978-1259578113 Chapter 14 Solutions Manual

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OPENING CASE: P&G—Strength in Architecture

Summary

The opening case explores the extensive reorganization undertaken in 2014 by Proctor &

Gamble, the U.S. household products conglomerate. P&G is one of the world’s largest

companies, with customers in more than 180 countries and annual revenues in excess of $80

billion. In 2014, CEO Alan “A.G.” Lafley decided that the company would cut approximately

100 brands from its portfolio in order to focus on its most profitable product lines. Discussion of

the case can revolve around the following questions:

QUESTION 1: What type of strategy did P&G pursue until Alan “A.G.” Lafley decided to

streamline in 2014? What advantages did the company experience by having a more complex

structure prior to 2014?

ANSWER 1: Prior to 2014, P&G maintained a large portfolio of approximately 180 brands, each

QUESTION 2: What factors prompted Lafley to change the company’s strategy? What

advantages are there to streamlining the company’s operations?

ANSWER 2: Lafley argued that reducing the number of brands owned by P&G would make the

QUESTION 3: Consider P&G’s current emphasis on customer service, marketing, and

advertising. How does its changing structure reflect this emphasis?

ANSWER 3: P&G seeks to be an industry leader by devoting significant resources to advertising

Another Perspective: To explore P&G’s organizational structure in more depth, go to the

company’s website at

{http://us.pg.com/who_we_are/structure_governance/corporate_structure}.

CRITICAL THINKING AND DISCUSSION QUESTIONS

QUESTION 1: “The choice of strategy for a multinational firm must depend upon a comparison

of the benefits of that strategy (in terms of value creation) with the costs of implementing that

strategy (as defined by organizational architecture necessary for implementation). On this basis,

it may be logical for some firms to pursue a localization strategy, others a global or international

strategy, and still others a transnational strategy.” Is this statement correct?

ANSWER 1: Yes, this statement is correct. There is a cost–benefit trade-off with strategy choice.

QUESTION 2: Discuss this statement: “An understanding of the causes and consequences of

performance ambiguity is central to the issue of organizational design in multinational firms.”

ANSWER 2: Organizational design creates interdependence, which may lead to performance

QUESTION 3: Describe the organizational architecture a transnational firm might adopt to

reduce the costs of control.

QUESTION 4: What is the most appropriate organizational architecture for a firm that is

competing in an industry where a global strategy is most appropriate?

QUESTION 5: If a firm is changing its strategy from an international to a transnational strategy,

what are the most important challenges it is likely to face in implementing this change? How can

the firm overcome these challenges?

QUESTION 6: Reread the Management Focus on Walmart’s International Division and answer

the following questions:

a. Why did the centralization of decisions at the headquarters of Walmart’s international division

create problems for the company’s different national operations? Has Walmart’s response been

appropriate?

b. Do you think that having an international division is the best structure for managing Walmart’s

foreign operations? What problems might arise with this structure? What other structure might

work?

QUESTION 7: Reread the Management Focus on the rise and fall of the matrix structure at Dow

Chemical; then answer the following questions:

a. Why did Dow first adopt a matrix structure? What were the problems with this structure? Do

you think these problems are typical of matrix structures?

b. What drove the shift away from the matrix structure in the late 1990s? Does Dow’s structure

now make sense given the nature of its businesses and the competitive environment it competes

in?

ANSWER 7:

a. Dow Chemical initially adopted the matrix structure because it would allow the company to be

responsive to both local market needs and corporate objectives. However, when it was first

b. In the mid-1990s, Dow divested itself of its pharmaceuticals activities, and changed its

Another Perspective: To find out more about Dow Chemical’s current strategy and organizational

architecture, go to the company’s web site at {http://www.dow.com}.

QUESTION 8: Reread the Management Focus on Lincoln Electric; then answer the following

questions:

a. To what extent are the organizational culture and incentive systems of Lincoln Electric aligned

with the firm’s strategy?

b. How was the culture at Lincoln Electric created and nurtured over time?

c. Why did the culture and incentive systems work well in the United States? Why did it not take

in other nations?

ANSWER 8:

a. Lincoln Electric stresses that individuals should be rewarded for their individual efforts, and

b. Lincoln Electric has a long tradition of equality and fairness. Since 1934, employees have

c. In the United States, a country that encourages individualism, Lincoln Electric’s emphasis on

individual performance has been very successful. However, in other countries, this approach has

CLOSING CASE: Koninklijke Philips NV

Summary

The closing case explores how multinational giant Philips NV has evolved over time. The Dutch

company, which was internationally oriented almost from the start, moved to a national

organization approach during World War II. This approach, which allowed the company to tailor

its product line and marketing to each national market, remained in place for several decades,

however, by the 1970s, the duplication of effort the approach required began to cause problems

and Philips shifted toward a product division structure that established international production

centers. In the mid-1990s, a new CEO implemented significant changes replacing Philips’ 21

product divisions with just 7 global business divisions. This new structure was further refined in

2008 to establish three global divisions responsible for product strategy, global marketing, and

production decisions.

QUESTION 1: Why did Philips’ organizational structure make sense early on in its existence?

Why did this structure start to create problems for the company later on?

ANSWER 1: By the start of World War II, Holland’s Philips Electronics already had a global

QUESTION 2: What was Philips trying to achieve by tilting the balance of power in its structure

away from national organizations and toward the product divisions? Why was this hard to

achieve?

ANSWER 2: Philips was trying to achieve greater scale economies and hence lower costs by

QUESTION 3: What was the point of the organizational changes made by Cor Boonstra? What

was he trying to achieve? Do you agree with Frans van Houten’s decision to keep the same three

divisions when he became CEO in 2011?

ANSWER 3: When Boonstra became CEO in the mid-1990s, he tried to streamline and

QUESTION 4: In 2008 Philips reorganized yet again. Why do you think it did this? What is it

trying to achieve?

ANSWER 4: In 2008, the CEO at the time believed that Philips was still not sufficiently focused

MHE INTERNATIONAL BUSINESS VIDEO LIBRARY

Please click here to visit our International Business Video Library on Pinterest, which is

updated on a monthly basis. While there, be sure to “like” the clips that work well for you, and

add notes that might be helpful to your colleagues.

INCORPORATING globalEDGE™ EXERCISES

Use the globalEDGE™ site {globalEDGE.msu.edu/} to complete the following exercises:

Exercise 1

Fortune conducts an annual survey and publishes the rankings of the world’s most admired

companies. Locate the most recent ranking available, and focus on the factors used to determine

which companies are most admired. Prepare an executive summary of the strategic and

organizational success factors for a company of your choice.

Exercise 1 Answer

Search phrase: World’s Most Admired Companies

Exercise 2

Exercise 2 Answer