

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Under this arrangement, instead of designing national organizations or product divisions as profit

centers, both are responsible for profitability—the national organization for country profits and

the product divisions for national and worldwide product profitability (Figure 17-4).

The key to successful matrix management is ensuring that managers are able to resolve conflicts

and achieve integration of organization programs and plans.

The mere adoption of a matrix design or structure does not create a matrix organization.

The matrix organization requires fundamental changes in management behavior, organizational

culture, and technical systems.

In a matrix, influence is based on technical competence and interpersonal sensitivity, not on

formal authority.

In a matrix culture, managers recognize the absolute need to resolve issues and choices at the

lowest possible level and do not rely on higher authority.

Some companies are moving away from the matrix in response to changing competitive

conditions.

In the twenty-first century, an important task of top management is to eliminate a one-

dimensional approach to decisions and encourage the development of multiple management

perspectives and an organization that will sense and respond to a complex and fast-changing

world.

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