Business Structures and Business Development Strategies

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Business Structures and Business Development
Strategies

• Dr. William Y. Jiang
• Professor and Chair
• Department of Organization Management
• San José State University
• Tel [phone]
• Email william.jiang_at_sjsu.edu

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Legal Business Structures

• Sole Proprietorship
• Partnership
• general partnerships
• limited partnerships
• Corporation

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Legal Business Structures

• Sole Proprietorship
• Easy to form with few regulations
• The owner is the business (same legal entity).
• No double tax
• Owner has unlimited liability
• Limited life
• Difficult to raise money

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Legal Business Structures

• Partnership
• Shared System (funding and liability)
• Shared Management
• Inexpensive and easy to form
• No double tax
• Difficult to raise money

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Legal Business Structures

• Corporation
• Independent legal entity and independent life
• More complicated to form (bylaws, Charters, etc.)
• Three sets of distinct stakeholders
  shareholders, directors and manager
• Ownership can be readily transferable
• Limited liability
• Unlimited life
• Possibility of fund raising

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Organizational Structure and Controls

• Organizational Structure
• Formal reporting relationships
• Authority and decision-making hierarchy
• It is critical to match organizational structure
  to the firms strategy.

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Organizational Structure

• Effective structures provide
• Stability and Flexibility
• Structural stability provides
• Capacity to consistently and predictably manage
  daily work routines

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Organizational Structure

• Structural flexibility provides
• The opportunity to explore competitive
  possibilities
• The allocation of resources to activities that
  shape needed competitive advantages

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Relationships between Strategy and Structure

• Strategy and structure have a reciprocal
  relationship
• Structure flows from or follows the selection of
  the firms strategy but
• Once in place, structure can influence current
  strategic actions as well as choices about future
  strategies.

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Simple Structure

• Owner-manager
• Makes all major decisions directly.
• Monitors all activities.
• Matched with focus strategies and business-level
  strategies
• Commonly complete by offering a single product
  line in a single geographic market.

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Simple Structure

• Growth creates complexity and structural
  challenges
• Owner-managers
• Commonly lack organizational skills and
  experience.
• Become ineffective in managing the specialized
  and complex tasks in multiple organizational
  functions.

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Functional Structure

• Chief Executive Officer (CEO)
• Limited corporate staff
• Functional line managers in dominant functional
  areas
• Production ?Marketing ?Engineering
• Accounting ?RD ?Human resources

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Multidivisional Structure

• Strategic Control
• Operating divisions function as separate
  businesses or profit centers
• Top corporate officer delegates responsibilities
  to division managers
• For day-to-day operations
• For business-unit strategy
• Appropriate as firm grows through diversification

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Multidivisional Structure (contd)

• Three Major Benefits
• Corporate officers are able to more accurately
  monitor the performance of each business, which
  simplifies the problem of control.
• Facilitates comparisons between divisions, which
  improves the resource allocation process.
• Stimulates managers of poorly performing
  divisions to look for ways of improving
  performance.

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Matching Strategy and Functional Structure

• Different forms of the functional organizational
  structure are matched to
• Cost leadership strategy
• Differentiation strategy
• Integrated cost leadership/differentiation
  strategy

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The External Environment
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General Environment

• Dimensions in the broader society that influence
  an industry and the firms
• Demographic
• Economic
• Political-legal
• Socio-cultural
• Technological
• Global

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Industry Environment

• The set of factors influencing a firm and its
  competitive actions and competitive responses
• Threat of new entrants
• Power of suppliers
• Power of buyers
• Threat of product substitutes
• Intensity of rivalry among competitors

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Five Forces Model
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Threat of New Entrants Barriers to Entry

• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Access to distribution channels
• Cost disadvantages independent of scale
• Government policy
• Expected retaliation

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Bargaining Power of Suppliers

• Supplier power increases when
• Suppliers are large and few in number
• Suitable substitute products not available
• Individual buyers are not large customer
• Suppliers goods are critical to the buyers
• Suppliers products has high switching costs
• Suppliers pose a threat to integrate forward

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Bargaining Power of Buyers

• Buyer power increases when
• Buyers are large and few in number
• Buyers purchase a large portion of an industrys
  total output
• Buyers switching costs are low.
• Buyers can pose threat to integrate backward

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Threat of Substitute Products

• The threat of substitute products increases
• Buyers face low switching costs
• The substitute product price is low.
• Substitute products quality and performance are
  equal to or greater
• Differentiated industry products that are valued
  by customers reduce this threat

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Intensity of Rivalry Among Competitors

• Industry rivalry increases when
• Numerous competitors with equal balance
• Industry growth slows or declines
• High fixed costs
• Lack of differentiation or low switching costs
• High strategic stakes
• High exit barriers

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Interpreting Industry Analyses
Low entry barriers
Suppliers and buyers have strong positions
Strong threats from substitute products
Intense rivalry among competitors
Low profit potential
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Interpreting Industry Analyses
High entry barriers
Suppliers and buyers have weak positions
Few threats from substitute products
Moderate rivalry among competitors
High profit potential
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Business-Level Strategy

• An integrated and coordinated set of commitments
  and actions the firm uses to gain a competitive
  advantage by exploiting core competencies in
  specific product markets.

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The Purpose of a Business-Level Strategy

• Business-Level Strategies
• create differences between the firms position
  relative to those of its rivals
• Perform activities differently or
• Perform different activities as compared to its
  rivals

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Types of Potential Competitive Advantage

• Lower overall costs than rivals
• Differentiate the firms product or service and
  command a premium price

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Competitive Scope

• Broad Scope
• The firm competes in many customer segments.
• Narrow Scope
• The firm selects a segment or group of segments
  in the industry and tailors its strategy to
  serving them at the exclusion of others.

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Types of Business-Level Strategies
Competitive Advantage
Cost
Uniqueness
Broad Target
Competitive Scope
Narrow Target