Deck 10: Strategizing, Structuring, and Learning Around the World

Question 1

A Subsidiary Initiative at Bayer MaterialScience North America
Bayer Group is a $50 billion chemical and health care giant based in Germany. Its three main product divisions are Bayer MaterialScience (BMS), Bayer CropScience, and Bayer HealthCare. In this matrix organization, each of these product divisions has country/regional subsidiaries in major markets. Between 2004 and 2011, the CEO for Bayer MaterialScience North America (BMS NA) was Greg Babe. Contributing 25% of BMS' global revenues, BMS NA delivered highly respected performance. It had strong sales growth in 2005 ($3.5 billion, increasing from $2.7 billion in 2004), and suffered a modest flattening in 2006 ($3.3 billion). However, in early 2007, BMS made a radical decision: to dismantle BMS NA-in other words, to shut down the North America regional headquarters in Pittsburgh. Allegedly undermining cost competitiveness, the regional structure was viewed as too bloated.
Shocked, Babe asked for time to propose another solution. In his own words: "The stakes couldn't have been higher: not only the future of my position but the credibility of the entire regional operation was in question." Cost cutting was nothing unusual in this cyclical industry, and the norm was usually to shave off a certain percentage of overhead (such as 10%). A month into the analysis, Babe and his team had an "aha" moment. The cost structure, they realized, should be dictated by how they grew the business, not by an arbitrary target. With that insight, they looked at the overall picture from a strategic growth lens rather than a tactical cost reduction lens. They set two specific goals: (1) to grow at 1% to 2% above GDP and (2) to save 25% on selling, general, and administrative (SG A) costs. To deliver that, Babe needed to completely reshape his unit but also needed additional investment of $70 million.
In late 2007, when Babe presented to BMS's global leadership team, everyone expected him to come up with a cost-cutting exercise. Instead, he presented a subsidiary growth initiative. BMS's global leadership team challenged key concepts of the proposal, many of which deviated from Bayer's global norms. For example, transportation was historically deemed by Bayer as a core competence. Babe proposed to outsource it, which would allow customers to give a 12 (rather than 72) hours' notice for shipping. Overall, Babe promised to turn BMS NA into a lean growth engine. In the end, the bold proposal paid off. Babe left the meeting with $70 million in hand. In his own words:
I was excited, but also scared to death, because delivering on it was by no means going to be easy. It would require laying off hundreds of employees and retraining more than 1,000 others, outsourcing many operations, rolling out new IT systems, and modifying our product offerings, all within 18 months-not much time for a project of that scale.
To make the matters worse, the chemical industry soon entered a severe downturn worldwide, and BMS suffered eight consecutive quarters of declining sales starting in 2008. In such a bleak environment, BMS NA's efforts became more strategically important. By early 2009, BMS NA delivered on everything Babe had promised: it reduced SG A costs by 25% ($100 million) and head count by 30%. It actually over delivered: only $60 million of the $70 million allotted for growth was spent. By 2010, BMS NA's sales turned around and enjoyed double-digit quarterly growth (2010 sales went up to $2.7 billion from the bottom of $2.1 billion in 2009). What was more valuable was that some of the reorganized processes (such as outsourcing transportation), so foreign at the time to BMS, now became implemented by BMS around the world. Overall, by endorsing the regional subsidiary's initiative, BMS's global leadership team took some significant risk. But in the end, the payoff was handsome.

Sources: Based on (1) Bayer AG, 2012, www.bayerus.com; (2) G. Babe, 2011, The CEO of Bayer Corp. on creating a lean growth engine, Harvard Business Review , July: 41-45.
While Bayer has a matrix structure, it has maintained some flavor of a geographic area structure. What are the advantages and disadvantages of a geographic area structure as seen in this case?

Answer 1

The following are the advantages of a geographic area structure as given in the case:
The geographical region structure is utilized when executives identifies dissimilar divisions in each of the world country where the company operates and pursue a multi-domestic plan. The benefits are many. Interactions among representatives of the dissimilar business functions are more personal. This makes sure that the firm adapts to latest changes in quicker manner and brings everybody on board with the latest strategic initiatives.
Employing local management empowers firms because they are handled by top managers who are recognizable with the local business surroundings, legal apparatus and culture. Hence, local managers are capable to plan completely understanding precisely what drives purchase behavior and what the financial need for the region are.
The following are the disadvantages of a geographic area structure as given in the case:
The drawbacks could be the duplication of abilities and resources. There can also be disagreement between the subsidiary and the keyfirm.
BB's approach to save the firm was conjoined attempt and his knowledge of local conditions helped him to create a possible solution.

Question 2

In this age of globalization, some gurus argue that all industries are becoming global and that all firms need to adopt a global standardization strategy. Do you agree? Why or why not?

Answer 2

"The given statement is very broad"
Explanation:
The multi domestic strategy is more appropriate for many consumer based products such as health and beauty or fast food. Companies have to do market research, but at times substantial research and development for the diverse countries and for some products.
Example:
• In NA Country, there is more research and developmentdone in healthcare firms for safe tanning goods. In EA countries, the same firms are researching of safety skin whitening goods
• MD Company conducted local research in ID country on substitutes for beef that is used in burgers, finally decided to use vegetarian preparation and its very popular lamb burgers
Other industries that have a standard goods that will mostly be unaffected by local taste, such as IT company's new communication chipsets and microprocessors, and the requirement to guard that intellectual property cautiously, are likely to promote the global strategy continuation.

Question 3

ON ETHICS: You are the head of the best-performing subsidiary in an MNE. Because bonuses are tied to subsidiary performance, your bonus is the highest among managers of all subsidiaries. Now headquarters is organizing managers from other subsidiaries to visit and learn from your subsidiary. You worry that if your subsidiary is no longer the star unit when other subsidiaries' performance catches up, your bonus will go down. What are you going to do? State your answer in a one-page paper.

Answer 3

The following are the things to be done by a top level executive of the multinational enterprise:
As a top level executive, it is likely to discuss directly with the higher officials and human resources head. The individual can discuss certain factors such as one-time bonus, joined with a customized plan where the person would get paid according to corporate act.
Alternatively, the managers should establish a sequence of internal consulting actions, with necessary cost for training the other subsidiary and subsequent to be certain that they can apply the similar changes.
The charge would get included in the budget, and individual might have certain flexibility in spending those funds to develop your competitive conditions. Several multinational enterprises have consulting departments that performs inner consulting with several divisions and departments among the company, on subject varying from information technology, to creating reward and compensation systems consistent such as Balanced Scorecard.

Question 4

A Subsidiary Initiative at Bayer Material Science North America
Bayer Group is a $50 billion chemical and health care giant based in Germany. Its three main product divisions are Bayer MaterialScience (BMS), Bayer CropScience, and Bayer HealthCare. In this matrix organization, each of these product divisions has country/regional subsidiaries in major markets. Between 2004 and 2011, the CEO for Bayer MaterialScience North America (BMS NA) was Greg Babe. Contributing 25% of BMS' global revenues, BMS NA delivered highly respected performance. It had strong sales growth in 2005 ($3.5 billion, increasing from $2.7 billion in 2004), and suffered a modest flattening in 2006 ($3.3 billion). However, in early 2007, BMS made a radical decision: to dismantle BMS NA-in other words, to shut down the North America regional headquarters in Pittsburgh. Allegedly undermining cost competitiveness, the regional structure was viewed as too bloated.
Shocked, Babe asked for time to propose another solution. In his own words: "The stakes couldn't have been higher: not only the future of my position but the credibility of the entire regional operation was in question." Cost cutting was nothing unusual in this cyclical industry, and the norm was usually to shave off a certain percentage of overhead (such as 10%). A month into the analysis, Babe and his team had an "aha" moment. The cost structure, they realized, should be dictated by how they grew the business, not by an arbitrary target. With that insight, they looked at the overall picture from a strategic growth lens rather than a tactical cost reduction lens. They set two specific goals: (1) to grow at 1% to 2% above GDP and (2) to save 25% on selling, general, and administrative (SG A) costs. To deliver that, Babe needed to completely reshape his unit but also needed additional investment of $70 million.
In late 2007, when Babe presented to BMS's global leadership team, everyone expected him to come up with a cost-cutting exercise. Instead, he presented a subsidiary growth initiative. BMS's global leadership team challenged key concepts of the proposal, many of which deviated from Bayer's global norms. For example, transportation was historically deemed by Bayer as a core competence. Babe proposed to outsource it, which would allow customers to give a 12 (rather than 72) hours' notice for shipping. Overall, Babe promised to turn BMS NA into a lean growth engine. In the end, the bold proposal paid off. Babe left the meeting with $70 million in hand. In his own words:
I was excited, but also scared to death, because delivering on it was by no means going to be easy. It would require laying off hundreds of employees and retraining more than 1,000 others, outsourcing many operations, rolling out new IT systems, and modifying our product offerings, all within 18 months-not much time for a project of that scale.
To make the matters worse, the chemical industry soon entered a severe downturn worldwide, and BMS suffered eight consecutive quarters of declining sales starting in 2008. In such a bleak environment, BMS NA's efforts became more strategically important. By early 2009, BMS NA delivered on everything Babe had promised: it reduced SG A costs by 25% ($100 million) and head count by 30%. It actually overdelivered: only $60 million of the $70 million allotted for growth was spent. By 2010, BMS NA's sales turned around and enjoyed double-digit quarterly growth (2010 sales went up to $2.7 billion from the bottom of $2.1 billion in 2009). What was more valuable was that some of the reorganized processes (such as outsourcing transportation), so foreign at the time to BMS, now became implemented by BMS around the world. Overall, by endorsing the regional subsidiary's initiative, BMS's global leadership team took some significant risk. But in the end, the payoff was handsome.

Sources: Based on (1) Bayer AG, 2012, www.bayerus.com; (2) G. Babe, 2011, The CEO of Bayer Corp. on creating a lean growth engine, Harvard Business Review , July: 41-45.
What are the advantages and disadvantages of a matrix structure as seen in this case?

Question 5

From time to time, a manager may be faced with the need to change the internal rules of the game within his/her MNE. What skills and capabilities may be useful in achieving this?

Question 6

ON ETHICS: You are a corporate R D manager at Boeing and are thinking about transferring some R D work to China, India, and Russia, where the work performed by a $70,000 US engineer reportedly can be done by an engineer in one of these countries for less than $7,000. However, US engineers at Boeing have staged protests against such moves. US politicians are similarly vocal concerning job losses and national security hazards. Write a short paper describing how you've decided to proceed and why.

Question 7

A Subsidiary Initiative at Bayer MaterialScience North America
Bayer Group is a $50 billion chemical and health care giant based in Germany. Its three main product divisions are Bayer MaterialScience (BMS), Bayer CropScience, and Bayer HealthCare. In this matrix organization, each of these product divisions has country/regional subsidiaries in major markets. Between 2004 and 2011, the CEO for Bayer MaterialScience North America (BMS NA) was Greg Babe. Contributing 25% of BMS' global revenues, BMS NA delivered highly respected performance. It had strong sales growth in 2005 ($3.5 billion, increasing from $2.7 billion in 2004), and suffered a modest flattening in 2006 ($3.3 billion). However, in early 2007, BMS made a radical decision: to dismantle BMS NA-in other words, to shut down the North America regional headquarters in Pittsburgh. Allegedly undermining cost competitiveness, the regional structure was viewed as too bloated.
Shocked, Babe asked for time to propose another solution. In his own words: "The stakes couldn't have been higher: not only the future of my position but the credibility of the entire regional operation was in question." Cost cutting was nothing unusual in this cyclical industry, and the norm was usually to shave off a certain percentage of overhead (such as 10%). A month into the analysis, Babe and his team had an "aha" moment. The cost structure, they realized, should be dictated by how they grew the business, not by an arbitrary target. With that insight, they looked at the overall picture from a strategic growth lens rather than a tactical cost reduction lens. They set two specific goals: (1) to grow at 1% to 2% above GDP and (2) to save 25% on selling, general, and administrative (SG A) costs. To deliver that, Babe needed to completely reshape his unit but also needed additional investment of $70 million.
In late 2007, when Babe presented to BMS's global leadership team, everyone expected him to come up with a cost-cutting exercise. Instead, he presented a subsidiary growth initiative. BMS's global leadership team challenged key concepts of the proposal, many of which deviated from Bayer's global norms. For example, transportation was historically deemed by Bayer as a core competence. Babe proposed to outsource it, which would allow customers to give a 12 (rather than 72) hours' notice for shipping. Overall, Babe promised to turn BMS NA into a lean growth engine. In the end, the bold proposal paid off. Babe left the meeting with $70 million in hand. In his own words:
I was excited, but also scared to death, because delivering on it was by no means going to be easy. It would require laying off hundreds of employees and retraining more than 1,000 others, outsourcing many operations, rolling out new IT systems, and modifying our product offerings, all within 18 months-not much time for a project of that scale.
To make the matters worse, the chemical industry soon entered a severe downturn worldwide, and BMS suffered eight consecutive quarters of declining sales starting in 2008. In such a bleak environment, BMS NA's efforts became more strategically important. By early 2009, BMS NA delivered on everything Babe had promised: it reduced SG A costs by 25% ($100 million) and head count by 30%. It actually overdelivered: only $60 million of the $70 million allotted for growth was spent. By 2010, BMS NA's sales turned around and enjoyed double-digit quarterly growth (2010 sales went up to $2.7 billion from the bottom of $2.1 billion in 2009). What was more valuable was that some of the reorganized processes (such as outsourcing transportation), so foreign at the time to BMS, now became implemented by BMS around the world. Overall, by endorsing the regional subsidiary's initiative, BMS's global leadership team took some significant risk. But in the end, the payoff was handsome.

Sources: Based on (1) Bayer AG, 2012, www.bayerus.com; (2) G. Babe, 2011, The CEO of Bayer Corp. on creating a lean growth engine, Harvard Business Review , July: 41-45.
ON ETHICS: While this is a successful case of subsidiary initiative, from a corporate or division headquarters' standpoint, it is often difficult to ascertain whether the subsidiary is making good-faith efforts acting in the best interest of the MNE or the subsidiary managers such as Babe are primarily promoting their own self-interest, such as protecting their own jobs. How can headquarters differentiate good-faith efforts from more opportunistic maneuvers?

Question 8

ON ETHICS: If you were a CEO or a business unit head, under what conditions would you consider moving your headquarters overseas? (see Strategy in Action 10.1)

Question 9

ON ETHICS: Working in pairs or small groups, research and review a high-profile case of an MNE moving its headquarters out of your country and the media and political outcry surrounding this move (see Strategy in Action 10.1). Determine whether you are for or against the firm's move, and present your research in a short paper or visual presentation.