CHAPTER 9
Control of Global Business
Chapter Outline
• Introduction
• Strategy Formulation
• Mission Statement
• Shareholders vs. Stakeholders
• Strategy Implementation
• An Example of Strategic Implementation: Walmart
• Prospectors, Defenders, Reactors, and Analyzers
• Coordination
• Impediments to Coordination
• Knowledge Management and Systems
• Control Systems
• Bureaucratic Controls
• Interpersonal Controls
• Output Controls and Measurement
▪ Profits
▪ Growth
▪ Productivity
▪ Market Share
▪ Quality and Six Sigma Initiatives
▪ Corporate Social Responsibility
• Organizational Culture and the Change Control Function
o Types of Organizational Culture
o Organizational Change
Teaching Objectives
After covering this chapter, the student should be able to:
• Discuss the importance of mission statements, and the difference between shareholder
and stakeholder orientations in such statements and in general corporate strategy
formulation.
• Explain tactical versus operational plans in implementing corporate strategy, and Miles’
and Snow’s four basic types of longer-term strategic implementation.
• Analyze various impediments to the coordination of strategic implementation that might
exist for global businesses, and the positive role knowledge management and systems can
play in this regard. In particular, discuss the role of tacit versus explicit knowledge, and
that of the Internet.
• Discuss and analyze various types of control systems utilized by global businesses
including bureaucratic controls, interpersonal controls, output controls, and measurement
systems such as six sigma initiatives.
• Analyze the role organizations’ culture plays in controlling organizational activities, and
how, when necessary, organizational cultures can potentially be changed.
COMPREHENSIVE LECTURE OUTLINE
I. Introduction. Global corporations in their strategy formulations often need to define
their commitments to corporate shareholders vis-à-vis stakeholders. Formulating different
strategic approaches and control mechanisms for different countries where they operate in the
world is an important challenge facing successful global business.
CLASS ACTIVITY: Use the Cultural Perspective case as an opportunity to allow students to
explore the importance of a company’s strategic choices and their differential impact on its
stakeholders and shareholders.
II. Strategy Formulation. In formulating strategy, global businesses define their overall
goals. Often this is initially done in a corporate mission statement. One major strategic goal
formulation is whether to adopt an overall shareholder or stakeholder orientation.
• Mission Statement. The concept of a company’s general purpose is expressed in a
mission statement. This written statement outlines why the company exists and what it
strives to accomplish. Mission statements provide general guidelines for the company’s
strategy formulation and decision-making processes. One critical difference among
mission statements of different companies is the extent to which they express an
orientation toward shareholders versus stakeholders or vice versa.
ECONOMIC PERSPECTIVES: Royal Dutch Shell—A “Shell” in the Oil Industry.
Royal Dutch Shell has remained strong for a variety of reasons: a strong balance sheet,
diversified business operations, and a “wait and see” approach to new projects.
Suggestion: You could ask students to do this case as individuals or in teams as a class
activity. Have the students read the case presented in the text and answer the questions at
the end of the case.
Questions:
Conoco Phillips Corporation and some other major oil companies have spun off their oil
refining operations as separate corporations to shareholders. What might be some
Royal Dutch Shell Corporation is actually headquartered in two countries—the
Netherlands and Great Britain. How might this dual country headquartering contribute
• Shareholders versus Stakeholders. The shareholder model of strategy formulation
operates from the premise that the key strategic purpose of a business is to maximize
financial returns for its owners or shareholders. Exhibit 9.1 • Shareholders’ Model of
Strategy Formulation. The stakeholder model of strategy formulation believes
businesses exist to benefit not just their shareholders, but also various groups that have a
meaningful stake in their operations. Such groups include a company’s employees,
customers, and communities where it operates. Exhibit 9.2 • Stakeholder Model of
Strategy Formulation.
DISCUSSION STARTER: REALITY CHECK 1.
Find and read the mission statements of some of the companies with which you regularly
interact. How would you characterize each mission statement? Are some more oriented to
profits and others more to CSR?
III. Strategy Implementation. Strategy implementation refers to putting strategy into action.
• An Example of Strategic Implementation: Walmart. When putting its strategies to
work, Walmart implements both operational and tactical plans in the short term.
o Operational plans are very short–term (less than one year) plans formulated for
implementing strategic goals.
o Tactical plans are one- to three-year plans formulated for implementing strategic
goals.
o Operational and tactical plans involve short-term strategy implementation.
Longer-term strategy implementation involves global companies deciding
whether they want to be prospectors, defenders, reactors, or analyzers.
• Prospectors, Defenders, Reactors, and Analyzers. Professors R.E. Miles and C.C.
Snow developed a four-part typology describing how global businesses engage in
strategy implementation on a longer-term basis.
o Prospectors are organizations that have basic strategic implementations involving
extending their success through global expansions and finding new market
opportunities.
o Defenders implement basic market strategies of concentrating upon existing
operations and defending their home turfs.
o Reactors are companies that have strategic implementation processes that
respond to strategic actions initiated by competitors.
o Analyzers are companies that take a middle ground between being prospectors
and defenders. They take some steps to extend their markets, while
simultaneously putting a lot of emphasis on avoiding excessive risk and defending
existing operations.
o After formulating strategic goals, businesses need to weigh all the pros and cons
regarding different possible approaches that can be taken and consider how
different strategic actions are likely to impact relevant shareholder and
stakeholder groups.
DISCUSSION STARTER: REALITY CHECK 2.
Do you think one of these four strategic approaches is safer than another? Or do they all carry
risks? What do you see as the key risks a company faces by taking each of these approaches to
strategy formulation?
IV. Coordination. Businesses need to coordinate their actions to attain the goals set forth in
their mission statements.
• Impediments to Coordination. Coordinating strategy formulation and implementation is
not easy. Impediments to coordination of strategic implementation tend to abound. Legal,
political, economic, technological, and other impediments may all abound in today’s
highly complex global business environment. The Internet and other technological
advances have made coordination easier today than it was just 20 years ago.
• Knowledge Management and Systems. Technology today has enabled companies to
have much better day-to-day knowledge about what is happening at their foreign
operations. New technologies are also making it easier for the companies to more widely
disseminate both tacit and explicit knowledge to their subsidiaries.
• Tacit knowledge is knowledge that is informal and difficult to communicate.
• Explicit knowledge is knowledge that is codifiable and easy to specify or write down
with little loss of richness.
• Organizational control often hinges upon the ability to convert tacit knowledge into
explicit knowledge so that foreign operations have a full understanding of the
headquarters’ expectations. Traditionally making necessary transformations of tacit
knowledge into explicit knowledge has presented challenges for global business. Today,
web videos and other Internet-based training tools make expensive approaches to
knowledge transfer less necessary. New technologies aid global businesses’ absorptive
capacity—the ability to recognize the value of new knowledge, as well as assimilate and
apply it.
DISCUSSION STARTER: REALITY CHECK 3.
What’s an example of some tacit knowledge you’ve learned on a job you’ve held? How would
you communicate this knowledge to a newcomer?
V. Control Systems. To coordinate or control their operations, businesses rely upon several
kinds of control systems:
• Bureaucratic Controls describe systems of rules and regulations that are promulgated
within a global business. Such controls are often implemented to help maintain consistent
procedures within an organization. Bureaucratic controls can play an important role
within organizational risk management. Financial budgets, which are implemented within
a global business, are a quintessential type of bureaucratic control. An organizational
unit’s financial budget represents an allocation rule with respect to how much that unit
can spend.
• Interpersonal Controls involve executives engaging in personal contact with
subordinates as a way of managing an organization. Interpersonal control works best in
smaller organizations. Although it is impossible for executives of a large MNC to have
direct ongoing in-person contact with each employee, they can make an effort to meet
one-on-one on a regular basis with all senior managers and business unit heads. In
addition, many are using Internet technology to maintain direct communication lines with
all employees on an ongoing basis.
• Output Controls and Measurement involve establishing specific goals on given metrics
and then measuring to what extent these goals have been achieved at certain time
intervals.
o Profits are one kind of output control and measurement used by global
businesses.
o Growth. Some companies are willing to lose some money with the aim of
gaining a toe-hold in a foreign country. Growth is an important control metric.
Global businesses are constantly examining whether their companies are growing
or not. In certain business contexts, if a business is not successfully growing, it
may end up closing.
o Productivity is another output control measure frequently used by global
businesses. Technology continues to play a very important role in increasing
employee and general corporate productivity. Global businesses that put a strong
emphasis on productivity are likely to be willing to heavily invest in the
technological advances necessary to increase productivity.
o Market Share is the percentage of the business in a certain market that is
captured by a product or service that organization provides. Market share can be
an independent business goal, apart from growth. The important concern that
global businesses must remember in this regard is antitrust law. Very high
business market shares can be an indicator of monopoly or oligopoly power.
ETHICAL PERSPECTIVES: McDonald’s Liability for Its U.S. Franchisees: McDonald’s is
a major U.S. franchiser, with approximately 90 percent of its restaurants currently operating as
franchises. The National Labor Relations Board holds that the McDonald’s Corporation should
be considered a “joint employer” with its franchisees with respect to labor practices, but
McDonald’s is fighting this assertion.
Questions:
Why do large restaurant chains like McDonald’s, Kentucky Fried Chicken, and Dunkin Donuts
Why do labor unions and employees want to be able to hold the McDonald’s parent corporation
liable/responsible for restaurant labor and employment practices/violations as opposed to jus
o Quality and Six Sigma Initiatives. Many global businesses place a very strong
emphasis upon quality, and then seek to measure and control for this output. Six
sigma initiatives are one interesting type of quality control function that have
received attention recently. These are organizational initiatives that seek to limit
defects or problems to 3.4 per million. Statistically, the term “sigma” measures
how far a given problem deviates from a given norm, and a six sigma procedure is
one that barely deviates from perfection.
o CSR is another important output control. A wide variety of annual surveys and
award lists have emerged recently that rank companies according to the level of
their activities and contributions to communities, environment, and the like. For a
number of global businesses achieving a higher ranking on these surveys has
become an important and measurable output goal. In some industries government
entities formally score businesses with respect to their CSR activities.
DISCUSSION STARTER: REALITY CHECK 4.
What do you think is a good output control and measurement for the professor in this class?
VI. Organizational Culture and the Change Control Function. Organizational culture
represents the “personality” of a given organization, its shared norms, and its values.
Organizational culture can be a very effective control mechanism for an organization,
particularly when the norms of a given business’ culture are fully accepted by that organization’s
workforce.
• Types of Organizational Culture. If a global business has a strong and accepted cultural
norm that employees do only the highest quality of work, it may not be necessary for
supervisors to constantly monitor employees’ work quality. Organizational culture serves
as an automatic kind of internal control mechanism motivating employees to behave a
certain way. There’s social pressure on employees to act in an ethical manner, and the
social pressure acts as a control system apart from any formal rules and regulations.
Creating clear and uniform organizational cultures is very difficult to accomplish in
MNCs. Where there are clashes within a given organization’s culture or if there are
threats to this culture it typically will not work as an effective organizational control
system. In such situations, it may be advisable to try and implement some sort of
organizational change.
• Organizational Change represents the implementation of a different business or cultural
path for an organization. There will often be considerable resistance to such change.
Many times, organizational change in a business is most effective when pushed from the
top by the company’s CEO and other executives.
DISCUSSION STARTER: REALITY CHECK 5.
Describe the organizational “cultures” of companies where you’ve been employed.
Assignments
End-of-Chapter Discussion Questions
1. In what ways are corporate mission statements more than just “public
2. Do you think global businesses should place more emphasis upon operational
3. In what positive and negative ways has the Internet changed the conduct and
4. Do you think six sigma quality control initiatives really work? Answer: It’s
5. In what ways did the organizational culture at Bernard Madoff Investment
Services company help lead to Madoff’s success for so many years? Answer:
Mini-Case Synopsis and Questions
Berkshire Hathaway has an organizational culture that revolves around Warren
Buffett, the “Oracle of Omaha.” Berkshire Hathaway’s business model has been to
purchase insurance companies. Buffett, who has been a very savvy investor, has
made a fortune from investing “float” money; that is, the insurance premiums
taken in and held before they are paid out to settle claims. Recently the company
started moving away from its traditional business and buying major industrial
businesses instead.
Questions:
1. How does Mr. Buffett’s age affect Berkshire Hathaway’s recent strategic
moves such as buying Burlington Northern Santa Fe Railroad instead of
2. What does his purchase of Burlington Northern Santa Fe Railroad say about
where Buffett thinks about global energy conservation trends? (Hint: How
does the energy efficiency of shipping goods via rail compare with shipping
goods via truck or airplane?) He probably thinks there’s a decent chance
Point/Counterpoint, Interpreting Global Business News, and Portfolio Projects
Students’ answers to these assignments will vary widely. Their writing should
reflect an understanding of the chapter’s basic concept, thorough research, and
logic and critical thinking skills.