Strategic Management Of The Global Enterprise

By M. Isi Eromosele

The essence of global strategy is an expansive world vision that considers the possibilities of every location as a market and as a source of competitive advantage, both alone and when integrated with the rest of the firm.

Global enterprises must craft strategies for international expansion, diversification, and integration to develop, protect, and exploit their resources and capabilities.

Determinations of geographical scope and degree of coordination must be taken with respect to a world-wide competitive environment. Concerns for both strategy processes and strategic goals and objectives are deepened in the transnational setting.

Building A Global Resource Base

In order to pursue their strategic objectives, global enterprises must access a wide range of resources, capabilities, brands, markets, and technologies from world-wide locations.

This process of building a resource base for the enterprise may involve cross-border mergers and acquisitions, international alliances and joint ventures, formal and informal networking, internal development, and offshored/outsourced value-adding activities.

Determinations of the breadth of international dispersion and the degree of global integration of resources and activities are increasingly essential for competitive success, but standard models of transactional governance seem to have limits in an increasingly interactive, integrated global environment.

While multinational enterprises may be network organizations, they are also widely seen as entities functioning within larger networks of affiliated, but not internalized, firms, institutions and activities.

Collaboration at all stages of the value chain across organizational as well as national boundaries has become an essential feature of global strategic management, as has

cooperation with partners on a smaller scale within many local host settings.

The global firm may function as the leader or flagship of its network, but it must do so through communication and collaborative mechanisms rather than the command and control relationships of  its internalized hierarchy.

Governance Structures And Functions

An important aspect of international strategic management involves selecting and developing the governance structures and functions of global firms and their component organizations, including organizational architecture, management systems, managing resources and capabilities, networking of subsidiary organizations, and managing operational strategies and information sharing in organizations engaged in substantial operations across national borders or located in multiple national environments.

Non-market strategies of pursuing corporate social responsibilities and working with critical stakeholders in host nations or on a global basis are increasingly important to pursuing competitive advantage and reducing environmental and competitive risks for global organizations.

Crafting Strategies For The Global Firm

All organizations interact with their environments; the complexity of the global business environment makes this interaction particularly critical to crafting strategies for the global firm.

Global strategy must incorporate aspects and effects of the GBE, to include concern for the status of the global economy and international capital markets, the effect of political

agreements or strife, cultural and institutional differences, levels of technological advancement, and other global and regional issues as they affect strategy, strategic management or performance of organizations.

A notable characteristic of international markets is the presence of multiple sovereign nation-states as economic players. Global strategies must be tied to political and other non-market strategies to capture the value that they create.

Effect Of Global Strategy On Emerging Economies

The importance of the global environment and of specific locations to global and international strategies has been established. However, the rapid emergence of new market economies has profound implications for the world economy and for the practice and study of global strategy.

Offshore production of goods and services in emerging nations has energized international political discussion, brought new focus to the non-governmental social welfare sector and redefined the concept of relevant stakeholders as well as expanding the scope of global sourcing strategies.

Multinational enterprises from emerging economies are absorbing established firms in industrial nations and may well dominate international merger and acquisition activities in the near future while traditional global enterprises are facing fundamental changes in their non-market strategies.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

Copyright Control © 2012 Oseme Group

Value Based Management

By M. Isi Eromosele

The thinking behind VBM is simple. The value of a company is determined by its discounted future cash flows. Value is created only when companies invest capital at returns that exceed the cost of that capital.

VBM extends these concepts by focusing on how companies use them to make both major strategic and everyday operating decisions. Properly executed, it is an approach to management that aligns a company’s overall aspirations, analytical techniques, and management processes to focus management decision-making on the key drivers of value.

VBM is not a staff-driven exercise. It focuses on better decision making at all levels in an organization. It recognizes that top-down command-and-control structures cannot work well, especially in large multi-business corporations.

Instead, it calls on managers to use value-based performance metrics for making better decisions. It entails managing the balance sheet as well as the income statement and balancing long and short-term perspectives.

Not methodology

The focus of VBM should not be on methodology. It should be on the why and how of changing your corporate culture. A value-based manager is as interested in the subtleties of organizational behavior as in using valuation as a performance metric and decision-making tool.

When VBM is working well, an organization’s management processes provide decision makers at all levels with the right information and incentives to make value-creating decisions.

Line managers and supervisors, for instance, can have targets and performance measures that are tailored to their particular circumstances but driven by the overall corporate business strategy.

A production manager might work toward targets for cost per unit, quality, and turnaround time. At the top of the organization, on the other hand, VBM informs the board of directors and corporate center about the value of their strategies and helps them to evaluate mergers, acquisitions and divestitures.

Value-based management can best be understood as a marriage between a value creation mindset and the management processes and systems that are necessary to translate that mindset into action. Taken alone, either element is insufficient. Taken together, they can have a huge and sustained impact on corporate growth.

A value creation mindset means that senior managers are fully aware that their ultimate financial objective is maximizing value; that they have clear rules for deciding when other objectives (such as employment or environmental goals) outweigh this imperative; and that they have a solid analytical understanding of which performance variables drive the value of the company.

They must know, for instance, whether more value is created by increasing revenue growth or by improving margins, and they must ensure that their strategy focuses resources and attention on the right options.

Management processes and systems encourage managers and employees to behave in ways that maximize the value of the organization. Planning, target setting, performance measurement and incentive systems work effectively when the communication that surrounds them is tightly linked to value creation.

The value mindset

The first step in VBM is embracing value maximization as the ultimate financial objective for a company. Traditional financial performance measures, such as earnings or earnings growth, are not always good proxies for value creation.

To focus more directly on creating value, companies should set goals in terms of discounted cash flow value, the most direct measure of value creation. Such targets also need to be translated into shorter-term, more objective financial performance targets.

Companies also need non-financial goals; goals concerning customer satisfaction, product innovation, and employee satisfaction, for example, to inspire and guide the entire organization.

Objectives must also be tailored to the different levels within an organization.

For the head of a business unit, the objective may be explicit value creation measured in financial terms. A functional manager’s goals could be expressed in terms of customer service, market share, product quality or productivity.

A manufacturing manager might focus on cost per unit, cycle time, or defect rate. In product development, the issues might be the time it takes to develop a new product, the number of products developed and their performance compared with the competition.

Even within the realm of financial goals, managers are often confronted with many choices: boosting earnings per share, maximizing the price/earnings ratio or the market-to-book ratio and increasing the return on assets, to name a few. At Oseme Group, we strongly believe that value is the only correct criterion of performance.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

Copyright Control © 2012 Oseme Group