APPLIED MANAGING FOR

ENTREPRENEURSHIP
APPLIED MANAGING FOR
ENTREPRENEURSHIP

Walter Amedzro St-Hilaire, PhD

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About the Author

Walter Amedzro St-Hilaire, PhD

Prof. Dr. Walter Amedzro St-Hilaire is a research leader. He is the author
of more than 15 books and around 30 scientific articles. His specializa-
tion areas include portfolio management (bank, telecom, health, energy,
and agribusiness), project management, entrepreneurship policies,
corporate governance, business technology, strategic management,
business economics, risk management, economic infrastructures, public
administration, international development, and applied economics. Prof.
Amedzro St-Hilaire has to his credit several years of academic experience,
having taught at various universities: HEC-Montreal (Canada), University
of Ottawa (Canada), Northwestern University (USA), and George Wash-
ington University (USA). He is also Projects Economics and Financial
Business Expert for several institutions and international organizations.
Proud holder of several postdoctoral awards, he directs the Global Journal
of Strategies & Governance and the Management & Applied Economics
Review. The richness of his academic and professional experience gives
him a certain expertise in the research of the highest spheres of decision-
making as well as in education.
Contents

Abbreviations ....................................................................................................... ix
Acknowledgment .................................................................................................. xi
Foreword............................................................................................................ xiii
Introduction..........................................................................................................xv

1. The Concept of Entrepreneurship ................................................................. 1

2. Business Optimization ................................................................................ 11
3. Approaches for Applied Management ........................................................ 19
4. The Foundations of Governance Strategies ................................................ 29
5. Principles of Corporate Optimization ......................................................... 41
6. Operational Context in Applied Management ............................................ 49
7. Advanced Operational Business Analysis .................................................. 73
8. The Implementation of Business Optimization Mechanisms ..................... 91
9. Operational Decision-Making................................................................... 105
10. Applied Operational Analysis ................................................................... 115
11. Optimizing Operational Choicess ............................................................. 125
12. Structures and Processes of Applied Management ................................... 139
13. Operational Values for Management Optimization .................................. 161
14. Metadata and the Complexity Mechanisms.............................................. 173
15. Optimizing Enterprises Managerial Innovation........................................ 193
16. Optimization of Business Diversification ................................................. 207
17. Optimizing Global Business ..................................................................... 225
Conclusion ........................................................................................................ 247
References......................................................................................................... 251
Index ................................................................................................................. 261
Abbreviations

ERP enterprise resource planning

PIMS profit impact of market strategy
R&D research and development
ROI return on investment
SMEs small and medium-sized enterprises
SWOT strengths, weaknesses, opportunities, threats
Acknowledgment

The author thanks FordBridge University, ExpertActions ExiGlobal

Group, Northwestern University and the Chair of Institutional Governance
& Strategic Leadership Research for funding this research.
Foreword

This book provides an overview of the approach and mechanisms with

regard to optimizing management. It is remarkable indeed that the amount
of research related to the optimization of organizations has increased
significantly during recent years. Nevertheless, like all scientific disci-
plines, applied management is called to question and renew itself.
First of all, it should be pointed out that at the level of the advanced
research and basic education, there is a very sharp criticism of the grids
and models of applied analysis. Such was the case of the LCAG model and
operational matrices, and finally the models of Porter. The questioning is
about the deterministic nature of these mechanisms. Probably beyond the
intention of their authors, often victims of their educational success (peda-
gogy necessarily simplifying the presentation of models and theories) and
consultant. Most often, these analyses emphasize the two relationships
with two (market share and profits, for example). In this respect, it was
better to show that relations could be more complex and contingent.
In terms of “business optimization,” the central question is the rela-
tionship, consistency (fit) between strategic positioning and competitive
advantage, based on the company’s capabilities. However, the authors tend
to rely increasingly on the skills required for each company rather than
on the characteristics of the business context. They advocate increasingly
individualized case studies rather than statistical studies of large amounts
of data. But unanimity is far from being achieved on methods; a large
scientific legitimacy is still given to statistical studies. This questioning of
the general model is exemplified in the particular fate of optimization of
small businesses, the role of the entrepreneur, and the crucial problems of
creation. But the models and analyses are likely to be caused to differen-
tiate further.
At the “corporate optimization,” other dimensions are more integrated;
this is the case of the moral dimension, ethical, ecological. Also, indus-
trial policy and market globalization are decisive. Porter stressed that the
competitiveness of local businesses was largely due to differences in local
skills, as well as the aid and regulatory systems. Porter insists that his
scheme is a dynamic system. More generally, he joined the specialists
xiv Foreword

of evolutionary theory to emphasize the need for a dynamic approach to

decision optimization (e.g., the analysis in terms of cards remains largely
static). One of the major projects of decision analysis in applied manage-
ment matters is the economic globalization.
Globally, more than ever, applied management appears as an open
discipline, changing. Hopefully that ensures new configurations, new
paradigms that make simple problems that have appeared much more
complex in the eyes of the neophyte.
Prof. Dr. Walter Amedzro St-Hilaire
Introduction

Applied management has made significant progress. Treated for a long

time as business economics, management, or marketing, the discipline
has become essential for the adaptation of organizations. This recognition
was reflected by an increase in scientific and educational work. These
researches resume templates, commonly taught in the United States theo-
ries and grids. The goal here is to write a book for voluntarily analytic
and synthetic sizes. The idea is to make a synthesis of different currents
developed in applied management, based on their classification as it has
been prepared by specialists.
This classification is highly questionable, of course, but it will bring
up an important point: largely based on instrumental rationality initially
and on policy issues, decision optimization gradually interested in the
problems of choice of activities, distinguishing the “corporate” of “busi-
ness optimization.” Subsequently, some researchers have increasingly
criticized the patterns and grids made; abandoning procedures, quite inef-
fective in troubled times, the authors have tended to focus on collective
decision-making in organizations, and individuals, from the entrepreneur
strategist. Currently, the expressed wish would lead to approaches that
incorporate the procedures and processes using grids.
This is why we propose from the description of the problem to present
the multiplicity of designs and areas of analysis applied to address the
notion of competitive environment, the organization issues. We are, thus,
led to problems related to the operational decision, then the decision
maker, and entrepreneurship to awareness applied analysis (cases board)
through an integrative approach that we advocate. It is remarkable indeed
to note that this course is quite widely in succession in time, over the last
30 years, theoretical perspectives. Currently, specialists are focused on
one aspect or another, often depending on their original discipline (indus-
trial economics, marketing, management, management control, etc.). Our
ambition probably was to present various facets, very synthetically. We
limited the maximum references to authors, to retain only the logical
progression from one stage to another. We have often sought to adapt the
most common models for homogenization.
xvi Introduction

This book is intended as a guide for those students, executives, or

managers who wish to think of the dynamics of applied management and
different mechanisms to optimize and implement in an organization. It
was necessary to present the concept and the different aspects it covers.
Although our design does not differ materially from what is commonly
accepted, there are nuances and on which we insist that betray our own
biases. Importantly, we live in a complex world, and the world of organi-
zations is elusive. We then need instruments, heuristics, that help to deci-
pher what is going on, but acceptable temporarily, until we have a better
understanding of the phenomena. In its own way, the applied management
is a robust tool because it does not focus on specific relationships. It is
interested in the processes that lead to a better decision-making process.
Research contributes, moreover, dramatically, to identify elements to
consider when looking at these processes. But more importantly, optimiza-
tion mechanisms are a powerful policy tool for practitioners because they
help bring order in a chaotic world and act appropriately.
A synthesis of the literature in five forms were selected: optimiza-
tion as managing organization–environment relationship; optimization
as an extension officers; optimization as an expression of a community
of persons; optimization as a hinge part; and optimization as building
a competitive advantage. Here, the author focuses on the factors to be
considered when making the analysis of the strategic position of an orga-
nization. It then provides in the book, the general framework of analysis
that is often guided by an overall purpose, which can be a mission state-
ment or a general and lasting statement that defines the organization and
its purpose. It begins with an analysis of the dynamics of the business
context and continues with the analysis of organizational capabilities that
can be the source of its competitive advantages. This external and internal
analysis allows to define objectives, which fit into the broader purpose
of the organization. These are the objectives that we call “intelligence
optimization.”
The author goes further in analyzing the context of business. It
describes the different types of environments and techniques to analyze
them. It attaches particular importance to the analysis of competition.
Traditional models, including the industrial economy popularized by
Porter, are described and illustrated. It also discusses how we can analyze
the sociopolitical context. Before beginning the analysis of capabilities
and resources of the organization, it aims to understand what gives or may
Introduction xvii

give the organization an advantage over its competitors and what is or may
be a handicap in the rivalry between the organizations to its competitors.
Different models, such as those in the value chain, and ideas from core
competencies are discussed.
The book recounts the major mechanisms usually chosen by business
and the important issues they raise at quarterback. The generic optimiza-
tions are addressed, but also the most commonly used maneuvers. Here
it must be said that the applied management material formulation is
based not only on the analysis of the business context and organizational
resources. The choice suggests the context of that case and the capabili-
ties of the organization should also consider the values and preferences
of leaders and what is acceptable to society. This is why various aspects
of the complexity of organizations are taken into account. We had to start
by describing what a complex situation is and show that in a situation of
complexity, cause-and-effect relationship is unclear and the constructive
power of leaders to lead people in the desired direction is often reduced.
The book focuses on the applied management of the diversified busi-
nesses. It addresses the historical conditions that led to the great waves of
mergers and acquisitions, the reasons that encourage companies to diver-
sify their activities, the various existing mechanisms of diversification, and
challenges related to the applied management of the diversified businesses.
On the issue of global companies, the author discusses the globalization
of markets, companies and industries and different analysis models to
better understand the dynamics of globalization. Subsequently, he looks
at challenges of applied management in these structures and operational
maneuvers that can be used in a context of geographic dispersion.
Finally, the book presents analytical tools to help leaders achieve
change in their organization. We must therefore remember that, intended
primarily for students wishing to learn the applied management organiza-
tions avoiding scholarship, this book is also useful for practitioners and
consulting companies eager to update their booming knowledge.
CHAPTER 1

The Concept of Entrepreneurship

The concept of the entrepreneur is one of the most controversial and mean-
ingful in operational and strategic analysis. It is given different meanings,
which account for most of the differences in evaluation, especially on
performance. Moreover, it should provide a clear explanation of what
is meant by “spirit of enterprise” or “entrepreneurial.” These definitions
should clarify the debates on the fundamental operational act, which is
that of creating and starting new businesses. The contractor is the one who
makes operational decisions. But the word was charged with meaning
to develop the market economy in industrial capitalism and economic
thought.
Initially, in the merchant capitalism, the entrepreneur takes part in
business transactions (e.g., between the weavers and cloth merchants).
The contractor industry supports product manufacturing, committing its
capital to buy machinery and organize production. According to Adam
Smith, the entrepreneur has above all the virtue of savings and capital
mobilization. Jean-Baptiste Say attributed to the contractor the key role
of organizing production, a “combination of factors,” which justifies its
profit (which also pays its capital). Thus, the entrepreneur can see that his
role is underestimated by liberal economists: for them, the entrepreneur is
content to bow to market in its pursuit of profit maximization.
The entrepreneur began to be rehabilitated by the American econo-
mists at the beginning of the century, in what is called the institutional-
ized approach. Veblen stresses the vital role of the entrepreneur, and he
fears that he is overtaken by “engineers,” that is to say, pure employees’
managers. Knight justifies profit as a reward for the risk and uncertainty
that supports the entrepreneur. Joseph Schumpeter assigns a major role to
entrepreneurship in the development of capitalism. This spirit is reflected
in the constant search for innovation of all kinds (product, technology,
markets, organization, etc.), this constant wave of innovation explaining
2 Applied Managing for Entrepreneurship

the dynamics of capitalism. However, for Schumpeter, entrepreneurship

does not necessarily identify an individual, as is too often said; it may
very well exist in large companies or nonprofit institutions. It is realized
through innovation.
It must be said that contemporary strategic management mobilizes
many operational mechanisms that place particular importance on plan-
ning, prioritization and formalization.The contractor is supplanted by the
employee manager, as pointed by Barnard and Burnham. Small business
and the “little boss” appear as outdated categories, because of the race
to economies of scale and size. Large companies are supposedly more
efficient, more innovative, and more profitable. The small company that
manages to survive becomes a larger player and turns into an organiza-
tion “management.” The rehabilitation of the entrepreneur and the entre-
preneurial spirit, which is embodied in the entrepreneur, will increase,
encouraging a climate of particular studies related to optimization of
management practice.
These include: the failure of the major organizations in their response
to different crises; the emergence of new activities related to the third
industrial revolution, in which small businesses and the “new entrepre-
neurs” play a decisive role; the new conditions of the international division
of labor to develop new industries, or implanting old industries, wherein
countries and regions have developed a policy of support for the creation
of companies; the loss of legitimacy of big business; the net job creation
coming from sectors dominated by small businesses, and moreover, they
often seem to have better resisted the successive crises; and finally, entre-
preneurship has appeared, with some naivety (or bad faith), as a means of
finding work for the unemployed.
One could speak of an “entrepreneurial phenomenon,” maintained by
the media and charisma of some business leaders. The craze seems to have
fallen. Lucidity has been replaced. The success of the entrepreneurial act
now appears to be linked to controlling operational variables: contrac-
tors' capabilities, skills of its organization, depending on the activity and
resources, the quality of the project, of its decisions, expressed in the busi-
ness plan. This raises the question of the classification of the contractor.
There are some commonly taught classifications. We must bear in mind
that they include to varying degrees several dimensions. In the capitalist
system, the contractor performs more or less these three actions:
The Concept of Entrepreneurship 3

(1) It generates capital in order to make them grow. Such is the case of
the owner-manager. But many entrepreneurs aid in making money
for others (family, venture capital firms, debt capital, etc.).
(2) It organizes production and adds value through functions that
increase market value. But many entrepreneurs have only limited
capacity of “managing” (ability to drive individuals, coordinates,
predicts, controls).
(3) It innovates the market. But many business leaders work on some
already innovative markets (where they can also earn a very good
living).

In other words, we must beware of the mythical image of the entrepre-

neur “dynamic,” “risk taker,” strategist and adventurer at once. We tried,
therefore, what are the social and psychological traits that distinguished
entrepreneurs from other workers.

(a) The most commonly advanced psychological trait is the need of/
for achievement (N of A: need for personal fulfillment), according
to the theory developed by Mac Clelland. The contractor would
do both: he would prove and realize something, as an athlete who
crosses the Atlantic rowing. We generally add the two needs: the
need of/for power—that is to say, the need to exercise power over
others (the contractor will mount an organization)—and the need
of/for affiliation—that is to say, the need to be recognized and
integrated into a medium (being entrepreneurs are seen as a social
promotion). Each entrepreneur will perceive these needs differ-
ently (a craftsman will feel probably more N affiliate of the N of
A). Many authors have sought more or less frequent psychological
skills for entrepreneurs. These include, in bulk: taking calculated
risks, self-confidence, acceptance of responsibility, long-term
vision, acceptance of multiple solutions situations, tenacity, accep-
tance of failure and questioning, etc. Needless to say, those few
people possess all these qualities together!
(b) Other authors were interested in the social background of the
entrepreneur. The results were highly controversial. We can finally
assume that:
4 Applied Managing for Entrepreneurship

(1) The entrepreneur “heir,” who perpetuates a business or an existing

business, will often be the eldest in the family, maybe from a social
group firmly established in this type of activity (existence of a
network) which is relatively stable.
(2) The entrepreneur “innovative,” who develops business in new
activities, will often be in conflict with the family culture, will
instead be the youngest, with a high A of N, agreeing to be in a
business context that is turbulent, and even hostile.
(3) Also, there are many types that do not make any reference to
the conception of the entrepreneur. The earliest classification is
Norman Smith, who, observing entrepreneurs, classified them as:

 Artisan: With relatively few technical and management skills,

decided rather abruptly to create his business, for the sake
of independence, or to find a job. He plays on a network of
relationships and takes advantage of an opportunity that pres-
ents itself. We can say that this is an incremental and reactive
decision.
 Optimist: The term is unsuitable, as Smith refers rather to
creators who have matured their project, acquired the technical
skills, management, capital and resources before launching
their business. We can talk about proactive and deliberate
decision.

This classification, although still cited, is highly questionable. There

are many other types of creators; regarding the heads of existing compa-
nies, it appears that almost all, in certain sectors, would type “artisan,”
which removes any interest in the classification! Smith himself has virtu-
ally disowned. Drawing on studies conducted by Miles and Snow, which
distinguish entrepreneurs “adapters” and “innovative” entrepreneurs, led
to a classification that takes into account both the type of organization and
the degree of innovation.
The larger the organization is structured, the more we can assume that
the contractor will have management skills (what is sometimes called
“professional contractor”) often acquired as a result of management
experience, together with a complementary training. Such a classification
allows to better understand the entrepreneurial archetypes. We suggest
another type of classification, based on the aspirations of the leaders.
The Concept of Entrepreneurship 5

These are three in number: the search for the sustainability of the case,
looking for the independence of the capital or of the autonomy of decision
(which is not the same thing), and the search for growth, whether proactive
or reactive. From these three fundamental aspirations, we can identify two
extreme types of entrepreneurs (in the sense of business leaders):

(1) The PIC is driven by the logic of essentially patrimonial share (the
company must contribute to increasing the value of assets held by
the individual and/or family). As a result, priority is given to the
sustainability of the case (the transmission is a major problem)
as well as financial independence (refusal to external partners or
bank indebtedness). Growth is only accepted if it does not affect
these priority aspirations. PLCs are driven by the logic of action
based more on valuation than on capital accumulation. The main
objective is growth, to the extent that it identifies with profitability.
(2) In contrast to the above is the second category: the CAP. The CAP
rather works on other people's money (which increases by effect
of debt leverage, its return on equity), but he wants to maintain
the autonomy of decision (risk capital is for it an ideal formula).
Finally, they do not particularly wish to perpetuate in an activity,
because the entry of new competitors and product maturity lead to
lower rates of return.

The PIC will improve in stable, mature business, while the CAP in
young and rowdy activities; they differ in management style (well, the CAP
will be more open about its business context and will do more marketing).
There are many other types of the entrepreneur. However, they raise much
criticism.
They are only extreme cases of representation, facing an extraordinary
diversity of contractors. An entrepreneur learns as he/she ages, reacts
to events and may therefore change his/her profile. Simple typologies
tend to be false, while too complex typologies become unusable. In fact,
researchers should propose a typology by type of operational problem
studied.
However, these types have some educational value and are a valuable
diagnostic tool in the first analysis. In particular, they have the merit to
emphasize the fundamental role of the leader, especially in companies
with personal or family management in the operational choices.
6 Applied Managing for Entrepreneurship

And what is the role of entrepreneurship in all this? For contractor

entrepreneurs, as economic analysis has especially emphasized, entrepre-
neurship is a corporate function. It is diffused in all organizations; it is
characterized by the ability to innovate, your calculated risk taking, the
ability to conceive, organize, and carry out a project: this is the meaning
given by authors such as Peter Drucker and Mark Casson. Often, an indi-
vidual or a group will have more or less this entrepreneurship: some will
be more visionary (“prospectors”), others rather organizers (“adapters”).
But it is in this corporate act of creation that entrepreneurship becomes a
realization. Now, the business creation process has continued to grow. The
established companies were becoming smaller, with less and less capital
to start, either by necessity (low resource creators) or opportunity (created
mainly in the service sector, less demanding in capital structure). We can
also estimate that the actual creation of small or very small businesses has
been underestimated by official statistics, due to the development of a very
large underground economy (undeclared businesses).
To solve the problem of unemployment, to revitalize the regions,
public institutions have, in almost all countries of the world organized
assistance to business creation systems—the main problem being to find
“entrepreneurs,” that is to say, people with: required skill set, even for
minimal tasks (e.g., maintain records, make an estimate); psychological
characteristics of a “temperamental profile” corresponding to qualifica-
tions; a viable project, that is to say based on a coherent analysis of the
proposed activity (technological skills, existence of a potential market,
product reliability), and a sound assessment of the resources needed.
As a result, a multitude of aids were introduced (we lived in France
where several hundreds of aids were launched), and organizations were
created at national and local level, hoping to generate and/or support the
creation companies. The results were highly controversial. The essential
discussions focus on the following.
It is not sure whether there is consistency between all these organi-
zations. In particular, it is possible to establish a “wild” competition
between cities or regions (or countries) seeking to attract at all costs for
entrepreneurs.
The aid is too complex. Paradoxically, it has especially benefited
the subsidiaries of large groups, or large SMEs (small and medi-
um-sized enterprises), which could acquire the expertise to complete
the paperwork.
The Concept of Entrepreneurship 7

The aid is ineffective. They are most often designed to help the creative
well beyond the most difficult phase is the startup. They can do that
arriving after the victory (or defeat).
The aids are expensive. Although they apparently reduce mortality
(between two-thirds and half of companies die within the first five years),
have they not been granted, precisely because the project was viable at the
outset. However, the cost per job created in the “techno polis,” “nurseries,”
and other “business parks” may seem excessive for companies handpicked
and would have probably robbed of their own. On these points, it is up to
economists to try to measure the actual effectiveness of these incentives
for entrepreneurship. However, applied management specialists are asking
other questions:

(1) First, can we predict the success of a business project? Hence,

it is better to first understand the circumstances of the creation
of a company. Shapero hypothesized a “creation by moving.”
Shapero highlights factors such as psychological (need of achieve-
ment, independence), sociological (breaks: dismissal, personal or
professional disappointment, etc.), and social (environment, home
environment) as initial, potential conditions. Then the realization
involves the provision of resources in general.

Needless to say, the thesis of “creation by displacement” has been

controversial, even if there is some truth in multiple start-ups caused by the
dismissal of waves: but it was able to verify that these companies (crafts,
local shops, etc.), created by “hunted” rather than by “hunters” of the
productive system, were less efficient and less viable than those resulting
from a deliberate and proactive commitment to creation. Shapero also has
the merit of showing that entrepreneurship is a repetitive act: often, the
creative entrepreneur fully succeeds in its draft after several attempts, in a
kind of “pedagogy of errors.”

(2) Second, the entrepreneurship action is not limited to a single

building project. It tends more and more to distinguish the project
design phase of the start-up phase itself. The project design lead to
a “layout” resulting in “implementation.” Too often, aid systems
stop at the project design (existence of a market, reliability of tech-
nology, guarantees, paperwork, and various guarantees). However,
8 Applied Managing for Entrepreneurship

the expected and unexpected difficulties start after beginning

(launch of the first series, first orders). The main challenges are:
start-up capital (working capital) being inadequate (you have to
pay suppliers cash and customers pay later), resulting in swelling
of the short-term, and product being very expensive; unforeseen
administrative difficulties (permissions); technical difficulties
(startup problem, technical problems); commercial difficulties
(customer requirements, prospecting difficulties); and human
problems (difficulty in finding skilled workers, conflicts between
partners).

Most often, these starting problems were not anticipated, and, when
they occur, the entrepreneur is isolated; but support should occur at that
time, perhaps more than when editing the project. The creator will come
out unharmed if it initially adopted a comprehensive operational approach
and ensured consistency of his plan when developing the business plan.

(3) Third, we must consider the circumstances and terms of creation.

There are many cases where the creator is “accompanied.” In the
incubator, the creator has relayed facilities (three years), various
services, and especially aid and advice in the start-up phase. In
business parks, it has mostly pooled services (communication,
catering, etc.). It is the same technology parks, which welcomed
new companies specializing in high-tech sector (in theory). A
company can also swarm: an employee may decide to create his
own business. He enjoys using his company, which agrees to
resume on failure. In fact, we must distinguish the “spread inno-
vator” (which often remains linked to the company sponsoring
spin-offs) and “swarmed prompted from” mostly resettled in low-
technology activities, and detached from the sponsoring spin-offs
society.

A company can entice one of his executives to create a new activity

(new product, new technology, and new market) within the company,
and to support its development: this is what we call intra-contractorships.
Generally, these cases are infrequent, though much publicized (the most
famous example is the “Post-it” in the 3M company). In fact, “intra-
contractors” do not have all the functions of a “real” owner-manager
The Concept of Entrepreneurship 9

contractor (in particular, the complete autonomy in operational decisions

and taking risks to its equity). There are also a number of pseudo-SMEs
created or taken over by large groups. These enterprises have subsidiaries
that specialise in prospecting and buying out interesting SMEs that are
likely to be taken over (either because they are experiencing problems of
uncontrolled growth or because the owner is keen to resell it). This case
also applies to “small groups” (hypo-groups), where, by the establishment
or acquisition, an owner-manager develops on various activities.
In all these cases, the company creating the conditions is obviously
more favorable, due to the effect of experience and “amenities” that are
offered to entrepreneurs. Thus, in general, the issue of entrepreneurship
has significantly distanced us with certainties and highly formalized
procedures: it is more a question of dominant psychological process as to
when to create a company that procedures based on mathematical logic
techniques. Nowadays, entrepreneurial analysis can no longer ignore
this dimension of the problems. This double dimension, procedural and
processual finds its fulfillment it addresses when the operational analysis
problems.
CHAPTER 2

Business Optimization

After a few years down the line, the most important lessons in business
optimization focus on the difficulty of integration. The students generally
struggle on the case of management of small businesses involving few
employees.
Such cases were investigated, which seemed so simple that most
participants found it difficult to motivate themselves. It described a
jumble industry, the company history, the expression of the characteristics
of the company, in particular, its statement of “corporate purposes,” and
operational marketing approach, and it replicated a discussion between the
author of this case and the president of the company. With such a general
portrait, students often ask what was expected of them. But these cases
were individual companies and, in this presentation, they seemed already
unique because of their ability to define and especially to take big decisions
consistent with this definition. Gradually, students have been introduced to
new aspects of the management of these companies.
These cases already put students to the test: these enterprises could
seize the opportunity to buy a competitor. Should they do? Another case
revealed the different perspectives of four functional departments. It was
discovered that each service has a different mission, different methods, and
operational problems. More importantly, every director had his personal
philosophy and a different management approach. Some cases showed
these managers in action, during meetings of decision, and suggested the
difficulties when they might have to act together.
Finally, the last case showed the president who, as responsible for the
coordination of this set, suddenly became more complex and delicate, and
had to make decisions that could decide the company's failure.
While studying these cases, the students understand the great diversity
and complexity of the issues the leaders are facing: market problems
(understanding customer needs, competitors' actions), operational prob-
lems (to operate plants), the management and leadership issues, issues of
12 Applied Managing for Entrepreneurship

power and motivation of staff influence unexpectedly on the operation

of the business, the problems that the company's size and the apparent
simplicity of its activities that are not announced. How then to bring order
in such situations?
In the conceptualization of the general management activities, one of
the most outstanding works is that of Barnard (1938) on the functions of
the leader. Barnard had first suggested that organizations were “coopera-
tive systems,” Cooperation “conscious, deliberate, with purpose” could
help people to achieve goals that would otherwise be impossible. All the
talent of leadership then was to instill and maintain people's willingness
to cooperate. For Barnard, achieving cooperation from people associated
with the organization meant that the objectives are clear and appropriate
systems “of material stimulation and persuasion” are in place. This had
to be done so that there is “a balance between the contributions of those
involved and the compensation they receive.” The person who agrees
to cooperate judges this balance. Accordingly, the art of management is
to convince the people associated with the organization that the current
balance is acceptable and justified for the continuation of cooperation.
Herbert Simon (1945) has, in a sense, operationalized research on
cooperation. He suggested that the unit action should be the decision.
The leader then is the one who works to influence the decisions of his/
her employees in order to make them converge toward a common goal.
This influence, which is somehow equivalent to the effort of maintaining
cooperation, aims to act on the factors that may affect the understanding
of the goals and their achievement, such as habits, reflexes, know-how,
values, and attitudes. For this, tools such as training (to increase know-
how), communication (to make clear objectives), and authority (to enforce
the people the effects of decisions taken elsewhere in the organization) can
be used.
Selznick (1957) studied the reasons that allowed the Communist
parties of Eastern Europe after the war to survive a particularly aggressive
adversity. It resulted in the emergence a conception of leadership that has
greatly influenced the operational approach of organizations. His book,
Leadership in Administration, suggested that all organizations do not have
the same nature. There are those that are simple instruments, putting into
practice a technique or procedure, and those who have a “personality.” It
is the institutions. They are “infused with values,” and this gives them a
Business Optimization 13

special ability to order dull in-conflict and adapt to disturbances in their

environment.
Leaders play a critical role in the “institutionalization” and in main-
taining the “character” of the organization. In particular, they must ensure
that the values are transmitted within the organization and that the “elites”
who are carriers of these values are formed and protect the organization
from ex-dull influences. These values form the core of the organization
and are the elements of its “distinctive competence.”
Christensen, Andrews, and Bower (1973) described the task of the
CEO or general manager under three main roles: (1) architect the purpose
of the organization; (2) organizational leader; (3) staff leader.
The leader is the guardian of the company's goals. To do this, he
presides over the establishment of objectives and the allocation of
resources, carries out or ratifies the choice among different operational
solutions, and represents the goals of the organization against external
attacks and internal erosion. He must ensure not only the maintenance of
the organization but also its creative development to achieve the desired
performance. The most crucial qualities required of a leader are the ability
to conceptualize the purpose and the ability to transmit to the members of
the organization. The leader is the main communicator of the purpose of
the organization. The leader must also be a careful project manager whose
role goes beyond the focus on the goals. He must constantly worry about
the integration of specialized functions that tend to proliferate and lead the
organization in all directions.
The leader must finally act as a motivator and as a negotiator. He must
command respect and be able to elicit cooperation from his subordinates.
In areas where the judgment cannot be replaced by detailed procedures, it
is often by his behavior the leader clarifies the expectations of the members
of the organization. Motivating managers and then assessing their perfor-
mance are important functions, but are often difficult to reconcile: the first
requires an understanding of the needs of people, while the second is based
on an objective assessment of technical requirements required by the task.
Although his/her function is involved and he/she requires qualities of all
kinds, a leader is not a superman. That is when it makes sense to focus on
the operational approach to help with such a daunting task.
For Henderson, the first element of Hippocrates method is hard, persis-
tent, unremitting labor in the sick room, not in the library. The second
element of that method is accurate observation of things and events, select,
14 Applied Managing for Entrepreneurship

guided by judgment born of familiarity and experience, the salient and the
recurrent phenomena, and their classification and methodical exploitation.
The third element of that method is the judicious building of a theory—not
a philosophical theory, nor a great effort of the imagination, nor a quasi-
religious dogma, a walking stick useful to help on the Way and the use
thereof.
When Hippocrates illustrated his method, he described the doctor's
situation had to act despite a lack of knowledge, and despite many uncer-
tainties about cause and effect. For the physician Hippocrates to make
decisions, he needed “a familiarity in-first time, intuitive with things,
then a systematic knowledge of these things and finally an approach to
thinking about it.” The parallel with the manager is not only relevant but
also striking.
The manager is in a position similar to that of Hippocrates. For students
considering the case under review, it was obvious that we needed a tool to
bring order, a kind of blind stick to find the way through the clutter of daily
management. And today's situation of the companies is even more difficult
to envisage the past. What characterizes the management, with the explo-
sion of information technology and the gradual fall of customs barriers
between nations is the incredible complexity of contexts and phenomena.
Neither small business nor enterprise produce single product beyond that.
The complexity not saving any organization, therefore, makes sense of
reality that becomes an important necessity for the manager.
In practice, successful managers demonstrate an ability to understand,
often intuitively, and create solution that is impressive. Consider two
examples reported by the trade press. These are companies that operated
for years. A small company that is a subsidiary of a large group was about
to close. She had been paralyzed by a strike that lasted 172 days. The
Chief, after many failed attempts, succeeded in obtaining a bank financing
to buy the subsidiary. Convinced that the company's success depended on
employee commitment, the company president wanted to arouse in them a
behavior of owners. He not only gave them a portion of the property, now
to do this way is rather common, but also decided to teach everyone from
sweeper to milling, things that bankers know. During the following year,
the company spent hundreds of millions of dollars for training in finance,
six times more than for the improvement of production skills. Each week,
the company stopped its machines for half an hour to allow its employees
Business Optimization 15

to discuss in small groups the last financial documents of the company.

Also, a few million dollars were also distributed in performance bonuses.
This policy has paid off for the company, because it is part of an
industry where margins are minimal; any attention to costs from employees
therefore makes all the difference. More than 1600 companies, including
prestigious companies, sent people home to learn from this remarkable
experience. Now consider the opposite situation that of the production
company. This company was a manufacturing and marketing products
company. Its main products were different but marginal products. The
company was the result of a merger between two companies. The main
competitors were an American multinational, and a firm, the local sales of
which were about twice. Years later, the management asked a consulting
firm to conduct a study of its competitive business context. The work, very
detailed and very accurate, highlighted, among others, the following:

• In its specialty, the company was in a strong position. There were

few large competitors and none had a truly national dimension,
probably because of conservation problems in long-term products.
The company even had a significant know-how that could be
exploited in a national and international expansion.
• In terms of ancillary products, the situation was totally different.
First, there were strong and vigorous competitors. In particular, the
existence of a dominant competitor with a market share almost four
times that of the company and spending authority for marketing
and product development which was much higher. The conclusion
of the study was that in this industry, success was conditioned by
traditional economies of scale factors and financial power. Ideally,
the company would be increasing its market share by becoming a
national player rather than regional, or differentiate by focusing on
one type of product.

The corporate culture was dominated by a company with a tradition

of quality and craftsmanship that took importance. This culture was also
marked by a cost-reduction culture and research of operational efficiency.
The most developed part of the study suggested the company to focus on
its most promising products and try to dominate the industry. This meant
including acquisitions and targeted divestments.
16 Applied Managing for Entrepreneurship

The leaders of the company then began to realize that part of the
recommendation, which appeared to them the most obvious and appar-
ently the easiest to do. They made a major acquisition in their area and
developed a dynamic market optimization method to remove market share
to competition. The only element that was overlooked was the competitive
responsiveness. This reaction was devastating. Their products were better
known and appreciated by the general public. By combining advertising
and price reductions, competition has placed the company in a catastrophic
situation. Increasing costs, combined with the drop in income, has created
a particularly difficult situation. In addition, the company, after making
efforts to carry out a major acquisition internationally by believing in an
interesting operation, proved a disaster. The acquired company was facing
bankruptcy and asked too many managerial resources to head over the
company's operations. The company, at the same time, would have had
the opportunity to make a series of acquisitions of quality companies to
another of its product segments. This segment was much more consis-
tent with the company's tradition and probably more to the extent of the
company, but executives decided otherwise. As a result, the company had
to retreat, trying to sell all its activities other than the main segment. Most
leaders then left the company.
The leaders of the company did not really follow the rules of
Hippocrates. They did not have an intimate understanding of their craft.
They made systematic efforts to understand their field, but these efforts
were not very concentrated and were dominated by a kind of magical
thinking. Finally, they did not have a convincing theory about what
animated their field. They are simply allowed to be impressed by the
study carried out and tried to implement its recommendations without
wondering if they were capable of doing what they were envisioned.
Looking back, one realizes that the company was more capable of a
transformation that would put emphasis on product quality and differ-
entiation rather than on the costs and economies of scale. It would have
been more consistent with their resources and values of employees and
managers. The company has since refocused on what it does best and has
improved its market position.
Drawing on Roethlisberger (1977), try to recall the analytical frame-
work that Henderson, inspired by Hippocrates, proposed to include
social systems such as businesses and to act on them. Here is what he
said: you need to have a concept map, necessary to the investigation or
Business Optimization 17

understanding, a kind of reference for action; this scheme is not a ques-

tion of right or wrong, but a question of relevance. In other words, the
real test for a conceptual scheme is not whether it is true or false, but
whether it is useful and appropriate; this scheme should be used. This is
not a theoretical learning object; it can be improved during the action;
this pattern is not universal. It can only be used to understand a class of
phenomena or act on them. It is a kind of a little primitive instrument,
rather than a highly sophisticated instrument; this scheme must be used as
long as it provides assistance to those who use them (Beware you think
you may have a real bear by a real tail). Nothing could be further top from
the truth. You have just a walking stick to assist you here and now. This
walking stick will return someday to that glorious graveyard of abandoned
working assumptions.
The manager must be prepared for the day when a different way of
thinking will be more useful: Commit yourself to a spot of view. Without
such a commitment, nothing productive results. Purpose someday that
your commitment (your conceptual scheme) will have done ICT job. Be
prepared for that day. Be thankful for what it has done. But when that day
comes, be of stout heart rejoice and abandon it to God.
Applied Management: this framework is called the business opti-
mization. These companies, like all organizations, sometimes act with
a conscious conceptual framework, and sometimes are less aware. The
difference between success and failure of an organization often comes
from the clarity of the instrument and its relevance. Many organizations
fail because they have not been able to renew their approaches when it was
no longer useful. In other words, the optimization is a method of action.
Business leaders need to discover or find their way in the darkness of an
uncertain and turbulent world. But, this is not a universal tool. It must first
be adapted to the situation. However, this can never be adapted forever.
Be prepared to give up and replace it when it is no longer relevant. Of
course, there is a variety of methods, and it happens that a company can
adopt a sophisticated method that will prove useless or dangerous to the
unwary buyer. As we shall see later, this risk is reduced when the leaders
themselves are working to identify the approach of their organization.
Companies that are successful usually have worked hard to design their
method.
CHAPTER 3

Approaches for Applied Management

The systematic use of applied management is relatively new. In fact,

the applied management undergoes various influences that reveal the
diversity of its origins and its contributions. Often in business schools,
this is entrusted to a corporate practitioner (a professional), which mainly
proposed revenue. Conversely, in the universities, it is given to microeco-
nomic specialists and is often in the exhibition very theoretical models
or he was entrusted to teachers of management techniques that focus
on the technical planning and control, rather than on strategic thinking.
Finally, professionals are especially interested in policy issues, to concrete
decisions.
It will be understood that the domain is, par excellence, the place of
the confrontation of thought and action. It requires an understanding of
concepts and ideas, the reading remains commonplace as they do not face
a practice, for example, by the case, by his own business experience. This
symbiosis perfectly appears in North American education. At first, the
authorities are concerned about the conceptual poverty seminars. Because
these courses are devolved to practitioners, most often. Universities, to
maintain their competitive position (as they are the subject of rankings,
which justify the registration fees) then recruit researchers from disciplines
“harder” as the industrial economy; these researchers propose more formal
approaches.
At this point, it must be said that the definitions proposed in the
outstanding works reveal the absence of complete consensus in the current
state of the discipline. However, we can classify these definitions around
some recurring themes:

 The theme aims: Any approach based on the definition of long-

term goals and determining how to achieve them. This type of
definition is more interested in policy issues of the company or
organization.
20 Applied Managing for Entrepreneurship

 The theme of the plan: Any approach based on a planning commit-

ment of resources over a given horizon. No plan, no operational
approach in this extreme design. The applied management then
identifies the optimization of planning.
 The theme of the business context: Any decision that aims to make
the company competitive in the long term to strengthen compared
with a business context where competition reigns. The applied
management then identifies with the struggle on the markets and
approaches to marketing optimization.
 The theme of change: All decisions involving significant changes,
structural, in the management of the company (its goals, activities,
organization, etc.).

Often these various meanings are grouped in a very banal formulation

of the type: The optimized management is to plan for change in order
to adapt the resources of the organization with the requirements of the
competitive business context, to achieve the objectives and fundamental
goals. It is true that most textbooks are designed with this in mind. We first
define the goals and general policy, then we set the diagnostic features of
the context of business and the organization before implementing planning
ways to achieve operational procedures of activities including perform-
ance will be controlled.
However, we see that there are two distinct levels principle: The level
of “corporate optimization,” which broadly corresponds to what is called
the general policy and the level of “business optimization” elaborated in
operational products and markets divisions. Of course, these two levels
are closely related (in small businesses, they are perfectly combined). But
they correspond to distinct problems, including how decisions are made
as to their purpose. Now, according to the importance given to each of
these levels as to each of the dominant themes, the operational approach
of schools of thought are emerging.
Meanwhile, experts have identified what is to define the concept is
a type of action consciously wanted, a type of action formalized and
structured, an action intended to achieve a specific objective (it is those
tactics), or looking for a favorable location in the context of business, to
sustainably compete, a perception of the position in the future. These five
points are interconnected and underscore the strong link between reflec-
tion and action in this area.
Approaches for Applied Management 21

Thus, in large bureaucratic organizations, writing the plan plays a key

role in the optimization process. The plan will be formalized, run through
maneuvers unfold over time and cause some market positioning. In small
companies, the process is different. The maneuvers are important (the
approach is reactive), optimization emerges from these maneuvers: it is
structured on the job, gradually acquires a certain period, some perspective
of time, and helps position the company without there being a formal plan
initially. The approach to optimized management is the group consisting
of thoughts, decisions, actions designed to determine the overall goals.
This concise definition cannot hide differences of design, which can be
explained primarily by the diversity of disciplines that have helped forge
the applied management of companies and organizations. As we have
said, the conception of education is strongly linked to the culture of the
teacher: witness the diversity of the content of textbooks. This diversity is
explained both by the youth of the discipline, as an object of study, and by
the age of the practice. It is, therefore, to trace the sources and a critical
review of these.
The relationship is simple, officials in Athens were responsible for
the conduct of the war, under the watchful eye of the archons, notables
responsible for managing the city (we thus see a first representation of the
distinction between policy and optimization activities). It was not until
the Napoleonic wars that theorists beyond mere conduct battles to look
into the art of war. Karl von Clausewitz, Napoleon observing campaigns,
broadens the debate by showing that war is only one form of foreign policy,
the diplomacy of a country, violent form, subject to further political goals.
During that time, large US companies sought for thought to develop
their management and believed in finding in military theories on the
conduct of wars, campaigns, and battles. We live and bloom of many
books on the art of war applied to business affinity is much debate. From
these discussions, we can draw the following observations: At the simplest
level, the warrior image gives rise to many expressions without real depth
reflection. At another level, some similarities can be observed between
the conduct of business and the battles. First the relationship between the
respective forces (organizational resources, competitive advantage), the
state of the ground, and terms of engagement (competitive positioning);
then, on the conditions of how the battle or war (tactical maneuvers).
However, the fundamental objection is that in the business war, this is
generally not destroying the competitor (market forces are in charge).
22 Applied Managing for Entrepreneurship

The affinities are actually much stronger in the following two cases:
First, when the company's approach is a knockout approach of competi-
tors or the context of business is strongly hostile; secondly, when the
military war is not to the destruction of the opponent or when the battles
are conducted without seeking total victory (the Gulf War, guerrillas in
provide many examples).
In such a configuration, the economic analysis (particularly the
microeconomic analysis of markets) provides a low spot in business opti-
mization. Focusing primarily to general equilibrium, partial equilibrium
outcome (in each market), the economic analysis assumes that for optimal
performance, the maximum profit, the company must just obey blindly
to market that are the price signals (wage rates, interest rates, profit rates,
product prices). The business owner has to settle for the best use of its
resources if it is rational.
This analysis has long prevailed. Today, economists who are interested
in business and industry are placing increasing site or critical, the manage-
ment approach, developed to provide essential tools and models. The main
amendments to the traditional economic theory are: There are theoretical
situations that are different from the pure and perfect competition and
allow the company to choose the amount torque/optimal price. Such is
the case of the following situations: Monopoly (single), duopoly (two),
oligopoly (few). The optimum can be obtained by different routes, as
there is confrontation (conflict), tacit understanding (collusion) or explicit
agreement (cooperation). It is not even sure we can logically determine the
optimum result.
The more realistic theoretical situation is undoubtedly that of imperfect
and monopolistic competition: each company is looking to have a stable
market share and adopt an operational approach to survival, not out of war,
with too uncertainty. The idea that companies seek to maximize their profit
by allocating their resources optimally is a view of the mind; they adopt
rather a satisfaction behavior of realistic goals. It is not true that the rate of
profit in an industry is only determined by the structures of this industry.
It must reflect operational approach businesses that contribute to changing
structures (application, technology, etc.) industry in this light, we prefer to
speak of Industrial Organization instead of Industrial Economics.
The traditional economic analysis gives no role to the company and
the entrepreneur. Joseph Schumpeter will show the key role of the entre-
preneur in capitalism, by its innovative approach. Similarly, Coase will
Approaches for Applied Management 23

show that trade can take place either in a market or in an organization:

that internal transactions are fewer “costly” in the broad sense as external
transactions, justifies the existence of the firm in a market economy. After
a very important current business, economics will focus on the theory of
the firm, paying increasing attention to the relationship between structures
and operational approach, at the company as the industry. The contribution
of the economic analysis, as amended, was primarily to give more rigor
to the presentations on optimized management, by clarifying the scope of
certain concepts (e.g. diversification or goal setting).
In another form of literature, economic analysis specifically focuses
on the following points: The belief in the primacy of the market economy,
free competition, as performance selectors, and accordingly, the director
role of profit. The interest in a rational approach, methodical, in the
operational analysis (diagnosis, location of the problem, choice from
rational criteria, the best solution, implementation, monitoring results).
The use of analytics within the substantive logic, mathematical logic, as
an aid to a business decision. Admittedly, historical analysis is to follow
or reconstruct from documents the evolution of the optimization process
(key decisions determining changes) followed by a company or group of
companies. The goal is twofold:

 Try to identify the “laws” or trends. Thus, Chandler suggested

that major structural changes occurred in corporate America were
caused by a change management approach in the selection of prod-
ucts and markets. Big business, according to this author, opposes
the “Invisible Hand” of market laws, the “Main Visible” of the
organization (internal transaction costs) that shapes according to
its operational choices.
 Observing the evolution of techniques and management prin-
ciples, often assuming that the success of a business is due to
the adoption of principles “modern” or “advanced” techniques
should be transposed to other companies. For example, Peters and
Waterman, watching your top performers, list the “key” to their
success. Unfortunately, a few years later, most of them had gone
downhill.

The fact remains that the observation of business management

approaches, even at the immediate history of the daily news, is an
24 Applied Managing for Entrepreneurship

inexhaustible source of information. Regular reading of articles on busi-

ness life offers constant applications of concepts stated in textbooks and
other books on management optimization. If we abandon the assumption,
often advanced by economists that the optimization of the company is
determined solely by market forces and competition, we are led to attach
great importance to the role of individuals and organizational structures in
applied management. In particular, the choice will bring to power relations
or at least to interpersonal or intergroup relations.
The sociology of organizations has developed strongly after the
Second World War. The main contribution lies in the view called “quota”:
Considering that optimization is not determined a priori but it results from
the interplay of forces and events that influence the choice individually or
globally. Psychology also plays an increasing role, since it allows to better
understand the process of decision-making. She is interested in ways that
“know” makers (cognitive process), they “learn” (the learning process),
and they “choose” (decision-making). Strange as it may seem, the relation-
ship is not so obvious. Indeed, the management of a company aims to use
the best resources available to the company; the manager relies on well-
established techniques, in general, and these are the subject of teaching,
of a transmission simple enough (e.g., accounting techniques). Optimized
management, we encounter complex situations, to “ill-structured” prob-
lems for which the answer is not always technically possible. As can be
seen with management students, awareness of the optimization approach,
once taught traditional models and the observed practices, may face strong
resistance. Indeed, it is requested to adopt a “cottage” attitude.
In fact, things are moving in the direction of an increasing role of
an attitude “optimizing with” in various areas of management. Indeed,
management techniques have become, in many areas, highly programed,
so that the computer can “make the decision.” Therefore, the manager
must now worry more risky decisions, most complex, a programable bit.
Thus, the accountant will increasingly have management consulting, the
chief of staff will make less pay and recruitment, etc. This means that
we look more and more difficult to programable decisions having effects
outside the function, requiring a different mindset (and we do not seek
“the” solution, but “one” solution this is very confusing for the student).
The relationship between management and optimization is, of course,
stronger, so that the terms are often confused. The management has its
origins in the stewardship function of the company. But we can blame this
Approaches for Applied Management 25

assimilation to confine optimized management in the internal aspect to

the company, implementation of a determined approach from the outside.
Marketing, which has the merit of opening the reasoning vis-à-vis the role
of the market and the needs of satisfaction. The number of models are actu-
ally borrowed from marketing optimization (such as portfolio matrices).
However, the approach goes well beyond the marketing alone: thus, at the
“business optimization” must also take account of technological mech-
anisms. One could cite other influences (engineering, political science).
What has been said is sufficient to emphasize the extreme diversity of
influences. Now, researchers are themselves of different scientific back-
grounds and their work shows that diversity. It follows several schools of
thought.
The various current trends in business optimization are located on a
clock as “the time ahead,” we would currently emphasize on decision-
making procedures, model-based and proven technologies near schools
or more contingent methodologies to lead to interesting approaches to the
processes of decision-making in organizations and individuals. The ideal,
far from being achieved, would lead to an approach integrating all of these
concerns, procedures, and processes, in a “configuration” encompassing
all these problems. From there it is possible to locate in time and space,
the origins of applied management. The essential idea is that the goals are
set by the owners, and implemented by the leaders after examination of
the internal and external situation through optimized management. This
approach is very logical, it is now criticized for being too much, not to inte-
grate behaviors and risks, to insist more on procedures than on processes,
not understanding the implementation issues. Therefore, another approach
will address the problems, that is to say a planned management tool for
design and business development modes, through the activities, analyzed
technologies, products, and markets. It will be observed that the approach
is still highly formalized: Gold, was criticized for its rigidity, difficulty to
adapt to sudden changes to change approach. Hence profound changes.
Following heavy disruptions in global capitalism, the problem of
competitiveness has arisen critically. Traditional activities are no longer
the engine of growth (automotive, appliance, consumer goods) and must
“invent” new commercial and technological approaches. Hence the devel-
opment of the analysis of activities in terms of competitiveness (growth
potential and profit). The problem is analyzed from two perspectives: First,
competitiveness based on specific skills of the company (resource-based
26 Applied Managing for Entrepreneurship

approach) and, second, on a relative advantage over competitors, bound

a good market positioning (environmental or ecological approach), the
two interacting problems. We are then faced with the choice of activities,
causing hesitation among some determinism (the positioning causes the
performance level) and some contingency (“it depends on several factors”).
This contingency appearance takes precedence over mere formalization
when discussing business development mechanisms: Analyses become
more complex, the choices are strongly relativized, there is a little decisive
model.
In this respect, the context of the case is complex and uncertain is
commonplace. But this trivial aphorism covers a reality difficult to grasp in
the business models. Research has greatly advanced in this area, although
it lost momentum to follow the sometimes-brutal transformations “cata-
strophic” technical, economic, geopolitical, business. The contribution
of the industrial economy has been significant. The prevailing feeling
is that in this approach, there is no definitive solution for the company.
The dynamic optimization variables are predominant and choices need
to be revised constantly. This sense of contingency is exacerbated with
the analysis of relationships between the mechanisms and organization. It
appears as a management system, moving, interactive, subject to constant
change; the notion of flexibility is crucial. We can remember that the focus
should be on behavior, rather than on procedures, in applied management.
One thing is clear every time: we finally know little about how people
make decisions of a strategic nature. Mintzberg and Simon give a key role
to intuition. But they show that there are several ways to make a decision,
and the process is influenced by many factors. Finally, there is the great
forgotten of the analysis: The CEO. This will be the contractor, defined as
one that takes important decisions. But the concrete forms of entrepreneur-
ship are extremely diverse, there are particular types of entrepreneurs who
have made the subject of much research, particularly related to the explo-
sion of the creative phenomenon of small businesses in the economies
developed. Knowing that the mastery of concepts and tools is essential,
reflection leads to emphasize the overall look, systemic, integrative, of
decision optimization. This must inevitably deal with complex issues,
since the phenomena are inextricably, and sometimes inexplicably linked.
The analyst should modestly accept a partial ignorance. For educational
needs, problems are addressed one after the other. But it must be constantly
in mind that each of them is connected to the others. To understand this
Approaches for Applied Management 27

interaction required, it is customary to use a pattern “diamond,” distin-

guishing the “poles” or “pillars” of the analysis, and then connecting them
with two-way arrows to indicate reciprocal relations.
CHAPTER 4

The Foundations of Governance

Strategies

The idea of optimizing business decision is very flexible. It is used to

describe and understand the behavior of people, those groups, those
organizations that they are governments, nonprofit organizations or
private companies, and even those countries. The idea of optimizing the
decision covers multiple realities. Aspects relating to the “content” of
management mechanisms, possible to say what the company did, so that
aspects “process” can reveal how he does it. It should also distinguish the
“design” of the “formulation” in the management mechanism optimiza-
tion. It was established two different approaches. The first four dimensions
of decision optimization are the definition of product-market, the growth
vector synergy, and competitive advantage. The decision optimization can
also be designed in four main ways: a plan, a perspective, a position, and
a pattern. These different ways of conceiving the business decision are
interesting, but the real challenge is to position them relative to each other,
taking into account both the context of business, skills, organizations, and
role shareholders.
The business decision can first be conceived in the relationships between
the company and its business context that environment is considered
objective or as the result of the perception of shareholders. The company
then tries to take advantage of this environment holds opportunities and
when to protect themselves when threatened or perceived as threatening.
Optimization is, therefore, a relationship mechanism the context of
business, a mechanism to manage this relationship for the benefit of the
organization. In managing its relationship to the context of business, the
company has to rely on her skills if she wants to make the best of it. To
optimize its management applied, it should from its strengths and try to
overcome weaknesses.
30 Applied Managing for Entrepreneurship

The company's relationship with the business context is always medi-

ated by shareholders, whether individual or collective shareholders. This
is the perspective of those shareholders who give meaning to the context
of business and enterprise and, thereafter, presides over the decision. This
perspective allows them to establish a link between environment, busi-
ness, and operational guidance skills. Classical literature in the field is
very interested in the perspective of leaders and their values: BI optimiza-
tion is then seen as a continuation of the leaders. But more recent literature
is increasingly interested in the role of other company stakeholders, rather
than its own leaders: The perspective of these shareholders is considered
important.
The optimization of business decisions may result from different
processes. The decision optimization may result from the use of an
analytical process formalized before the action takes place. This is called
an applied planning process that led to the formulation of an intentional
decision. But the decision applied choices can also form during the action.
This is called emergent action, groping decision, and actions in daily
life. Applied management is, therefore, built through a set of decisions
or actions, or both, that are going in one direction and for determining
what it is. It is in this sense that the literature speaks of a pattern. To speak
BI optimization, it needs to be a pattern that it is the result of decisions
before the planned action or it emerges during the action. This is may
also be called the driver vein. It is the absence of a pattern (in decisions or
actions), which leads to speak of lack of optimization in business.
But the optimization process is intentional or emerging, the mechanism
is still interested in the position that the company wants to have may have
or should have in its field. Position the company compared with other
companies in its field of activity, from the context of business or enterprise
skills through a process before action or course of action is what called
the decision optimization. The optimization process inevitably leads to
clarify the strategic content, that is, to say the kind of relationship that the
company wants to meet with his business background.
The pattern—decisions and actions, depending on the consistency and
coherence that will be compared with the context of business, capabilities,
and business skills, allows the latter to be more or less effective. This
performance can be analyzed in terms of acquiring a competitive advan-
tage over other organizations in this field. This competitive advantage can
be defined in terms of economic and financial optimization, but it can also
The Foundations of Governance Strategies 31

be analyzed in terms of social contribution. This is called social optimi-

zation. Thus, without claiming to be exhaustive, we can identify several
ways to optimize the company: Optimization as managing organization-
context relationship; optimization as an extension officer; optimization as
an expression of a community of persons; optimization as a driver vein,
like building a competitive advantage.
From there, it should be noted that the objective of optimizing the
decision always is to position the company as a business context, which
context is the competitive environment of the firm, the institutional context
or network a company belongs. This positioning can be the result of a
deliberate process or process emerge; it can result from reflection of the
only leaders or the action of a community of persons; it may be forced
primarily by external factors or result more an assessment of internal
organizational factors. But in all cases, business optimization allows the
company to position itself in relation to the context of business.
As a reminder, in the literature, there are two major trends regarding
this relationship. The first trend considers the context of business is crucial
and that significantly constrained the company's position. The second
stream, recognizing the constraints of the business context, considers
that individuals retain a substantial degree of flexibility, they have the
ability to choose and even to shape that context. For the vision that has
most influenced the design of the links between the binding competitive
contexts and positioning of the company, the industry structure determines
the optimization of the firm, its positioning, and ultimately performance.
But there are other approaches that have examined the constraint that the
business context has on the positioning of companies.
The situation of independent firms in some countries is a good example
of organizations that are constrained because of the context of business.
These companies are always thanking major sector firms, which are
both suppliers and competitors. The latter, being vertically integrated,
controlling costs and access to basic resources for independents. These
are very disadvantaged by the structure of the industry, which favors the
big players. They accuse them of collusion and also seek government help
to prevent practices detrimental to healthy competition in the industry.
Even when the business context strongly constrained the company and its
operational choices, this relationship is always influenced by the company,
by its capabilities, and resources. Some approaches are more reactive; they
32 Applied Managing for Entrepreneurship

focus on the strengths and weaknesses of the company and how its value
chain is configured.
Other approaches are more proactive and focus on developing new
skills or a reconfiguration of the organization's value chain so that it can
compete more effectively industry and to conquer the future. In the latter
case, the context of business is considered less binding and the company
greater flexibility against the background of the case. Here, note that the
company is not a passive entity to face the context of business. It can also
be active, both to get the resources it needs to interpret the context of the
case and locate them, and in some cases, to create it. This is the case of
several family companies where the corporate CEO, made a revolution
by deciding to conduct their business in new and different ways. They
find that their industries are experiencing a complete transformation. The
shops downtown are losing ground to supermarkets, settling in new shop-
ping centers. They also find that the area is in the hands of a few powerful
companies. The best approach, they think, then, is to sell many different
products to the small group of mass merchants that dominate national
markets. The CEO decided to divert the interest of the customer base door
products. Already doing business with several companies, they start to buy
a range of hardware and household goods manufacturers to expand their
product lines. It restructures all its acquisitions to make them as effective
as their businesses. The “novelization” soon became the standard for the
entire company. However, this form of optimization also has disadvan-
tages: All the weight is on their (customer) side; they can kill you.
In response, the leaders of these companies undertake to make himself
indispensable by filling all the needs of their customers. They do not sell
a particular item, but, according to a variety of styles and with a variety of
prices, all kinds of products. These companies and keep their customers
because they offer them is their benefits and that a variety of additional
services. We are an organization service. Anyone can make this stuff.
It's not high tech. In partnership with customers, companies offer their
“tailored” while helping them maintain very low stocks, seamless, thanks
to a computerized system that connects directly to the coffers of each store.
This is where the context of the case is not regarded as completely
decisive for the company and the role of individual and collective share-
holders becomes important. It is then considered that the perspective of
these shareholders plays a decisive role in policy and operational choices.
Sony Corporation is among the best-known Japanese companies. She
The Foundations of Governance Strategies 33

participates in a fiercely competitive industry, consumer electronics. In

this industry abound genius imitation, such as Casio, Samsung, Sanyo,
Toshiba and Matsushita, which produce multitudes of products about
standard or, in any case, difficult to distinguish from each other. Yet Sony
reigns over this industry as the company most innovative in-warming.
Since its creation, Sony has continually introduced high-tech innovations
in the wake of each other. Its name is synonymous with transistors, televi-
sions, VCRs, CD players, etc. How did Sony manage to stand out in this
way? Many cite the leaders of the company, and its first creator, which has
long been the Honorary Chairman of the Board. Policymakers thought, let
me tell you my philosophy: The key to success for Sony, and to everything
in business, science, and technology for that matter, is never to follow the
others. Our basic concept has always been to give new convenience or
new methods, or new benefits, to the general public with our technology.
This dual concern “be unique and practical” dominated the culture of
Sony. Although on the surface Sony looks like other large firms Japanese
catch, it makes things a particular way, in its own way, which reinforces the
values of its creators. But the most remarkable in this success story is the
incredible influence that the dream of some managers had on the behavior
and operation of this great company. Like Sony, all quality companies
are dominated by leaders with strong values and beliefs that consider as
one of their main tasks to transmit these beliefs and values throughout the
company. Beliefs and values are benchmarks that help corporate members
to lie in daily action. They allow knowing what is acceptable in the busi-
ness and what is not. Because of this, they simplify decided by eliminating
what is out of the way, the company wants to follow.
The example of large retailers is a good illustration of the difficulty
of staying the course. This is the case of those companies that have
experienced for nearly a century great success in the distribution. At
some point, leaders have tried to redefine the business as a distributor of
general products for the general public. Since this included clothing and
household products, we established a subsidiary of general merchandise.
Unfortunately, the new leaders of these companies have never realized that
general merchandise distribution obeyed substantially different from those
of food laws. Companies have then survived with regular injections of
funds from headquarters. Unable to remedy the situation, the management
decided to liquidate these subsidiaries.
34 Applied Managing for Entrepreneurship

In a different but similar way, some companies have recruited new

leaders recognized for their skills in the operation of the stock market.
They are redefining business as distributors of general merchandise rather
than as food retailers. They believed that the expertise in food distribution
could be extended to all types of consumer products. Thus, these companies
have acquired among other sports equipment retail chains and distribu-
tion and sale of general consumer products catalog companies. Unable to
manage the business in order to outperform competitors, companies have
lost a lot of resources and energy and they had to sell these acquisitions.
Despite these failures, leaders play many roles in companies. They
must first be the architects of the purpose of the company. Their task is
then to provide leadership to the company. Nothing is more important than
ensuring that the company does not drift. Hold the compass, staying the
course is essential for the survival of a company. Only vigilance, persever-
ance, and determination of the leaders can avoid the company of getting
lost on lands that are not favorable. However, leaders are to play other
important roles. They can be applied to the management of designers,
responsible for its formulation and implementation. They can also be the
creators of the training context of performance mechanisms.
How leaders are playing these roles is influenced by different indi-
vidual characteristics. It is in this sense that we said that the decision
optimization can be considered an extension of the manager. Literature is
full of examples that show this influence. Mention their values and beliefs,
age, education, experience and social origin, gender, intellectual approach
and the importance they attach to the rational approach, their emotions,
their level of cognitive complexity and maturity, degree of liberalism, their
attitudes change, their degree of stability, and seniority in the organization,
which have an important bearing on their corporate behavior. Honda's
story illustrates the potential role of community shareholders in the choice
of actions and success of a company. Honda has quickly established
itself in the US, as the leader in the motorcycle industry. The company
owned two-thirds market share, relegating far behind the competition.
This success is partly explained by the fact that the leaders at the summit
had some ideas about the company's expansion and were able to make
the move from the intervention of vendors and workers of production. If
Honda has succeeded is that beyond the creative ability of management,
training mechanisms occurred through trial and error, involving all levels
of the organization.
The Foundations of Governance Strategies 35

This “pluralistic” conception of the company and optimization of busi-

ness, which reintroduces the responsibility of all stakeholders and their
role in the decision-making optimization, is a break with respect to current
“elitist” that has marked our designs of the company, applied management
and strategic competence that attribute only to leaders. The reintroduction
of the community of shareholders in decision optimization models and
pluralistic vision that underlies it leads us to look at the daily optimization
of action. As for the concept of driver vein (or pattern), we must say that
it greatly facilitates the study of optimization mechanisms in companies,
especially in large companies and those with a long tradition.
Corporate optimization is the pattern of decisions in a company that
determined and reveals objectives and purposes, golden goals, produces
the main policies and plans for achieving those goals, and olefins the ranks
of business the company is to pursue, the kind of economic and noneco-
nomic contribution it intends to make to the shareholders, employees,
customers, and communities. The pattern (or lode driver) is identified
from the patterns that can be observed in conscious decisions. But it can
also emerge during the action. It is interesting to analyze the decision
patterns in each of the major stages of the life of general electric. The
firm, there was a time, was developing in all directions, without much
order. It was a kind of evangelical expansion. The central idea was that
nothing could resist GE if it decided to deal with it. The diversification
that followed was unrestrained. But laxity and lack of proportion made
that GE has reached its limits. Thus, after having attacked three major
markets, or nuclear plants, large turbines and IT, leaders had to retreat to
face a difficult financial situation.
With the introduction of planning, the situation has evolved. Previously,
planning was largely dominated by economists and experts in operational
research. Following the advice of a consulting firm, the leaders then
shifted their practices to modern planning methods, including the product
portfolio model and the idea of planning as management processes, today
elements of their brand widely taught in business schools trade. During
this period, they removed 13 product lines (vacuum cleaners, fans, gramo-
phones, pacemakers, etc.). Planning has been strengthened and refined.
The dominant aspects were not the market positioning issues but internal
operation. Structure issues, management planning and overall coordina-
tion systems have grown in importance.
36 Applied Managing for Entrepreneurship

The company then faced another problem that had the size and diver-
sity of the company. To maintain GE's growth rate at a comparable level to
that of the gross national product (the only reference valid given the size
and diversity of the company) had to be created each year a new industry
which size would be about seven billion. These considerable pressures to
growth have brought in front of the stage acquisitions inevitable optimal
solution. These changes, quickly bring very different behaviors. First, it is
a privileged profit rather than sales. The strategic effectiveness (the choice
of continuing operations) and operational efficiency (performance in
continuing operations) become essential. Thus, the CEO begins to concep-
tualize the areas in which the company must work, especially the idea of
the three circles: The circle of traditional activities, the circle of high-tech
activities and the circle of service activities. Outside these circles, it also
attacks create a business without borders: After molding GE so decisively,
the CEO determined to transform its culture and organization into what
he awkwardly describes as a “boundary- less” company. The CEO wants
GE to be an enterprise where: (1) internal divisions blur, and everybody
works as A-team; (2) suppliers and customers are partners; (3) there is no
segregation between foreign and domestic operations and each GE busi-
ness is just as much at home in South Korea and Paris, France, as it is in
South Carolina and Paris, Texas.
Each period we have just sketched is recognizable from an analysis
of the decisions taken in the company. When the observation time is long
enough, you realize that decisions tend to converge into relatively homo-
geneous and consistent sets, one can call patterns. These correspond to
periods of success when these decisions enable the company to develop or
strengthen its competitive advantage. Also, systematic work of the share-
holders and the company leads to the construction of a benefit that allows
the firm to survive in a context where competition is often fierce. In this
context, it is not that the economic and financial performance that ensures
the survival of businesses; it may also depend on the social contribution
of the company.
The development of a competitive advantage can take forms quite
unexpected, as was the case for many companies in recent decades. It has
the advantage that can provide a revolutionary technological breakthrough,
such as Polaroid; however, we often have difficulty perceiving the many
fewer spectacular creations that one, but are the source of competitive
advantage for successful businesses. Consider two examples.
The Foundations of Governance Strategies 37

The first example is that of Printing. The owner had bought his father
a printer located away from major urban centers. The company's products
were diversified and the company was in the red. The owner thought
that he must concentrate its activities and prevent the segments where
the competition was too strong. He had the choice between the book and
the press. As the press demanded short delivery, that the location of the
factory-made problematic and as he saw the book as a noble product, he
decided to focus on the printing of books.
To succeed in the printing segment, we had to be able to ensure high-
quality printing at a reasonable cost. Customers (typically publishers)
also enjoyed a rigorous production planning so that the agreed delivery
deadlines are scrupulously respected and that they can harmonize their
marketing programs accordingly. The printing had an advantage because
of its location. Labor costs were low and we could get more employee
loyalty to the company. This facilitated the formation and allowed to
increase quality. To reinforce this, the CEO has renewed its facilities with
technologically superior and more efficient machines. He created attrac-
tive working conditions.
To satisfy customers, the entrepreneur has introduced new practices in
the industry. He recruited salespeople, especially as the industry worked
with representatives. These vendors were advising clients on possible
printing forms and conditions that were attached to them. As had also
computerized the entire production and sales, the vendors were using their
portable computer, provide detailed information on delivery times and
prices. Orders that were made came directly into the operating system and
were processed immediately for production scheduling.
Having captured a significant market share locally, the company
managed to establish itself nationally and reproduce the fabric of success.
She became a model company whose success has been constant. In the
end, the printing was acquired by a multinational. The second example is a
travel agency. Like all travel agencies, the company has faced upheaval in
the dynamics of the industry, including the massive introduction of direct
services through the internet. While all competitors were reluctant, the
company embarked on optimizing online (online) very promising. She has
worked to build a profitable niche by combining a website high with the
strengths of traditional agencies: The human touch. But for cruises, the site
is incomparable. You can search by region, destination, and cruise lines.
One can also consider the boats with their detailed plans and whether it
38 Applied Managing for Entrepreneurship

is a restaurant or a balcony to the desired cabin. More importantly, the

company has innovated by introducing the ability to have instant access
to a specialist for advice. One can also send questions by e-mail with the
assurance of an answer within the next twenty minutes. With this approach,
the company has been very successful.
As we mentioned earlier and as we have seen with these two examples,
building a competitive advantage requires effort if we want to success-
fully stand out from the competition is differentiating itself by the quality
of products and services offered either by producing these products and
services at a lower cost than its competitors. The first step is to raise
the issue “who is the customer?” The actual customer and the potential
customer? Where is he? How does he buy? How can he be attained? The
next issue is “what does the customer buy?” Finally, there is the most
difficult question, “what does the customer value consider? What does he
look for When He buys the product?”
To define the activities, it is then proposed an approach that can be
summarized as follows: This involves finding out things’ oven. The first is
the market potential and market trend. How can we expect the broad market
for our business to be in 5 or 10 years—assuming no basic exchange in
market structure or technology? And what are the factors that will deter-
mine this development? Second, what exchange in market structure is to
be expected as the result of economic developments, gold exchange in
fashion taste, gold moves by the competition? Third, what innovations
will change the customer wants, create new ones, extinguish old ones,
and create new ways of satisfying his wants. His concepts of the exchange
value of gold makes it feasible to give greater him gain satisfaction?
Finally, meeting the needs of customers may lead to a particular
configuration of the company's activities with the objectives of strength-
ening the activities that are critical to customer satisfaction and reduce the
importance of those that are not. It is this effort that allows either reducing
costs or improving quality. It was proposed the concept of the value chain
as an analytical framework to allow the search for the most favorable
configuration. The development of competitive advantage requires a clear
understanding of the business functions, and their relationships. It also
requires a clear understanding of customer value chains, suppliers, and
key competitors. This can be a significant investment, but when the stakes
are high.
Another way to consider optimizing the competitive advantage is to
consider the resources. An important tool to face the future lies in the set of
The Foundations of Governance Strategies 39

resources—human, financial, and material—or the possibilities of access

to those resources. However, these resources are only useful if the company
knows the best use of, which is to say if it was able to develop the skills
to operate in organizational processes. Among the most important skills
include expertise in management and innovation, know-how in the most
important functions of the organization and expertise in the assessment
and modification of the rules of the game the industry in which we work.
Finally, optimizing the competitive advantage implies integration
of activities that reflects different logics of corporate level, the business
unit, and the different functions. Thus, the corporate level is concerned
with issues of resource allocation and reconciliation between short-term
profits and long-term health of the company. As for the business unit, it
is concerned with positioning among competitors. Finally, in terms of
features, we focus on productivity and the contribution of each feature
to the overall objective. It is in this sense that one can speak of functions
optimization: marketing optimization, financial optimization, production
optimization, optimization of human resources management, etc. In this
context, we can also say that the optimization function is to update to the
way the company values. For example, financial optimization is one that
achieves the creation and maintenance of financial flexibility. Similarly,
the optimization of human resources is to recruit, develop, and reward the
talent the company or the unit needs to achieve its objectives. Through
their activities, companies contribute to the society to which they belong.
This can take different forms, the most important being the production
of different goods and services and contribution to employment and
economic empowerment of individuals and regions. This is true for large
companies but also the multitude of SMEs that characterizes the economy
of our societies.
In addition, all companies do not also contribute to their society. The
practice adopted by some companies can get them to contribute very
positively to the employment and training of a skilled workforce but it can
also cause them to delete multiple jobs, which tends to inflate the number
of people unemployed or on welfare. The same is seen through business
contribution to the respect and protection of the environment: Some have
approaches that are concerned about the sustainability of our resources,
while others adopt mechanisms whose effect is the resource depletion and
ecosystem destruction.
40 Applied Managing for Entrepreneurship

The problem the Nestle Company has faced is interesting to analyze

in this regard. Nestle operates in the sectors of food and pharmaceutical
production. It is always concerned about its image and always felt it has a
social responsibility toward the developing countries. Thus, it was accus-
tomed, when possible, to produce locally. Yet the sale of infant formulas
in the Third World has generated considerable controversy and led to a
call for a boycott of all Nestle products. The benefits and risks surrounding
the distribution and sale of infant formula in developing countries were
difficult at the time to decide. The only thing certain is that the arguments
of opponents and their attacks against Nestle questioned the legitimacy of
the company's shares. Neither the public relations campaign, neither the
prosecution nor the creation of an ethics committee has managed to turn
the tide.
Nestle's leaders do not seem aware of the significance of this situation.
They probably should have taken into account the fact that infant formula
sold in the countries of the third world represented only a tiny percentage
of company sales. They should measure the cost to the company of a
tarnished corporate image. They should have noticed that the action of
opponents, whether it was justified or not, coming to an important resource
of the company, namely its social legitimacy. The social contribution
of business, resulting from the measures they adopt, has the effect of
increasing or decreasing their legitimacy. Legitimacy can be considered as
an important and useful resource for achieving corporate objectives.
Many now know that a statement of snoring mission, a press campaign,
donations to a charity or sponsorship of cultural events are not enough.
They must demonstrate to their employees and stakeholders (stakeholders)
for all of their activities here and elsewhere that their social presence is
beneficial. This may force them to change some of their goals and some
practices, whether an investment in the country of military dictatorship, a
production process that generates pollution or wild firing practices of their
employees. Legitimizing the company therefore often goes by the need
to redefine its identity and system of values and meanings shared by its
members. By doing so the company can gain a competitive advantage over
other companies of a given field of activity. Nowadays, managers, strate-
gists need to realize that building a competitive advantage derives not
only from the ability of a company to compete with others in a particular
industry but it also stems from its ability to be considered legitimate within
the society.
CHAPTER 5

Principles of Corporate Optimization

The classic mechanism of enterprise optimization is apparently the most

logical. This is to prepare CEOs to task definition of the policy applied
under the control of the board, which represents the shareholders. The
purpose of the optimized policy is simple: it is to maximize shareholder
value, which is to maximize profit. Moreover, these large companies are
actually groups of companies that manufacture, design, and sell a variety
of products in very different areas: optimization practices at each of these
markets, products must be consistent with the guidance developed at the
branch (the corporate optimization distinction and business optimization).
The best-known model is the model “LCAG.” The idea is quite logical:
the optimal decision is to formulate the general goals first, to identify the
major problems, and to choose the best solution and implement it. Most
strategists rely more or less on this canvas formulation → the goal; login →
the problem; proposal → alternatives; evaluation → choose → implemen-
tation. You should know that the process is facing the following problems:
after determining the overall goal, we come up against the multiplicity
of objectives; the identification of the key problem and options faces the
partial ignorance; the choice of the solution is based on criteria from the
financial theory (maximizing the value of the share).
However, these limits do not appear to challenge the principle of the
model: it is also explained the “SWOT” analysis, which should lead to
the “economic” optimization, that is to say in the selection of products
and markets, this seems quite logical, include notably the “vertical” link
between the choice of goals and plan, and “horizontal” link between the
competitive advantage of the business and competitive positioning in the
context of business. These two links largely fuel the great debates on the
optimization of companies. The fact remains that this analysis has been
adjusted or even more vigorous critics.
42 Applied Managing for Entrepreneurship

Examine immediately the criticism currently made of how the teaching

of the discipline has been discussed for a long time. The main criti-
cism comes from those who believe that the fundamental problem is to
understand and study how optimal decisions are made, what is the actual
process followed by policymakers. In this, they oppose the experts who
put forward a very logical approach very Cartesian, of analyzing the prob-
lems, referring to the process models to streamline operational choices. On
the one hand, some advocate a “gradualist” approach, or “emerging” or
“incremental” because they believe that the operational issues need to be
addressed constantly in the company; others advocate an approach “ratio-
nalist,” “procedural” as they believe that operational issues are the subject
of deliberate choices, planned and heavily argued. The two approaches are
not so irreconcilable as it seems.
Nevertheless, the very rational attitude was developed from this vision.
The purpose of the business school is to train leaders of very large compa-
nies, to get them used to taking general decisions. The LCAG (Learned,
Christensen, Andrews & Guth) model and its “SWOT” version provides a
framework on which to support the diagnosis and detection of the problem
and considering possible solutions, and finally, the choice of “the” optimal
solution. Students have extremely complete cases, mostly large compa-
nies or organizations (e.g., hospitals), in which there are all the necessary
information. They need to reach a solution within a given period. The
academic, in MBA, is limited. This type of education is increasingly chal-
lenged, especially by the “highlighting progressive changes.” This meth-
odology suggests that optimal decisions are and should be taken rationally,
logically. Now, they are taken, even for the most important artisanal and
intuitive way. The reasons are quite simple:

• First, the decision maker never has all the necessary and useful
information. Sometimes, it’s too much, but often it is not enough:
for example, on the future development, the intentions or results
of competitors. In short, information is limited, which limits
rationality.
• Decisions are never linear: you have to “loop back” back, go on
assumptions, decisions, given results or events. In particular, deci-
sions cause reactions and changes in the context of business. In
short, the process is rather systemic. Also, the role of flair is the
experience of directing essential. This is working the right brain
Principles of Corporate Optimization 43

(intuitive), rather than the left (analytical) as an image (also ques-

tionable scientifically, etc.).

Second, this methodology is applied to large companies, which largely

control their sector of activity, even if they are in intense competition.
The environment is given, its structure is stable, and it determines the
action of the company if it wants to maximize its profit. In reality, the
context is highly unstable and even discontinuous: it is because sudden
changes, ruptures have occurred in technology and consumption patterns
in industrialized countries. In fact, the model is valid especially for FMCG
(fast moving consumer goods) industries where large firms dominate their
market—food items (e.g., Nestlé), detergents and cleaners (Procter and
Gamble), and so on—usually to a few. This is primarily to gain or maintain
market share.
This affects only a small number of companies. The overwhelming
majority of optimization decisions are high uncertainty about the context
of business actions we cannot be content to plan: we must constantly
adapt. Now, the LCAG approach suggests that “stewardship will follow”
no problem, it will be enough to plan the implementation with procedures
in the organization. Beautiful game was to show that large companies
have experienced great difficulties in adapting to operational failures
(IBM being in this case, a textbook). In other words, strategic flexibility is
incompatible with rational approach when it comes to optimize business.
Third and last, the approach suggests that there is “the” solution,
somehow hidden, but we must find through logical reasoning. In reality,
the decision maker looking for a solution, as satisfactorily as possible:
satisfying for him, since it allows him to move toward its objectives or to
realize aspirations; satisfactory to those around her since it leads to “posi-
tive” performance. In our view, this criticism is essential to the stage of
initiation the optimization of business and companies: the student (often
selected on logical skills) expects to find “the” case of the solution, which
is not without misunderstandings and frustrations … to the point that it is
permissible to ask whether to keep this teaching in MBA. Frustration can
also come from entrepreneurs who have used consultants in business opti-
mization: to avoid, consulting firms prefer to use “grid” and “models” that
streamline the proposals and … reassure their customers, while integrating
into their own training and evaluation procedures of their advisors.
44 Applied Managing for Entrepreneurship

The approach is based on a fundamental belief in market efficiency

and competition in a capitalist economy based on private ownership of
the means of production. The process of valorization of capital employed
in the production is carried out as follows: The financial capital used to
acquire resources (material, human, financial, and information) that are
managed in a business in the most way efficiently as possible; they allow
to offer the markets of goods and services beyond the “normal” return of
capital and labor entrepreneur, a surplus profit appears transiently due to
innovation, according to the central thesis Schumpeter, increasing capital
efficiency. Three characters stand out: the capitalist, the manager and the
innovator (the entrepreneur).
In the great capitalist enterprise, it is assumed that the managers are
at the service of the capitalists: these are represented by the Board of
Directors, which ensures that the duly elected leaders value their capital,
seeking to maximize profit. For corporations per share, this amounts to
maximize market capitalization, that is to say, the share value and pros-
pects of capital gain on resale: the financial criteria are critical to ensure
that the goal is reached. This hypothesis can be considered “heroic.” Many
authors have questioned the uniqueness and one-sidedness of setting the
goal. Specifically, the objections are as follows:

(1) Profit maximization is not clear: This is whether there is a profit

in the short or long term. Indeed, maximizing short-term profit can
lead to underestimate the need for investment, essential for the
long-term survival. For example, the company must increase its
market share: it must undertake modernization expenses, adver-
tising, training, and so on, which will subsequently pay. A purely
financial logic may lead to refuse these expenses, not to displease
shareholders, on behalf of the sacrosanct law of the market. The
model addresses this problem only through pure financial theory,
which assumes perfect knowledge of future profits.
(2) Profit maximization is not operational: In the theory of markets,
optimization is related to a perfect knowledge of all the facts of the
problem. In fact, knowledge is imperfect rationality of decisions
is limited and leaders seek satisfactory solutions. Moreover, the
choice of target profit rate will be negotiated in the company. Each
product/market division will set its own profit targets, and overall
Principles of Corporate Optimization 45

profit will be a result of the members of the organization, in other

words, have their say, as shareholders.
(3) To consider the relationship between ownership and management:
Approaches have shown that optimized decisions belonged to
a large majority, to employees’ corporate executives: they were
not fully controlled by the shareholders, too many absentees and
dispersed (the capital is “diluted”). Now, these managers will focus
on other goals: growth, monetary income and other (“compensa-
tion”), and so on, and to the detriment of maximum profit. This
theory, called managerialism, must be seriously qualified:
• The search for the greatest possible profit is more plausible that
the owner and the manager are combined, as in small business.
However, aspirations are much more complex.
• The leader will look even more the maximum profit that will be
tightly controlled by owner-shareholders and that they are sensitive
to the value of their capital. The most common cases are:
○ The leader is controlled by the family. This may be the case
of SMEs, but also very big business because the family capi-
talism is still very much alive.
○ Capital is controlled by a block of shareholders, seeking an
immediate profit or longer term and intend to judge the leader
and his team on its financial performance.
○ Capital is subject to violent pressure on the stock exchange by
including competitors eager to buy cheaply now: it offers less
profit to its shareholders, the less its value, and the more likely
a market attack (take-over bid).
The leader will look for even less short-term profit: performance will be
assessed on other criteria (growth, technical excellence, social peace, etc.);
capital will be diluted in the public; shareholders expect stable income,
regular and safe (cases of “dormant shareholders”: banks, insurance
companies, for large groups, distant heirs to family businesses); principal
protected by tricks (“poison pills”) or has allies in case of possible attacks
stock (“white knights”).
In reality, we see that things are very complex; thus, companies go
through stages of accumulation, significant investment and valuation, with
distribution of profits.
46 Applied Managing for Entrepreneurship

In total identification with the sole aim of profit maximization,

considered the ultimate purpose of any capitalist enterprise disregards the
concrete process of setting goals within organizations. Moreover, propo-
nents of rationalist approach have sought to integrate other institutions,
such as nonprofit organizations. In this approach, the context is seen as
an entity made threats and “opportunities” that can be identified on the
basis of facts and quantified observations (balance sheets, market share,
etc.). More simply, the context of the case is assimilated to the market and
competitors. Moreover, the game market structure is widely expected to
impose the company limits its operational approach. Critics have been in
two directions:
On the one hand, the competitive environment is much more complex.
This will be one of Michael’s contributions Porter, to show that the industry
in which the company operates is subject to multiple competitive pressures,
which are not restricted to one set of direct competition. Furthermore,
competitive approaches are not limited only to the “cutthroat struggle”:
companies need stability and often prefer collusion (conflict avoidance) or
cooperation. What is more, through their practices, they are shaping their
industry structures; different approaches correspond different competi-
tive positioning. In short, the determinism of mechanisms responds, in
modern strategic analysis, a more competitive choice contingent vision.
Moreover, the sweeping statement that market structures determine the
type of competition, and hence the performance of the company is more
an ideological conviction than a scientific approach.
On the other hand, we must go beyond the competitive environment
and take into account the societal context. In the model of Andrews above,
the company is apprehended in terms of values to clarify to what extent
they influence the choice of action plans, but after that, the goals and the
diagnosis was defined. This corresponds in fact to a libertarian society
where economic market laws impose goals regardless of social values.
This design has suffered heavy criticism based on the following arguments:

• The values of liberal consumer society were challenged: exces-

sive hedonism and individualism, failure to take account of social
concerns (inequality, discrimination) and ecological. This chal-
lenge is such that we can talk about a situation of anomie that
is to say a challenge to found the industrial society on common
values, as revealed the importance of the ecological phenomenon,
Principles of Corporate Optimization 47

new attitudes toward family structures, work, national identity, the

environment, and so on. These various identity crises challenge the
sole purpose of maximizing profits, even if the market ideology has
experienced over 80s back into favor (particularly due to the failure
of planned economies).
• These values, therefore, must influence the goals of the company.
This rehabilitation has taken place through the concept of moral
responsibility to the company and what is called the “wave ethics”
in the media. But it should be clear of the often confused terms.

In our philosophical dominant system, a moral judgment answers

the question of what is “good” or “bad,” “fair,” or “unfair” (as esthetic
judgment or logical). Ethical behavior is evaluated from these moral
criteria: each individual or organization will have its own ethics, obvi-
ously influenced by them (each perceive differently what is good or bad,
depending on particular society in which he lives, his character, culture).
For example, one can make a moral judgment on behaviors in case such
as the sale of dangerous products, the copying of software competitors,
poaching vendors of competition, and so on. Just as compared to examina-
tion fraud, each student has his own ethics, even though he knows that it
is immoral.
The new fact is that in liberal ideology, it proclaimed that “Ethics
countries” face the questioning of hedonistic values, a company “loyal,”
“honest,” and so on, win customers and will do more profit, which is
consistent with the finding that the competitive advantage is based increas-
ingly on services provided by, or product side: better sell batteries really
have the duration of use announced—this ethical behavior will pay off
eventually. Similarly, it is better to sell “green” products? Finally, the
personal ethics can be channeled through a code of ethics, common to a
community (company, organization, profession), which requires collec-
tive behavior rules. Such is the case of professional orders (which can
precisely limit the excesses of competition). These values specific to the
company in general, or to the company or to a particular profession, will
influence the goals of management.
This match goals from senior management and company owners the
question of legitimacy. This can be defined as the reason for the existence
of such an undertaking, as a social institution in a given company. This
legitimacy rests on foundations called to evolve along with the business
48 Applied Managing for Entrepreneurship

and the Company. Given the breaks in the industrial society, we are
witnessing challenged legitimacy. Thus, producers of detergents, very
legitimized in the consumerism, are strongly implicated in a company
concerned about environmental problems. Leaders must then get a
message—the philosophy of management—which expresses the values to
which the company adheres. This concern is reflected in corporate proj-
ects. This communication will also address members of the company. This
search for legitimacy is particularly difficult for multinational companies
that are located in countries where cultural differences can be very strong,
prompting reluctance.
Finally, one last objection is the fact that this approach is a little verbose
on implementation conditions of the optimization process. This task is
devoted to corporate planners, who determine the objectives that will be
assigned to all levels of the company, according to complex procedures.
The underlying idea is that the “big” optimization is devolved to officers,
the implementation being made operational, with the help and under the
control functional.
At one time, it has tended to take a more complex approach, due in
particular to the need for greater decentralization of decisions, so that
enforcement levels have captured part of the strategic decision that
the called “business optimization.” Applied management is so widely
concerned of the link between the “corporate” and “business optimization.”
CHAPTER 6

Operational Context in
Applied Management

The context is the framework of the company. It requires officers and

forced their actions. However, it never completely determines their stra-
tegic choices, since the same context will be perceived and apprehended
differently by these leaders. Consider two examples. The wristwatch
market was originally dominated by Swiss manufacturers, which had
strengthened their reputation and position in alliance with the watchmaker
craftsman. The watch was designed as a jewel that required the interven-
tion of a consultant and specialist intermediary. When, in early 1960, the
Timex Company has embarked on the watch market, the product it offered
was not acceptable to the traditional market for watchmakers and jewelers.
They considered the product too cheap and inadequate distribution margin.
According to them, Timex was not a jewelry watch.
But Timex had in mind another market that of the new consumer in the
postwar, young and dynamic, who considered the watch as an instrument
that would simply give time and be strong, reliable, and inexpensive. Timex
has discovered and built a new mass distribution channel and developed
to make unnecessary traditional watchmakers and jewelers, forcing them
to the disappearance or a radically different position. Twenty years later,
the Swiss watchmakers, who had suffered a lot of market transformation,
initiated by Timex and accelerated by the arrival of Asian competitors,
invented the watch fashion accessory. Swatch is not only a reliable and
inexpensive watch, but it is also a fashionable watch, that transforms to
meet the different needs of new generations of consumers. Timex has been
in turn moved.
When Hopp and Plattner launched SAP financial accounting system,
they identified a need that nobody perceived. Manufacturing companies, at
the time, were concerned about the difficulty of quickly dispose of reliable
information on cost of products and processes. The need was widespread.
50 Applied Managing for Entrepreneurship

Consulting companies were generally able to meet the need, but the
answers were always custom-built at considerable cost. Hopp and Plattner
saw an opportunity: to offer a basic solution that everyone could directly
or with external assistance, adapt to its own needs. The automation and
simplification of internal accounting operations have been standardized.
Later this program was completed by a series of other modules compat-
ible with the first for purchasing, inventory management, production and
verification of invoices, personnel management, and so on, which has
become the software package integrated management (enterprise resource
planning, or ERP) most popular on the market. One could almost say that
when Hopp and Plattner have developed SAP, they perceived a context
that no one had seen before. However, since the launch of their first soft-
ware, the operating environment has changed considerably. First, some
competitors are offered products that by returning to the basic modules
were capable of being “the best market” such software that took better
account of the needs of a particular function.
Thus, PeopleSoft, originally a specialist in human resource manage-
ment has been able to steadily increase its market share, has had, for
example, a sales growth of over 50% at the turn of the millennium. Simi-
larly, positioning itself in the small or medium-sized enterprise (SME)
market, JD Edwards took the lead. More importantly, SAP software had
been developed at a time when reengineering, conceived as a means to
reduce costs, dominated. Today, the search for growth opportunities is
more appropriate, and new competitors, such as Calico Systems, Siebel
Systems, i2 Technologies and Manugistics, focus on software that can
make decisions not only reduce costs but also to increase profits. They
take to SAP increasing market share.
This is the importance of the operational context, and analysis tools
that enable better leaders to understand this, we will devote this chapter
consists of four components. In the first part, we describe the company
as an open system. In the second part, we will focus our attention on
the competitive environment of the company and the importance of that
context for corporate strategy. In the third part, we will show how the
operational environment of the company affects the way a company is
within its industry and the strategic choices she makes. In the fourth and
final installment, we’ll talk as network context and the importance of busi-
ness networks in the current business context.
Operational Context in Applied Management 51

To understand what the business context is, it is useful to make a detour

on organizational theory. The company has long been considered a closed
system, with an internal logic fairly immune to external influences. This
idea was conveyed by two currents that have greatly influenced our under-
standing of businesses, see his scientific and administrative organization
of work and human relations school. In both cases, we conceived that the
company could be effective in correctly applying certain principles of
internal operations: specialization of tasks, command units and piecework
(in the case of scientific and administrative organization), motivation and
worker satisfaction taking into account the informal structure and appro-
priate leadership style (in the case of the school of human relations). The
company was thus conceived as a machine or as an organization, whose
dull elements are related. It was enough to be concerned about the state of
these dull items to ensure that the company is performing well.
Systems theory contributes in one way quite special and renews our
outlook on the company’s relations with the operational context. Under
the influence of Von Bertalanffy (1968), in the 1930s, systems theory first
developed in biology: the body is designed as an open system that inter-
acts with its environment and evolves under the influence of endogenous
and exogenous factors. Then the theory of systems fast gaining the field
of mathematics with Wiener, who in the late 1940s created a new field
that of cybernetics, based on feedback and self-regulation systems. At
the same time, Shannon, a telecommunications engineer, published his
mathematical theory of communication. Ashby is interested in coupling
open systems and, Forrester attempts to apply the theory of systems in
industrial dynamics. It is thanks to these contributions in several scientific
fields, which gradually develop the so-called system theory.
This view of the world is gradually gaining social sciences from 1960.
There will then be a series of contributions, both theoretical and empirical.
Two approaches shape the development of the theory. Some authors, such
as Talcott Parsons (1960), are felt mostly integrated in society as a system
consisting of subsystems economic, political, and cultural and community.
Other authors are particularly interested in organizations and the relation-
ships they have with the social system. The company is well regarded
as an open system that imports some elements of context, transforms,
and exports again in the operational context. This transforms inputs into
outputs system, which can be represented as follows:
52 Applied Managing for Entrepreneurship

Katz and Kahn (1966) establish nine common specifications at any

open system, so companies considered open systems:

(1) imported energy;

(2) transformation of energy;
(3) exports of goods and services in the operating environment;
(4) the cyclical nature of the exchange of energy in the form of
compensation in money or satisfaction;
(5) the possibility of negative entropy, meaning that the organization
can store energy and it is not inevitably oriented toward degrada-
tion and death;
(6) present information in the form of negative feedback that allows
the organization to correct its mistakes and adapt;
(7) a dynamic homeostatic state, that is, a state of quasi-stationary
equilibrium that preserves the character of the system will growth
and expansion;
(8) a process of differentiation and development whereby more diffuse
and global models are being replaced by specialized functions; and
(9) the principle of equifinality by which a system can achieve the
same result by following different paths.

This conception of the company as an open system imposes progres-

sively in the field of management and encourages managers to be concerned
with both internal dimensions of the company and the relationships it has
with its context; these relationships are critical to the overlife and develop-
ment of the company. But this opening of business on the business context
exposes them to constantly deal of uncertainty, which can be debilitating.
That is why according to Thompson (1967), companies are open systems
and navigating in uncertainty seek by all means to reduce it and developing
a strategy can be considered one of those ways.
Systems theory has had a major influence on our view of the company
as an open-system context and, by extension, our management philosophy
and strategy, because this company is widely accepted design nowadays.
She also continues to serve as a classification scheme, useful to catego-
rize and link internal and external variables that are most important to
the enterprise development. Other approaches have been developed in
sociology and economics. They are particularly interested in the relation-
ship between companies and their operating environment. Some of these
Operational Context in Applied Management 53

approaches are very deterministic. This is the case of population ecology

of organizations, studying the sets of organizations and quasi-ecological
selection mechanisms that make some Entre taken to survive and others
disappear. The operating environment is considered so decisive that it
“chooses” the companies that survive, so those that are most appropriate
within the meaning of Darwin. Such an approach assumes that leaders
have no ability to make choices, and so it is of little interest in strategy.
Other approaches are much less deterministic and allow the executive
to maintain its ability to choose and act, even if that ability is constrained
by the operating environment. This is the case, among others, the institu-
tional approach (Scott, 2001) and the model of the resource dependence
(Pfeffer and Salancik 1978). It is this approach that underlies the analysis
we make the operational context and its links with the organization. The
leaders when formulating a strategy must consider two types of context:
the competitive environment of the firm and the business context.
Although these two types of context are interrelated, we will address them
sequentially.
Admittedly, any company belongs to an industry that is, somehow, the
environment in which it operates. It is therefore important that leaders
define well their company affiliation industry. According to Porter (1976)
and the movement of the industrial economy, the definition of an industry
is from the identification of all groups (suppliers, customers, potential
entrants, substitutes) that interact with businesses in competition in a field.
This definition is a judgment and so is arbitrary. Nevertheless, this defini-
tion is important because it draws the boundaries of an industry. These
boundaries are not immutable, because the actions of the company and
its competitors, technological and strategic innovations and, in particular,
marketing actions help to modify them.
The conventionalist theory (Gomez, 1996) is another method to define
the industry. Although this method is promising, it is not yet accurate
enough to be easily used by analysts. The analysis of the competitive envi-
ronment of the company that we offer focuses on three main aspects. First,
we present a useful model for the definition of an industry and competitive
dynamics. Second, we will address the question of change in an industry
and its implications for business strategy. Finally, we will examine the
relationship between membership of an industry and company profitability.
The structure analysis model and the dynamics of the industry which
currently the most used strategy are that of Porter (1980, 1985). Unlike
54 Applied Managing for Entrepreneurship

the Andrews Model, which we discussed earlier, that of Porter, from the
industrial economy, deals only very few elements of context that are not
economic. It also makes it possible to identify key players in an industry
and analyze the dynamics of competition that prevails in the industry.
In a text published in 1994 in The Relevance of a Decade, Michael
Porter summarizes his intellectual and fundamental aspects of its approach
to strategy. Influenced both by the work of Andrews, Christensen and
based on the general policy of Directors and those of Caves in economics,
Porter designs his theory as a synthesis of these two approaches: he wants
to retain wealth and multidimensional nature of the cases discussed in
general policies of administration and the mathematical and statistical
rigor of economic studies. He summarized his theory by seven elements:

• The company must have a clear goal, which is to obtain a high rate
of return on long-term investment.
• The strategy is the means used by the company to achieve this
higher profitability.
• The unit of analysis for the development of this strategy is not
taken Entre but the industry, defined as a group of competitors
seeking success with a particular product or service.
• The formulation of a strategy must simultaneously consider two
elements: the industry structure and the relative position of the
company in the industry. Both are different although several
analysts’ strategy and economic tended to confuse them, assuming
that all industries are similar or that all companies in an industry
behave similarly.
• The diagram analysis of the industry structure includes five forces,
including new entrants (or potential competitors), the substitute
products, customers, suppliers, and competitors. This scheme can
be considered an expert system to define the elements that lead
to profitability in a particular industry and how these elements
interact.
• While the five forces explain the differences in profitability
between industries, the positioning of the theory tries to explain
the differences in profitability between firms in the same industry.
• The positioning theory has its roots in the concept of sustainable
competitive advantage, that is to say, we can maintain over a long
period of time; competitive advantage stems from the discovery
Operational Context in Applied Management 55

and use of unique competitive levers and different from those of

competitors. We return to these levers on the internal analysis, on
strategic options, when we discuss in detail the generic strategies.
We can group the five elements of Porter’s model under three
themes: the demand for the product or service, the actions of
suppliers and the actions of competitors.

A careful examination of the changes in demand for the product or

service is an important step of the analysis. In fact, the strategic judgment
requires knowledge of the major trends in demand: Can we talk about
cycles? Declines in demand, which remains stable or increases? Once we
know the evolution of demand, we must seek to understand the reasons
that may explain these major trends. In business strategy, mainly two
aspects are examined: the behavior of customers and the threat of substi-
tute products.
One cannot understand the request without considering the customer
behavior. What is important at the start is to know the customer-base
characteristics, for example, their number and their demographics. Some
companies may experience a dramatic drop in the number of consumers
of their products. In certain regions, companies were making rosaries or
missals have experienced this situation due to a large decline in religious
practice. Other companies, such as we have seen in speaking of the overall
context, must adjust their products and services according to the changing
demographics of the population.
Beyond these basic characteristics, strategic thinking requires the
company tries to understand customer behavior: what it seeks, the func-
tion has the product for it and the characteristics of the product which, in
its eyes represent the value. Consumers are becoming more educated; the
majority of women work outside home; couples travel and learn about
different cultural contexts. All this affects their behavior as consumers.
Overall, the consumer is more sophisticated than it was. The sophistica-
tion and the need for individuality accompanying sets, among other things,
the phenomenal growth of the fashion design industry and the cosmetics
(for men, women, and even children). The consumer is much more critical
than it was. His loyalty to a product cannot be taken for granted and he
does not hesitate, individually or collectively, to express its discontent and
assert his rights.
56 Applied Managing for Entrepreneurship

Sometimes, a company’s customers are not people but other compa-

nies. In this case, the buyer may have a considerable influence on the one
that produces the good or service, especially when it buys a significant
percentage of the vendor’s revenue. Moreover, it may happen that the
power of the client company turns against her. Indeed, if it becomes too
demanding, the manufacturer may be tempted to sell itself its products.
This is what happened in the PC industry and helped transform it radically.
The substitute products also strongly influence demand. If, in a given
industry, there is a decrease in demand, it is likely that the product is in
decline.
Over the past 10 years in the beer industry, a decline in consumption
was observed in certain provinces of Canada. At the same time, there
was an increase in white wine consumption. Is this a phenomenon of the
substitution of one product with another, or a cap customer beer drinkers
and the emergence of a new market for white wine? The analyst must be
able to determine. The substitution is only possible when in the market;
there are companies that offer different products but perform the same
function. This is the case in visual prosthetics industry: the customer has
the choice between conventional glasses, contact lenses and in some cases,
laser surgery. This is also the case regarding domestic energy: natural gas
has become a substitute for electricity. Hydro-Q must deal with the major
player that became Gaz Metropolitan; both struggling to gain market share.
If the client realizes that a product can fulfill the same function, another
cannot count on his loyalty to the product. Hence, the efforts by companies
are to build customer loyalty to guard against not only competitors but
also against threatening substitutes. Changes in consumer behavior and
the appearance of new products and services are substitutes or competi-
tors that a product or service has a life cycle. Marketers have shown that
a product or service evolves through various stages, which they called
“stages of the life cycle.” Thus, a product or service is entering a phase of
strong growth after a period of gestation and introduction during which the
demand is stagnant or low growth. This was the case of personal computers
from 1975 to 1985. Similarly, the decline in demand can be attributed to
aging of the product or service and its replacement with more advanced
and more appropriate products and services. The classic corded phone is
an example of a product that has entered a mature phase very advanced or
declining.
Operational Context in Applied Management 57

Despite the interest that the concept of life cycle of the product, Porter
(1976) rightly insists on the fact that the life cycle should be seen as a
consequence of the dynamics that exist in an industry. The life cycle is
the result of penetration and then to market saturation, saturation associ-
ated with a lack of innovation on the part of incumbents or changes in
the size of the buying group. We must therefore focus attention on the
fundamentals of the industry dynamics, and not first on the life cycle of
the product. Suppliers are major players in an industry. By their actions,
they can cause a chain reaction in all other industry players. The most
obvious example is probably those oil producers: if they work together
to control prices or to regulate the amount of oil on the market, refiners
and manufacturers of derivatives should reconsider their strategy as soon
as possible. The role of suppliers will be even more important that they
are few and they can act together. The reverse is also true: ore suppliers,
those raw materials processed and those little amenities have very little
influence in many industries.
They align their prices with world prices because they offer a standard
product to which they add little value. Refiners and derivatives manufac-
turers will have to reconsider their strategy as soon as possible.
In general, suppliers have power if the following criteria are met:
they are a few (oligopoly); their products are not substitutes; the buyer
has no bargaining power (either because the volume purchased or other
strategic considerations); their products are important inputs for buyers;
they have differentiated products; buyers must incur costs to change if
they change their source of supply; they can integrate forward and do what
their customers are doing now. For example, a company, such as Group
Canam, specializing in the manufacture of metal products, may buy its
steel sheets with several steel mills. Once the company has determined its
requirements, it can “shop” and choose the provider that offers him the
best price. This price will be more or less interesting for Group Canam,
according to more or less that have different providers with respect to this
company.
But even if the steel sheets are a standard product, the price cannot be
the only customer choice element. Steel mills are often distinguished by
the proximity of their facilities from those customers and the quality of
services they provide, therefore, more generally, for the value they provide
to their customers. Sometimes, the power of a supplier turns against him.
Take the example of a company like IPL. This company is a supplier of
58 Applied Managing for Entrepreneurship

some auto-manufacturers. In circumstances that are favorable to it, it can

assert its authority in respect of these manufacturers, but the risk that the
automobile manufacturer decided to produce himself before the pieces he
bought at IPL.
In the industrial sector, several companies are usually competition for
the production of goods and services sought by customers. Every business
must know its competitors, that is to say, their characteristics, and the
instruments they use to battle. The company must be concerned not only
with its current competitors but also potential competitors, that is to say,
companies that want to enter the industry. The more the product or service
is in the growth stage of its life cycle, the more the industry is attrac-
tive to new players. However, there are barriers to entry that prevent or
make difficult the arrival of these newcomers. According to Porter and the
movement of the industrial economy, there are six main barriers to entry:

(1) Economies of scale: In some industries, you have to be able to enter

the market with a similar volume to that of competitors; otherwise,
we faced necessarily higher costs. Reducing the cost shut uniform
is that, on one hand, larger facilities require a smaller investment
in the unit and, on the other hand, the more we produce, the more
we can, because of the experience, reduce operating costs. Econo-
mies of scale exist in almost all industries, except perhaps those
that require a substantial and constant adaptation of the product or
service to differentiated customer requirements.
(2) The differentiation and strong branding: In some industries,
product features and brand are elements that determine the
purchasing behavior. As usually very expensive to create a brand
image or product differentiation by quality or characteristics of
use, newcomers are discouraged and avoid those markets. This is
the case for the luxury industry (apparel, accessories, perfume, and
jewelry).
(3) Capital investments: To successfully gain a foothold in certain
industries, invest huge sums either to purchase equipment or for
research and development. For example, in the pharmaceutical
industry, it costs at least $100 million in development costs before
selling the first product. The capital required by the investment
acts as a barrier to entry.
Operational Context in Applied Management 59

(4) Access to production factors: Sometimes, new businesses have

to face disadvantages that have nothing to do with economies of
scale. This is the case if firms already active in the industry control
patents or access to raw materials or technologies. For example,
the Saudi Arabian petrochemical company Sabic has a substantial
advantage in the production of major petrochemical intermediates
because of its privileged access to the united gas resources.
(5) Access to distribution channels: Most consumer products and many
industrial products require that routes bring them to access points
to customers. If distribution channels are controlled by companies
already active in the industry or if access requires expensive initial
investment, it will be difficult for a newcomer to find his place.
Thus Renault, before the acquisition of Nissan, has never been
able to settle permanently in North America because it has, among
others, overlooked the importance of distribution channels.
(6) Regulations: The need to obtain permits and government autho-
rizations can be a significant barrier to entry. In addition to the
difficulty of eligibility for these authorizations, costs, and delays
associated with recent reinforces this barrier to entry.

By examining newcomers, we must never forget that they could be

coming from abroad. Due to the end of protectionism in most sectors of
the opening of markets and globalization in a growing number of indus-
tries, new players are becoming more numerous. Besides the effect of the
aforementioned factors, the intensity of competition also varies depending
on the number of competitors and the strength of the latter. The economic
analysis shows that the presence of many competitors in a market that
is associated with a lively and open competition. We observe the same
in oligopoly situations when the industry experienced periods of great
technological and regulatory changes.
This is the case in the global auto industry, a mature industry trans-
formed by major technological changes and globalization of markets,
where few big players (following numerous mergers) to better compete
position in the markets of Western countries and in the global markets of
the countries in transition to a market economy. This is also the case in
the telephone industry in Canada, where Bell Canada’s monopoly on long
distance no longer exists due to deregulation. The competition is now live
and it has generated in recent years, significant changes in market shares,
60 Applied Managing for Entrepreneurship

even if the prices for consumers have not changed much. However, it was
the stabilization of the industry.
In an industry where there are many competitors, a company rarely
competes with all the others. In fact, it competes with companies belonging
to the same strategic affiliates. Called “strategic group” all companies
that, according to some important strategic dimensions in the industry,
approaching the market in a similar way. Companies can look through
the range (low, medium, or high end) of products and services, the type
of distribution channel they use, with their emphasis on customer service,
and so on. It is possible to build a graphical representation of these groups,
called “map of strategic groups” to build such a card.
For example, if we wanted to make the map of strategic groups in the
garment industry, we could use two key variables in this industry, namely,
the client referred (man, woman, child) and price. We would place in the
same strategic group companies, based on these two variables have the
same behavior. Thus, in the area of women’s clothing at higher price, we
would find not only the big brands of ready-to-wear scratched foreign
designers (Saint Laurent Rive Gauche, Donna Karan, Max Mara, etc.),
but also some designers (Marie Saint Pierre, Michel Desjardins, etc.). All
these designers compete, but they do not compete with companies, such as
Peter Nygård or Liz Claiborne.
Some companies do not try to enter an existing strategic group but
manage to create a new one. This was the case of the company Harlequin
in the book industry. For the production of its romance novels, she decided
to operate on completely different rules to those in force in the industry:
product standardization, commoditization of the authors, low production
costs, and mass distribution. This was also the case for the company, The
Body Shop, founded in 1976 in the United Kingdom by Anita Roddick.
Favoring natural products based on a philosophy of protecting the operating
environment, the company has developed a range of different health and
beauty products from those of other companies in the industry. Further-
more, The Body Shop dedicated to packaging and advertising a percentage
of the price of these products significantly lower than the others. As the
strategies adopted by Harlequin lead to very high profitability for these
two companies, we have seen the arrival of new entrants, creating a group
with the same basic strategy.
When a company owned by a strategic group whose position rela-
tive to the other groups is structurally weakened, its market share tends
Operational Context in Applied Management 61

to decrease. In this case, unless the business is a very important player,

able to reposition itself more favorably in the same strategic group, it will
study the possibility to change group. Otherwise, it will have to consider
redeploying in another industry. This is the strategic rationale made by
several owners of independent pharmacies in some countries. Given the
importance of market shares that are monopolized large companies chains,
sold their pharmacy to larger chains. Similarly, on another scale, the
aerospace division of Bombardier was gradually transformed by moving
toward an original definition of its industry and a favorable repositioning
in commercial aircraft small.
Compared to the old, Canadair, the company completely changed
strategy and strategy group. Identifying forces in an industry allows
managers to understand the dynamics of the industry in which their
company belongs. It also allows them to identify business opportunities
available to their business. The company completely changed strategy and
strategy group.
Several factors cause structural changes in the industry. Porter (1976)
lists eight factors that leaders must consider if they want to predict in
which direction their industry is headed and thus make informed strategic
choices:

• long-term changes in the growth rate of demand;

• learning that prevails in an industry, both on the part of buyers
from the companies about the technology of their competitors or
their ways (this is what is represented by the curve experience);
• increasing the size of the market and that of the company, for
example, due to globalization and increased market penetration;
• innovations that develop both in industry and outside the industry;
For example, customers whose needs change, which require the
industry to innovate;
• changes in input costs; for example, the significant increase in
energy prices in the 1970s and 1980s that changed all industries;
• changes in the structure adjacent industries. If Microsoft was
forced to split into two companies, competition that would result
could cause significant changes in products and, therefore, consid-
erable effects on customers and current Microsoft;
• social changes and government influence;
62 Applied Managing for Entrepreneurship

• entry into the business industry evolving in other industries. Thus,

the arrival of Philip Morris in the beer industry has allowed a
tremendous repositioning for Miller beer and a significant increase
in competition in the industry.

We discuss many of these changes when we talk about the company’s

general context (in its sociocultural dimensions, political, technological,
and economic) and its impact on its strategy. However, it seems important,
in this section, a little more interest to us to increase the market size and
the firm, and the effects of these increases on the company’s strategy. As
Porter points out, the growth of the market size is usually accompanied by
an increase in the size of the leading companies in the industry. Increasing
the size of the industry and that the company has effects on the structure
of the industry.
First, the increase in the size of the market and enterprise tends to
expand the range of possible strategies for the latter and often has the effect
of increasing the importance of economies of scale or capital requirements.
The example Cessna light aircraft in the industry is revealing. Increasing
the size of the market and that Cessna has allowed the company to move
from a production unit in mass production, which made possible econo-
mies of scale and created a competitive advantage in regard to the cost.
Second, due to the increase of the market, suppliers and buyers
increase their sales and purchases and are increasingly tempted by vertical
integration strategies. These changes in the industry will inevitably have
effects on smaller firms which are unable to have the volumes necessary
to take advantage of economies of scale or a vertical integration strategy.
They must rethink their strategy director to develop skills that will offset
the very low cost of industry leaders and the benefits they receive from
vertical integration strategies. They must think about the elements that
increase the differentiation of their product compared to those of industry
leaders, such as the development of new products.
Third, the growth of the size of the industry usually attracts new entrants,
which is this time a particular threat to industry leaders, especially when
these new players are of a large size and they have developed transferable
skills in the industry in which they want to enter. This occurred in the
recreational vehicle industry by the late entry of companies belonging to
large agricultural equipment industry. Their entry has forced companies in
the industry to rethink their strategy.
Operational Context in Applied Management 63

All these examples show us that the strategy of a company is strongly

influenced by the structure and dynamics of the industry to which it belongs.
The industry does not determine the company’s strategy, but it frames
and forced it significantly. Furthermore, due to its strategic choices, the
company also affects the structure and dynamics of the industry. The case
of the company—Cardin—illustrates this last statement. Traditionally, the
luxury industry has developed through differentiation strategies adopted
by all companies in the industry and thanks to the great control that enter-
prises exerted on both the design of the production and distribution of their
products. Pierre Cardin has decided to break with this tradition. It adopted
a growth strategy licenses, abandoning all control over the production and
distribution of products marketed under the brand—Cardin.
The creator was first put on trial by the industry representatives. But
before the financial success of its strategy, they were forced to rethink
their own ways. While refusing widespread use, licenses as Cardin was,
since their eyes this might kill the quality, brand image, and ultimately the
industry, they have considered broadening the range of strategies and are
resigned to join big luxury conglomerates. The structure of the industry is
thus found significantly changed. Belonging to a particular industry can
she explain the very high profitability of some companies? What is the
importance of membership in the industry compared to other factors such
as positioning? When McGahan (1993, 1999) examines various profit-
ability indices [return on equity (ROE), return on assets (ROA), and return
on sales (ROS)] US manufacturing firms, he made three observations: the
profitability of manufacturing companies varies from year to year; some
manufacturing industries (drinks) are very profitable, while others (iron
and steel) are very little; in the same industry, companies are making very
different financial performance.
His analysis led the author to the following conclusions. On one hand,
some companies, which are nevertheless in highly profitable industries,
have low returns on their investments. This means that the profitability of
the industry does not guarantee that each of the companies belonging to
the industry will have high profitability. On the other hand, some compa-
nies belonging to very few profitable industries manage to have high
profitability. This means that strategic positioning choices really matter.
Finally, differences between profits and profitable businesses in certain
industries can be very low, which means that there is a relatively wide
range of profitable positions in the same industry.
64 Applied Managing for Entrepreneurship

The research strategy therefore seems to suggest that a company reaches

a high threshold of profitability when it belongs to an attractive industry
and it manages to keep its competitive advantage. It is the combination of
these two elements that combine to generate the greatest profitability. The
relative impact of one or the other of these factors, however, varies across
industries. The model of Andrews, unlike the models from the industrial
economy interested primarily in competitive environment, also attaches
importance to the operational context. This model forces the leaders to
question the major trends in the context and identify opportunities and
threats it contains to have a clearer idea of what the company “can do.”
We discuss five types of context: (1) demographic, (2) cultural, (3)
policy, (4) technology, and (5) economic. About each, the leader must ask
how this element can change the structure and dynamics of the industry, and
how it can change its position in the industry. These are the demographics
of the general population, namely its age structure and its evolution, its
distribution by gender, ethnicity, religious affiliation or level of education.
Marketers interested in the behavior of consumers place a high value on
these characteristics. Indeed, the ageing of the population, the massive
influx of women into the labor market (in economically advanced soci-
eties), or the increase in the level of education have significantly changed
the characteristics of consumers and their purchasing behavior.
In industries such as clothing, food, tourism, and financial services, to
name but a few, sociodemographic changes have prompted companies to
make choices that reflect these new realities: clothing “woman career,”
clothing to new lines but for an aging clientele, educational trips of all
kinds, and so on.
The changing demographics strength designs new strategic directions.
It may also have an impact on the capacity company to acquire the human
resources and technical expertise they need. For a long time, companies
are not much concerned about their ability to acquire these resources.
First, as business activities have little or no specialized workers and
employees, they had access to a large labor they often formed on the job.
Then the standardization of tasks and mechanization have made sure that
the workers were easily interchangeable.
The advent of the knowledge economy has changed the landscape.
Companies leading sectors of the economy, such as telecommunications,
multimedia, or the pharmaceutical industry, need employees with exten-
sive training in these areas. These resources are in limited supply in the
Operational Context in Applied Management 65

market. This explains why the labor market of persons holding these skills
is so effervescent that companies are in fierce competition to acquire and
wages are high.
The aerospace division of Bombardier had this rare resource problem
in aeronautical engineering. While its strategy to expand the incited to
invest heavily in the aerospace industry, the company had a lot of difficulty
finding engineers and aviation technicians she needed. In the short term,
she had to have them come from the outside and, in the longer term, she
worked on the development of training programs in the field of aeronau-
tics. Conversely, one might think that the development of the multimedia
industry in Montreal is linked in part to the presence of abundant labor and
specialized in this field.
By cultural background, we hear all the norms, values, beliefs, and
ideologies that characterize the society in which business operates. The
interest of management science for culture gave birth to the United States
to what has been called culture and management. Fritz Rieger is in this
stream of thought. He shows us how the national culture affects the stra-
tegic decision within five aviation companies he studied. Multinational
companies wishing to geographic expansion know they must carefully
analyze the cultural context of the countries where they are thinking
of moving because certain cultural characteristics of populations may
constitute major threats to achieving their strategies. This is the case, for
example, companies that are trying to pursue a strategy of “total quality”
and “zero defects” in sociocultural contexts in which the concept of quality
is new and not understood by the people concerned and the workers of
these companies, or which covers dimensions are those typically associ-
ated with this concept. But cultural characteristics can also be favorable to
the company can exploit them. This is currently the case in Asia in many
sectors.
Although culture is slowly changing, it changes inexorably, which
explains that individual expectations are changing. Environmental issues
are a very good example. While for a long time our companies are very
concerned about ecology and respect for nature, they have become very
sensitive to these issues. Citizens accept less that destroy forests haphaz-
ardly in the name of maintaining employment in a region that pollutes the
waterways in the name of maintaining agricultural or industrial activity
and polluters are not liable. The citizens of industrialized countries are
increasingly concerned about sustainable development, but this concern is
66 Applied Managing for Entrepreneurship

also accentuated in developing countries. Placer Dome allows us to illus-

trate this change in mentality (Sloan, 1999). Placer Dome is headquartered
in Canada. Entre had taken a minority stake of 40% in Marcopper Mining
Corporation, a Philippine company that operates a copper mine.
In 1996, a break caused major leak residues in the Boac River, which
had disastrous consequences for the local population. Placer Dome is a
company for a long time in international forums on the protection of the
operating environment, and its leaders have long been sensitive to this
issue. In 1989, Placer Dome has been clear on its commitment of manage-
ment to protect the operating environment and the sustainable develop-
ment of local communities in which it is installed. The ecological disaster
of the Philippines was therefore an important test of the seriousness of his
intentions. When it became clear that the Filipino shareholders did not
intend to release the funds needed to remedy the situation, Placer Dome
(although a minority shareholder) agreed to accept responsibility for all
costs associated with the cleanup and compensation of populations. The
company has even released the funds for a phased program of sustain-
able development over 10 years. This responsible behavior reflects the
profound cultural change taking place in our society in relation to ecology;
change is not without influence of many business leaders, such as Placer
Dome.
The political context has several aspects, including the political regime,
regulation, and taxation. All these can change, significantly, the dynamics
of competition that prevails in a particular industry. Business activities are
influenced by the type of government in power. Some political systems are
“natural allies” of companies, and it can lead to generous grants and busi-
ness assistance programs (technological catch, export support, training
workers, etc.). This is the case of conservative and liberal political parties
in Canada. Other political regimes are often considered the “al-related
natural” trade unions. This is the case of the Socialist Party in France, of
the Labor Party in England. Business leaders know that the ideology of
the political party to see importance for the activities of their companies.
For example, several governments of industrialized countries regard the
regulation as a substitute for Crown corporations. Rather than making
himself certain economic activities, the state supervises and directs. This
regulation, however, is a limitation and a constraint for the company. Just
think of the regulations on logging, which now requires companies with
Operational Context in Applied Management 67

more countries to be reforested, or laws on health and safety at work,

which led to the banning of asbestos in several European countries.
Certain laws and regulations apply to all economic activities taking
place in a given territory, whereas others apply only to certain sectors. The
regulation may become so heavy and restrictive that companies see it as a
serious hindrance to their activities, which, in a globalized economy, may
encourage them to settle in other countries. Furthermore, regulation can
be a source of opportunities and benefits for the company. Include protec-
tionist laws of some countries for a long time limited foreign competition
in the clothing industry or in the wood. Despite the opening of markets,
there are still laws and regulations that severely limit the entry of new
players in some sectors of activity: production quotas in the dairy industry,
mandatory membership of the order of pharmacists to own a pharmacy
locally maximum number of outstanding taxi permits in a given territory,
allowed the Canadian Radio-television and Telecommunications Commis-
sion (CRTC) to create a new radio or TV station, and so on. Some of these
protections are disappearing in many countries, but in the first decade of
this century, they are still present because of the important role played by
governments in the management of local economies. Maximum number of
outstanding taxi permits in a given territory allowed the CRTC to create a
new radio or TV station, and so on.
Also, the rate and nature of taxation (established by various govern-
ment authorities) vary greatly from country to country, and it is always
a matter of concern for those developing the company’s strategy. On one
side, there are companies that are little concerned with the socioeconomic
development of the societies in which they have particular activities and
looking to reduce their tax burden. To achieve this, they use various means
even up to install their headquarters in tax havens like Liechtenstein or
Nassau. This, however, is not the case for the vast majority of businesses,
large and small: they keep their headquarters outside tax havens, behave
as good corporate citizens and pay their taxes. However, before increasing
their investment in a given country or to settle in a new country, business
leaders assess the rate and type of taxation that exist in the country as well
as tax incentives to businesses. If they decide to continue their activities in
this country, they will analyze the impact of taxation on their activities and
adjust their behavior accordingly.
A country that chooses to tax significantly payroll companies can
encourage the latter to reduce the number of employees by resorting
68 Applied Managing for Entrepreneurship

massively to automation, outsourcing or self-employment. The differences

between countries are so important for business investment that some
countries have begun to significantly change their tax systems to make it
attractive for companies tempted by US states. Business leaders are aware
of the importance of this political environment that we just described. That
is why they seek to influence through various means: a contribution to the
election fund of political parties supported activities of lobbying, bribes
wine.
Otherwise, there is what might be called a true “market influence”
with public authorities. Already, Dahl had a pluralistic conception of life
of Western societies, as opposed to elitist conceptions that prevailed: in
any society, several groups of power, and none of absolute power. The
existence of counterbalancing powers is what Dahl prevents the domina-
tion of one group over others and allows the exercise of democracy. To
act strategically, companies must have a good knowledge of the various
stakeholders (stakeholders) that may affect the conduct of their activities.
However, the analysis of the sociopolitical context is complex. First, it
must take account of three levels—the societal level.
According to this author, the political context has three interrelated
elements that managers need to consider in their analysis: (1) the structure,
that is to say, the analysis of stakeholders, including their relationships,
interests, their expectations and their capacity for individual and collective
action, to understand the networks in which they are part; (2) dynamic, that
is to say, the study of the evolution of the major social challenges lobbyists
to associate; (3) logical, that is to say, understanding the reasoning of the
closest partners to assess the possibilities for joint action with them.
Such analysis leads to the construction of scenarios to guide the
interaction between the company and its context. In the current environ-
ment, companies are placing more and more importance to the image they
project in society in general and to the authorities in particular. It is not an
image that the company can easily build and manipulate using sophisti-
cated techniques of image makers and communicators of all kinds, despite
the belief of some leaders. This is basically for the strategic management
of corporate identity that focuses on the company’s relationship with its
environment and particularly with its key stakeholders.
The strategic management of corporate identity is now part of the
leadership roles, and companies that give special importance to this aspect
of management, often put up a structural entity in which specifically deals.
Operational Context in Applied Management 69

If a company like Nestle had so many problems with the marketing of

its infant formula in developing countries is that it did not address the
controversy surrounding their dissemination as an attack on their identity
or therefore, as a major strategic threat. The companies belong to indus-
tries characterized by the use of different technologies. A company that
has the latest technology often has a significant competitive advantage.
Japanese companies after World War II have understood. Aware of the
technological gap, but determined quickly become important players on
the world stage, they bought, copied and pirated technologies developed
in Western companies. However, the competitive advantage of flowing
specialized technology tends to fade over time, since all the companies are
gradually learning.
To regulate competition “technological,” countries have established
the patent system, which allows developers of new technologies to be
protected for a specified period. This is the case in the pharmaceutical
industry. But the debate between original brands and generic products
shows how the patent system is not considered sufficient protection by
innovative companies that spend a significant percentage of their turnover
on research and development new products. The technological environ-
ment is changing very rapidly. The advent of computers has upset not
only production systems but also the methods of supply, distribution, and
marketing of products and services, and research techniques. To track
changes in the technological environment, companies often endow a
system of “technology watch” whose data and analysis are critical when
strategic choices have to be made. Companies are very sensitive to the
state of the general economy. In developing their strategies, they take into
account several factors, such as interest rates, exchange rates, inflation,
and unemployment rates.
Central banks use interest rates to speed up or slow down the economy,
and this has important consequences for companies. Thus, in a situation
of low interest rates, businesses have access to capital at lower cost, while
demand for their products increases because the savings incentive is low. It
is therefore a favorable environment for the expansion and business growth.
Exchange rates also have influence on business. For example, when the
Canadian dollar is weak against the US dollar, it promotes export-oriented
companies. Conversely, when the Canadian dollar is strong against the US
dollar, imported products seem cheaper and it increases competition for
local products.
70 Applied Managing for Entrepreneurship

In the current context, where there is a great connection between the

companies, it is becoming increasingly relevant to talk about the operating
environment as a business network. Interest in corporate networks began
in the year 1960. This is when we started to be interested in a particular
way to network and interorganizational relationships. According to Evan
(1966), organization (focal organization) belongs to a network of orga-
nizations (organizational set). The knowledge of this network allows us
to understand the autonomy of the organization’s decisions, the forces
that incite to compete with other network organizations to cooperate with
them, and its ability to achieve the goals is fixed.
For Astley and Fombrun (1983), when network organizations are
strongly connected to each other, they form a turbulent environment
whose properties are independent of the action of each of the network
organizations. In this context, the organization’s plan to work together to
absorb the variations present in the interorganizational context. The collec-
tive strategy is the result of collaboration between organizations of the
same network. Frery spoke about networks of companies using the term
“transaction structure”: as opposed to a financially integrated structure, a
transactional structure is defined as a composite organization, bringing in
the same value chain, capitalistically autonomous stakeholders, linked by
a series of recurring transactions.
We find networks of enterprises in all industry sectors. However, some
industries are characterized by strong ties between their various stake-
holders. In this connection, it often gives the example of the automotive
industry and the linkages between manufacturers’ cars and their subcon-
tractors. Worth mentioning are Bombardier, in the aviation industry,
and Benetton, in the garment industry. In the case of business networks
and transactional structures, there is plurality of financially independent
companies linked by a multifaceted and complex trading system. Each
of these companies cannot be considered as an autonomous entity, with
clearly identifiable boundaries, and having its own decision-making center.
The first question is: What type of link must unite firms in a network?
The second question, more strategic, must also be raised: What is the role
of different network companies in the formulation of the strategy? Then,
in what circumstances does it develop individual strategies and collec-
tive strategy? Can there be real planning guidance to a network? How
the network adjusts as a result of changes in the operating environment?
Are there transposition into corporate networks, the top-down approach
Operational Context in Applied Management 71

(literally, from the top down) that characterizes the strategic decision-
making in many companies? What is the role of the different network
companies in the formulation of the strategy?
Strategic management of a company belonging to a network character-
ized by high connectivity requires leaders to rethink the traditional way in
which they managed to establish their business strategy. They can make
it by taking into account the strategy of other Entre taken with which the
company works in a given industry. These can then be considered as a part
of context.
CHAPTER 7

Advanced Operational Business

Analysis

The business context is the context in which the actions of the organization
are embedded. The context of the case is both a reality independent of
the organization and construction of its leaders. Different organizations
can see in the same context different dynamics, different opportunities,
and threats. This means that there exists between the organization and the
context of business, one relationship. The organization’s resources then
have meaning when placed in the context of the case that it “has chosen.”
Competitive advantage is defined and therefore built in reference to what
is happening or what might happen in the context of business. Take the
flower industry.
In the past, the industry included several intermediaries, including
florists, pharmacies, and supermarkets so that consumers pay more than
800% of the price paid to the producer. The company (Calyx & Corolla)
created a network so that the flowers can be sent to the consumer, cooler
and at a lower cost. It has established close relationships with producers,
helping them to find the best packaging materials and informing them of
the status of stocks and demand. It also concluded an alliance with FedEx
to facilitate the delivery and enable consumers to receive their product
within two days after picking. “Calyx & Corolla” has become a central
player in this industry 10 billion. Many observers believe that the use of
e-commerce will accelerate this process of eliminating intermediaries,
not only for flowers but for many industries, including fresh agricultural
products. The opposite can also happen, that is to say, that competitive
advantage can come from offering an intermediary service where the
customer is subserved by the existing system. In the airline industry,
which is relatively opaque to the consumer, many agencies specialize to
provide intermediation services, especially to find the best routes and the
best prices.
74 Applied Managing for Entrepreneurship

But the most spectacular example is Google. This company realized

before anyone else the problems that the explosion of information through
the Internet posed to users. She then developed a series of tools or search
engines that can quickly find the information available on the Net. The
general engine you do remarkable achievement that facilitates the search
for any information publicly trace in any of the major languages used in
the world and this in record time. In addition, Google has stepped specialty
engines that allow, in a particular area, such as maps or languages, to find
instruments that put a lot of time to locate on the network. The popularity
of Google is able to simplify it has introduced. Apart from Google, many
other engines and media have begun to respond to the needs of increasingly
accurate. YouTube, for example, that allows publishing filmed documents,
is one of the latest blockbusters.
In all cases, a sustainable competitive advantage is often a specific
building, systematic, that takes time. This construction is influenced
by learning that the organization has made in its history but it can also
be modified, adjusted and redone to ultimately position the company
favorably compared with its competitors. The American adventure of
the Spanish company Terra Networks is revealing in this regard. Terra,
a subsidiary of Telefónica giant, is one of the largest content providers
and Internet services in the Hispanic world. Entre decision moved to the
United States and is made visible by creating www.terra.com site. She
quickly realized that the task was not easy, before competitors like Yahoo
and StarMedia, or international competitors like El-Sitio and Loquesea.
The problem is related to the fact that it must satisfy a complicated market,
namely US Hispanics. The latter, although bilingual, are nevertheless also
different from Americans as are the inhabitants of the countries of Latin
America and Central America. Despite the small number of Hispanics on
the Internet, Terra defends remarkably well.
First, to encourage use of the Internet, Terra has teamed up with the tele-
communications company IDT, New Jersey, who was already a customer
of Latin origin. In addition, Terra has become known as the company that
best understands the cultural and linguistic affinities of Hispanics in the
Americas. Not only Terra said, but she practiced. By visiting the US sports
Terra could fall on a headline about Tiger Woods. But if you clicked on
the link Peruvian, you could get information on the soccer club “U.” In the
pages of competitors, we would probably find the same title about Tiger
Woods, but nothing on the Peruvian soccer club. Managing such diversity
Advanced Operational Business Analysis 75

requires considerable work. Indeed, some Hispanics prefer to browse in

English and others in Spanish. This forced Terra to provide local content
and trade electronically in both English and Spanish. For this, it has
managed quality alliances with the Miami Herald Latin America and MTV
Networks and did the same thing in California, New York, Miami, and
throughout Latin America. In addition, Terra produces original content as
its site that allows immigration to interact with people who have recently
emigrated or who know the immigration laws. Wall Street does not make a
mistake. Terra shares have risen dramatically. In February 2000, they were
worth 850% of the price of the initial public offering. The value continued
to increase despite the upheavals and the crash of high technology.
These examples demonstrate that the development of competitive
advantage requires first knowing who you are and know the context
of business. Then it requires the construction patient, systematic and
specific resources and competencies that differentiate the company from
competitors. In this chapter, we will reveal what lies behind the incred-
ible creativity of companies and present useful methods of analysis of
resources and internal capabilities. In the first section, we will propose
traditional marches, to lead us in the second section, to newer methods of
value analysis, including the value chain and the organization’s concep-
tualization of ideas as an assembling resource, capacity, and skills. In the
third section, we discuss new and promising ideas for creating patterns of
recognition and value retention. Traditional analytical approaches based
on the idea that the context of business is easily recognizable and under-
standable. Just by identifying key success factors, that is to say, what to
do to be successful in a particular industry, to determine the gap between
resources and capabilities and what is required and, finally, try to reduce
this gap. One of the first approaches used to examine the business of
discovering and specify the forces (what we do better than its competitors)
and weaknesses (so underperformed its competitors) of the organization,
by connecting them with external analysis,
This approach, popularized in the “Strengths, Weaknesses, Opportuni-
ties, Threats,” is widely used by practitioners of strategic analysis, who
find both easy to understand and convenient to use. Force is a resource or
an activity that an organization is particularly good, better than its competi-
tors. This is a feature that gives the company a special ability. It can be a
special skill, expertise, a resource available to the company exclusively, or
a reputation that the company has built over the years. It is obvious that a
76 Applied Managing for Entrepreneurship

force can be tangible, such as availability of funds, or intangible, such as

name, reputation, and technological know-how or managerial, including
the ability to innovate and stand fast in the market with new products.
Thus, when talking about Alcan, it refers to its ability in identifying the
sources of raw materials, government relations as well as production and
marketing, a combination of capabilities difficult to imitate. This is also a
barrier for any new entrant. 3M has many distinguished itself by institu-
tionalizing innovation and by making the source of real advantages over
its competitors. Sony, meanwhile, has made its ability to create products
“an insurmountable barrier” for most of its competitors. It refers to its
ability in identifying the sources of raw materials, government relations as
well as production and marketing, a combination of capabilities difficult
to imitate. This is also a barrier for any new entrant.
A weakness is a lack of resources or performance of critical activities
is lower than that of the competition, making it vulnerable between taken
by its competitors. It is important to be aware of his weaknesses to guide
strategic choices and avoid strategic ways in which the business would be
less strong than its competitors. To identify the strengths and weaknesses
of the organization, one can make a diagnostic analysis by external people,
whose mission is to examine critically and comparatively the organization’s
practices. One can also conduct a survey of key managers and discuss situ-
ations for which there is disagreement. To guide the process of identifying
strengths and weaknesses, Stevenson (1976) provides a review canvas
large business function. This framework assesses the company’s position
in relation to each of the elements, from the perspective of managers or
from the perspective of former dull experts. We can then examine the
situation of the company, comparing it with that of its competitors, as
perceived by managers themselves or by external experts. For example,
we often asked managers to note the company or its competitors, each of
the elements of the canvas, using a scale of 7 or 10 points. Each element is
then distinguished from the others by a weighting system that reflects their
relative importance to the company. Normally, the total gives a good idea
of the strengths and weaknesses of the company. However, we must use
this table with caution. Indeed, identify strengths and weaknesses involves
both the review of overall scores, but also the examination of the scores
along each line.
The pattern of strengths and weaknesses is the basis of the portfolio
analysis of traditional products developed. Indeed, these analyses are all
Advanced Operational Business Analysis 77

based on a representative dimension of the external, such as market growth,

and a representative size of the house, such as relative market share. The
company’s success, therefore, requires a unique combination of charac-
teristics of the business context and that of the company or the analyzed
strategic unit. The pattern of strengths and weaknesses is also the basis of
the PIMS (profit impact of marketing). PIMS is born of General Electric
executives’ desire to better understand the advantages and competitive
disadvantages of their strategic business centers (business units).
This benchmarking model is valuable when trying to assess the
strengths and weaknesses of an organization. Using the model of the
strengths and weaknesses can still be sharper if combined analyzes such
as the experience curve, lifecycle or growth vector, we look further. These
analyses are otherwise also useful in complex situations. The best known
are those generic strategies of differentiation and cost leadership.
Strategy on the costs normally helps to cope with the competition
because it is to reduce prices and to gain greater market share. In return,
a larger market share can produce larger quantities and, therefore, can
reduce costs below what competitors are doing that have a lower market
share. The principal of this cost reduction based on volume is described
in the model of the experimental curve. This is one of the most popular
models in strategic business management. Because of economies of scale,
directly related to higher manufacturing volumes required to meet the
market demand, and also because of the experience gained during the
production process, the costs will be lower for companies that have the
highest market share. Although cause and effect are not so mechanical that
might suggest there is a relationship between the size of the facilities and
production costs.
The economies of scale from the fact that, when increasing the size of
facilities, investment and operational costs do not grow proportionally.
Thus, an oil refinery with a capacity double that of a competitor can only
have 20% more in fixed additional total costs of investment and operation.
In ramming the unit cost, it is clear that more facilities are large, more
the cost per unit decreases. Beyond the savings in production, there may
also be savings in commercial expenses, research, and development and
administration. The use of a learning curve as a basis for choosing a
strategy focuses on costs. This strategy requires standardization of produc-
tion processes and specialization of labor and manufacturing tool. This
increases efficiency, certainly, but reduces flexibility.
78 Applied Managing for Entrepreneurship

Some important changes to the manufacturing process, due to innova-

tion, can even put the company in danger. The concept of the experience
curve should be used with caution. So, try first to increase production
capacity to achieve significant market share can exert considerable stress
on the operation of the business. For example, from 10–30% market share
in a market that is growing 15% requires growth of 43% for 5 years!
After 5 years, the production volume has increased six-fold! We must also
understand what applies to the phenomenon of experience. In the automo-
tive industry or the aviation industry, the final product is a combination
of hundreds of components, each having a different experience curve. To
make informed decisions, it is very important to understand how these
experiences combine. Finally, it is sometimes useful to think of a shared
experience, when an alliance can afford to take into account the produc-
tion volumes of two or more companies at once. This is the case when
companies like Renault and Volvo team up to build common engines.
The product life cycle is concerned with the normal development of the
company’s products in their market. A product is first launched and the
result is a gestation period before it is accepted by the market. If necessary,
the request first experiencing strong growth, and growth slows to enter a
mature phase,
In general, as all products familiar with this demand pattern in the
market, we can organize the activities of the company accordingly. It does
not support the activities in the same way as the product is in a period
of growth or maturity. When the product is in the introduction phase,
the technical aspects, such as product development, dominate. When the
product is in the growth phase, production issues take over. When growth
slows, the activities of marketing and distribution necessary to maintain or
enhance market share and increase margins. Finally, the product decline,
we must “harvest” and reap the profits. The life cycle induces specific
business strategies for product portfolio balance.
At this stage, however, we must emphasize that the life cycle is a given
on the natural behavior of all products, but that the details of the life cycle
of a product, as the length of each of its phases, depends a lot of the actions
of companies in the industry. Thus, it is expected that the life cycle is
longer in an industry where companies prefer product improvement rather
than changes in products and focus on the control of market domination
by costs and barriers to entry, advertising, and promotion. Conversely, in
an industry where companies are driven by innovation and tried to change
Advanced Operational Business Analysis 79

their products regularly, the life cycle can be very short. We will succes-
sively address two widely used methods in strategy, namely the model of
the value chain and the approach of resources and skills. In his model of
competitive analysis, Porter suggests examining the company using the
concept of a value chain. The value chain can be defined as the set of
distinct activities contributing to the creation of value that the customer is
willing to pay. Going further, it is to examine the sequence of activities of
a company in order to understand how they are used (or could be used) to
do business differently or better than other industrial companies.
Porter suggests examining the company using the concept of value
chain. The value chain can be defined as the set of distinct activities
contributing to the creation of value that the customer is willing to pay.
Going further, it is to examine the sequence of activities of a company
in order to understand how they are used (or could be used) to do busi-
ness differently or better than other industrial companies. Porter suggests
examining the company using the concept of a value chain. The value
chain can be defined as the set of distinct activities contributing to the
creation of value that the customer is willing to pay. Going further, it is
to examine the sequence of activities of a company in order to understand
how they are used (or could be used) to do business differently or better
than other industrial companies.
In this model, it comes to determining what business activities create
value. To do this, we decompose operations into simple elements to better
understand how each of them contribute to create value to customers.
The model distinguishes between primary activities, such as production,
marketing, logistics and delivery, service, and support activities, such as
procurement, technology development, human resource management, and
infrastructure (general management and associated services). For Porter,
the most important competitive advantages derived from the differentiation
and the ability to have low costs. Examination of the value chain to better
understand how each activity influences differentiation and cost. This is
called determining the drivers of differentiation or cost. Porter suggests
that it is in the arrangement of activities that the company finds original
ways, sometimes difficult to copy, to stand out from the competition and
build a decisive competitive advantage.
This is what distinctive competence of the organization is. A synthetic
view of the value chain must be presented. If we talk about “value chain”
is that activities are related and form a coherent whole. Moreover, the
80 Applied Managing for Entrepreneurship

components of this set must be maintained in connection with the

coordination activities. Note that coordination can itself be a source of
competitive advantage. It is for this reason that system management is
an essential element of the value chain. Once the elements of the value
chain are completed, it is possible to assign a cost to each of the elements
to better appreciate their contribution to the total cost of the finished
products. We can also consider the contribution of these elements in terms
of differentiation. Knowledge of the contribution to the cost or differentia-
tion, or both, compares the company with its competitors and thus to seize
the company’s ability to support its strategy. Take the example of the costs
leadership strategy: To achieve this strategy, the company must be able
to be produced at a lower cost than its competitors, or to procure the raw
material for the best price, is to ensure deliveries at very attractive prices,
or take advantage of other benefits in terms of costs, or to have a combina-
tion of several of these activities.
Let us return to the article where Prahalad and Hamel (1990) suggested
that successful companies develop sustainable competitive advantages
tend to see themselves as a portfolio of skills rather than as a portfolio
of business centers. In 1980, GTE posted sales of 10 billion, while NEC,
much smaller, realized a turnover of 3.8 billion. The two companies had
similar technology and computer basics but GTE exercised in addition
to telecommunications activities, particularly in the field of telephony. In
1988, GTE reaped revenue of 16.5 billion, and NEC, to 21.9 billion. GTE
had become a phone company, keeping only a few activities in the areas of
lighting and defense. It had disinvested by selling Sylvania, its activity in
the field of television and Telenet. It was also involved in joint ventures for
its switching operations (switching) of transmission and digital PBX and
had left its semiconductor-related activities. Therefore, its international
position had deteriorated from 20–15% of its turnover.
By comparison, NEC became the world leader in semiconductors and
one of the most prominent for telecommunications products and computer
players. In addition to the mainframe, it produced mobile phones, fax
machines, laptops, making the link between telecommunications and
office automation. Among the five largest telecommunications companies,
NEC was the only one to also work in the semiconductor and mainframes.
NEC has established an explicit strategy to exploit the convergence of
computers and telecommunications (called C & C). The company believed
that success would come from the acquisition of specific skills, particularly
Advanced Operational Business Analysis 81

in the field of semiconductors. The strategic architecture that resulted was

then circulated widely within the company and outside. C & C committee
was formed to oversee the development of skills and core products. The
company has devoted significant resources to the consolidation of its posi-
tion in components and central processors.
The study by NEC led her to think that computers would evolve central
processors to the decentralized process. She is convinced that gradually
the activities related to components, communications, and computer
technology would overlap so that it would be difficult to distinguish. A
company with expertise to serve these three markets would, therefore,
benefit difficult to imitate. This has, therefore, led NEC to invest heavily
in semiconductors and to form a multitude of alliances for the rest of its
activities, including Honeywell and Bull, in order to “avoid developing
what already exists.” Meanwhile, GTE continued to regard its activities as
autonomous entities, regardless of skills that would enable the company
to better position itself in future markets. This attention to the skills
and central resources, as well as central products, (those which control
is essential to succeed in the relevant markets), is clearly different from
the traditional tendency to consider the company as portfolio products or
activities (SBU or CAS) relatively autonomous. In fact, many companies
are trapped by the dogmas of the autonomous management of CAS and by
the pressure of short-term performance.
Although performance and short-term competitiveness are dependent
attributes the price-performance ratio, the global competition imposes
standards ever higher in terms of cost and quality.
Companies who benefit are those that are able to build the skills, at a
lower and faster, than their competitors, cost. The real source of competi-
tive advantage is the ability of managers to manage the process by which
technology and know-how are transformed into skills that enable adapta-
tion and seizing opportunities inaccessible to others. In sum, if the prod-
ucts are leaves, flowers, and tree fruits, skills are the roots. The more one
observes the process of consolidation and development of skills, the more
we see the importance of organization and coordination. Sony (Kettani,
1996) emphasizes the importance of its technologists, its engineers and
traders share the same understanding of customer needs and technological
possibilities. This allows all the key elements of the organization to keep
pace. The central competence is so communication, involvement, and
82 Applied Managing for Entrepreneurship

commitment to work without worrying about traditional organizational

boundaries. This is what allows new businesses to expand globally.
What’s interesting, say Prahalad and Hamel (1990), is that the core
competencies do not diminish with use. Instead, use and sharing make
them grow. However, we must protect them, or they can disappear, if not
applied in the right place. One can also leave from the critical skills for the
future. So, it is likely that GE, although this reflected a deliberate strategy,
not only sold to Thomson of electronic activities for the general public (in
the field of television in particular) but also the essential skills of a sector
likely to experience strong growth.
To determine the core competencies in a company, three questions
must be asked:

• This skill has access to a variety of markets? Thus, competence

in display systems allows participation in markets as diverse as
calculators, miniature televisions, monitors, and laptops, auto dash-
boards, etc. Just see the strategic behavior of Casio to be convinced.
• This skill does contribute significantly to the creation of value for
the customer with respect to the final product? Honda’s expertise
in engines or that of 3M in specialty adhesives used to positively
answer the question.

Is this skill difficult to imitate by competitors?

It is conceivable that a company can really develop global value skills
in five or six major areas. Although we may list a lot of skills, we must try
to condense into blocks. This is also what allows to discover the missing
blocks and those that allow for alliances. Prahalad and Hamel have stimu-
lated a generation of researchers who wanted to know whether there was a
systematic relationship between the nature of the skills and success. This
gave rise to what is called “resource perspective.” This work was launched
by Wernerfelt in 1984. According to this perspective, competitive advan-
tage comes from internal resources, and it is better to focus on resources
rather than the dynamics of the industry, considered too volatile if we want
to stand out from competitors and provide sustainable benefits. Resources
are thus broader expression skills. Although this term includes everything
that can be used to sit a competitive advantage, it includes both material
and tangible resources that intangible resources such as skills.
Advanced Operational Business Analysis 83

These have a more systemic nature and the result of “the interaction
between technology, collective learning, and organizational processes.”
It includes both material and tangible resources that intangible resources
such as skills.
Thus, Sony’s capacity to generate innovation or those of GE facilitate
adaptation to change and combine skills are a number of tangible and intan-
gible resources. To achieve sustainable benefits, resources must possess a
number of characteristics: It is necessary that a resource is rare, durable, as
the company is appropriate and it is difficult to imitate or substitute. The
skills generally all these qualities. As they are related to processes that take
a long time to produce results, they are of considerable importance. When
the source of competitive advantage, it is hard to beat because, for the
same skills, competitors must follow similar processes and take the time
necessary to achieve it. The commitment of the employees, the reflexes
they have in their interactions, coordination, and integration facilities, the
ability to adapt and the ability to innovate are all skills that are slow to
build but are difficult to conquer fortresses.
Miller and Shamsie (1996) developed some resource perspective with
links between the nature of the resources, the nature of the business context
and business performance. They, first, proposed to distinguish resources
“based on the property” and “knowledge-based” resources. The first
encompasses all resources protected by laws or regulations. Thus, a patent
owned by a mine or a property can provide a competitive advantage to the
(individual or organization) who is the legal owner. As for resources based
on knowledge, they approach the definition that we give skills. These are
skills that are not available to others. It is normal to think that resource
properties are most effective when the context of business is stable,
whereas resources-knowledge is especially effective when the business
context is turbulent. Miller and Shamsie have especially demonstrated in
the case of the strategies of Hollywood studios.
The resource theory is in full development and to test systematically
the relationships previously little understood. In a study in which we
participated, we linked the nature of resources and the nature of the
context of dealing with the existence and performance of cooperation
strategies: Stable and homogeneous industries with little uncertainty tend
not to generate cooperative arrangements unless the dominant games and
resources based on the property are compatible and complementary. In such
cases, cooperative arrangements generate superior performance. When
84 Applied Managing for Entrepreneurship

cooperation is attempted, despite identical or incompatible resources, it

leads to poor performance. Unstable and heterogeneous industries with a
high level of uncertainty, generates a large number of cooperative arrange-
ments unless the peripheral games and resources based on knowledge are
perceived as incompatible or identical. In the first case, the cooperative
arrangements generate superior performance. In the second case, the coop-
erative arrangements that are tempted lead to poor performance.
Resource theory draws attention to the importance of internal resources
when you want to generate a competitive advantage. Even if the resources
cannot be considered without reference to the context of the case, the theory
suggests that we really have to leverage our resources and it is on this
that the focus should be. This perspective leads us to revise the strategic
analysis, putting the center what we have and what we know to do, and
by modulating the use of resources and skills to meet the changing market
needs and requirements of the context of the case. A supportive manager
to use this approach find valuable approaches proposed by Prahalad and
Hamel (1990), most of which were mentioned earlier.
As we have repeatedly said, the strategy is an art. The complexity
of the business is so large that, firstly, it is difficult to understand what
is happening and, on the other hand, there is room for many successful
strategies. Many researchers and consultants have sought more or less
awkwardly to discover strategic responses to different situations in the
context of business. This goes against the idea of creating art involved. It
remains that the examination of practices that lead to success is a relevant
exercise for the manager, as it is relevant for aspiring tennis players, for
example, to study the performance of great players. It is therefore proposed
to look at a few examples of success. There are theoretically an infinite
number of behaviors that generate profit.
We present 5 of them, which are related to different aspects of the
value chain: (1) changing the value chain; (2) increased attention to
customers; (3) modification of the distribution channels; (4) the original
management of products or services; (5) knowledge management. You can
change the value chain in different ways: Value chain can be disintegrated
or reinstated; it can be compressed, with a decrease in the importance of
one or the other traditional activities to create value, or extent, with the
strengthening of a link, was weak.
Nike, Benetton, and the Chinese company Li & Fung were the cham-
pions of disintegration. These companies have quickly realized that in the
Advanced Operational Business Analysis 85

value chain, some features proved crucial, whereas others played the role
amenities. Li & Fung, from a small textile company, has now become a
diversified supplier, were able, after long years of computerization efforts,
to focus on negotiating with the end customer, product design, and manage-
ment of the supply chain, leaving to others the essential shareholders of
manufacturing. In doing so, the company has dramatically improved the
length of the procurement cycle clothing and electronic equipment, thus
gaining a competitive advantage difficult to imitate. The disintegration
may also leave room for shareholders working in a specific sector.
Thus, in the telecommunications industry in the United States, Qwest
Communications has decided to be, “the carrier’s carrier.” By building a
national network of optical fiber, it resells its services to local suppliers as
GTE and US West, which then sell them to the public. 10 years after its
creation, Qwest was worth 8 billion dollars. The reintegration can also be
a source of competitive advantage. The pharmaceutical industry is often
cited as an example. The change of power relations in favor of distributors
sparked a consolidation process, initiated by Merck.
This company has acquired Medco, a company managing pharmacy
benefits, serving employers and large buyers such as hospitals. Many other
companies in the industry have followed suit. Gap, the largest sportswear
retailer, has evolved from a jeans shop in a chain of 2000 stores serving
four major markets: Gap (midrange), Gap Kids and Baby Gap (children),
BRepublic (average and upscale), and Old Navy (midrange). Gap is
now the design of its own products and maintains a stronger connection
with customers. These companies have all managed to grow better than
their competitors, in terms of both sales and profits. Sometimes, success
can come from the extension of the value chain by improving capacity
“neighbors” that prevent the company to create value. Problems are often
cited the fact that McDonald’s had in his rea- fragmentation, and lack of
storage standards in the potato industry in Europe. The company has taken
years to consolidate suppliers, train them, provide them assistance and
standardize systems.
This expertise served him later in many emerging countries in transi-
tion, such as Russia. Toyota and Wal-Mart have done the same thing in
many sectors. In particular, Toyota built its relationship admirably system
with suppliers and created significant competitive advantages, such as
those associated with “lean” to complete the “just-in-time.” In an industry,
the value can migrate upstream or downstream according to circumstances
86 Applied Managing for Entrepreneurship

and strategic behavior of companies. The concept of the center of gravity

(Galbraith, 1983) has been proposed to describe the ability of a business
to adapt to these changes. In the 1980s, IBM was the very ring in PCs, the
lower ring being Intel. IBM had also decided to invest in Intel (19%) to
help strengthen. Later, the reverse happened, IBM being the weakest link
and Intel’s strong ring. This example demonstrates the value of migration
along the value creation chain in an industry.
Customers are the ultimate arbiters in terms of value. Their behaviors
can create or destroy. So, there are situations where the microsegmentation
or redefining the customer is required and must be aware that customers
with power relationships are constantly evolving and changing opportu-
nities for value creation. To better meet customer needs, companies can
make the microsegmentation and attempt to meet the specific needs of
each client. This was a utopia in the last few years, but thanks to new
information technologies and communications, we get to do more. So,
Levi Strauss Company discovered that many of his female clients were
upset to have to try 15–20 jeans before finding the right size. The company
was developing, in 1994, the Personal Pair program, which allows a client
to quickly identify models that suit them. In 1997, the program generated
25% of sales in Levi’s stores.
The following year, Personal Pair was replaced by Original Spin,
holding accounts also men. This has provided a better understanding to
customers; Levi-Strauss can now offer in the stores over 750 choices of
adjustment. The following year, Personal Pair was replaced by Original
Spin, holding accounts also men.
Microsegmentation is stimulated by the diversity and sophistication
of larger and larger customers, demanding more personalization and
more choice. It requires technological development that serves different
segments effectively. Another approach is to redefine the customer that
wants to serve. This is true of Bang & Olufsen, a European company of
electronic products, including traditional clientele consisted of audiophile
connoisseurs who appreciate the technological sophistication and product
design, but that does not generate profit. The company had to redefine its
customer base to include those seeking luxury and are sensitive to elegance
and status. She began selling its products in emphasizing the exclusive
character of the B & O products, gradually managing to straighten a
threatening financial situation.
Advanced Operational Business Analysis 87

From 1989 to 1997, the ratio of the value of shares on sales rose from
0.2 to 1.5, whereas the ratio was around 0.5 for most consumer electronics
companies. This is the traditional methods of pressure strategy (marketing
push) and pull strategy (pull marketing), but many are rediscovering them
with happiness. Thus, in the 1980s and 1990s, DuPont, to the reluctance
of its immediate customers toward his master Stain-product, has practiced
a strategy of attraction (pull) by creating demand among consumers.
Intel has done the same for its microprocessors. Gradually managing to
straighten a threatening financial situation.
Changing distribution channels can be done in different ways. We
can increase the number of specialty channels or, instead, focus on a few
channels to achieve economies of scale. It can also reduce the number
of steps in the distribution or interpose an intermediate where there were
none before. The case of coffee dispensing illustrates the multiplication
and specialization of channels.
Today, coffee is sold in many places with chains increasingly special-
ized offering opportunities to drink or buy differently coffee. In the food
distribution sector, we have witnessed the opposite phenomenon. It started
by opening hypermarkets which destroyed much of the fragmented system
of small traders. The phenomenon has spread around the world and took
surprising forms. Thus, the concentration did not hit small convenience
stores, but those who supply them, leaving the convenience store to better
serve customers in the area. But even for convenience, the Couche-Tard
chain is changing the landscape with its dominance of the convenience
store in North America. This concentration phenomenon affects many
industries. Thus, creating retail chains, Blockbuster (in the field of DVD
rental counters) and Barnes & Noble (in the libraries sector) have managed
to offer a better selection of the most appropriate time, more attentive
service and sometimes a better price. The distribution channel can also be
reduced or disappear, as was demonstrated at the beginning of this chapter
by the example of Calyx & Corolla in the flower industry.
Conversely, a new intermediation mechanism may occur when the
client does not all the information it needs or finds it difficult to pick itself
the product or service desired. So, the formation of Creative Artists Agency
has allowed Hollywood studios to get the stars of services, writers, and
directors, without being obliged to do so in the room. The artists have also
gained something since their bargaining power has increased. The whole
system has gained stability and predictability in this new way.
88 Applied Managing for Entrepreneurship

Many companies focus on trademark or try to focus on promising

products (blockbuster). They create situations where products can become
the basis of development and increase profits. They can also create a kind
of hierarchy of products in order to seize all possible profits. Finally,
they change the product idea to the idea of service or solution. When the
customer has too many options on the table, he is frustrated. The differ-
entiation by brand overcomes this problem. The brand becomes a sort of
guarantee of quality, reliability, etc. So, if we can, like Coca-Cola, Swatch,
Evian, or Intel, make a mark, we can reap the benefits long. In the early
1990s, two identical cars were built at Nummi, a company born from the
merger of Toyota and GM based in Fremont, California. Although both
cars were identical, the one who wore the Toyota brand was selling faster
and $400 more on average than the other car.
In many industries, the profit migrates a product portfolio to some
carrier’s products (blockbuster). We must recognize and create better prod-
ucts. This is done in a very large number of industries: Film production,
pharmaceuticals, music, books, real estate, sports talents, television, etc.
An excellent model for the development of promising products comes from
the pharmaceutical industry. Since 1970, Merck has developed this system
and introduced in 1981 Vasotec (a drug against hypertension), among
other drugs. Today, every company has its carrier product: Schering-Plow
and Claritin, Eli Lilly and Prozac, Pfizer and Viagra. Disney, Bloomberg,
Sony, Michael Jordan or Tom Peters have in common is profit multipliers.
When Disney created The Lion King, she followed toys, clothes, books,
TV shows, music selections, and ice shows, significantly increasing its
profits. Similarly, Michael Jordan used his personality and qualities of
basketball and Tom Peters has used his talent motivator with business
people to significantly increase profits by a range of other activities.
American Express has done much the same thing but by structuring
deals in a pyramid. So, she put on the market a Gold card with an annual
membership fee of $100 and, later, a Platinum card with an annual member-
ship fee is $300. She did the same for his other services. At Gillette, we can
recognize the same desire to offer a tiered range of shaving products. We
talk about fewer and fewer products and more solutions. Thus, in 1990, GE
sold to British Airways a contract of the “engine.” BA benefits from the
use of motors which are the property of GE, which maintains and follows
them throughout their useful life. GE is also transforming all its products
into solutions.” Similarly, Honeywell offered to Boeing successfully not
Advanced Operational Business Analysis 89

to assemble subsystems designed by Boeing but take responsibility for the

design and supply of all the avionics systems. However, it should keep in
mind that solutions are never final and they are constantly evolving.
Knowledge is at the heart of competitive advantage, but it is not always
used by the organization wisely. Some examples of strategic choices allow
us to highlight the importance of knowledge and its proper use by the
organization. The product is an invaluable source of information on the
client. The retailer is often lost in the huge amount of information that
customers generate behaviors, but the manufacturer of a product has
the ability to track the product and its variants, to accumulate valuable
information on customer behavior and thus achieving the following
three objectives: (1) Effective management of product categories (called
SKU, stock-keeping units, or inventory management units) in stores; (2)
precision merchandising: Wal-Mart has developed a remarkable ability
to understand consumer behavior, permit, as to avoid too high stocks or
breaks. In addition, Coca-Cola is currently testing telemetry systems for
monitoring the stock of each vending machine bringing precise manage-
ment of these segments; (3) An increase in the success rate of innovation,
with a detailed knowledge of consumer behavior. GE, for example, has
developed sophisticated models of product performance in the context
of use by the customer. This information is the source of innovation in
products or services.
The activities in several sectors, such as hotels, bookstores, steel,
aviation, etc., do not always generate the desired profits. However, they
contain a lot of knowledge that can be systematized and sold with consid-
erable margins. This gave birth to the management and sales companies’
know-how rather than products. Thus, Marriott focuses on the provision of
hotel management services. Barnes & Noble offer their services to manage
the libraries in universities and other community locations. Similarly,
the Japanese have always sold their know-how in steel making in Latin
America, Korea, and elsewhere, when the industry began to decline. And
American Airlines has operated its operational capabilities to develop a
great competitive tool that was its Saber reservation system. The reverse is
also true. One can spend fine knowledge on a topic or process to successful
products. SAP (integrated management systems) and PeopleSoft (human
resource management system) have created packages that have benefited
from expertise developed through custom work done for clients. Knowl-
edge was then converted into a product that allowed for the mainstreaming
90 Applied Managing for Entrepreneurship

activities, but much more efficiently and at a lower cost. In general, we say
that the major professional companies can grow by 15–23%, but compa-
nies like SAP or PeopleSoft.
So far, we have presented a number of tools to establish the internal
analysis of the company: Analysis of strengths and weaknesses, identifica-
tion of skills and resources, and the value chain. These tools are widely
used by companies when formulating strategies and items that are of
interest are often tangible elements or functions of the company. But there
are other less tangible elements, such as leadership and culture, which are
important because they orient strategic action.
CHAPTER 8

The Implementation of Business

Optimization Mechanisms

It is presented here as part of the primary analysis, the one that used to
define, design, and make (the terms are used interchangeably) business
optimization mechanisms. The decision optimization is either an end or a
conductive vein, a mediation mechanism with the context of business, a
combination of internal resources to achieve a competitive advantage, the
expression of leadership values and community people who constitute the
company. In the analysis to design the applied management mechanisms,
we find then inevitably these different facets and can integrate. To address
the analytical framework must illustrate the optimization process through
the real case of a now-defunct company.
This is food distribution of a large company, which had invested
money in launching a chain of general merchandise stores. Years later, the
company lost hundreds of millions of dollars trying to save the company.
The history of this company appears to be an uninterrupted series of impro-
visations that led the company into a vortex so incoherent that nobody
knew how to make sense of such an adventure. The company embarked
on the adventure of general merchandise stores for different reasons. It
had empty space she wanted to fill. She also had the confidence typical
of a company that had known only success in its food business that could
create a sense of power.
Thus, the same reasons that made the success of the company,
including improvisation, also contributed to making inconsistent and
dangerous decisions for the survival of the entire company. This suggests
that improvisation, even great, is appropriate only when the degree of
complexity of the organization is to measure the cognitive abilities of the
leader. As soon as the company grows, improvisation must incorporate
more systematic reflection and collaboration to the understanding of the
evolution of the company and its business context. The lack of direction
92 Applied Managing for Entrepreneurship

has been detrimental to the company. The new leaders of the company,
have understood the need to do what should have been done earlier: Define
the company and its rationale.
To start their strategic thinking, the new team needed information. It
was first necessary to know the company by consulting clients. The ques-
tion was to know why customers were loyal to the company. It was also
determined competition: What rivals? The study of industry and market
has entered a much-segmented market with competitors who tend to
want to distinguish themselves from each other. Four major categories of
stakeholders had emerged. General stores, large department stores seeking
to attract a bit everybody, present in one place with quality products and
different prices.
Then, discount stores, whose approach was based on the price or
more precisely on the price-book. There were also “buying clubs,” a kind
of super-discount stores but the range could change at the discretion of
procurement opportunities. Finally, there are companies that stood out by
specializing. Specialty stores covered as segments where quality and status
were, for the consumer, important factors to consider, that the segments
where price and value were the first items to consider.
The customer profile a bit surprised: Young families with incomes
above the average. Customers were relatively faithful and, more impor-
tantly, they saw the company, a store that was similar to department stores,
regarding the assortment, fashion, and quality but with prices comparable
with discount stores. However, the layout was less attractive and less good
service in department stores. Finally, in terms of performance, the most
problematic stores (in terms of deficits) were those distant. It also showed
that the least requested products and less profitable were small appliances,
whereas the most promising products were clothing. Using this informa-
tion, it was necessary to define what the company is and what it should
become. Knowing that it is easier to create a new company (we have more
elbow) than flying an existing business (account must be taken of what
exists).
It should be emphasized the importance of considering its own
resources (the resources invested, debt, and availability) when defining
what we want to do. In short, leaders gathered the information they had
on competition, clients, and past results, and tried to see how they could
“re-engineer” their business in the light of such information. They came to
the conclusion that to optimize the company they should strive to meet the
The Implementation of Business Optimization Mechanisms 93

image that made them the most loyal customers. Also, it was necessary to
improve the quality of the service, delete the store shelves, equipment that
customers preferred to purchase elsewhere and concentrate activities on a
regional scale. It was necessary to achieve this transformation format the
staff, develop local, administrative reorganization, etc.
Finally, we had to change the company name. This exercise, very
logical and very systematic background, has not produced the desired
results, because, first, it was too late and because, second, the manage-
ment team has not enough time to implement it. The disappearance of
the headquarters, following a dispute between major shareholders, caused
the premature liquidation of the company. No one was internal conflict
to the board; the company would have been optimized and saved. This
story shows the importance of defining the rationale and purpose of the
business. There is no doubt that the absence of a clear definition of what
the company has contributed to its liquidation. It is very important to adopt
a systematic approach when deciding the purpose of an organization.
In applied management, there is a constant debate about the usefulness
or the need for a systematic approach. Some stressed the risks of system-
atization, including rigidity and conformism that may result. However,
note that once a company offers more than one product and is active on
more than one market systematic thinking is to encourage convergence. A
systematic approach to optimizing reflection often determines the produc-
tivity and business dynamics. Also, when the purpose is no doubt in the
minds of employees in situations of complexity, the approach could be
cons-productive. The analysis models of decision optimization suggest that
the optimal decision, which is basically a rational form of decision-making
to increase company performance, includes at least three steps: (1) An
analysis of the business context to understand opportunities and threats
it holds that he introduces; (2) an analysis of the skills and resources that
the organization can use to take advantage of opportunities and deal with
threats; (3) choice (after these two analyzes), among a number of options,
those most likely to lead to better performance. Empirical analyzes involve
two other factors: Leadership and social responsibility. It is suggested that
the characteristics of leadership and values influence the choice of the
latter and also the interest of companies should encourage its leaders to
take into account the societal context and to make arrangements for the
actions to be socially responsible.
94 Applied Managing for Entrepreneurship

This design optimization practices bring us he seems useful nuances

to understanding the concept of management and optimization to improve
its use by practitioners. The approach we propose allows integrating
often-overlooked considerations. The optimization mechanism cannot
make in light of the following four elements: (1) The context of business;
(2) Resources and internal capabilities of the organization; (3) the desired
social contribution; (4) value leaders. Here, the context determines the
business opportunities and threats. The business context is a critical
element in effect. This is, of course, the relevant context, one that is
of paramount importance for the conduct of business operations (first
includes major players with whom the organization is in competition).
For a company, competitors make up the bulk of its concerns. But even
a nonprofit organization is often in competition with other organizations.
What the “competitors” has a direct effect on the present and future
health of the organization. The context of business includes all the share-
holders, that influence the competitive game or whose mission is to influ-
ence this game industrial economy suggests that these shareholders are.
Customers themselves, when they have an organized power; suppliers,
when they have significant market power; and newcomers, who, due to
low barriers to entry, can heighten competition. These shareholders maybe
substitutes’ manufacturers, who may have the same function as the prod-
ucts or services industry in a group of applications and determined that, in
certain circumstances, they can behave as direct competitors.
The context of the case also includes governments, both as regula-
tors, so as masters of the game, and as direct stakeholders (suppliers or
customers). Thus, in the pharmaceutical industry, the government plays
the role of guardian of the entrance. In the airline or telecommunications
industry, it works to reduce the barriers to entry by eliminating rules that
protect or enhance existing players. Moreover, it creates rules for the
protection of citizens (corporate responsibility and professionals to the
quality of products or services, for example) and the environment, as
such, it requires all stakeholders. The context of the case is in constant
motion. Like bees, multiple stakeholders continuously working to change
the game to suit their own purposes. In doing so, they create situations
that can be dangerous or threatening to the health of the organization and
at the same time, they give rise to opportunities that can be exploited
favorably by the company. The context also produced changes that are
attributable not to a particular actor, but a large number of players, leading
The Implementation of Business Optimization Mechanisms 95

to changing historical, such as major changes in the economic cycle, major

demographic changes, big changes sociopolitical, and cultural or major
technological upheaval. They create situations that can be dangerous or
threatening to the health of the organization and, at the same time, they
give rise to opportunities that can be exploited favorably by the company.
Take the example of a manufacturing transportation equipment
company, utility aircraft, small-range commercial aircraft, private planes,
and corporate leisure facilities or snowmobiles and watercraft. In each of
these areas, the company will face in the course of its existence, in various
contexts. Thus, in terms of cars, buyers should be mostly local or national
governments. In the field of air transport, it will live and will be negatively
deregulation waves, as both aircraft manufacturer and as a subcontractor.
As a manufacturer, it will be subject to safety regulations imposed by the
country.
Internationally, the sociopolitical upheavals and the effects of polit-
ical struggles should be a constant concern. The subcontractor for major
aerospace players will bring the company to learn to live with powerful
customers. In the area of rail transport, its government clients will also be
particularly influential. In the leisure facilities (snowmobile and water-
craft), it will have to suffer intense competition from new Japanese and
American players: It will see the market decline dramatically when the oil
crisis will make these more expensive equipment to operate. As a conse-
quence, a separation of the sector and its consolidation into an independent
company will be desirable.
Finally, it constantly lives with all kinds of substitutes for its products,
which led him to focus consistently on the decision-making processes
of its major customers. Understanding the business context then enables
strategists and company analysts to determine, and sometimes anticipate,
opportunities and threats as they arise and to appreciate their significance
and evolution, to better optimize management practices. That said, asso-
ciated with internal capabilities and resources available, these are the
weapons available for competitive business optimization. Indeed, to do
something lasting, it must consider the resources, skills, know-how that
is available or can arrange to survive the pressures exerted by the context
of business. The decision optimization can then move from analysis of the
strengths and weaknesses of the organization. These strengths and weak-
nesses are of different natures:
96 Applied Managing for Entrepreneurship

• There is, first, the staff. It is the repository of the most important
know-how, those who can differentiate the company from the
competition. The expertise may be technical, administrative, orga-
nizational, and interpersonal:
 Technical skills can be appreciated when analyzing the
strengths and weaknesses of each of the specialties and
functions involved directly in the generation of the value of
marketed goods and services;
 administrative expertise helps keep the company in balance
internally, by the adjustment of personnel flow, equipment
and funds, and with the environment, swinging efficiency and
flexibility;
 expertise interpersonal aligns the normal conflicts engendered
by the action group; it facilitates adjustments and helps
moderate the requirements of each and every group; it also
facilitates the approach to the convergence of views necessary
for decision-making;
 organizational know-how keeps the rules of the game relevant
and effective for the management of actions and initiatives
that help the organization to function and adapt.
• The state of the technology and equipment is also an important
capability, although this importance varies from one industry to
another.
• There are also funds available or accessible.
• One can also mention the relationships and alliances with compa-
nies or influential groups of the context of business.
• Finally, practice and organizational functioning, with the structure,
systems, and processes that dominate the life of the company and
are difficult to change, are also critical capabilities. They can be
positive or negative, depending on the competitive situation.

Each of these abilities can be seen as a strength or a weakness. This is

the comparison with the situation of the main competitors that can say that.
We can have skills quite remarkable and indispensable to be in business but,
if they are accessible to all competitors, they no longer have much interest
in the competitive struggle. By cons, if these skills are worse than those of
competitors, it is in danger and you must either leave the area or work to
improve them. However, if they are better than those of competitors, the
The Implementation of Business Optimization Mechanisms 97

company is in a favorable position and must be exploited by appropriate

competitive positioning and by the expression of a challenging goal. From
this point of view, here the example of a company producing metal cans
for soft drink bottlers and breweries. It was the smallest of the four big
companies in the sector. The two largest companies had almost four times
the size. With limited financial resources, the leaders then worked out
now so it is not really in direct competition with rivals. In particular, they
exploited the company's strengths in the manufacture of filling machines
and agility to respond to customers, by providing a set of services and
products appropriate to resolve satisfactorily the problem of filling. In
doing so, it no longer supplied cans, but met a critical customer need better
than any of its competitors.
Therefore, it realized, the best performance on the market, far exceeding
that of multinational companies and leaving far behind its competitors in
the industry. Another example is a company that puts sanding discs that
serve a particular market to polish and clean the metal surfaces. The prod-
ucts are standard and the market is dominated by three large international
companies. These two merged to become the world leader. Economies of
scale are considerable and competition is usually done by the price. At
first glance, there is no place for a small business. Yet our company whose
business volume is around hundreds of millions of dollars is a thriving
business. To survive, it decided to approach the customer and examine
how it used its sanding products. Based on a detailed understanding of the
value chain of its customers, the products have been improved, with the
help of a series of small innovative manufacturers internationally.
The company's salesmen have become advisors, able to help customers
dramatically improve their use of products. In terms of value for the
customer, the company provides products which, although more expen-
sive units, are much more durable and, therefore, much cheaper to use.
For those who follow product usage advice, the company guarantees a
lower cost. This customer rapprochement course has a cost to the company
since the company has more sales associates locally than its main competi-
tors. In distribution, the company continued to use the existing network.
Vendors have with distributors’ close and fruitful books.
Dominated by large companies, they are happy to be heard and get
even higher distribution margins. They, therefore, promote the company's
products. Their advice to clients and go in the same direction as those of
the company's vendors. They are happy to be heard and get even higher
distribution margins.
98 Applied Managing for Entrepreneurship

Therefore, the company has gradually become the specialist in surface

technology and, in addition to abrasives supplied cleaning fluids and
cooling. Gradually, the company became the reference and the most
respected player in the field of surface treatment. Thus, the company found
itself in a position where it does not really provide a product, but a service
that certainly included products (sanding, cleaning, and lubrication, in
particular), but also a lot of important knowledge of the performance
of work by the client. Customer proximity also allowed better develop
products since the company was aware of the challenges and customer
needs. Thus, in cleaning, Walter realized the cleaning of parts subjected
to welding was done by the use of volatile solvents based on petroleum
products, so that could ignite spontaneously and dangerous to the health of
exposed personnel. He then strived to develop a biological product based
on water and bacteria “eaters of petroleum products.” This product, which
has received many environmental awards, is trying to replace petroleum
products and make the company a “softer” brand.
That said, in terms of optimization of the company, the social contri-
bution is desired. The people who form the company may be concerned
about the relationship between the company and society in general and
its place there. The values and culture of the groups that constitute the
company can result in an affirmation of the social role it should play. In
the traditional language of the operational analysis, it is called “social
corporate responsibility.” Thus, a company can undertake several actions
to protect the balance of the region in which it is active. Financing of
social or sports facilities, cultural activities, and resorts opened to the
public, paid release staff for local volunteering are very common. Other
companies are also still occupied the socioeconomic and cultural balance
of the localities where they have started their activities, including funding,
are sports facilities, museums, and events of all kinds. Others have long
financed the publication of newspapers and regularly financed the univer-
sity and hospital, including several chairs in entrepreneurship.
It also happens that companies are sensitive to major social concerns
and adjust their activities accordingly. Thus, history will record that some
multinational companies had suspended their activities in South Africa
to support the protest of the people against apartheid. Sometimes, well-
established institutions undertake to discuss major social issues with the
surrounding population. Some universities have responded to intense
pressure from students and local people to divest from companies doing
The Implementation of Business Optimization Mechanisms 99

business in South Africa. They have long resisted, saying the presence
of important investors in some companies allowed to advance the cause
of blacks. The design of applied management cannot then ignore the
organizational community and its relationship with the society in which
it is immersed. Regarding the value of leadership, it must be stressed that
an approach that conflicts with leaders of values is unsustainable. As they
play a key role in achieving the goals, they would not have the energy to
defend it. The example of a company that launched supercomputers, is
this interesting title. The growth of this company needed to pay attention
more and more to issues of markets and marketing. The founder could
then identify with what had become of his company and preferred to move
away, leaving room for a CEO whose sensitivity and values allowed to
maintain a balance between the needs of researchers and those of the
market. Leaders of values can act in every way.
They can be a considerable source of energy, including the implemen-
tation of optimization mechanisms. But they can also be the source of
significant challenges and a denial of reality that can be damaging to the
company. In all cases, the leaders of values cannot be neglected in assessing
the choices the company makes or should make. It often mentions the
importance of societal values of the leaders of beauty care companies.
These values, including respect for and protection of the environment,
are reflected in the nature of the ingredients used for the production, in
the type of marketing in the recruitment and, of course, in the behavior
of employees and franchisees with customers. It also mentions often the
values of initiative and creativity of some leaders in the development of
their businesses. But values do not always act so as visible or as spec-
tacular. However, they always color the perceptions of leaders and change
significantly their analyses, assessments, and worldview. They can act as
blinders or, conversely, as warners. This is why the analysis leading to the
optimal decision often has to take a break to allow managers to understand
the beliefs and values that drive and compatibility between them and the
established operational choices.
In this respect, the demographic characteristics of leaders are often
in close interaction with their values. Thus, age, work experience, social
origin, nature and duration of education, psychological characteristics,
etc., affect very substantially on behavior. Some research has suggested
that a leader who has lived changing experiences will tend not to under-
take major changes to new or radical. These factors raise the question of
100 Applied Managing for Entrepreneurship

the design optimization of business processes. When the elements of the

analysis are available, their combination allows to design the operational
objectives. The opportunities and threats, capabilities, values of leaders,
and their concern for social contributions are the ingredients with which
they must formulate a purpose powerful enough to serve as a guide to
action for the members of the company and to optimize the competitive
advantage.
The combination of ingredients is not a mechanical exercise: It is the
heart of strategic thinking and can lead to a large number of choices. Each
choice can thus be considered unique. Even when the business context
is the same for all companies, the choices can vary depending on other
factors considered. This also explains the fact that when the capacities
are changed significantly, as at the time of a major acquisition or merger,
or when leaders are replaced, the mechanism is very often re-evaluated.
The combination that leads to optimization of business is an act of artistic
nature. The ingredients needed to carry out the work that is available,
but their use will produce a unique work, a bit like the realization of an
artist's painting. We do not really know in advance if the table will be a
masterpiece or a multicolored cloth.
In general, the decision-making approach must be compatible with
each of the findings of the analysis, and particularly, with the contextual
nature of the business, especially with the opportunities and threats it
contains. The choice of a field of activity (key mechanism) should also
be compatible with the company's capabilities. Finally, the choice must
also be reconciled with the values of leadership and the desired type of
social contribution. One would think that since the choices are unique, you
cannot really learn from the experience of others. It's not quite the case.
The companies’ optimization of action shows us that those who do well do
things the same way. That is where we turn now.
On rules, note that experience shows that some practices are the very
essence of applied management. These practices may be set out in 4 rules:

• It must be different and unique. This means that in the choice of

areas and objectives, it is important that the company defines a
sufficiently distinctive way for its members, as its customers are
able to recognize it. The difference, when perceived by the customer
allows the organization to protect itself against the competition.
• To carry, use his strength (popularized as saying stick to the knit-
ting). This seems obvious but the simple things are often taken
The Implementation of Business Optimization Mechanisms 101

for granted and replaced with buildings which, although they are
exciting for the players concerned, may expose the company to
adversity instead of building on its most foundations solid.
• It should concentrate its resources in areas where we have an
advantage over the competition. This applies especially when in
many areas. The allocation of resources must avoid dispersion
and strengthen competitive advantage. Thus, optimization case,
the saying “do not put all your eggs in one basket” has validity
only when resources are more important than what is needed to
strengthen key areas, who are crucial to the long-term health of the
company.
• We must choose the range of products as closely as possible,
consistent with available resources and market requirements. This
rule complements the previous one. We should be in more than one
sector if one has surplus resources or operational considerations
dictate. Thus, to use the example of oil, there was a time when to be
in the refining, you had to be in oil production because it was the
only way to ensure supplies to refineries.

We have noticed, design optimization measures can be dominated by

the context of business by now. In this case, all the elements of the analysis
are submitted to the deterministic nature of the analysis of the industrial
economy. Resources are used to position itself in a world that is already
fully established and which requires all choices. Only choices consistent
with the context of business (especially economic) are considered. This
approach tends to neglect the role of a leader and that of other corporate
stakeholders. This perspective leads naturally to generic mechanisms,
such as those that have been mentioned above and, in fact, deny, though
cautiously, the possibility of truly unique solutions. The design of
mechanisms can also be dominated by skills and company resources. This
perspective is then more proactive since it considers such the context of
the business as a corporate building.
This is a deliberately oriented perspective a future that must be
imagined and created rather than suffered. Of course, the leaders of place
here. A striking example of this approach is that of the company which is
subjected to competition a barrage of innovations. For it, the economic
climate does not really exist. It is always in the future and you have to
invent constantly.
102 Applied Managing for Entrepreneurship

It should be noted that companies evolve and evolution seems to

follow recognizable paths. Thus, stage 1, the company is simple, with a
single product or a single product, no formalized and managed directly by
the owner, who fulfills all the managerial functions, without a systematic
approach to me, sour or control performance. In stage II, the company
has grown enough to warrant greater specialization and the emergence of
functions. Coordination is crucial and is assured by both formalization and
a greater systematization and centralization of coordination tasks at the
top. In particular, the assessment of the performance of officials is more
formal and based on the achievement of operational targets agreed with
the general direction. Planning is often the preferred management tool.
Generally, the office of President becomes more important, which helps
to ensure the necessary coordination, particularly by managing multiple
systems in place.
If the company continues to grow, it undertakes new and diversi-
fied activities that require a more decentralized organization based on
product–market relationships rather than functional. This is stage III. The
formalization is always important but on different grounds. Managers are
evaluated on the profits they make in the areas that concern them, with a
margin of maneuvers established in advance. Often each division operates
as a business of stage II. In firms made in stage III, the trend is a decrease
in the number of people working in the office of the president. The main
tasks carried out there related to the financial management of all and the
constant clarification of the rules of the game and the purpose of the busi-
ness. The business life cycle is based on the management challenges facing
the company as it grows and diversifies, five steps, and the transition from
one to the other requires the resolution of a real crisis. Each of these crises
can destroy the business.
After a so-called growth “by creativity,” the company experienced
its first “leadership” crisis. The second phase of growth, “by direction,”
leading to a “crisis of autonomy,” when this crisis is resolved, growth
continues with “delegation” and this leads to a crisis of “bureaucratiza-
tion.” The phase of “collaboration” may lead to a new crisis resulting from
the multiplication of conflicts engendered by the democratic nature of this
phase. This crisis should lead to a fifth phase.
This historical look shows us that the path in terms of optimizing
management of this company regularities that manifest throughout
his life. Understanding the dynamics underlying the evolution of the
The Implementation of Business Optimization Mechanisms 103

company allows to recognize problems that shift between the operational

approaches and create the reality, and to better assess when these shifts
become large enough to warrant a change in mechanisms and approach.
The appreciation offsets bring us to the question of the evaluation of
optimization mechanisms. This is particularly important when you want
to enjoy the practices that the company has followed for several years or
that of competitors. We propose some benchmarks to facilitate this assess-
ment. So, assess the quality of the applied management must be a major
concern of leaders, especially when the organization becomes complex
and that they cannot directly participate in the analysis and reflection in
all areas. We must, therefore, have criteria to tell if the direction is good
or bad. The quality of business optimization is to harmonize the decisions
taken in order to converge the efforts. This convergence idea is also a
sense of consistency. One can even say that optimization is synonymous
with consistency. The evaluation criteria used so extensively the idea of
consistency. Four criteria can be used a priori three criteria can be used
when the mechanism has been implemented (ex-post).
To make the evaluation a priori, it is to check if the operational approach
as formulated is really based on the conclusion of the operational analysis.
Hence the following questions: Is the chosen option or with the results
consistent with the results of the analysis of the business context? As we
have seen, the context of business generates opportunities and threats. Are
they considered in the choices made? The mechanism he takes particular
advantage of the opportunities available in context? Does it allow to deal
with the most serious threats? We could also, for the assessment, to be
more precise in defining the elements of the context of business with
which you want to check the consistency.
So, to the question of whether the chosen optimization mechanisms are
consistent (or consistent) with the results of the analysis of resources and
internal capabilities, we must say that the analysis of internal capabilities
clarifies what can be considered strengths or weaknesses in comparison
with those of the competition. The tools normally have to be built on
strengths. In some cases, it may be appropriate to work to reduce the weak-
nesses, especially when they may jeopardize the company, but most often
the most informed choices include strengthening the forces and use them
in the competitive struggle. Are the mechanisms built on the company's
strengths? Do they take into account the weaknesses formulated? It could
be even more specific, with an enhanced understanding of the value chain.
104 Applied Managing for Entrepreneurship

Thus, one might wonder if the solution allows using the resources that are
available and which are not at work or if it strengthens the relationship
between the value-creating activities.
When asked whether it is chosen option consistent with the desired
social contribution, it will ask to what extent the company's social concerns
are being taken into consideration by the applied management. The choice
will impact what is valued by the company's members? Is it consistent
with the leaders of values? It must be said that hindsight, we can assess
the effects of management mechanisms to be short-term, such as profit
for companies or long-term, as the clarity of the purpose for members
and force the advantage competitive realized. Hence the questions: They
confirm the company's short-term results of the validity of underlying
mechanisms? Within these results, there is economic performance, but also
social performance. Competitive advantage is also measured by indicators
that are associated with the longer-term performance that include the cost
advantage, product differentiation, brand differentiation and, in general,
the establishment of barriers to entry higher. The competitive advantage
can also be assessed by comparing the company with its competitors
(quality, R&D costs, etc.). This calibration effort is called benchmarking.
Finally, the mechanism there is an effective and flexible action guide for
all staff and, in particular, for key leaders? The purpose of business is
particularly important for the concentration of efforts. If it is too general,
it is valid for all organizations and loses its grip on the members of the
organization. If it is too precise, it does not leave them enough space for
them to enrich.
CHAPTER 9

Operational Decision-Making

Many researches are deadlocked on the process of making business

decisions and are interested only in diagnostic procedures and control.
Admittedly, the neoclassical economic analysis offers solutions that
perfect information. This shortcoming, involving the use of models (either
very complicated or overly simplistic and therefore largely unused), was
of little importance as long as strategic management was only relevant to
very large companies (in which procedures played a decisive role). But
the explosion of small business development has brought to the fore the
role of the leader in operational decision-making. As a result, scientific
research on entrepreneurship has been boosted.
Thus, decision theory has boomed and led to the concepts and clas-
sifications that are widely in use. In particular, decision theory has focused
on the nature of the operational approach. But beyond the contribution
of economists who seek to optimize, the major breakthrough came from
sociologists, who are interested in decision-making in large organiza-
tions, particularly in big business. Nowadays, the role of psychologists,
including specialist knowledge (knowledge engineers), appeared to be
very important for understanding the mental processes of perception
of problems, learning, and decision-making choice. After first showing
interest in buyer behavior, they applied their models to the individual who
makes an operational decision, namely, the owner-manager.
We specify, at first, the nature and type of decision, and especially the
business decision. Second, we will consider its role in large organizations.
Finally, we will show that, in small organizations, operational deci-
sion is for the leader himself. He returned to Herbert Simon for having
distinguished three types of decisions we need to take. In the case of
programed decisions, the problem to be solved is often well delineated
and defined. It has all the information needed to reach a solution. For
this, we use a rational model, logic, which gives the optimal solution, all
106 Applied Managing for Entrepreneurship

things being equal. So we proceed in a sequence “BMI”—Intelligence of

the problem, Modeling of the problem, and Optimal choice. This type of
decision, saying programed, is reflected in the current operations of the
company. These repetitive decisions, triggered by simple stimuli, require
little complex information to achieve a precise choice. For such decisions,
the computer can replace the operator in most cases (e.g., an instrumental
banking operation). Their rationality is, however, more instrumental than
logical to arrive at a precise choice.
Semiprogramed decisions, intermediate types are those that meet
frequently with corporate executives. Suppose, for example, whether it
is negotiating a purchase from a supplier: We must gather information on
suppliers, prices, quality, deadlines, and so on. This information is more
or less reliable, and more or less easy to obtain. It requires to specify what
exactly is sought. We need to structure this information, which means that
we have procedures or even analysis grids more or less precise, logical.
We must choose between alternatives, based on sufficiently relevant deci-
sion criteria, but be assured that we took the “best” decision. Information
systems specialists strive to develop expert systems (e.g., for medical
diagnosis, for financial analysis), or support systems to the decision,
which aims to provide sorts algorithms to implement the decision-making
process.
Many tools and management techniques in the various functions of
the company are in fact of decision support tools, rather than, as too many
students believe, tools that directly give the decision. In particular, in the
semiprogramed decisions, poorly structured, the role of judgment, often
leaning on past experience, is very important. Some of these decisions
are repetitive enough, sufficiently precise about the nature of choice, and
properly supplied with relevant information to move toward programing.
However, some remain too uncertain and too complex, and are close to
nonprogramable decisions stronghold of operational action.
Nonprogramable decisions have the following characteristics: They
have a large degree of uncertainty—what information would be required
to make a “logical” decision “rational,” “optimal,” are either too few
or too many, be biased or simply unobtainable because they affect the
future and take account of others. They have most often a high degree of
complexity, since many variables come into play, so it is not possible to
rely on a simple model, linear, deterministic (type “A is the cause of B”).
They exhibit a high degree of indecision in the nature of the problem.
Operational Decision-Making 107

Often the question is to find what the main problem is before questioning
the choice itself (the Anglo-Saxons talk about the search process).
As a result, this type of decision is based on the thought process of
the decision maker; he is the one who will choose the relevant informa-
tion, decide the situation, identify problems, and feel the choices that
seem appropriate, with its own mental patterns. It involves a major role of
intuition; it is a mental attitude, which makes it “feel” that such a decision,
solution, and so on is “good,” “right,” “satisfactory,” and so on. Intuition is
based on own decision maker characteristics, some saying they are innate
(the “flair” to own some makers), others acquired (experienced manager).
Mintzberg took over the distinction—moreover, scientifically controver-
sial between the right brain (part of the sensibility and intuition) and the
left (part of rationality and logic). Of course, most of our decisions are
“bounded rationality” and are the result of a mix of logic and intuition.
But above all, Mintzberg, studying the decisions taken daily by
company executives or any organization, showed that the overwhelming
majority of them were unstructured, largely based on the “intuition”
of the decision maker, that is to say, not justified by the use of a model
or logical-mathematical demonstration. In many cases, the “models,”
“standards,” and “technical” management are used to justify the decision
intuitively. In desperation, the decision maker can be justified in a model
“irrational,” that is to say, not scientifically proven. The cartoon is the use
of graphology, numerology, and other “para sciences” for recruitment, or
the use of astrologers from key decision makers. But one wonders if the
number of “models” often sold dearly, including small businesses are not
mere means to justify “scientifically” a strategic decision that it is impos-
sible to “prove” the “truth,” and let alone optimality (discontinuation of a
business on behalf of a strategic matrix, for example). Finally, it involves
a complex process, due to trial and error, progressive centering on the
problem, flashbacks (to get information or restate the problem). This
process should largely to learning: the decision itself, then the sequence of
decisions made by the leader, who forges his own mental processes, and
even its own clues and its own grids, even informally.
In total, the soft decisions are based on substantive rationality: They
are based on linear relationships of cause and effect; they lead to an
optimal solution, logically demonstrated. Nonprogramable decisions are
based on limited rationality in an individual, in a procedural organization.
The solution which leads the result of “deliberation” (negotiation in an
108 Applied Managing for Entrepreneurship

organization, evaluation of the “for” and “against” in an individual); there

is no “proof” of the validity of the chosen solution, only a “justification”
after a heuristic approach, turned as much on the research of the problem
as its solution, which is merely “satisfactory,” and not “performed.”
So, we developed new logical-mathematical ways of thinking to try to
decipher situations largely marred by uncertainty, faced with ignorance
of the behavior of the enemy. The “game theory” was then applied to the
economic analysis of the operational approach of shareholders in competi-
tion. Faced with a situation of interdependence (your score is determined
by the choice of the opponent, or a “state of nature,” the fashion next
season, for example), game theory helps locate issues of a strategic choice
by the use of decision criteria that reflect the attitude to risk.
But they do not give the single optimal solution. Game theory allows
us to situate the issues of a strategic decision by the use of decision criteria
that reflect the attitude to risk.
For example, suppose a manufacturer of women’s clothing industry
articles wonders what collection it must start knowing that its success is
linked to the mode that prevails at launch. The manufacturer can adopt
safe behavior: He will choose the collection, which, regardless of the
mode, give him the minimum maximum profit. The risk of loss is reduced,
corresponding to cautious behavior. This criterion is called optimal. But
the industry can reason in a more “rational” and strive to choose the solu-
tion that had he been aware of fashion, give him the minimum of “regret.”
For this, it calculates deviations from the best solution (the most profitable
collection) for each mode, which gives the matrix regrets. We then look
at the option that gives the lowest maximum deviation from the “best”
solution (economists say the maximum opportunity cost lowest).
This solution is called “minimax regret.” In fact, there are many other
criteria that may be used from this matrix. The important thing is not in
the crude solution, but in the thinking imposed by mounting the matrix
on the choice of operational variables and assumptions about the states of
nature. It would add the actions and possible reactions of competitors, the
probability of occurrence of each of the modes. In short, we are limited
rationality, and this type of matrix can only be a tool for reflection in a
heuristic approach. It must be understood that it is the same for models
and analytical frameworks that were presented: They cannot under any
circumstances replace the strategist own reflection; rather, they should
Operational Decision-Making 109

lead him to ask issues (or even question) by helping to raise issues. Say
they give “the” solution would report quackery!
All current operational analysis formalized, focusing on game theory,
was multiplying situations and decision criteria. The concrete contribu-
tion, however, remains very disappointing. The authors who worked on
decision-making, including operational decisions, were taken to distin-
guish this problem depending on the size of the organization. The most
developed analyses concern big business. But there is a growing interest in
the study of decision-making in small organizations. This is two orders of
different strong concerns. Indeed, in large organizations, one can say that
the decision is largely based on procedures and interpersonal and collec-
tive relations. The rationality of the decision is said, according to Simon,
“procedural.” On the other hand, in small organizations, decision-making
is the act of an individual, even if he is surrounded by advice. It is there-
fore more a mental process, and we must speak of rationality “limited,”
according to Simon.
In large organizations, it was seen that the trend was the differentia-
tion of tasks and functions; vertical and horizontal integration is achieved
through techniques and procedures to increase motivation and raise the
morale of “organization. The decentralization of decisions, including
decisions about the “business optimization” at the level of product-market
divisions participated in this double movement of differentiation and
integration. In big business, we will prioritize decisions according to two
major characteristics.
The complexity of the problem raised. More key variables (the
elements of the problem) are easy to identify and quantify, the more they
are connected linearly them over the problem appears simple to make.
In contrast, the more the variables are difficult to spot, are qualitative in
nature, and are interactive, the more the formulation can be described as
complex. Advances in management techniques tended to division prob-
lems, so as to simplify their wording to make decisions “operational.”
The degree of certainty and uncertainty in the nature of the choices to
be made, the type of decision. Some decisions relate to a specific choice
(decide to do or not to do, decide when, how much, etc.). Other decisions
are based on inaccurate choice, broader, more nuanced, and may even
involve asking first what the question to resolve is.
It then leads to several types of decisions within the structure. There are
the problems mentioned, dedicated to operational planning. But analysis
110 Applied Managing for Entrepreneurship

of the decision process is complicated in decentralized companies, since a

part of the strategic subsystem (complex decisions with choices specify)
is “down” in the hierarchy of the organization. This results in important
consequences.
To successfully master the operation of the organization, it must
privilege the “simple” and “precise.” For this, establish rules as simple
as possible, which will be formalized in terms of specific procedures. For
example, any investment project will be adopted only if the rate of return,
calculated according to predetermined rules, is greater than a figure floor.
Similarly, the development of activity will be reduced to a target goal of
market share or turnover. The more complex problems, such as “quality”
or “moral” will be simplified with the help of indicators.
This approach introduces a procedural rationality to large hierarchical
organizations. Individuals and subgroups (divisions, departments, etc.)
will endeavor to influence the determination of rules to benefit (called
“internal operational approach”). A major concern will be to provide rules
which, while seeking the goals of the organization (efficiency), through
a better operation, better use of resources (efficiency), do not cause any
dissatisfaction and major internal conflicts (effectiveness).
In total, this is to work toward a satisfactory solution, that is to say,
which maintains the stability of the organization, while ensuring its
sustainability or competitiveness of capitalist enterprise:
In reality, the procedures for decision-making are not as simple and
unique as in the operational planning manuals. The researchers showed
that for operational decisions, the solution gradually emerged is “modeled”
according to the multiple influences that were exerted on decision makers,
with possible back and forth, or trial and error. Large public projects (Big
Library, the Channel Tunnel, etc.) illustrate this approach of “modeling.”
It is very common in very large organizations (large industrial groups)
subject to multiple pressures. Some authors even speak of “garbage
model,” saying that strategic decision reflects numerous influences,
not just the economic rationality of optimal allocation of resources and
maximum profitability. We will talk about broader rationality, to express
the idea that the logical choice is diversified, in an “irrationality” apparent.
The structure of large productive organizations reflects a desire to
master this complexity and prioritize the types of decisions. Most often,
they take the form of group. The group will be defined as an integrated set
of companies.
Operational Decision-Making 111

The integration is primarily financial. The “head” of the group consists

of one (or) holding company that owns a portfolio of investments in the
capital of companies in the group. The first set of entries corresponding
to the core of the group comprises subsidiaries and majority control
companies—typically more than 66% or employee controlled by the
set of successive participations. The second group includes companies
financially integrated, but without majority control (often as a result of
acquisitions and acquisitions). Finally, the third set includes joint ventures,
and sharing is done between several groups, after alliance operations.
The integration is then industry: There is one area that consists of
almost integrated companies, that is to say very dependent on one or more
companies belonging to the group. The management and operational deci-
sions of these firms are closely controlled by the group.
The financial and industrial dimensions can be combined by the inter-
penetration of capital, industrial, and financial groups which were then
lead to hypergroups, real nebulae companies, and subsidiaries.
Within these groups are three hierarchical levels, through the informa-
tion and decision system: finalization, entertainment-control, and opera-
tionalization. The essential problem of the strategic information system is
to circulate relevant information up and down (considering the cost infor-
mation) to quickly take the appropriate decisions, particularly to change
the operational approach with maximum speed and minimum cost at large.
This imperative is even stronger than the context of case is turbulent. The
larger the organization is small, the more we find the following features.
The decision is largely attributable to the entrepreneur. Although he
is surrounded by advice (family, accountants, bankers, etc.), he alone is
responsible for decision-making and execution.
The company is highly dependent, in the broad sense of its environ-
ment. It will often be more difficult to have a completely independent
approach. The entrepreneur will pay attention to messages from their
environment, which will trigger operational responses.
The structure is not formalized, little hierarchy. Information and control
systems are closely linked to the personality of the leader.
The three levels mentioned previously are completely intertwined: An
operational decision may have operational consequences (the choice of
new material can result in a change of suppliers, customers, etc.), but is not
necessarily perceived by the officer in “immediate.”
112 Applied Managing for Entrepreneurship

The decision process is limited information; we are Simonian worlds

of bounded rationality. The goal is not to make the “best” decision but
to identify the key issues, collect a “reasonable” solution “satisfactory”
to justify (usually from its own mental models), and then implement it.
This process of research, much of the problem as its solution is heuristic:
the process is gradual, tentative, made of trial and error, learning-based
decision makers and his cognitive ability (ability to analyze much to
synthesize, logically deduce that induce intuitively).
Two major categories of processes it is customary to distinguish:
The reactive and proactive processes. The reactive process results in
a response to a stimulus (something new in the environment). The proac-
tive process is to create this development, especially through innovation,
through more aggressive than defensive, and so on.

• Emerging and deliberate process. The result of a deliberate process

plan, intention, of a clearly stated vision for a certain duration. The
emerging process (“incremental”) is the result of a gradual adapta-
tion to changing conditions or stimuli (the change may have been
triggered by the company itself).

We cannot say a priori what the best process—even if for a long time
management literature favored the proactive and deliberate process, that is
to say planned. In fact, many factors are involved:

 The nature of the decision: Buying an expensive machine will be a

rather deliberate proactive type adopting a substantial spontaneous
order reactive type emerges.
 The nature of the type of activity and the environment: The envi-
ronment is more turbulent and complex; the contractor will adopt
an emerging reactive attitude.
 The nature of the entrepreneur and his aspirations: The entrepre-
neur seeking growth will not have the same attitude as the one who
seeks the sustainability and survival of his business.
 The nature of the type of organization: Structures (mechanistic)
will be better suited to proactive decisions adhocracy emerging
reactive decisions.
Operational Decision-Making 113

In total, it is important, finally, to note that small businesses are increas-

ingly conditioned in their operational decisions by their inclusion within
a network of companies and institutions. Finally, the small business can
grow by structuring in the form of group. This will include a company
managing the investments (the leader of the family shareholders) in various
companies in the same industry or in different sectors or corresponding
to business functions (purchasing, production, and marketing design). In
contrast to hypergroups, we speak of hypogroups.
CHAPTER 10

Applied Operational Analysis

It is appropriate here to ask how to drive an applied operational analysis.

A number of observations are in order. First, we must distinguish between
the operational diagnoses of the recommended operational decisions.
Analysis of a case of optimization does not tend to search for “the” solu-
tion, but should focus on the detection of problems and the development
of their interaction within the operating system. We must not forget that, in
concrete situations, it rarely leads to a single decision, precise, deliberate,
and definitive. The importance often lies in the awareness of the issues
from the executive. Indeed, solving a problem often depends on the setting
relations several operational variables, and this interaction is likely to lead
to other problems; solving a problem is a process that takes time, which is
widely emerging, with trial and error. This implies monitoring over time,
support, and likely will lead to question some options.
In this perspective, it seems naive enough to think that the solution
must flow logically from the diagnosis. As we have mentioned many
times, the instrumental rationality of attitude stems from what applied
operational analysis was first applied to large diversified companies,
usually in the consumer goods sector unmarked, in a climate of regular
global demand growth, on stable markets, with a renewal of controlled
products. This approach reveals weaknesses when the company is vulner-
able to a complex and turbulent environment becomes, or its small size.
The growing reluctance to solutions “logical” also comes from feeling
increasingly asserted that the company’s competitiveness stems.
Second, keep in mind what we said in the introduction. The difficulty
of the applied operational analysis is the fact that it requires a mastery of
both concepts, which, moreover, are not always clear, and management
practices. Let us recall the skepticism displayed by some vis-à-vis authors
of the operational approach of education, and especially the case method,
for students who have not yet known the decision-making in a complex
116 Applied Managing for Entrepreneurship

organization. However, it may be observed that by careful use of cases

from reality, the student can thus bridge the gap between the concepts,
tools, analytical frameworks, and highlighted operational problems of
business. It may thus raise the complexity of the process, aware of the
interaction of phenomena. It is, however, dangerous to let him believe that
the grids and other tools provide “the” solution, as would imply a clumsy
operation of certain models: SWOT (Strengths, Weaknesses, Opportuni-
ties, Threats), BCG (Boston Consulting Group), value chain, and so on.
We then see what is the role of the tools they used to decipher a
complex situation to reposition the issues and to frame solutions. These are,
according to the heuristic method of aid instruments in the decision. Often,
they allow to highlight the gaps, particularly in terms of information: The
student is often surprised to find very little quantitative information, and
if there are (balance sheets, financial accounts) hastens to analyze, to the
detriment of a more comprehensive synthesis. It is worth remembering
that, in reality, the decision maker has only a very partial information,
especially quality (“good”, “bad”, etc.), subjective (perceptual), and
relative (“better” or “worse”). Furthermore, the encrypted information
is retrospective, or static or instantaneous. One of the pitfalls commonly
encountered by beginners is to stick to the problems within the company,
without looking at internal strengths (which makes it competitive) and
the changing environment of business (which poses the problem of posi-
tioning), content, often a critical organizational diagnosis, which is not the
subject of applied operational analysis.
It is clear that the combination of reflection, supported the handling
of concepts and tools, and action, resulting from a decision lucid aware-
ness, realistic, pragmatic problems facing the company, requires learning
analysis applied. Gradually, as we carry out this type of approach, Simon
shows that the mental patterns we forge, problem-solving methods (much
like the chess player) and, previously, detect problems. Therefore, the
operational approach consulting tends to forge its own analysis grids. It
can be difficult to teach them to others, who probably will not have the
same mental patterns. But the more you work in the field of “nonprogram-
able,” the “poorly structured” should be more methodical, in the sense that
it is necessary to be aware of the approach that we adopt: Again, the chess
player is a good example. It is clear that good mastery of concepts and
tools taught in applied management will be valuable, knowing he should
use them with caution.
Applied Operational Analysis 117

The applied operational analysis must adapt to the circumstances,

including contingencies: size, organizational structure, relationship with
the environment, industry, and so on. Obviously, the most important
contingent variable is the size of the organization. Clearly, the applied
operational analysis arises in the same terms in M form organizations, as in
small businesses. In large firms, one can easily distinguish the operational
approach of general political activity. In small companies, we highlighted
the strong interaction of issues and levels. That is why we must speak of a
specific, widely emphasized by the authors of the operational approach in
small to mid-size enterprises (SMEs).
We should also mention the difference of problems according to
business segments: Moreover, organizational adaptation boards are often
specialized, because you have to know the activities and markets. Here too,
we should speak of a specificity of the problems and methods of analysis
(for example in agriculture or in services), which have been neglected by
the most common theories (still very much attached to the mass goods of
the second industrial generation). The method we propose will result from
the approach that applied operational analysis shall:

• beyond logic, a highly instrumental rationality, method-based

procedures, culminating in a heuristic decision, based on limited
rationality, process-oriented, and organizational dynamics;
• spend an analytical and linear method, culminating in a holistic
approach, integrative, systemic, which takes into account the
interaction problems, promotes the return on the approach or past
results or trial and error, involving lead on solutions that will have
meaning only if they are accepted, integrated and implemented by
the decision maker (which is far from certain).

The approach is based on four pillars: purpose, organization, environ-

ment, activity. It distinguishes between the corporate level and the business
level. Let us repeat that the smaller the company, the more these levels
merge. The corporate level is based on the major relationships between the
pillars: vision, legitimacy, culture, which broadly express the issues raised
by the values, aspirations, of the leaders and owners, of the Company
and of the members of the organization. The last relationship evokes the
couple image (the company as seen by the business context) and identity
(the organization as it sees itself) leading to appropriate communication
118 Applied Managing for Entrepreneurship

approaches.The level “business decision” is based primarily on the couple

trade-mission which causes problems of identification of the relationship
between competitive positioning and competitive advantage. The goal-
related activities are reflected in planning, whether explicit, procedural, or
not explicit, procedural (vision).
Finally, analysis of activities poses increasingly the border problems
of the organization, in terms of external or internal transactions. Note that
the arrows are in both directions: We are dealing with a system, complex,
open to its environment, finalized, and should be regulated. The essential
problem is to arrive to ensure a dynamic coherence to this system; the
one exceeds the identity of the sum of its parts. However, each of these
is likely to change continuously, abruptly, or continuously. This implies a
constant operational monitoring, even though in many cases the changes
are imperceptible, emerging, until they produce ruptures, “catastrophes”
in the system. During the analysis, and on the proposals, it is important to
reflect this dynamic interdependence. At that time, one quickly becomes
aware of the complexity, the difficulty in predicting the consequences: We
talk instead of “practical solutions” or “emerging.”
There are several types of cases. The most common type is to present
the problems of a large company, often focused on “business decision,”
with, supporting, much information about the evolution of the sector, the
figures available on business, markets, and competition. Note that when
the company is well known, the analysis may be biased by knowledge
of the choices the company has actually adopted. For example, if the
company very interesting to analyze the diversification mechanisms, is
biased by knowledge of the products of the firm, even meteorology (no
snow) or course (unexpected) of the dollar in recent years. Therefore, it
may be more interesting to take a company of any size in less publicized
areas. The advantage is when one does not know the operational approach
effectively implemented and what happened to it.
But, again, the use of a case involving a small business has the
advantage to reveal the interdependence of all variables and all levels of
analysis. Therefore, it is desirable to provide cases involving the small and
medium enterprise, allowing to practice the applied operational analysis.
Moreover, these cases provide only limited information, which brings us
closer to real situations and avoids the pitfalls of management diagnosis.
Mr. and Mrs. CQCI are farmers. They rear livestock for milk produc-
tion, which was their main resource. They then announced the limitation of
Applied Operational Analysis 119

production of milk, and milk quotas per farm are set. The couple is being
brutally forced to find another source of income. The problem is particu-
larly serious that they are not original farmers, but, on the other hand, they
feel freer to try a new experience, and even to stop operations and leave
as employees. Like many farmers, they will grope. They begin to ques-
tion (chicken? rabbit? mink? duck?). And they end up opting for breeding
ducks. They inform about the conditions of breeding, “read books,” and
so on, and, after many experiments, begin to make Foie-Gras. They decide
to specialize in liver upscale fat based on a clientele of top restaurants in
their area, who wish to find nearby producers could make their Foie-Gras
corresponding exactly to what they need for their kitchen. But the Foie-
Gras produced in the region is of excellent quality. Their problem was then
to develop highly personalized relationships, including in the product, and
then develop a communication showing that it was possible to manufacture
a high-range Foie-Gras and, accordingly, a regional product, tourism, in
a region rather marked by industrial decline, and wishing itself change its
image. They experience first successful: Turnover has doubled, but relies
on the half duck. It took two recruiting employees to care for the livestock.
You learn quickly in business optimization mechanism that when all
goes well, the problems are not far away. Indeed, demand (too) responded
perfectly, and this micro-enterprise is in crisis growth. Leaders do not have
the money, so they want to ensure the future of their two children on the
farm. Moreover, the risk of loss of quality is also important, as restaurateurs
still very demanding (the product is not standardized and must constantly
monitor its quality), especially during peak periods (holidays). It follows
that certain sales cannot be concluded.
Moreover, the company filed trademark; it begins to produce and
distribute under its brand, besides fatty liver, other specialties from duck,
but it could diversify into other gastronomic products. An opportunity
presented itself: A Foie-Gras producer fee from another region is inter-
ested in their production and offered them to participate in the expansion,
acquiring their skills. But leaders are wondering how to keep their identity,
be sure about the quality, not to lose its independence, while ensuring the
expansion. This small case has several interests. First, it shows that in any
organization, however small it may be, whatever the sector and type of
activity, may arise optimization of business problems. Then we see that
in its apparent simplicity hides complex actually strong problems. First is
identifying the intention of the owner-managers: We feel any contradiction,
120 Applied Managing for Entrepreneurship

since they seem to pursue both growth but also sustainability (secure the
future of their children) and independence; they seem now too committed
to exit this activity duck.
But, as so often, they will no doubt lead to prioritize their aspirations.
Second, note that their legitimacy is strong: regional high-quality product
for a high-end customer in a region that seeks to change his image and
wants to develop green tourism. Perhaps they could use this to get regional
support (if they are already). In third place, it does not seem to be a conflict
between the spouses. It would be interesting to know the intentions of the
children, and especially how they will establish any relations with another
producer. Indeed, we need to know what the nature of the legal relation-
ship: How will operate the know-how? How will the quality controlled,
which we have seen that it was not standard? Who will establish business
relationships with restaurateurs, with private clients? Who will own the
label, the brand? Which we have seen that it was not standard?
The other option would be that of diversification, ongoing, to other
high-end products, benefiting from the notoriety. But the leaders they have
the know-how? Will he not have to, again, subcontract, with the same
control problems? Finally, eventually, does he need not increase capital,
with new shareholders? In this case, the owners actually experienced some
problems due to uncontrolled growth and some difficulties in outsourcing.
But the most important lesson of this little illustrative example, the need
for consistency between all operational variables.
The grid that is proposed, the result of work conducted within
ExpertActions ExiGlobal Group (group of experts and consultants in
operational approach). The implementation of an operational action plan
includes two stages: The first stage consists of preparing the plan, and
the second step consists of monitoring the action plan. The first step is
very complex. First, we must distinguish, as the initiative comes from the
entrepreneur who encounters an operational problem, or consultant, which
is a lack of operational approach taken, clear or even an absence of coher-
ence. It should also be distinguished according to whether the approach
is reactive, linked to a problem or an opportunity, or proactive: deliberate
approach of the entrepreneur who wants to flatten its problems, or plan-
ning major operational decisions (transfer, acquisition, transmission, etc.).
Must also be distinguished according to whether the initiative comes
from the entrepreneur who encounters an operational problem, or
Applied Operational Analysis 121

consultant, who notes the absence of operational approach taken, clear, or

even a lack of consistency.

(1) In any case, proceed to a presentation of the “operating system”

of the company, with the help of the analytical framework that
we presented above. This step involves the participation of the
entrepreneur, who must not only find information but also explicit
representations (e.g., how it perceives its environment, its posi-
tion, its distinctive advantages, etc.). Generally, this essential
phase is long, because the decision maker realizes that rationality
is limited and must strive to clarify its representations. The back
and forth should allow a gradual appropriation of the approach.
This appropriation results in the presentation of his vision of the
operating system for the coming years, based on what needs to
change (goals, organization, activities, and business context).
This step is crucial, because it implies that the decision maker is
aware of critical business issues for his business, and he is able to
lead to major business lines. This can cause a real challenge to its
choice and its logic of action, so that the consultant should adopt a
participatory attitude of support, without imposing anything, and
avoiding value judgments.
(2) We can then draw the first draft of an operational action plan,
which should at this point be evaluated on two levels:

First level: What relevance? One must wonder if the options are
mutually consistent (big investments, but not debt), if feasible (adoption
of sophisticated technology), if they solve real business problems (too
narrow market, for example), if they do not cause conflicts (creation of
new functions), if they are not too risky (highly innovative product),
and, last but not least, if they are realistic (especially terms of expected
outcomes, or calendar to keep). This evaluation can be internal (with the
help of the decision maker) or external (with the help of external experts
and possibly neutral). It is important to know the reactions of the decision
maker (family, employees, accountant, banker, etc.) if it is an SME.
If relevance does not appear sufficient, we must then “looping back”
and question some operational options.
Second level: What performance? It should measure the cost of
the proposed operational decisions and outcomes. The cost should be
122 Applied Managing for Entrepreneurship

understood in a broad sense, since it must include all the problems caused
by the change (abandonment of goods and resources, depreciation capa-
bilities or qualifications, resistors, etc.). We must also take into account
all expenses incurred (a new machine will involve training expenses, for
example): The intangible expenditures prompted by a hardware investment
can be substantial ... and are often funded with reluctance by bankers, who
cannot make guarantees!
If the cost–benefit ratio proved unfavorable, we should challenge the
action plan. In total, after successive iterations, it must result in a set of
proposals, which lead to the second stage. The implementation of the
operational action plan. The action plan includes, concretely, a number of
operational decisions:

(1) They must be programed in time. It should adopt a logical sequence:

For example, if you decide to develop new technologies, it will
provide one of the workers training plans for them.

Similarly, if you decide to export, it will provide a training program

for foreign languages (and probably more), and so on. Often this sequence
into action is underestimated in the plans (e.g., the electronic booking
process for some companies was implemented without sufficient training
of employees), or with insufficient margins of freedom, making delays and
catastrophic incidents. It should also include specific external intervention,
coming to support certain actions (e.g., an export decision implies the use
of guardian and expert networks).

(2) Once this sequence of operations has been programed, it is

appropriate to monitor. To do this, the decision maker must have a
board walk. It must first enable it to monitor the monitoring of the
implementation within the organization, to identify delays, and to
justify the cause.

But it is also to adapt to changing circumstances and often unpredict-

able. The decision maker must have warning indicators and perform a
function vis-à-vis the environment before. The control function should
be possible continuity over time: opposes that change is often gradual,
incremental, or received late, on the occasion of incidents (defection of a
major customer, for example). The role of the adviser or consultant then
Applied Operational Analysis 123

is to ensure both tracking and alert, with appropriate scoreboard. When

disruptions occur, they can simply call into question the timeline involving
a partial revision of the action plan. However, if they are more radical,
Thus, we see, finally, how the diagnosis phase is inseparable from the
subsequent phase of implementation. This observation leads us to rela-
tivize the value of the conventional method of cases, too focused on the
initial phase. The ideal is to follow the case up to the implementation of
several years!
CHAPTER 11

Optimizing Operational Choices

Optimizing a company is in a sense to manage the change. All strategic

management literature offer procedures and processes that allow the
strategy to be adapted to maintain or improve the consistency between the
organization and its environment. In most cases, this adaptation is done
by gradual changes to the existing policy, changes that can be scheduled
by management or that emerge from the action on the field. Similarly, the
structure and systems are constantly being developed to strengthen the
competitive advantage and effectiveness of the strategy.
Thus, an appropriate strategic management adjusts the organization
continuously to prevent it from living crises, and thus avoid having to
make a major change. In this case, change management comes down,
essentially, to manage the company every day. But it happens that an
organization is obliged, for a variety of reasons (breaking in context of
business, internal crisis, prolonged inertia, etc.) to transform radically. In
these rare but critical situations, the ability to manage a radical change
becomes crucial. This is particularly important when the organization is
complex, not least because of its size, the diversity of its activities and
its geographic dispersion. Indeed, in a simple and small organization, the
challenge is to define the new direction. The installation is relatively easy
to control. However, in the case of a complex organization, beyond the
difficulty of defining the new approach must bring all members of the
organization to achieve in a context where the ambiguity and diversity
of views and interests make it difficult to achieve a consensus. In these
circumstances, it is often easier to destroy the existing organization than to
build a new performing organization.
It is difficult to define a priori what a radical change is and determine
when a strategic change can be considered radical. In fact, small changes
can have significant consequences, and therefore precipitate a rupture. For
example, a simple move can cause a cultural revolution that nobody had
126 Applied Managing for Entrepreneurship

foreseen. Furthermore, a great transformation, announced with fanfare,

may not produce the desired effects. Thus, despite the many attempts to
reorganize GM, the automaker appears to be finding it difficult to change
its ways. Also, what is a break for some may be only a change irrelevant
to others? This is often a matter of interpretation, but that is of importance
for the management of change. Despite these difficulties, the literature
provides some useful guidelines to define the radical change. Starting from
the idea that an organization is a configuration, that is, a coherent integra-
tion strategy, structure and culture, we can consider a radical change as a
configuration change.
A radical change, we can also call processing, implies a new strategy (in
terms of business model, positioning, development, etc.), which requires
a new structure and a new culture to form a configuration consistent.
This shift is based on a new framework, often developed by a new leader.
Thus, the radical change would be cropping (Reger et al., 1994), while the
continuous change would be a change within the existing framework. If
the basic assumptions (core beliefs and values) are challenged, we could
even talk about recreation. From this perspective, organizational changes
would be made long periods of convergence around a relatively powerful
configuration,
A fascinating example is the hospital system transformation project,
just like what is done elsewhere. Traditionally, hospitals were characterized
by vocational guidance-oriented medical specialties, and this model has
always had great legitimacy. However, in recent years, it has undertaken a
major project to transform hospitals to develop customer orientation, char-
acterized among others by groups according to the needs of patients. Such
a transformation requires a significant change in perspective for specialists
who have always dominated in this environment. It goes without saying
that the realization of this new strategy–cultivation–structure configura-
tion is a long-term project.
From the most frequently reported in the literature cases, it is possible
to establish a typology of the different forms of organizational transforma-
tion: the creation, revitalization, reorientation, and recovery. Recreation,
or the change in the worldview of the organization, is the most profound
transformation since beliefs about what the company and its purpose must
be fundamentally changed. This change in perspective that redefines the
organization to its environment relationship is inevitably accompanied by
changes in values and practices, the nature of the field of activity, and
Optimizing Operational Choices 127

structural arrangements. The rebuild is generally a proactive transforma-

tion that is to say when it anticipates crisis.
Indeed, the prospect of change associated with a recreation is generally
perceived as brutal, because it is experienced by members of the organiza-
tion as the destruction of what they know and cherish. It generally follows
the arrival of a new management team, carrying a new vision. Changing
the way of seeing the world often requires dramatic action to signal that
it actually intends to carry it to term change. In particular, managers are
often replaced abruptly, old traditions are disappearing, new symbols
appear, new behaviors are valued and highlighted, etc.
This type of change is perhaps the most difficult, especially if the
members of the organization are not convinced that an early crisis is
inevitable. It requires extremely persuasive leadership, as people need
to make an act of faith in a context where there is a lot of ambiguity.
Beliefs are very difficult to change, because their replacement creates a lot
of insecurity. Unlearning, which is inevitable, has important implications.
Suddenly, members of the organization see more of the skills that made
them proud become obsolete. Finally, the translation of the new world into
action requires a very important learning, especially since usually every-
thing is changed both beliefs and values, fields of activity, and operating
rules.
The transformation of Hydro-Q is an excellent example of recreation.
After a long period of glory when the corporation was recognized as
important, thanks to its prowess in the development of facilities such as
James Bay, its purpose has been questioned as economically (its debt and
operating costs increasing significantly) as well as social (indigenous
people, among others, criticizing his arrogance). Hydro-Q has been
transformed: a dam builder oriented engineering; it has become a seller of
electricity customer oriented. This shift was not made without difficulty,
and it continued over a long period. This kind of change is so profound that
few organizations dare undertake if they measured all the consequences
and all the difficulties. It really is an entire revolution, and few companies
are trying it.
Revitalization, or changing the organization of practices, involves
something of a challenge to itself, rather than its worldview. This is a
change of perspective about the potential and the expectations we have
vis-à-vis the organization. Ultimately, in addition to the change in values,
it is a change of business scope and structural arrangements. Revitalization
128 Applied Managing for Entrepreneurship

is usually a proactive transformation. The performance of the organization

is not catastrophic; the time allotted to perform better is enough. As the
change does not affect, at least initially, the purpose of the organization
and its relation to the environment, it is shallower than recreation. This is,
however, a change in practices affecting the whole of the organization and,
therefore it introduces disturbances in which digestion can take several
years. It is generally perceived as less brutal at first, because it creates less
insecurity and can even be above-mentioned in some of the enthusiasm for
new challenges.
Revitalization does not always mean a change in leadership. In addition,
leaders who initiate change, even if they are new, often come from within
the company. This change, even if it is started at full speed to reduce the
resistance, takes a long time for the upcoming reality because the required
training can be considerable. Moreover, since it requires significant effort,
and even more if we want to continue to improve results, the cruising
speed is difficult to maintain. Jack Welch at GE is a good example of a
change that has given a new life to an already successful company. By
setting very high performance objectives (“to be number one or number
two”) and by setting up an organizational development program require-
ment, Jack Welch transformed the organization from within. This process
has had a significant impact on the culture, structure and, by domino effect
on the strategic positioning of the company.
This type of change is usually undertaken in established organizations.
In general, increased competition accompanies or promotes this type of
transformation. However, the competitive situation also reveals a signifi-
cant potential that the company can, if it changes, leverage to differentiate
them by exploiting new competitive advantages. When a company is
considering a shift or a change in business area, the current activities do
not seem to meet expectations for the development of the company. The
field of organizational activity can then be extended or activities gradually
replaced by new. In this transformation, it is primarily the relationship to
the environment that needs to be rethought. Changing beliefs and structure
is related to the evolution of the field of activity. Although the organization
is not in crisis, the shift is generally perceived as legitimate by members,
and is even often considered welcome.
While in some cases, transformation is related to the decline of the
current sector, in others it rather belongs to an organization’s growth
logic that exceeds the capabilities of existing activities. In both situations,
Optimizing Operational Choices 129

organizational changes can be very important to adjust the structure and

culture of the new strategic positioning. However, as in the situation of
decay, the magnitude of change is anticipated in the situation of diversifi-
cation, it is often underestimated, as demonstrated by the case of DuPont.
Although the change is extensive, there is opportunity to lead it gradually
and then it appears less severe than other types of transformation that
we have described above. However, learning new activities is usually
more important than what had been expected, which may create a shock.
Although resistors are less great to leaving, problems may arise along the
way when the magnitude of the necessary change becomes more evident.
This type of transformation can be done without changing the manage-
ment team, especially when the strategic reorientation is designed as a
natural evolution of the company.
The transformation of DuPont is an example of a painful reorientation,
but successful. DuPont’s diversification into new areas has led the company
to create a new organizational configuration, multi-divisional form, which
is now widespread. Closer to home, the company Gildan, who managed in
a short time to become the North American leader in the manufacture and
wholesale of T-shirts, has recently diversified. The company decided to
expand its range of products (socks, sportswear, and underwear) to create
its own brand and sell directly to retailers. It recently announced a first
down from the anticipated results, among others, because the range of
products available at retail was not adequate. Is this the beginning of the
hard learning of a new craft that could possibly lead to a change of culture
and structure? Finally, here too competition stimulates change. It is gener-
ally strong, involves the performance of the company in the chosen field,
and forces the reconsideration of the choices that were made earlier.
The reorganization, or restructuring in the short-term survival, is an
operation to rationalize the activities of an organization that is in a desperate
situation. It is necessary to reduce costs substantially and to restore order
in activities. Although possibly fault reviewed the strategy and culture,
the focus initially is to make significant cuts to stop bleeding. Recovery is
the form of transformation that usually comes to mind when talking about
radical change is the response to a crisis. In this situation, the resources
are not sufficient to ensure the normal operation. It is necessary to carry
out emergency surgery to save the organization. The change is sudden
and very painful for members of the organization, who live a situation of
130 Applied Managing for Entrepreneurship

failure. However, evidence of the disaster shows that nobody needs to be

convinced of the need for change.
The change must be done urgently. There is not much time for
discussion and reflection. As mentioned, the structural arrangements are
first changed dramatically and discontinuously. It was only after having
ensured the survival of the organization that the strategic repositioning, the
values and their beliefs become a concern for the leaders. Change, even
if the dramatic, creates less resistance than recreation. Learning is often
important, but perceived as less brutal, though painful, because it is, in
many cases, desired by many.
Generally, leadership that leads to recovery is new, because the leaders
in place do not have the legitimacy to achieve change, and are generally
considered responsible for failure leading to the restatement. The rescue
of Chrysler under Iacocca is the most celebrated probably adjustments.
Indeed, the new president saved the company from certain death, espe-
cially by a cabal with the US Congress to ensure they have the necessary
funds for the revival of the auto giant. Iacocca who knew the industry
for having worked his entire career in a competitor has installed a new
management team and implemented a plan that required serious cuts. But
once the defeated structure and reduced costs, he managed to give a new
positioning and a new culture at Chrysler, with innovative products that
have enjoyed phenomenal success. It is the creation of this new configura-
tion that has enabled the company to regain hope for the future.
In contrast, the case of Nortel Networks is testament to the fact that
the restatement is not a matter of rationalization. The company, which
continues to reduce its staff and activities, is unable to reposition and
continues to experience significant performance problems. As we have
seen, the radical change can take many forms. Depending on the context
in which the business is located, there seems to be an appropriate type of
transformation. Now that we know the main forms of radical change, what
can we say about how to manage?
The literature on organizational change management is very abundant,
but it is much less on the management of radical change. The few authors
who discuss generally propose a model in a few steps that describe the
challenges at each stage and how to cope. Thus, Allaire and Firsirotu
(1985) emphasize the Cultural Revolution associated with radical change.
They suggest that the major difficulties associated with radical change is
that the leaders, once they have determined what needed to be changed,
Optimizing Operational Choices 131

do not develop an explicit strategy to lead the transition. These authors

have developed a model to help leaders develop this transition strategy,
and what they call the meta-strategy. They emphasize among others the
inability of members of the organization to change their own frame of
reference and indicate ways of facilitating the trimming.
They focus on the symbolic management and identification of actions
that can be undertaken without causing a paralyzing resistance, which
requires a very good knowledge of the organization, especially its culture
and good political skills. It was about Tichy (1983) who in his famous
book present a management model Strategic Change that made three
interrelated components: cultural management, technical management,
and policy management.
Cultural management (or symbolic) aims to influence the direction of
change, including an evocative vision, clear and reliable communication,
relevant links with the past, and recognition of success. Technical manage-
ment can give a rational and practical foundation for change by planning
rigorously, by establishing and realistic reading the structural changes and
required systems, putting in place controls and monitoring. Finally, policy
management is an often overlooked element, but it is especially critical
in achieving a radical change. It requires knowledge and encourages its
allies while neutralizing his opponents, and introduces positive change in
individuals at key positions. These models, which have their uses, suggest
one way to manage change and only give general guidance on the process
to get there. Another approach suggests instead that there would be ways
to manage radical change. Vandangeon-Derumez (1998) as a result of
in-depth study of different cases where we conducted a radical change
suggests that there are two patterns of changes: the directional change or
prescribed and participatory or built change, each having its own logic.
The policy change is the traditional form of change where leaders
define the direction to follow (that is to say what will change) and guide
the implementation, which is the responsibility of middle managers and
employees. By cons, in the case of participatory change management
puts in place a process of change aimed at promoting the participation of
members of the organization as to the definition of change (that is to say,
the direction to follow ) at its completion, the two often being simulta-
neous. The dynamic model of the cutting change in three phases: matura-
tion, uprooting, and rooting, which take place in different ways depending
on whether it is in the logical direction or participatory. The advantage
132 Applied Managing for Entrepreneurship

of this model for the practice is to establish a series of activities to each

step, which can be distinguished based on two modes of changes discussed
earlier. The maturation phase is the step of preparing to change, and it
includes the five following activities:
The stimulus identification let’s see if the objective of the change is to
seize an opportunity or respond to a problem.

(1) The search for information is essential to clarify the proposed

change. The information can be collected by a prospective study
or an internal audit. While the first is to anticipate the future, the
second per- rather put a diagnosis on the situation of the company.
It is based on these two activities we find the arguments when it
comes time to justify the proposed change. These are controlled by
the leader at the top, and are not associated with a particular mode
change. First, the same change can be defined both as an oppor-
tunity to seize and as a way to solve a problem. Then a change, it
is defined as a response to an opportunity or a threat, may cause a
change directive or participatory approach.
(2) Awareness of the idea of change can be made through an announce-
ment from the executive to inform members of the organization
that change is considered. Sometimes, it is the announcement of
the replacement of the management team that informs the rest of
the organization that change is expected. Conversely, leaders can
announce the start of a process of reflection on the change to which
different members of the organization are invited to participate.
(3) In the case of an advertisement, the setting in motion of the orga-
nization is controlled by leaders who define the direction to be
given to change, based on the vision they have developed. In the
case of the start of a process of reflection, the members of the
organization have the opportunity to participate in the definition
of change, and the focus is then on the approach to adopt. This is
when we identify the natural leaders who want to play an active
role in the change process.
(4) Finally, the maturation phase may conclude with the finalization
of a formal project or a process by which the project will be built
collectively.
Optimizing Operational Choices 133

Thus, in a policy change, it is stimulated by an opportunity or a

problem, awareness is through an ad, the actuation is controlled by the
leaders, and focused on their vision that is articulated in a more formal
project. Moreover, in a participative change, it involves people in a
process where the focus is on the process, since the project is still unclear
and remains unclear. The uprooting phase begins with the release of draft
change throughout the organization and understands its implementation. It
is built around the four following activities:

(1) The communication of the change project, when it comes to

a formal project planned by management, is through a formal
announcement that focuses on the message to make sure it is well
understood. Furthermore, if a collective approach is business,
communication is used to mobilize members of the organization
to get involved in the change.
(2) We are witnessing, then, the implementation itself. In the case of a
change orchestrated by the management, it can be brutal, as if the
approach is interactive, the implementation is done gradually.
(3) The implementation of the change, even if it is planned and
controlled, always leads to the development of local initiatives.
In the case of a policy change, these initiatives come mostly
from managers, are very close to the original plan, and closely
supervised. Conversely, the participatory march aims to stimulate
the generation of new initiatives, both by managers as employees,
without much force in the creative process.
(4) Finally, the monitoring of the implementation is ensured by the
hierarchy and accompanied by tools based training (TQM, tech-
nology, etc.), in the case of a change orchestrated by management.
Moreover, in the collective process, not to impose change from
above, monitoring is done by the natural leaders from different
hierarchical levels, focuses on temporary structures (focus groups,
round tables, etc.), and is accompanied by a broad training for
comprehensive skills.

In summary, in a policy project, communicating the change through an

official announcement, and implementation, whether sudden or gradual,
above-mentioned converging initiatives developed by the hierarchy and is
accompanied by a rather focused training on tools. Instead, participatory
134 Applied Managing for Entrepreneurship

change promotes interaction, new ideas initiated by the base, training

focused on reflection, and structural support.
Finally, the institutionalization phase of change, or rooting, includes
the following three activities: (1) Evaluation of the actions, that is to say
the achievement of a balance sheet of what has been undertaken now is
the first activity. The leaders control evaluation in the case of a directive
approach, whereas an interactive assessment, to collect the various points
of view, will be implemented in a participatory process. (2) Following this
review, it makes the necessary corrections to the coherence of activities
redirecting the change to the original objectives, in the case of change
orchestrated by leaders or by specifying and adjusting actions to avoid
the dispersion in the case of the participatory change. (3) Stabilization of
change is characterized, in the case of directional change, for implementing
a stable working environment when the implementation is completed or,
in the case of a participatory change, for clarification and formalization of
the vision that developed in reflection and collective action.
Thus, in the process directive, in line with previous actions, the
evaluation is done unidirectional by senior management, which is safe as
that change is completed according to the original objectives, reviving,
if necessary, a change that is winded by redirecting actions beyond the
established framework then formalize the framework. Moreover, in the
participatory model, the interactive assessment can lead senior manage-
ment to treatment and adjustments to stabilize, in formalizing the vision
that developed in action.
This model enables managers to consider how to implement these two
different modes of change management: the logic directive where formu-
lation and implementation of the change project are separated between
policymakers and implementers, and participatory logic where leaders
focus on collective action that enables the design and implementation
of coexistence. However, the work of Derumez (1998) shows that many
changes are in fact hybrids, the process of change is marked by the passage
of a logic to another. This hybridization can be explained by the desire to
avoid the limitations of each of these approaches. Thus, in a sense direc-
tive, the main problem lies in the transition from the corporate level to
the operational level where the shareholders on the ground, during the
implementation can adopt practices that are far from what was expected
by management, and thus undermine the strategic coherence. The main
problem of the participatory model is to create a coherent strategy from
Optimizing Operational Choices 135

initiatives coming from everywhere in the organization. Leaders must then

make choices that may demotivate members of the organization that no
longer find themselves in the version finally adopted change.
The use of either of these two approaches is not determined by the
type of transformation (shift, recovery, etc.). It is clear that the recovery
intuitively seems more likely to be done according to the directive mode,
as seen in the case of Iacocca Chrysler. However, the examples of Forges
the Sorel, where leaders have involved the union in this business transfor-
mation approach the edge of bankruptcy, reflecting the fact that each case
is unique. Moreover, among the cases listed by the author of the model,
organizations in crisis do not always adopt the directive mode and those
that do not necessarily favored proactive participation. However, this
model provides clues to sensitize leaders to the particularities of context
features that facilitate or hinder the conduct of operations in both modes
of change management. It is therefore not here to favor one approach over
another, but to be aware of the characteristics, advantages, and limitations
of each.
Such a perspective on radical change in management does justice to the
diversity of situations and organizational realities. It provides flexible tools
for thinking about change in all its richness and complexity. Throughout
this book, we are interested in strategic management. Traditionally, the
business strategist is exercised by the executive or by a team of leaders.
Following external and dull diagnoses, the leader establishes consistency
between the elements it needs, willing or able to take into account. Once
formulated strategy, it is communicated to other levels of the organiza-
tion, and implementation tools, primarily a structure and appropriate
management processes, facilitate its implementation. This process is often
presented in a linear manner from formulation to implementation. It is also
presented as one-time, localized in time, and lying before the action.
Despite some problems, among others, the unpredictability of the
future and limited cognitive abilities of leaders, this process is possible in
smaller organizations operating in relatively stable industries. But when
the size of the company increases, the organization becomes complex,
as in the case of diversified businesses, or that the environment becomes
more complex, as in the case of global companies, the leader often needs
help to exercise its correct strategist business. It is in this context very
well described by Ansoff (1965), what appeared to be strategic planning.
It also is in this context that since Porter systematic approaches such as
136 Applied Managing for Entrepreneurship

the industrial economy have become increasingly important strategies. All

of these tools to establish internal and external diagnostics business are
useful to the leader and his management team. This is why the traditional
approach to business strategists is still widespread, both in organizations
and in business schools. This is what also explains the importance we have
given to the planning of activities throughout the book, especially in Part
II, “Designing the strategy.” This part of the book focuses on how leaders
can conduct an orderly strategic thinking, and discusses several tools that
can help them achieve environmental analysis and organization, and to
make appropriate policy choices.
An orderly strategic thinking activity, analyze and make strategic
choices consistent with the elements of the analysis, plan activities, and
programs based on these choices: this systematic procedure has many
advantages. It leads the company to discipline you to think of the future;
it forces you to have goals to reach and organize action to achieve these
objectives; it provides the basis for evaluating the performance of organi-
zational units and individuals; it creates order in the organization and is
safe for executives, managers, and employees. But there are also problems
with this approach; problems were experienced by several companies that
have been identified by several authors (Morgan, 1983). A major problem
lies in the fact that this process can disempower the leader leaving too
much room to analysts. However, there are other problems that seem more
important.
First, an approach to training strategies that implies that the company’s
leaders fail of the strategic competence of other members of the organiza-
tion and the contribution they can make. On the other hand, an approach
that wants a formalized process taking place mainly before the action may
not be sensitive to strategies that may emerge during the action. It is then
necessary to design the exercise of the strategist art can take another form.
It is no longer for the leader to first formulate a strategy and then imple-
ment it. It is rather to facilitate the strategic action of all members of the
organization and to establish an environment that enables their contribu-
tion to training strategies. It is more a one-off activity, but an action that is
done in small steps, “along the way” in the words of Avenier (1997). And
it is this process of this strategic action that daily strategy emerges.
Such an approach does not eliminate the role of leaders, on the contrary.
As we have seen, the leaders remain the architects of the rationale and
context of creators, and these roles are both important and demanding. It
Optimizing Operational Choices 137

did not evacuate the importance of intentional strategies. These can be an

element of the strategic action around what action of players develops;
they can no longer be regarded as the business strategy. This approach
to training strategies is particularly relevant in situations of complexity,
turbulence and instability, when it is difficult to understand the context in
which the organization operates, and the skills to cope. Some approaches
attempt to reduce the complexity of the environment. This is what Porter
chose to focus primarily on the competitive economic environment and
reducing strategic diversity to three generic strategies. Other approaches
recognize the complexity, but put forward simple rules that companies
must adopt if they want to deal with it.
In both approaches we have just mentioned, and it was the same with the
tools we have presented on the strategic management of diversified busi-
ness and global business, it is still mainly the leaders who are responsible
to find solutions that allow the company to operate and be successful in
complex situations. In addressing the training strategies through strategic
action of all members of the organization, we offer a different path. The
strategy is a social construct, involving all members of the organization.
They have a strategic competence flowing of learning they have acquired
and tacit and explicit knowledge they have acquired over time. This
knowledge is then put to use on a daily basis to solve problems that occur
or for projects of all kinds. This is the daily work of all shareholders that
emerges the organization’s strategy.
Avenier (1997) prefers to talk about groping strategy. This strategy
differs from incremental strategy, since it may allow radical changes. It is
also different from the emerging strategy because it allows the realization
of deliberate actions in emergent situations; it also promotes the emer-
gence of deliberation, that is to say the emergence of deliberate projects.
The tentative strategy is therefore built step by step, through multiple
oscillations between reflection and action in a permanent tension between
deliberate and emergent. It allows the organization to adapt and to adjust
continuously in a changing environment. As we mentioned earlier, the
leaders continue to play important roles, but they no longer act as the only
designers of the strategy. As architects of the reason, they ensure that the
shared representations correspond to the values and major objectives of
the organization; they also ensure that the procedures and routines are
consistent with this system of representations. As creators of context, they
set up a context for participation and innovation, and they ensure that
138 Applied Managing for Entrepreneurship

the structure and different management systems make participation and

creativity possible.
It is through their leadership that leaders create an environment that
enables members of the organization to participate actively and creatively,
strategic action now. It is also thanks to their leadership that all members
of the organization have to work together in the same direction, so the
company is performing economically and socially. Designed in this way,
the strategy formation process becomes a sense of inclusive process of
building shared by the different levels of the organization, and inclusive
management process in itself. The analysis and action become interrelated
processes; the action can no longer be conceived as a simple implementa-
tion of strategic choices made at the top of the organization.
CHAPTER 12

Structures and Processes of

Applied Management

At the turn of the century, Bombardier faces wrenching and crucial

decisions for its future balance. Should it produce mid-size airplanes,
and thus compete with the giants Airbus and Boeing? Would it not be
better to strengthen its position in the small aircraft? Meanwhile, the main
competitor of the company seems more determined than ever to dominate
the field of activity of small planes and in doing so to give more power to
go higher. And the giants give signals implying that they will fight without
weakening against any intrusion on their chosen territory. Assuming
that the company decides that its presence in airplanes’ average sizes is
necessary, the most important issues are related to how to achieve this
and they involve multiple operational choices. So, should we ally with
the new players to enter the sector, such as Chinese companies? Another
interesting solution is to join a major player. But is it possible? In this case,
what should we give?
Similarly, Alcan was recently found in front of a multitude of choices.
First, since the emergence of China and India on the global economic
scene, metal experts indicated that the future was favorable. It was neces-
sary to strengthen the core business. Then, it was important to know
how. Many solutions have emerged. Alcan could be integrated vertically
in developing, either internally or by acquisition, the downstream or
upstream of the manufacture of basic aluminum. It could also strengthen
its competitiveness by increasing economies of scale through the acquisi-
tion of competitors. It could also diversify by considering other metals or
other regions. The company could finally combine all these possibilities.
Alcan has chosen to remain in the field of aluminum and proceed with
the acquisition of quality competitors such as the French firm Pechiney.
Its greatest rivals, Alcoa, also adopted a similar decision. Then suddenly
another actor who had chosen to work in several major metals, Rio Tinto,
140 Applied Managing for Entrepreneurship

found in a much more favorable financial position and presented for the
purchase of Alcan, which seemed too specialized to succeed in a world
where all metals would become crucial. Investors have thus accepted the
acquisition of Alcan by Rio Tinto and the disappearance of the largest
Canadian business for over a century.
The operational choices are important decisions usually taken by the
main shareholders of the company, sometimes individually, but more often
collectively. These choices determine the competitiveness of the company
and its survival. The operational choices do not always make changes as
drastic as those mentioned for Bombardier and Alcan, but they are still
crucial. We try to provide evidence to guide decision making. We begin by
describing the difficulties of the decision process, and then we will focus
on four patterns of operational choices, observed in several companies. We
conclude with a brief discussion about how to evaluate the performance
on these choices.
Manager is deciding. This is the decision that gives coherence and
consistency to the organization. This will lead him/her to be interested in
the anatomy of the decision, namely the distribution of decision-making
functions in the organization between the rungs superiors (policymaking)
and lower levels (business decisions). It will also look at the physiology of
the decision, namely the different phases in the decision process. Simon’s
decision-making models distinguish three phases: (1) phase of intelligence
or problem identification; (2) modeling phase or solutions designs; and (3)
phases of choice or selection of the best solution, following the application
of a “selection criterion.”
It was taken for granted the existence of sufficient information on the
range of options and their consequences, and the order of preferences.
Several studies that have followed, including those of Simon himself,
questioned the canonical model of decision making. First, we consider
that the decision process develops within a system of constraints related to
cognitive abilities, always limited, policymakers. This idea is at the heart
of the bounded rationality model, the model of decision behavior in the
company and the model of the dustbin (garbage can model).
Moreover, it states that the decision process is not based on a clear
and consistent preference order or resulting in shared collective prefer-
ences. Preferences are ambiguous, contradictory, and are not consistent.
In addition, each reflected preferences in individual goals, according to
its particular situation. So there exists conflicting individual goals and
Structures and Processes of Applied Management 141

competing for the resources, and each seeks to uphold its own objectives
and those of others to maintain their relative influence. It is in this context
of bounded rationality of shareholders and political games that decisions
must be taken. For some people, these constraints are so important that
they prevent any rational decision based on a proper diagnosis of the
context of business and organization. For others, these constraints lead
to interest, not to deliberate decisions elaborated before action by leaders
at the summit, but the decisions that emerge during the action and take
account of a plurality of shareholders.
And for others, well, they require certain realism. It is in this current
that we stand. They require certain realism. It is in this current that we
stand. They require certain realism. It is in this current that we stand.
The organization is a place where all kinds of decisions are made.
Sometimes, the leaders at the top are the only ones to make important
operational decisions for the organization. This is often the case of entre-
preneurs, when the company is small and young. But the decision by a
single actor becomes more difficult as the size and complexity of the orga-
nization increases. The operational choices so often result from a complex
and multifaceted interaction between top leaders, operational managers,
and the board. By observing the behavior of companies, we can say that,
of all the decisions taken by the leaders, foot types of decisions are of vital
importance for the future of the organization: (1) decisions on mission
organization: it is the institutional action; (2) decisions on areas in which
the company wants to work: it is the action director; (3) decisions about
how we hear compete with others in each of the areas of business activity:
it is the business share; (4) decisions on the implementation mechanisms
generated by previous decisions: these are the functional decisions.
The institutional action is the mission of the company. It includes the
key objectives that the company wants to achieve and the values that drive
its action. It corresponds to what the company wants to be and the image
it wants to project to its stakeholders. This is kind of its personality and
identity. This suggests that when the leaders of a company work on the
formulation of an institutional decision, it will not change at the whim of
leaders who will succeed the company’s helm. This does not mean that, in
times of major change in the direction of a company, the mission cannot
be changed. After a crisis or a major turnaround, the company will want
to let its customers and employees know that it is taking a new direction.
142 Applied Managing for Entrepreneurship

The institutional action is a guide and beacon at the time of formu-

lation of the corporate action and business processes. Leaders should
evaluate the decisions they are considering in the light of the principles
and fundamental values contained in the mission of the company. In a
sense, they must accept that their action is constrained by this mission. If
the company’s mission is never a reference point when making important
operational decisions for the company, it is then only a cultural artifact, an
inert object, a beautiful image you project to outside, and a public relations
tool that has not much interest in optimizing management practice.
Here is an interesting case in this regard. The newspaper has a mission
to be primarily a reflection of opinion and newspaper rather than a vehicle
of information, and be active in the national political debate. The directors
who have succeeded in the log header have all, in their own way; they have
their action in respect of this mission. At one point, things have changed.
The journal no longer give the mission to be a debate and opinion journal,
but he defined himself as a witness, so as a newsletter mostly without
political commitment. In doing so, the newspaper positioned itself in the
same group as the existing large dailies.
The results are not immediate. While the situation of the newspaper
had always been relatively weak compared to that of its competitors (due,
among other things, and its low draft), it became catastrophic: the news-
paper has experienced annual deficits that have increased year. The manager
had to leave the management of the newspaper. He/she was replaced by a
journalist who had worked in the company and who left it at the time of the
shift. Returning to the original mission of the newspaper, while working
to make it a more modern and efficient log, the CEO was able to restore
the financial equilibrium of the company. This case is typical. It represents
well the situation of all the great journalistic institutions. These media are
living a big institutional change with the transformation of the property,
which gradually passes into the hands of investors more concerned about
the profitability by the values conveyed by the media. The journalistic
elites are alarmed by what they see as damaging to society deviance. It is
in a phase of great social changes, such as that experienced by the major
capitalist countries, the pressure on mission statements is strongest.
Leaders constantly think about the future of their business. Do we
want to increase the company’s activities? Do we stay in the same areas of
activity or do we want to move into new areas? Do we want to withdraw
from certain areas? These are questions that pave the lives of business
Structures and Processes of Applied Management 143

leaders. As we have seen, to answer these questions, managers may use a

formal process of decision making, such as operational planning, or follow
a less linear and less formal process. They can also help classificatory
schemes whose heuristic value lies in their ability to name and classify
reality, so their ability to bring order into complex realities.
There are three main guiding mechanisms: (1) the holding action; (2)
growth action; and (3) the removal action. Each of these mechanisms may
involve either the products or the markets. The holding action is a rela-
tive stability of the company’s operations, both in terms of its products on
the markets it serves. This decision is often considered relevant when the
business is relatively stable, the company is doing well and resources are
rather limited. But it could also be justified in all market situations. This
is why a maintenance decision does not mean the status quo. Instead, a
company that wants to maintain its activities in a market often has to work
hard. In a growing market, maintenance may require a lot of investment.
In a more stable market, the company could be especially concerned
about the renewal of its products. Thus, it seeks to improve the quality of
its products and the attractiveness of its packaging. It could also try to find
new functions in its products or to enter into agreements to market them
under different brands. This is common in the food industry.
But there are situations, especially in the case of weakening of the
market, where, to successfully protect its market share, the company will
not only try to renew its products, but also perform a recovery of some or
several of its ways. The holding action seems an easy decision to set up,
since the makers are familiar with the products and markets in which the
company is engaged. It is not so. Depending on the phase of the product
life cycle and the company’s position in its market, leaders will choose the
same means of action. They will also have to decide how much human
and financial resources will be needed to maintain the company’s market
share.
Thus, a maintenance decision can become very aggressive when the
market declines. Indeed, when the company must maintain a very favorable
position in a market that is fading, it has to make significant investments
in research and development and marketing. This is the case of cigarette
manufacturers, such as Imperial Tobacco. Due to anti-smoking advertising
that presents the risks of smoking for the health of individuals, this market
is in decline in North America. To maintain its very advantageous position,
Imperial Tobacco has developed new types of cigarettes that says are less
144 Applied Managing for Entrepreneurship

harmful to health; it also uses plenty of sponsorship of events and spends

exorbitant amounts in the promotion.
A maintenance approach still presents some risks of “operational
drowsiness.” First, when the company managed to maintain its market
share and that the investment rate of return is good, its leaders can be
convinced that only incremental changes, and the margin is sufficient. On
the other hand, leaders cannot be sufficiently attentive to profound changes
in the context of business that may render inoperative in the future of a
maintenance decision. Perhaps, one could argue that a company adopting
a long holding action does not develop the skills and abilities necessary to
compete in a complex and turbulent business context. A growth strategy
is appropriate when the business context is favorable, the company is
doing well and the leaders believe that the future of the company will
yield growth. This appeal too many leaders. Such action can be achieved
in several ways. Four ways for a company to grow: (1) the company can
use its existing products to further penetrate the markets where it is already
present (penetration); (2) it can use its current products to try to penetrate
new markets (market expansion); (3) it can sell new products in existing
markets (developing range); (4) finally, it may choose to diversify into
new areas of activities, which are linked or not with its original field of
activity.
An important operational decision for a company is to decide if it wants
to grow in the field of activity where it already operates, or if it wants
to move to other areas. A company that decides to grow by staying in
its field can, by market penetration, market expansion or development of
the product range. A company that wants to grow by choosing new areas
takes a diversification decision. Companies decide to diversify to different
reasons including the desire to spread the risk. Diversification can be
connected or not connected. We say that diversification is connected when
some of the skills acquired by the company in an area are transferable into
new areas where it is committed. So, there is potential for synergy between
the fields. Diversification is not connected when the new areas of activity
require skills quite different from those that the company has, and little
synergy can be established between them.
The matrix can be refined by speaking of current, new and expanded
markets, and current products, new and improved. We find in the following
table, a matrix of growth options and the list of actions to be taken
according to the chosen operational options. It is possible to determine
Structures and Processes of Applied Management 145

the benefits associated with different approaches “product” or “market.”

Some risks to growth are ahead. A growth approach is still very attractive
for business. It has, moreover, as the holding action that we have spoken,
the following difficulties:

 Market penetration is probably the action of growth that is easy

to implement, since the product and the market are well-known
leaders. But it’s not always the case. In a mature market saturated,
the decision can be difficult and expensive, since the acquisition of
additional market share requires very high expenditure in terms of
advertising and marketing. In a growing market, buying competi-
tors may also require significant investments.
 Market expansion requires significant investment, but it requires
above all knowledge about the state of competition in the new
markets targeted and proven expertise in market analysis to fully
understand the characteristics of new customers. Some successful
companies have experienced great difficulties when they tried to
settle out. For these companies, the market penetration became
very expensive, since it already had a large market share. Market
expansion, primarily local, then appeared as a desirable approach.
The beginning was very difficult, laborious and still remains due
to the difficulties of integrating acquisitions that were made.
 The expansion of the range by developing new products also
requires major investments. Substantial amounts must be among
others on research and development of new products, internally
or externally, the purchase of licenses or patents to companies
manufacturing these new products and the acquisition of firms.
The accounting firms’ successful enlargement of the range of
products offered to customers. In addition to traditional audit
activities, accounting firms have invested so much to offer various
other services including management consulting and financing,
outsourcing of various activities such as internal audit and payroll
service. But the context may also evolve to challenge these actions.
So, recently, due to the crisis sparked by the Enron scandal, many
companies were forced to clearly separate their auditing activities
from those related to the consultation. Sometimes, the action of
growth may conflict with the position and the company’s values.
The case of the company “Birks” is a case in point. This company
146 Applied Managing for Entrepreneurship

specializes in the retail of jewelry and tableware, and had tradi-

tionally focused on high-end products. She tried to achieve growth
by expanding its product range, adding mid-range products. This
action proved to be a double failure because it also failed to attract
new customers.
 Diversification is the riskiest growth mechanism. Indeed, it
requires a lot of effort on the part of the company to get to
understand the key success factors in new business areas where it
wants to go. Moreover, it significantly increases the complexity of
management. The development of structures required to complete
the integration or simply good management of multiple activities
that can be especially difficult. It is these difficulties that explain
some spectacular failures experienced by several companies that
have opted for a diversification decision.

Growth optimization is not easy to use. The case now Harlequin illus-
trates some of the challenges related to growth. Harlequin is changing in
the industry of book publishing. Its sales and annual profits have been
steadily increasing. In 1979, they were respectively $180 million and $20
million. Harlequin novels were published in 9 languages and sold in over
90 countries. Many observers then considered the company as the most
profitable publisher in North America. As the romance novel market began
to stagnate and Harlequin continued to have significant cash and had no
debt, it had to invest for future growth. Harlequin decided to continue
its geographic expansion in Japan, Scandinavia, Mexico, Venezuela, and
Greece. It also decided to expand the range of its products by creating new
collections for the North American public, German and Dutch. She also
chose to diversify its activities by producing her first feature film, opening
a store specializing in the sale of publications to teaching and buying a
business selling by mail of toys, games, and small items of the kitchen.
However, despite the considerable financial resources that the company
had to implement these decisions, these have not yielded the expected
results or have failed altogether. By observing the operational behavior
of this company, we have the impression that, because she had a lot of
money, she felt obliged to use it, even when there was no opportunity to
do so or that her skills were not clearly relevant for success in the new
selected areas. Like what having much money to invest, following a very
profitable growth can be a problem! The logic of growth is realized by the
Structures and Processes of Applied Management 147

use of different operational maneuvers. Here are four operational tactics

most commonly used by companies:

1. A business can achieve growth in its field with the acquisition of

companies in the same field: Cascades growth is mainly due to
its many paper manufacturer’s acquisitions, the largest being that
of Rolland Paper. A company can also carry out a merger with
one or companies in the same field: this is what happened in the
automotive industry with Daimler and Chrysler, Fiat and General
Motors, and BMW and Rover. In all cases, it is horizontal integra-
tion. The mixed results of these consolidations show once again
the difficulty of integrating different organizations.
2. A company can have an objective to control the downstream and
upstream processes. This is a vertical integration decision. It can do
this by developing itself in new business areas that will ensure the
reliability of supplies or for the flow of its products. This is called
internal development. It can also do this by acquiring companies
that provide its inputs or marketing its outputs. Many companies
make both internal development and acquisitions. Quebecor
Company illustrates this situation. Initially a neighborhood news-
paper publisher then was launched in the printing industry. It is
further organically involved in the publication. Gradually, in order
to reduce its dependence on suppliers and customers and continue
to grow, it acquired other journals.
3. A company that aims to diversify the fact, usually, through the
acquisition of companies active in the new sought-after areas,
although organic developments (i.e. to say by internal develop-
ment) are possible, as we mentioned in the example of Quebecor.
4. An organization may consider growth by a different route or that
of alliances. Indeed, for its development, a firm can obtain the
skills through alliances with firms that have them. These skills are
of various kinds: technological, from research and development,
procurement, distribution, customer service, etc. The Peugeot car
manufacturer, because of its small size and its fear of disappearing
in a merger with another manufacturer, continues to opt for an
alliance decision. Thus, Peugeot cooperates with Fiat for more
than 30 years and with Ford for 10 years to strengthen its global
position in the manufacture of diesel engines.
148 Applied Managing for Entrepreneurship

The withdrawal approach is to when it means reducing or even stopping

the activities of a company. This decision is relevant when the business
context is unfavorable, the business goes wrong, and better opportunities
exist in other areas. The company then decided to abandon certain prod-
ucts or activities or to withdraw partially or fully from certain markets.
Life cycle phase in which the product or area of business activity and the
relative position of the company in the market play a decisive role in deci-
sions to revoke. Indeed, companies are adopting a withdrawal decision
mainly when they do not manage to have a comfortable market position.
Like the steps of maintaining and growing the removal action may seem
like an easy action to take. However, it is not. As with other approaches, it
assumes to know the life cycle of the business areas in which the company
is engaged as well as the evolution of competition in these areas. But the
particular risk associated with the removal action is of another order. On
the one hand, by withdrawing from certain activities, the company made
to rest some fixed costs over fewer activities. Moreover, the withdrawal of
actions can have negative financial impacts that are greater than the savings
achieved by the removal of certain activities. For example, a withdrawal
decision may harm the image of the company. This will have a negative
impact on other activities. Finally, a withdrawal decision can be demoti-
vating for staff and weaken the company’s portfolio of skills, especially
if the decision is accompanied by the departure of employees and key
executives. The withdrawal can take three main forms: the entrenchment
of activities, sale of businesses, and liquidation.
The entrenchment of eliminating certain products or services. This
was the case when a railway company decided to eliminate a number of
destinations it offered before. This was also the case when the company
Eaton has cut its retail activities catalog sales and subsequently, sales of
household appliances. This is also the case of the Montreal Exchange,
which has decided to sever its activity equities and bonds to focus on
the options market. The products and services that are usually subtracted
deemed unprofitable activities for the company, or are less profitable than
other activities in which it is involved. The more competition there is (in
the industry), the less the company can maintain (little or no) profitable
products and services.
This is true not only for companies that pursue an action of cost leader-
ship, but also for those adopting a decision of differentiation. The sale of
activities is for the company to withdraw completely or partially from an
Structures and Processes of Applied Management 149

area in which it was active before. In this sense, it is a form of entrench-

ment. The company uses this operational maneuver in two circumstances:
first, when it believes it will be able to strengthen its position in a field of
activity, given the competition that exists and instead it has managed to
occupy in the market; second, when it wants to free up resources, mainly
financial.
After the wave of diversification, several companies, financial results
disappointed, decided to focus their activities in their areas of origin. They
therefore massively divested. This is the case of ‘‘Canam Group.” Origi-
nally, the group was active in the steel. Very quickly, it has diversified into
a complementary domain to steel, that of the semitrailers. Then, the group
has diversified into the field of office furniture. The financial results of the
company were excellent. Under the effect of the mode of diversification,
Canam has decided to take an important position in Noverco, a company
that was the architect of the investment policy and diversification of
GazM. This significant investment forced the—Canam Group—to divest
areas semitrailers and office furniture. Realizing that achieving effective
control of Noverco force it to borrow significantly, Marcel Dutil, leader of
Canam Group, has chosen to divest the energy sector.
These activities of sales movements are an important part of operational
maneuvers in which companies now have. The liquidation is to divest itself
completely of a company. The company adopts the rare decision when
forced to do so. This is the case when the company is no longer viable and
is experiencing significant financial difficulties. This is certainly the case
when financial difficulties are such that they are forcing the company into
bankruptcy. That’s what happened to Eaton. The recovery action that the
company tried to set up did not work and it found itself obliged to liquidate
the company.
Complex enterprises are usually present in several areas. Their manager
decision is therefore a combined decision, that is to say a decision that
combines decisions continued in different areas of business activity. A
company may pursue a maintenance decision in areas that are mature and
in which it has managed to carve a comfortable place; it can also pursue a
decision or termination if it considers that some of its fields have become
less interesting or as other areas seem promising it; it can finally pursue a
growth making in the activities it deems promising. When a company is
engaged in several areas, portfolio analysis is a valuable tool for decision
support.
150 Applied Managing for Entrepreneurship

The popularity of private companies for portfolio analysis models can

be explained by the ability of these to simplify a reality more and more
complex and thus to help the leaders of the diversified businesses make
operational choices that are imposed. Leaders rarely possess a thorough
knowledge of all areas of activity, varied and numerous, in which the busi-
ness is located. They must also decide the future of each of these areas and
add new areas of activity. The portfolio analysis models then help them
clarify their criteria.
The relative market share is measured by the ratio of the company’s
market share compared to the market share of the nearest competitor. This
ratio reflects the competitive position of the company regarding the costs,
benefits in terms of costs arising from a larger volume of business than
that of competitors. The quantitative model is a purely financial logic. The
optimal allocation of the company’s financial resources is done taking
into account the profitability of different business areas and their liquidity
needs. In a diversified company managed as a portfolio, business decisions
are developed from each of the business areas, while the corporate action
is developed from the head office.
That’s where leaders use the portfolio model to make operational
choices required regarding maintenance, development or abandoning
their various areas of activity, as well as the addition of new areas. The
leaders of all interested in the return on capital invested in the various
fields of activity, and not the possible synergy between these areas. Unlike
quantitative models in which quality does not rely on the only financial
sense, it takes into account qualitative factors. It is interested in the market
but also the company as a whole. The leaders of all interested in the return
on capital invested in the various fields of activity, and not the possible
synergy between these areas.
The first axis of the model is the value of a field of activity for the
company, including not only the domain of the growth rate of activity,
but also the interest in that area for the company. Can there be synergy
between this field of activity and other business areas? How now to control
its already key factors for success in this area? This area of activity helps
later acquire a transferable experience to other areas? The value of a field
of activity is also related to the company’s capabilities and its identity:
its distinctive competencies, expertise, interests, and its “will to do.” The
second axis is the competitive position of the company in a business area,
Structures and Processes of Applied Management 151

its position in the life cycle, and the risks it entails for the company. It is
therefore no more than limit the analysis to the only relative market share.
The search for consistency, although this model is more qualitative
than the previous one, it can be very useful for leaders of diversified
companies to make operational choices. It allows them to make these
choices only based not only on financial flows of the company, but also
on all the features that help forge the identity of a company and its ability
to compete with other companies. For each of the business areas in which
it is engaged, the company must decide how it intends to fight against
competitors or, in other words, how it intends to position itself in relation
to these. The company has two major decisions regarding its positioning.
First, it must discover and develop a way to compete with other compa-
nies that is unique and different from those of its competitors, and that is
some continuity. Porter notes two ways to obtain a sustainable competi-
tive advantage: cost leadership and differentiation. On the other hand, the
company must choose its operational target, that is to say the extent of the
market it is in a given industry. This target can be broad (wide variety of
products and services to all customer segments) or narrow.
These two dimensions, the type of competitive advantage and scope
of the operational target, define what Porter calls the generic decisions,
namely three fundamentally different ways to position and compete with
other companies in a given industry: the action of cost leadership, the
action of differentiation, and concentration of action, on a close target, may
use the cost leadership or differentiation. Companies can be successful
in adopting different types of positioning in an industry. We can say that
there is no one best way, that is to say one right way to compete with
other companies in a given industrial sort. It is well away from some of its
predecessors who had the experience curve and economies of scale only
profitable positioning on an industry basis.
The cost leadership is to build an organization that can have lower
costs than its competitors. It is to design, produce and market a product
or a service comparable to that of its competitors, but at lower costs. This
allows the seller the product or service at lower prices than its competitors,
the same price that the latter, releasing a higher margin. This is possible
due to economies of scale and scope that arise from volume production
and through tight control of fixed and variable costs. This approach
may require, in some areas, a lot of capital and significant engineering
resources to simplify the design of ducts pro and make them less expensive
152 Applied Managing for Entrepreneurship

to produce, automate production processes, and to extend the distribu-

tion channels. All companies must control costs in order to identify the
highest margin possible: re-engineering or just-in-time manufacturing are
approaches and techniques that can help a company to redefine its process
of production and marketing to make it more efficient and less expensive.
They help to improve the operational efficiency of the company. But this
does not mean that these companies continue dominance of orientation
costs. While cost control is oriented action internally, the cost leadership
is primarily a positioning action externally.
All companies must control costs in order to identify the highest margin
possible: re-engineering or just-in-time manufacturing are approaches and
techniques that can help a company to redefine its process of production
and marketing to the make it more efficient and less expensive. They
help to improve the operational efficiency of the company. But this
does not mean that these companies continue dominance of orientation
costs. While cost control is oriented action internally, the cost leadership
is primarily a positioning action externally. All companies must control
costs in order to identify the highest margin possible: re-engineering or
just-in-time manufacturing are approaches and techniques that can help a
company to redefine its process of production and marketing the make it
more efficient and less expensive. They help to improve the operational
efficiency of the company. But this does not mean that these companies
continue dominance of orientation costs.
While cost control is oriented action internally, the cost leadership is
primarily a positioning action externally. Re-engineering or just-in-time
manufacturing are approaches and techniques that can help a company
to redefine its process of production and marketing in order to make it
more efficient and less expensive. They help to improve the operational
efficiency of the company. But this does not mean that these companies
continue dominance of orientation costs. While cost control is oriented
action internally, the cost leadership is primarily a positioning action
externally.
The action of the company multi-Marques is a decision of cost leader-
ship. Multi-Marques are moving in the baking industry. This is a highly
concentrated industry, with few suppliers, a small number of competitors
who control almost all of the market and customers are mainly supermar-
kets. In this industry, Multi-Marques had set a goal to be number one.
To achieve this, the company was always aware that she would pursue a
Structures and Processes of Applied Management 153

decision of cost leadership, backed up by production volumes. After 50

mergers and acquisitions, Multi-Marques acquired a volume that allows
it to reduce its costs significantly. By centralizing the head office, among
others, procurement decisions, negotiations with customers and choices
relating to the product range, the company managed to have much lower
costs than those of its competitors and tablets most interesting areas in the
stores. This decision enabled multi-Marques to become a very profitable
business and the largest bakery in the region, ahead of its main Canadian
competitor, Weston.
A decision differentiation is to produce a good or a service that has a
unique character for the customer, for which it is willing to pay more. The
uniqueness of a product or a service may result from the type of materials
used and their quality, product design, performance or image it projects.
It can also result from the distribution network used, after-sales service or
warranty that is attached to the product. The customer is sometimes willing
to pay more for a particular product or service as long as it perceives that
the added value is greater than the price it would pay for a product that
does not have such features.
Differentiation action usually requires a lot of resources for the creation
and development of products to ensure quality features, performance or
larger than those of competing products reliability. Many resources have
to be devoted to marketing to create a brand for those products. The action
taken by Hermes is a decision of differentiation. Hermes is a luxury busi-
ness. It started in leather goods, especially in manufacturing “saddles.”
It now affects 12 businesses, the main ones being leather goods, silk,
ready-to-wear, perfumes, watches, the tableware, and jewelry. In all cases,
Hermès products are distinguished by the wide quality of raw materials
and design, a handcrafted, through advertising and highly selective distri-
bution channels and a very strong brand. In other words, all the elements of
the value chain are consistent with the pursuit of prestige and exclusivity.
The Hermes differentiation action is accompanied by high prices,
customers agree to pay. This is a focused differentiation decision on a
narrow segment of the market, that is, customers seeking the high end. The
profitability of Hermes is exceptional, and that profitability will continue
as long as consumers will feel that the value of the products justifies the
high prices charged by the company. Companies such as Rolls-Royce,
Mercedes, and BMW are other examples of focusing by differentiation.
Unlike Hermes, the company Cray Research has not been able to maintain,
154 Applied Managing for Entrepreneurship

profitably, the action of differentiation it had adopted at the time of the

creation of the company.
The latter, a computer genius, stroking a big dream: build the most
powerful computer in the world. The excellent reputation of the founder of
Cray Research has allowed the company, even in the absence of a tangible
product to benefit from significant financial resources. After designing
supercomputers Cray 1 and 2, it has addressed the design of Cray 3. The
action of the company was, clearly, in a concentration of decision (it was
interested primarily in the laboratory research) by differentiation (building
fast supercomputers). Cray is very concerned about the needs of other
types of clients, such as companies looking for not only fast computers but
could also be used in a friendly way. This was not the case at the Cray 2,
already in operation, or the Cray 3, in development.
These industrial customers, who represented a growing market, were
no longer willing to pay for a product with a very high price that was
not justified by the value that the product had for them. They gradually
abandoned Cray and its technological dreams of greatness for more sensi-
tive to their manufacturers’ needs, forcing the departure of Seymour Cray,
and repositioning of the company Cray Research. This measure of cost
leadership and differentiation meet two logics: that of the low cost and the
high prices. A company can gain a competitive advantage by having lower
costs than those of its competitors; its competitive advantage may also
result from its ability to charge higher prices for its products and services.
But can a single company simultaneously pursue both actions? To this
question, we must respond in the negative. Indeed, designing, producing,
and thinking a unique product that has significant added value for the
consumer can be achieved with additional costs.
Conversely, the cost of the plan on the leader usually requires that the
company agrees not to offer guests all the additions that exceed the desired
functionality. The company must make a clear choice in favor of one or the
other of these decisions. This was the problem of a company like Eaton,
who prosecuted both a decision specialized stores offering premium prod-
ucts and a big box store decision offering cheap products.
However, pursuing a cost by the domination of decision does not
mean ignoring what could help to distinguish itself from its competitors.
Similarly, a decision to pursue differentiation does not mean we can ignore
everything that could reduce its costs. According to Porter, any optimization
must be concerned with both the relative costs and relative differentiation.
Structures and Processes of Applied Management 155

Champions’ low costs should have an acceptable quality of the product,

and the champions of differentiation should closely monitor the costs of
activities that are not directly related to the customer value chain. It is
therefore possible to make progress on both fronts simultaneously. It’s not
just choosing a location decision, it is still necessary that the company
will stick to its choice of business decision. When Porter analyzes very
successful companies, such as Walmart, Sony or Crown Cork and Seal, it
concludes that what characterizes them is that they are very consistent in
their core business choices and they try constantly to improve the way to
put them into practice.
Companies that are successful are able to take advantage of advances
in technology, to innovate and improve in order to reduce costs or to better
differentiate relative to their competitors. But they pursue relentlessly the
way of choices they have made. Is that they are very consistent in their
core business choices and they are trying to constantly improve the way to
put them into practice?
Changing business decisions is always very difficult. Changing its
image among distribution channels and with consumers is quite difficult,
but the company can still do it by operating under different brands. More-
over, what is more difficult is to change the organization. An organization
built through time, skills to implement a decision of cost leadership or
differentiation. The skills specific to each of these decisions are radically
different. Changing business decision therefore means renouncing its
learned skills and developing new skills, which is, in the opinion of all, a
real challenge. The three types of decisions, one must add the functional
mechanisms. Functional decisions are attached to the main functions of the
company, namely the marketing, production, human resources, finance,
research and development, procurement, monitoring, and management
information.
Obviously functional decisions are especially important when imple-
menting the guiding mechanisms and business activities, since these are
often functional decisions that enable the successful implementation of
the latter. This is why the leaders of a company should be concerned with
functional mechanisms at a time when they make business decisions and
directors. They thus ensure they are consistent with the choices they make,
they can support these choices or, if this is not the case.
The director chosen action has an effect on the functional deci-
sions. In the field of the decision, literature attaches special importance
156 Applied Managing for Entrepreneurship

to competitive decisions. The operational choices (both institutional

decisions, directors, business, and functional) are aimed at enabling the
company to “beat” the competition. According to Porter, for example, it
is so important to maintain competition that it opposes all that is likely
to decrease the intensity. As we have seen, the context of business of the
company is becoming more complex and differentiated: it consists of
several players for following different mechanisms, while being increas-
ingly interdependent situations, the ones with the others. The business
context is also increasingly turbulent and unpredictable: it is changing fast
and often difficult to predict. The company is then faced with economic
uncertainties, technological, and political.
It is in this context of uncertainty that businesses come to develop
cooperation mechanisms in order to be better able to face the competition.
One speaks in this case, exchange relationships between organizations,
collaboration agreements, hybrid arrangements, collective decisions,
and operational covenants. The decision for a company to engage in an
operational alliance of flow analyzes that leaders are the opportunities
and threats in the context of the business case and internal capacities
of the company to counter threats and take advantage of opportunities.
Operational alliances can therefore be considered as a likely way to help
the company improve its competitive position and realize its decisions
or business manager. Alliances are generally for carrying out functional
activities, such as R & D, and rarely for market penetration. Regulatory
bodies shall ensure that such practices do not just generate the collusion
on the backs of customers.
Company executives make operational choices, develop institutional
mechanisms, Director, Business, and functional so that their business
maintains or increases its performance. To be successful, the company must
do well, referring to different financial criteria. But if thereof are require-
ments for performance, they are not sufficient. A business is successful if,
in addition to good financial results it obtains, it is able to transform itself to
cope with changes in context of business. As the operational management
is the process by which managers ensure the long-term adaptation of the
business-to-business context, the only really useful performance metrics
are those that assess the adaptability of the firm. A well-suited company
has a decision consistent with the structure and competitive dynamics of
the industry; it has an organizational structure consistent with the context
Structures and Processes of Applied Management 157

of dealing with the selected action; it consistent management systems with

action and organizational structure.
Finally, it has an appropriate management style in the operational
context in which the business is located. Ultimately, a well-adapted firm
must be able to match forces with the context of the opportunities and
align its various administrative systems with the action it has chosen. It
must be said that the traditional performance measures based solely on the
profitability of the firm, and are inadequate to assess the operating perfor-
mance of the company. As performance is a complex phenomenon, so use
several indicators to define. It focuses on two measures that discriminate
operationally successful companies and those that are not.
The first of these measures for assessing the quality of transformations
that occur in the business: on one side, it is to assess the company’s ability
to “exploit” so profitable context of the case and to ensure that the contri-
butions of different stakeholders of the company exceed that it gives them
rewards for their cooperation; on the other hand, it is evaluating corporate
investments, from its surplus resources (slack resources) to improve its
ability to adapt to an environment of uncertain future case and unknown.
The second measure used to measure the degree of satisfaction of all
stakeholders of the company and not only those of shareholders. Here, we
are plunged into the heart of the debate that continues to be used on the
company’s performance. Both in private and public sector performances,
it has often been discussed in terms of effectiveness and efficiency.
Evaluating the effectiveness of a company is for the leaders to question
whether the company they lead doing the right things. Traditionally, effec-
tiveness was evaluated based on expectations of shareholders alone. The
question that arose was: do they meet the company’s financial results and
shareholder expectations? For leaders, to ask if the company they lead
doing the right things. Traditionally, effectiveness was evaluated based on
expectations of shareholders alone. The question that arose was: do they
meet the company’s financial results and shareholder expectations? For
leaders, to ask if the company they lead doing the right things. Tradition-
ally, effectiveness was evaluated based on expectations of shareholders
alone. The question that arose was: do they meet the company’s financial
results and shareholder expectations?
The evaluation of effectiveness must now take into account the expec-
tations of stakeholders. The question then is whether the financial and
social results match the expectations of shareholders and those of other
158 Applied Managing for Entrepreneurship

stakeholders. Our mission, as formulated, does it reflect the great goals we

pursue and the values to support it? Is it consistent with the expectations
of our shareholders and with other stakeholders? The business areas in
which the company is involved, and the choices maintenance, growth or
shrinkage that are made, do they correspond to the expectations of share-
holders and those of other stakeholders? Do the business actions we are
pursuing most likely to meet the expectations of our customers?
The question of the effectiveness inevitably leads executives to assess
the impacts of the mechanisms adopted by their company. The criteria
used to measure these impacts will vary, however, significantly, depending
on whether they are interested in impacts for the shareholders or impacts
on other stakeholders. Indeed, shareholders, whose compensation is based
on investment, are mainly interested in the economic and financial indica-
tors of the company and the share price.
In some cases, shareholder expectations therefore may differ from
those of managers. While managers are representatives of the shareholders
within the company, they must implement the orientations favored by the
latter, they also have their own design mechanisms that decision Entre
should adopt. They can therefore focus on growth making, market share
growth that does not translate into an increase in profitability of the
company. As other stakeholders, they are primarily interested in other
performance criteria. Consider the following three types of stakeholders:
customers, employees, and environmental groups. Customers evaluate
the performance of the company based on products and services that it
provides them, and in the light of their expectations regarding quality,
cost, or book value. Their assessment of this performance translates into
purchase behavior and loyalty by relating brands as for employees.
Finally, environmental groups are interested in the impact of the
company’s activities in terms of the context of business and sustainable
development. The criteria they hold are not financial; rather they relate to
the satisfaction of the citizens. For us, the operational management of the
company cannot be considered appropriate if, to define the efficiency, it
is focused exclusively on the interests of shareholders. The evaluation of
the efficiency of the company is for the leaders to summon if the company
does things. More specifically, the issue of efficiency leads them to ques-
tion the functional business decisions: Do our production systems enable
us to produce the best possible price? Is our distribution system adequate?
Do we have the qualified personnel we need?
Structures and Processes of Applied Management 159

The issue of efficiency is inseparable from the analysis that leaders

must make the capabilities and business skills. To assist in this effort,
leaders may use competitive benchmarking (benchmarking), which
allows a company to compare its performance with that of companies
in the same industry, in particular the most successful companies. The
evaluation of the performance of the company, in terms of effectiveness
and efficiency, encourages managers to make operational choices that
can make significant changes. The transformations can be performed in a
more or less large manner depending on whether to change the beliefs and
values of the company, its position, or its practices. Otherwise, action can
also be a pattern emerging from the action. In this case, the operational
choices, more than planned to be a priori, are in course of action. In such a
context, structure, culture and leadership, which constitute the framework
of operational activities greatly influence the choice. In fact, they are seen
as levers to achieve the planned action or as the framework for action that
emerges, structure, culture and leadership that are essential components of
the optimization of business.
CHAPTER 13

Operational Values for

Management Optimization

The organizational structure is both a lever to build a competitive

advantage and an implementation tool. First, we define what we mean
by organizational structure. Second, we will focus on the relationship
operational structure approach. Third, we will deal with key management
processes used by management to achieve operational approach. In a last
time, we will discuss the structure as a framework for strategic action. The
structure is the set of functions and determining relationships formally
missions that each unit of the organization must accomplish, and modes of
cooperation between these units. When the size of organizations than two
or three people they endow with a structure that allows to divide the work
by function, by product, or territory and to better coordinate and oversee
the efforts of all. When they are structured, organizations must:

• Choose between differentiation and integration. There are two

extremes: one could have a different position for each individual;
we could also have a single type of position for all individuals.
We know very well that to be effective, the structure of the orga-
nization should be between these two extremes. The questions that
arise are the following: On what basis should we specialize (func-
tion, product/service, customers, region, etc.)? What activities are
different enough to be separated? How far should you specialize?
How to manage critical interdependencies between activities and
products? What linkages should be put in place?
• Determining the degree of control and autonomy of the various
elements of the structure. The structure should be neither too
loose nor too tight. Every broad and complex enterprise faces a
Fundamental paradox. On the one hand, senior managers need to
be sure that, in a competitive and tough business context, they are
162 Applied Managing for Entrepreneurship

positioned to pull the levers that result in an adequate and timely

response to key exchange. On the other hand, they must zealously
guard against imposing controls so rigid as to choke the life from
the organization.

Among the important variables, there are two that correspond to the
two dilemmas we talked about earlier: the division of labor and coordi-
nation of work. In terms of division of labor, five elements describe all
organizations: (1) the strategic apex (usually senior management and those
who assist him directly); (2) operational core, composed of the people who
produce the services or products that are the purpose of the organization;
(3) techno structure or all professionals whose mission is to establish the
standards (of work, results, expertise) for others; (4) support staff, which
carries out activities that are not related to the primary mission of the
organization and, ultimately, could be obtained from the outside; and (5)
the hierarchy, which appears when the organization takes an important
dimension. And in coordination, five modes are used by organizations: (1)
direct supervision; (2) the mutual adjustment; (3) standardization work;
(4) standardization of expertise; and (5) standardization of results.
The five parts of the organization and the five main modes of coordina-
tion combine “natural way” to give five generic structures:

1. The simple structure is a structure where the dominant part is the

strategic apex, and where the main mode of coordination is direct
supervision. Generally, this kind of structure is much formalized.
There is no techno, no hierarchy, nor often support staff. This
structure is very suitable for simple and rapid innovations in
changing environments.
2. The red tape is a structure where the main mode of coordination is
the standardization of work, and where the ruling party is techno.
In this case, the organization is highly developed with substantial
hierarchy and a large support staff. This kind of structure is suit-
able for mass production, in the case of stable contexts.
3. The professional bureaucracy is a structure where the ruling party
is the operational core, usually formed of professionals, and where
the main mode of coordination is the standardization of skills.
There are usually no techno because professionals resist any
attempt to standardize the work. However, the support staff tends
Operational Values for Management Optimization 163

to be very important. This kind of structure is well suited to activi-

ties that require a complex know-how, in a context of business that
is relatively stable.
4. The male dominance is a structure where the main mode of coor-
dination is mutual adjustment, and where the dominant part is then
the support staff, which is the permanent part of the organization.
There is in this structure that few techno, and the organization is
generally in constant flux, with temporary workers combinations
for relaying of temporary needs. This kind of structure is very suit-
able to accomplish unique tasks and therefore innovation.
5. The divisional structure is one whose units may be structures of all
other types. It is a form in which the main mode of coordination is
the standardization of results and, consequently, where the ruling
party is the hierarchy. This structure is very well adapted to situa-
tions where activities are multiple and diversified.

Some authors, related to the contingency theory, sought to establish

links between the structure and certain environmental and organizational
factors. It must be said that the structure of a firm is closely linked to
its production technology system. Thus, mass production went well
with a formal structure, while companies with a customized production
or automated process tended to be organized in a more flexible manner.
Also, the context of business plays an important role in determining the
structure. For example, container companies, the environment was simple
and stable, had a structure based on standardization and direct supervision.
However, plastic companies who faced a more complex and dynamic busi-
ness context had a structure based on coordination by mutual adjustment.
The firms in the food sector, meanwhile, had a terraced structure.
Also all the mechanisms of the operation, including the design of the
organization (meant by this strategic positioning), the structure, assess-
ment mechanisms, and people management, to be co-aligned with the
demands and uncertainties of the environment. This co-alignment has
come to be known as the fit, which means compatibility, consistency, and
fit including the design of the organization (meant by this strategic posi-
tioning), the structure, assessment mechanisms, and people management,
to be co-aligned with the demands and uncertainties of the environment.
In this regard, what is the nature of the relationship between the opera-
tional approach and structure? The operational approach is directly related
164 Applied Managing for Entrepreneurship

to what was happening in the environment, specifically in the market. More

importantly, once the operational approach chosen, all the mechanisms of
the operation, and in particular the structure, are forced by this operational
approach. First, we describe the case of DuPont, which served as a basis
to work from Chandler. Then we will show how Chandler's theory on the
relationship between operational approach and structure has emerged in
the area of operational approach.
DuPont was at the beginning of the 20th century, a company producing
explosives, dynamite, and black powder in particular. It was led by
cousins Bridge. Eugene, the president, was an entrepreneur, an “empire
builder” in the words of Chandler. He acquired many small businesses
and explosives factories, increasing considerably the size and scope of
DuPont. Eugene was not interested in management. He neglected this
aspect and was concerned only development. He ran each plant separately,
by personally appointing directors in which he had a personal confidence.
Thus, the company was run as a family, each plant manager taking care
of everything locally, including the production and distribution sales in a
particular territory, and being accountable to the President. There was no
overall coordination.
From the birth of the company until 1990, we responded to market
opportunities by building or buying explosive manufacturing plants. The
operational approach was simple and was to grow as quickly as possible.
The structural arrangements were dominated by a simple structure, with a
chef and a host of collaborators. All management systems remain informal
and uncoordinated. The operational approach was simple and was to grow
as quickly as possible. The structural arrangements were dominated by a
simple structure, with a chef and a host of collaborators. All management
systems remain informal and uncoordinated. The operational approach was
simple and was to grow as quickly as possible. The structural arrangements
were dominated by a simple structure, with a chef and a host of collabora-
tors. All management systems remain informal and uncoordinated.
As long as the competition was weak, this management was acceptable,
the company generating the profits needed to continue its development.
But gradually, serious competitors started to appear and they were large
enough so that it is not possible to easily consider acquisition. DuPont then
appeared as disabled because of his inability to coordinate its activities.
On the death of Eugene, the new president, and especially Pierre du Pont,
the treasurer, tried to quickly consolidate plant operations, closing some
Operational Values for Management Optimization 165

of them and building in other where it was more appropriate. But more
importantly, it was coordinating the operation of this great together to
reduce costs and optimize inventory and supplies. Peter then began to put
in place a structure that better meet the operational approach to growth in
all directions of his cousin. This resulted in a structure known today as the
“centralized functional structure.”
This new type of structure allows putting together the production opera-
tions and thus optimizes properly for sharing expertise and reducing costs.
The same model was used for marketing. Markets were taken together, and
supply was considered a general case rather than a shared responsibility
regionally. Peter then began to put in place a structure that better meet the
operational approach to growth in all directions of his cousin. This resulted
in a structure known today as the “centralized functional structure.”
Finally, the administration has been formalized: more information is
gathered on costs, margins obtained, the rate of return on investment, etc.
Performance measurement and compensation managers have become
more systematic and linked to predetermined schedules. We asked each
manager not to generate profit but to achieve functional goals which then
would make a profit for the in-seems the company. Later, the president's
office took over large to allow to centrally manage a company became
much more professional in its practices. These structural arrangements
were all geared toward centralizing the management and planning of the
operation.
This was necessary due to the fact that the specialization of functions
to the President left no responsibility for the whole. This new structure
has served remarkably the company, which then had its best time, with
both planned and exceptional growth unparalleled profitability. With its
collaborators, the architect of this impressive rehabilitation, Pierre du
Pont, now president, has refined the company's management mechanisms
to the point that his achievements have become classics taught in business
schools.
The company was so successful that production reached record highs.
The outbreak of the First World War was the product when the company
was at the zenith of his fame, controlling much of the US market and
arousing the suspicion of antitrust authorities. The company has also been
forced to split into several companies as a result of the application of the
Sherman Act Antitrust Law.
166 Applied Managing for Entrepreneurship

The vast production of wartime, however, raised issues previously

unknown. For example, by-products of explosives, once considered waste
and sold or distributed freely that wanted them, were now in such large
quantities that there was more than enough market or proper disposal
system. The company then decided to examine the possibilities of using
these by-products for commercial purposes.
These by-products were aromatic benzene-type, toluene, etc., the
base today fine chemicals and plastics. The leaders then embarked on
the manufacture of such products, including dyes, nylon, leather, and
synthetic rubber, etc. Their resources, both human and financial, allowed
to be optimistic all development paths. The company is solid and prom-
ising future, Pierre decided it was time for him to hand over the presidency
to his brother Irenaeus and to go to other places. For DuPont, the problems
would soon begin. By engaging in manufacturing new fine chemicals, the
company had to change the field of activity, but it seemed not really realize
it and continued to work with the old centralized functional structure prob-
lems would soon begin.
As new products were totally different, they would need radically
different production processes. They were, moreover, in quantities much
lower, for poorly understood markets. The markets fine chemicals and plas-
tics were completely different markets of explosives markets. Customers
of these were few, but were experts in handling and using the products.
It was enough to produce, distribute, and provide minimal assistance in
that related to the storage and handling of products so that customers are
satisfied. In the case of new products, on the contrary, customers were very
numerous, unsophisticated, knowing evil all possible uses and manipula-
tion, and even product features. It would therefore be necessary to give
their hand so they know how to use them.
As DuPont was dominated by functions, the leaders of the various
functions necessarily accorded full attention to old products, the more
lucrative, easier to sell, representing almost all of their income, and profits.
So they ignored the new products and new markets. DuPont, then the
company best managed and most admired, was losing money with all its
new products.
The young leaders were well aware that there was a problem of
structural arrangement, but the president did not want to hear about a
structural change. Why, he said, should we change what has served us
so well in the past? It took DuPont decides to consider a new structure.
Operational Values for Management Optimization 167

This structure, the greatest innovations by Chandler, acknowledged the

differences between the products and the need to manage separately. Each
product line became a division with its own functions (production, sales,
and administration) and was run as a separate company, but with a firm's
overall coordination for financial matters and personnel management.
This structure is called “decentralized divisional structure.” With this new
organization, the company would dominate the US market and the global
market for chemicals, as she had previously dominated the explosives.
The story from DuPont is most revealing of the theory of Chandler, he
stated as follows: "The operational approach above the structure." This
means that, when adopting an operational approach, it is obliged to adapt
the structure accordingly. Chandler developed his theory by studying
four major companies: General Motors, Standard Oil of New Jersey (the
predecessor of Exxon), Sears, Roebuck & Co. and, of course, DuPont. But
he confirmed his results by studying statistically many other successful
companies. Its results were also confirmed by Héau work in France,
Channon UK, Germany and Thanheiser by those of his own research team
in Japan. Others stressed the firm's development process that resulted from
such a theory. So, Scott Salter then proposed an evolution of the company
into three phases. Each stage combines a type of operational approach to a
type of structure, but these authors also showed that all other management
mechanisms were affected. These three phases with two sophistications
called “conglomerate” and “global structure” can be considered a kind of
business life cycle.
A fourth phase has also been proposed to account for situations where
the functional aspects and aspects of markets must be combined. This
phase introduces particular structure called “matrix.” Each stage combines
a type of operational approach to a type of structure, but these authors also
showed that all other management mechanisms were affected. These three
phases with two sophistications called "conglomerate" and "global struc-
ture" can be considered a kind of business life cycle. A fourth phase has
also been proposed to account for situations where the functional aspects
and aspects of markets must be combined.
The work that is most directly linked to that of Chandler, and that had
a lot of echo, overall for diversification by mergers and acquisitions, is the
Rumelt. This author has undertaken to demonstrate empirically the rela-
tionship between the operational approach and structure, and between the
latter and performance. His work, although methodologically controversial
168 Applied Managing for Entrepreneurship

shows that operational approach and structure are closely linked and that
the quality of their association is a determinant of performance. It is
interesting to return to the types of structures that we discussed earlier,
particularly the functional structure and the divisional structure, and show
what they are relevant strategic context.
The centralized functional structure has several advantages when a
company operates in a single field of activity: it provides a clear defi-
nition of responsibilities; it comprises simple control mechanisms; the
leader remains in contact with all operations; and is effective in terms of
resources. It is a structure that allows the organization to be successful.
This structure, however, poses a number of problems: it generates narrow
logic of functional specialties; it stiffens the overall operation by raising
the formalism and bureaucratic behavior. Leaders have great difficulty in
integrating the specialized activities into a coherent and dynamic whole.
They can also be overwhelmed by the operations and routine problems.
To remain successful, a functional structure must develop mechanisms for
consultation and dialogue, which will offset the disadvantages inherent
in this type of structure. As for the decentralized divisional structure, it is
appropriate when the company diversifies and works in several areas of
activity or in multiple geographic regions.
The divisional structure, with the creation of divisions by area or region,
has several advantages over the functional structure: it allows to decen-
tralize the general management initiative; it facilitates the comparison of
units; it helps develop skills related to the peculiarities of each division;
it gives off the leaders at the top of the daily management concerns and
allows them to focus their time and energy to strategic thinking. But this
structure also poses a number of problems: it can lead to duplication of
resources; it creates difficult market segments logical to reconcile, espe-
cially in terms of resource allocation.
The company therefore has no choice but to develop liaison mecha-
nisms between its divisions in order to create synergies and facilitate
reciprocal learning. General Electric, under the direction of Welch, seems
to have realized this learning admirably. However, the rule derived Chan-
dler's work is always true regardless of the type of structure adopted.
Regarding the management process, they are important for the
achievement of operational approaches. The leaders therefore must wear
their special attention. It is by adjusting a number of management tools
that these processes take shape and become consistent with the objectives
Operational Values for Management Optimization 169

chosen. The most frequently mentioned tools (often used in training) are of
three types: (1) Set of tools around collective action, such as the structure,
rules, and procedures, and recruitment; (2) material stimulation tools, such
as compensation, bonuses, promotions and, of course, the performance
measurement related to them; (3) ideational or ideological influence of
tools, such as vision or values. The tools available to managers can have
effects retarded. In the case of compensation and performance measure-
ment systems, the effects are almost immediate. In other cases, such as
recruitment or training, the effect is felt later. In what follows, we develop
just three of the mentioned tools or recruitment, remuneration, and promo-
tion systems, and training. Indeed, the health of the organization is directly
influenced by the recruitment of people it needs. Depending on the nature
of the organization, the recruitment of effect can manifest itself more or
less long-term or recruitment, remuneration and promotion systems, and
training.
In a “red tape,” recruitment has a relatively rapid effect since behav-
iors are routine and standardized. In a “professional bureaucracy” such
as a university or hospital, the behavior is directly related to the nature
of recruited professionals. In this case, the effect of recruitment is felt
in the long term because recruitment is seldom massive and that those
already in place dominate organizational life. Thus, the Japanese or
Korean car companies that have invested in North America showed that it
was possible to generate fast enough new behaviors through recruitment
and initiatives such as training. By cons, universities, recruitment does not
change behavior very slowly.
In the context of strategic management, executive recruitment is
very important. Specialists in this field are a booming business to find
the best people to fill senior management positions, people who can meet
the challenges associated with the operational approach of the company
concerned. That's why business leaders recruitment mandates always
begin by clarifying the strategic context for this: it then directs research to
a leader capable of realizing the operational approach of the company to
modify or change it. Executive recruitment, when done well, so aligns the
objectives from the start of the most critical people in the organization with
the objectives of the organization. Members of a board of directors have a
responsibility to ensure we choose leaders who share the great values and
direction of the organization, and will therefore be able to translate them
into consistent operational choices with these values.
170 Applied Managing for Entrepreneurship

Also, pay and promotion systems have an immediate impact on people's

behavior, and thus the organization. These effects are not deep, although in
interaction with other systems, they can influence the organization sustain-
ably. The remuneration system is the basic system on which is built the
exchange between the organization and the individual. The individual is
supposed to cooperate, in exchange for which it receives material compen-
sation. The compensation effect can, however, be disturbed by the influ-
ence of other stimulating factors. Thus, when the remuneration system
is transparent, stimulation is related to the fairness of the compensation
system, first within the organization and with similar organizations.
Pay systems specialists pay much attention to three key issues: the
link between the work and remuneration, the meaning of the remunera-
tion system, particularly with regard to justice and equity, and finally,
other compensation components, such as performance bonuses, rewards
associated with specific performance, and financial benefits, such as a car,
subscriptions to clubs or associations, etc. Premiums are often divided
into two parts: the first is granted if the executive achieved the objectives
of its division, its function, or its affiliates; the second is granted if the
company as a whole achieved its objectives. Here, we see the direct link
that attempts to establish between the operational approach of the company
and the compensation system. It is suggested to establish ways to monitor
and measure progress against the operational objectives. It demonstrates
that the compensation and performance measurement instruments are the
backbone that ensures that the behavior of managers and employees is
aligned with the operational approach.
In short, we can say that the design of the operational approach deter-
mines what should be done, while the reward systems ensure that the
organization's members will work to achieve this operational approach.
It demonstrates that the compensation and performance measurement
instruments are the backbone that ensures that the behavior of managers
and employees is aligned with the operational approach. In short, we can
say that the design of the operational approach determines what should be
done, while the reward systems ensure that the organization's members
will work to achieve this operational approach.
People are sensitive to factors that have nothing to do with money or
material goods. They need hope, ideal, explanation of the meaning of life,
and relationships with others. The physical stimulation is illusory and that
alone it can never completely motivate individuals. When basic needs
Operational Values for Management Optimization 171

(including physiological and safety) are reasonably satisfied, the best orga-
nizations are those that are able to persuade their members to contribute
to their work has value in itself. Training is a tool that allows members
of the organization to appropriate business goals of the company and the
values that underlie them. Also, in a knowledge economy, staff training
plays a very important role. It has two objectives: a strategic objective and
a technical objective. In the first case, it is to socialize people, especially
managers, to the purpose of the organization, its values, and its modes of
operation. The aim is to promote the emergence and consolidation of a
culture shared by all.
When individuals share the major objectives of the organization
and the operational approach is consistent with these objectives, it is
then easier for them to work on the implementation of this operational
approach. In the second case, the objective is to develop and strengthen
the skills needed to perform effectively and efficiently, the operational
approach of the company. Larger companies often have training institutes
in order to have control over what is passed on (taught) to members of
the organization. They are also concerned, more generally, for managing
organizational knowledge. The effects of training on the implementation
of the company's operational approach are felt in the long term, but it
is a crucial investment because it can give the company a competitive
advantage difficult to copy.
The research to which we briefly referred shows the importance of a
fit between the selected operational approach and the various structural
arrangements of the organization. But the structure is not an implementa-
tion tool for the operational approach once it has been formulated. It also
provides a framework for strategic action. Here, we focus on two aspects:
first, the structure that influence and constrain the operational approach;
second, the structure which provides the framework for strategic action
in everyday life. If we consider the operational link structure approach,
the operational approach forced the structure. But it is also true that the
structure in established organizations can force the operational choices.
This is what has led some authors to reverse the relationship proposed by
Chandler and affirm that the operational approach follows the structure,
rather than precede it. Today, we consider that the operational approach is
influenced by the existing structure, but that a new operational approach,
to realize, often requires new structural arrangements.
172 Applied Managing for Entrepreneurship

Desjardins illustrates the influence that the structure can have on

operational choices. The cooperative structure of the institution of savings
and credit, which gives local credit unions an important voice in the
proceedings of the group, always constrained operational choices made
by the leaders of this institution in its history: focus on individual loans
rather than commercial, refusal to provide a credit card, noninvolvement
in the cable, etc. The operational approach of Desjardins Group and the
strategic actions of its leaders do understand that if one considers the
type of structure, the structure affects the strategic action otherwise. The
different forms of structure that we discussed are not limited to a flow-
chart. A structure, it is not an arrangement positions. A structure is also
an arrangement of management processes that have significant influence
on individuals who occupy different positions in a given structure. It is
through the combination, sometimes rustic, sometimes clever, manage-
ment mechanisms that gives life to the structure of the organization. But
there is more. In a logic of strategic action in everyday life, where we
want the participation of all members of the organization for the training
of operational choices, structural arrangements are very important. The
strategic action every day requires special structural arrangements: ad hoc
structures, temporary structures, transverse structures, project manage-
ment, etc. It also requires management processes that enable stakeholder
involvement in the formation of the operational approach. The leaders
have a role very special to play in the establishment of these structures and
the management mechanisms.
CHAPTER 14

Metadata and the Complexity

Mechanisms

The realization of an operational approach requires appropriate manage-

ment structure and processes. But to achieve an operational approach and
reach performance, leaders must rely on factors other than those to which
we have referred so far. In this chapter, we will pay particular attention
to the organizational culture and leadership. Organizational culture and
leadership, although controversial concepts are essential to achieving the
operational approach. We will discuss their role in both the implementa-
tion of a planned operational approach and as a framework for action in
the operational process.
In the first part, we focus on the concept of culture. In the second part,
we will discuss strategic leadership by addressing the different ways that
leaders can exercise. We first define what we mean by "culture" and we will
mention the different sources of organizational culture. Subsequently, we
discuss the role that culture can play in achieving an operational approach.
The growing popularity of the concept of organizational culture coincided
with the runaway success of Japanese companies in the international
market.
Until then, the importance of the human factor had been considered
mainly in terms of individuals and groups, from the perspective of the
school of human relations. From that moment, the influence of the national
environment on how to do the business on the sociocultural rather than
economic has gained importance in strategic thinking and has attracted
interest for the concept of organizational culture. But what does the
organizational culture and can we manage it? Despite the controversy
surrounding the use of the concept of culture, to which we shall return
later, definitions of culture are quite similar.
The set of basic assumptions—that a given group has invented,
discovered, or developed by learning to cope with its external and internal
174 Applied Managing for Entrepreneurship

integration problems adapting—which worked well enough to be consid-

ered valid and taught to new members of the group as being the right way
to perceive, think, and feel in relation to these issues. Culture comprises
three interrelated levels from deeper and intangible at the surface and
manifests. The set of basic assumptions is the deepest level of culture. It
includes the assumptions, beliefs deeply rooted concerning the nature of
reality, man, environment, etc., that unconsciously guide our perceptions
and ways of thinking and doing. For example, belief that humans enjoy
working or are fundamentally lazy.
These basic assumptions affect the second level, that of values. These,
although they are often taken for granted, can be made explicit, especially
when strategic thinking exercises. The valor of legislative character and
drawn attention to what is considered important, on what is valued or not.
They usually form a coherent whole, a gestalt, and a guide for action.
According to Schein is by uncovering the value system of an organization
that one can deduce the basic assumptions which themselves are inacces-
sible. The third level, artifacts, is the tangible manifestation of the values
and basic assumptions. This level includes the social universe and equip-
ment built by the members of the organization. The structures, systems,
and organizational practices, as well as the products are all tangible signs
of the culture of the company. Apple's case is eloquent in this regard.
Think of the Macintosh, the iPod and more recently the iPhone, whose
output was accompanied by a whole page-media, it is clear that the prod-
ucts of the firm clearly express its culture, including values related to inno-
vation, originality and aesthetics, and allow it to distinguish itself from its
competitors. Similarly, the culture of McDonald's, based on standardiza-
tion and speed, is recorded in the physical appearance of its restaurants,
their predictable operation, and uniformity of its products. In both cases,
a strong culture we see in synergy with the operational approach of the
company as well as the products are all tangible signs of the culture of the
company.
However, organizational culture does not emerge in a vacuum: the
organization is embedded in society. On one hand, it is influenced by the
dominant culture of the surrounding environment, national culture. Thus,
Rieger and Wong-Rieger (1988) in a comparative study of international
airlines, show the influence of the culture of the country of origin on the
structure and operational approach of these companies. Based, among
others, on the work of Hofstede (1980), they establish five cultural
Metadata and the Complexity Mechanisms 175

configurations according to the orientation with respect to power, power

distance, analysis, and risk. Where culture is at odds with the core values
of the company, the organization can have legitimacy problems that may
affect the achievement of its operational approach. This may be particu-
larly the case when companies internationalize their activities.
In addition, Walmart claims to have a corporate culture making unnec-
essary the use of union. The US giant has been the focus of considerable
controversy surrounding the closure of a store unionization process, where
the right of workers to organize is an important social value. Conversely,
Ubisoft, the French video game company, embodies values such as
creativity and playful spirit, which is associated with their culture. Social
recognition is an important part of the identification of members to the
organization and its operational approach, especially when companies
internationalize their activities.
On the other hand, national culture does not influence alone the orga-
nizational culture. First, society is not homogeneous; we need only think
of ethnic, religious, linguistic, and generational introducing diversity in
the organization. The management of cultural diversity, of their AIL, a
theme which is given more and more attention nowadays in organizations.
Also, there is a culture specific to the industry in which the organization
works. Some then speak industrial recipe (Spender, 1989) or cognitive
industrial communities (Porac et al., 1994) to describe the ways of doing
and thinking that characterize a given industry. For example, Porac and
colleagues describe the business model that characterizes the high-end
cashmere industry in Scotland and demonstrate how it is taken for granted
by members of the industry and is a sustainable recipe that forced the
behavior of shareholders. Similarly, the existence of different sectoral
approach in banking and brokerage that is causing significant problems
has experienced the Bank of Montreal during the process of acquiring
brokerage firms Nesbitt Thomson and Burns Fry (Roch, 2003). Even
after several years, it is found that there is little interaction between these
different subcultures within the company.
Finally, occupational and professional cultures are another important
source of diversity in organizations. These different organizational subcul-
tures can be in harmony with the dominant organizational culture or, on
the contrary, constitute against subcultures that undermine it. This is why
some privileged strategic directions by the leaders, although quite rational
from their point of view, to be rejected formally or informally by some
176 Applied Managing for Entrepreneurship

groups of the organization on behalf of an alternative rationality. This is a

common situation among other organizations in the field of health and that
of the cultural field. Thus, when we want to implement a new operational
approach in the field of health, professional logic often conflicts with the
administrative logic. This was the case, for example, when introducing
customers turn in the health network. In the arts, there is talk of two-headed
organizations where the art direction and the administrative leadership
must cooperate during the development of the operational approach. As
can be expected, it is not without provoking internal tensions.
Generally, you have to report the existence of three subcultures that
often conflict in large organizations: those leaders, operations people,
and engineers. Leaders tend to focus on financial issues and competitors,
operators of local concerns and focus on the people, while engineers are
mostly interested in technology. It is not surprising that they have difficulty
understanding and agreement. However, several authors emphasize the
importance of developing a strong corporate culture that is to say distinc-
tive, stimulating and widely shared, to support operational approach.
Indeed, if the members of the organization share the same culture (if they
are comfortable with the values and beliefs that underlie it), they will
enthusiastically participate in carrying out the operational approach (to
the extent that it is consistent with the existing culture).
But a strong culture is a double-edged sword. It can be a source of
sustainable competitive advantage, because a distinctive culture is
difficult to replicate by competitors, but it is also difficult to change and
can become a source of inertia that prevents the company to adapt when
the environment changes. If the journal provides a good example of a
company that has developed over the years a so-called high culture that
of a committed newspaper, intellectual rigor. The company culture is a
reflection of the nationalist culture and it is, in part, that it is so widely
shared by its members. This distinctive culture that has developed in line
with the company mission is both the most solid base which underpins
its competitive advantage and the policy framework that influences its
strategic evolution. Indeed, as we have seen, this culture is forcing policy
changes that can be undertaken by this newspaper in response to the
changing environment. This brings us then to ask the question: How to
manage the link between operational approach and culture?
The answer to this question has generated much debate. We can group
the positions into two camps: there are those who see culture as a lever to
Metadata and the Complexity Mechanisms 177

achieve the operational approach and those who see it primarily as part of
the strategic action. The former consider that to be effective, the organiza-
tion must have a coherent organizational culture whose beliefs, values, and
norms are widely shared by all members of the organization. In their view,
culture can be used as a management tool and can help in the implementa-
tion of the operational approach. In this case, it comes essentially acting on
cultural artifacts, such as symbols, language, structure and compensation,
and promotion systems to change the behavior of members of the organi-
zation and make it more compatible with operational approach.
Thus, during the dismantling of AT&T monopoly imposed by the
government, its leaders have begun a significant cultural change. To facili-
tate the transition from a regulated environment to a competitive environ-
ment, they moved the headquarters of the company, changed the name and
logo, and implemented a series of measures (speech, video conferences,
training, promotions, new partnerships, new products, etc.) to advise the
members of the organization the new behaviors and appropriate values
such as leadership, collegiality, and speed in decision-making. Further-
more, it is stated that the management has also stressed that these values
were added to some existing values, including the importance of customer
service and human resources, as well as fairness and emphasizing conti-
nuity in change.
The only cultural change that can be managed is incremental change,
that is to say the introduction of new values that are not antagonistic to
those of the existing culture. In what he calls a virtuous circle, members
of the organization are encouraged to experiment with new behaviors that,
if successful, then wind valued and idealized. They come in, over time, to
be taken for granted and integrate with organizational myths. Moreover,
the Cultural Revolution would actually destruction of the ancient culture.
However, although it is relatively easy to destroy the existing culture by
changing artifacts like structure and systems.
Other authors rather consider that the organization is not a culture that
can manage, but the community of shareholders is in itself a culture. In this
perspective, culture emerges from the collective history of the members of
the organizational community.
The culture is then seen as a knowledge structure; a system of shared
meanings and reflect largely unconscious processes. It is almost impos-
sible to change intentionally and becomes instead the framework around
which defines the operational approach of the business and even, from
178 Applied Managing for Entrepreneurship

which it emerges. This is called dominant logic or organizational para-

digm. Thus, explained the difficulties experienced by a firm of consulting
engineers, with its diversification process by the existence of a dominant
logic incompatible with its new activities. The company would not have
managed to take full advantage of its acquisitions, because they were
managed by engineers who did not understand the rules in the new sectors.
Another interesting example is the cooperative banks; the operational
approach has evolved by adapting to organizational culture. The develop-
ment of these structures was marked by the values of the founders. Some of
their beliefs have become myths that there was no question; for example,
the idea was to promote savings by discouraging the use of consumer
credit.
For many years, no one dared challenge this way of conceiving things.
Thereafter, the members face a different situation from that which existed
began a strategic shift that resulted in the creation of the VISA Desjardins
card. However, to achieve this change, which could be seen as inconsistent
with the values of the company, they showed that credit cards could be
defined as a payment card, since the majority of people used this way,
paying off their balance each month. This conception of credit cards
has helped make it consistent with the corporate culture. To show their
commitment to the philosophy of Descartes gardens, the shareholders
of the movement still continue to warn their members when using credit
card-related problems seem to them.
But culture conceived as a framework is not a constraint to the opera-
tional approach; it is also the context which can emerge as a new approach.
An eloquent example in this regard is that of Intel. Thanks to its culture of
innovation and autonomy of the researchers, this company from a memory
card manufacturer, has become so unplanned business in microprocessors
and is now a leader in its field. At Intel, a qualified independent process
consisting of local initiatives for middle managers and researchers
experimenting with new futures exists in parallel with the formal strategic
process called induced process. In this context, culture becomes a source
of strategic innovation rather than achieving operational approach tools.
We consider culture as an implementation tool of the operational
process or as part of the strategic action; the strategist should be familiar
with the culture of his company. It is difficult for the members of the
organization have the necessary distance to analyze their culture, since
the assumptions and values are largely taken for granted, and therefore
Metadata and the Complexity Mechanisms 179

inaccessible. They then offer to call a drab former analyst who will help
members of the organization to uncover their culture. The strategist must
be familiar with the culture of his company. It is difficult for the members
of the organization to have the necessary distance to analyze their culture,
since the assumptions and values are largely taken for granted, and there-
fore inaccessible. They then offer to call a drab former analyst who will
help members of the organization to uncover their culture.
The authors have proposed different approaches and developed various
analytical tools of culture. Thus, the ethnographic approach, the clinical
approach and auditing, which are based on various models, are part of the
main approaches that have been proposed to analyze culture. The ethno-
graphic approach is the most traditional approach to analyzing culture.
It requires an observer to come live in the organization for some time
to become familiar with its practices and to know its norms, values, and
beliefs. As the anthropologist did with the tribes, it is for that person to
recognize different cultural artifacts of the organization and to interpret
them to remove the values and beliefs of its members.
Among the most frequently mentioned items include: rites (the events
that mark the organization of life); routines (the ways of distinguishing);
myths (stories and anecdotes about the highlights and important person-
alities that are frequently told and that highlight what characterizes the
organization); the symbols (logos, slogans, and objects that have special
meaning); organizational structures and systems, including recruitment,
promotion, and control.
All these indicate what the importance is given and attention in the
organization, what we value, but also what we reject. It is therefore not
enough to list them, but rather to analyze them to understand the values
and beliefs that underpin them. Thus, the structures and systems are
reviewed here in terms of their functional efficiency, but according to their
significance for members and their consistency with the organization's
values. For example, the centralization of certain activities might be justi-
fied on the basis of the speed of decision-making and cost control, but be
incompatible with the values of autonomy and sensitivity to local realities
promoted by management. The structure, in this perspective, is analyzed,
First, it is to observe events and distinctive practices, to see what the
structure puts forward and what it hides, which is controlled and which is,
of note common expressions and design spaces, in short, everything that
enables members of the organization feel at home and foreigners to feel
180 Applied Managing for Entrepreneurship

the difference. Second, we must understand how and why the organiza-
tion members interpret these artifacts, those to whom they give the most
importance, those they identify with and which are rejected or treated
with cynicism. Then we can take the pulse of the organization that is to
say to what extent the culture is shared, and to uncover the existence of
subcultures. Thus, after a long observation stay in the company resulting
from the merger of Irving Samuel and Jean-Claude Poitras Design, Roll
(1995) identifies significant cultural differences between the two entities,
based on cultural and linguistic differences, as well as various designs of
fashion (conservative vs flamboyant) and business conduct (emphasis on
production vs on marketing). The existence of such differences is much
hindered the integration of the two companies and partly explains the
failure of the merger.
Based on cultural and linguistic differences (one Anglophone Jewish
and Italian descent, and the other francophone), as well as various designs
of fashion (conservative vs flamboyant) and driving business (focus on the
production vs on marketing). The existence of such differences is much
hindered the integration of the two companies and partly explains the
failure of the merger.
This ethnographic work takes time and is not within the reach of
every business. This is why other authors advocate the use of the clinical
approach, based mainly on interviews with various company stakeholders.
With the different perceptions (or homogeneous) of people working at
several levels and in several areas, the specialist will look to see how
the members of the organization analyze and understand the values and
beliefs of the organization. It is through the analysis of convergent and
divergent visions we discover the norms and values of the organization
and those of subgroups. It is then possible to detect a dominant culture,
if it exists, and the most important subcultures. By defining culture as the
set of basic assumptions, it suggests a series of questions to help establish
a cultural diagnosis. These issues are briefly mentioned in the following:
relationship to the environment: you perceive yourself as a pioneer or
follower, adventurous or cautious, etc.? Relationship to others: is it better
to be proactive and tenacious or conciliatory and cautious, conservative,
or optimistic, cooperative or competitive, individualistic or collaborative,
etc.?
Relationship to the truth: the truth-it comes from the analysis, wisdom,
experimentation, social consensus, etc.? Time relationships are you facing
Metadata and the Complexity Mechanisms 181

the past, present, or future? How is the time cut in your organization?
Relationship to human nature: it is a human being generally well-meaning
and reliable, or opportunistic and manipulative? Can it change, improve?
It also defines two major dimensions that allow to deepen this analysis:
external and internal integration adaptation. Thus, for the external adap-
tation, focus is on the values that underpin the mission and operational
approach of the company, the performance criteria, and the way to correct
the problems. For internal integration, we will look at the language used
(to uncover the frameworks, shared meanings systems), the nature of the
boundaries between the groups in how resources are allocated (criteria,
distribution, process, etc.), standards and how are gender sensitive issues
like religion and ideological differences. This type of analysis allows to
study, inductively, own cultural dynamics of each organization. Based
on the idea that culture is actually built on the opposition or dilemmas,
suggest that it is important in this analysis to decode the implicit opposi-
tions in cultural choice. Thus, when evaluating the link between opera-
tional approach and culture, one is able to predict whether certain values
that we would like to put forward to implement the operational approach
conflicts with existing values and assumptions, and thus arouse significant
resistance. Finally, some authors advocate the use of the audit, based on
questionnaires based on pre-established dimensions.
This deductive approach, which is faster and cheaper, to measure the
perceptions of members of the organization on certain issues identified by
specialists. Thus, in the case of AT&T, this approach was used to explore
perceptions of the members of the organization toward change, including
new values that management wanted to put forward. However, this type
of survey, though it has its usefulness, does not help to understand why
people have developed these perceptions or the meaning they give to what
they experience in the organization. Moreover, it does not expose subcul-
tures that exist within the organization and can play an important role in
the operational approach. This approach was used to explore perceptions
of the members of the organization toward change, including new values
that management wanted to put forward.
In conclusion, it is clear that culture is an important dimension of
applied management. The analysis of cultural dynamics is to better under-
stand the interaction between organizational culture and subcultures and
their compatibility with the operational approach. The balance of manage-
ment between dominant culture and subcultures dynamic is important
182 Applied Managing for Entrepreneurship

for organizational performance. A dominant culture is necessary to give

coherence to the operational activities, but the presence of dynamic subcul-
tures promotes strategic flexibility. In the case of the implementation of a
new operational approach, leaders can wind rely on the most compatible
subcultures with their new intentional operational approach. For example,
to commercial turn in some state companies, CEOs were based, among
others, the groups of farms, who valued the service to subscribers and had
a long history of domination equipment group, which itself, focused on the
construction of dams.
Moreover, if we allow subcultures to express themselves, they intro-
duce in the organization of different perspectives that can contribute to
emerging way to strategic renewal. Thus, the Notre-Dame Hospital has
become a leader in palliative care, both in terms of research and in terms
of training, through professionals (doctors and nurses) who managed to
change attitudes and develop palliative care in a hospital environment
dedicated primarily to curative care. Leaders must always be aware that
the development of a coherent culture and its coexistence with different
organizational subcultures pose significant management challenges, which
require the presence of an enlightened leadership. This leadership can be
exercised in different ways, as we shall see in the next section.
The organizational culture phenomenon that we looked up to now
is both a tool to be taken into account in the implementation of the
operational approach and an environment affecting the strategic action in
everyday life. This culture is always the fruit of a long maturation process.
Easily we cannot forge it and can never be changed easily and quickly.
It is a different leadership. The literature in management and operational
approach contains many examples of companies whose rapid development
is linked to the arrival of leaders who exercised a strong and convincing
leadership. If the role of leadership in operational strategy is not in doubt,
it is quite different from how to design it. First, we define what we mean
by “strategic leadership.”
Second, we show how this leadership can be exercised in companies
and what its importance in achieving the operational approach is. This
view management has often contributed to a devaluation of the role of
manager and an apology for the action of leaders. No leader wants to be
associated with a person concerned about the trivialities of daily life, inca-
pable of intuition and manager with a niggling and technocratic rationality.
And this is understandable! But the life of organizations and study of great
Metadata and the Complexity Mechanisms 183

managers lead us to reject this dichotomous approach to management. A

leader must be both a manager and a leader; he must manage the present
and be able to design the future; he must be concerned about the short term
and an interest in the long term; it must ensure the stability of the company
and be able to change it.
Sometimes it is not a single leader who combines the managerial
skills and those of leader, but different members of a management team.
Then we find within this team complementarity which allows the well to
grow business. The company studied had significant problems when the
technocrats have replaced the artists and artisans in the company's head.
The management team was no longer able to develop a long-term vision of
the company. The operational approach of the latter was no longer defined
by the investment rate of return in the short term. The financial reasoning
was substituted for strategic thinking. In an organization, leadership can
take different forms. Here, we focus on operational leadership, which is
to say to the leadership of the leaders in the operational approach, both in
its formulation and in its implementation, but also in its implementation in
everyday life. Some prefer to speak of visionary leadership.
Leaders are able to have a vision of the organization, but are also
able to communicate that vision and to share with other members of the
organization. They communicate and often use metaphors, analogies and
symbols to explain their vision and make it understandable to the rest of
the organization. This same process is described as leaders who have two
important roles: they have to “make sense” and they must be sense giving.
The operational leadership is often associated with major changes, but it
would be wrong to believe that it is only important when an organization
has to make such changes. Strategic leadership is an important asset for
the operational approach, whatever the adopted operational approach, and
leaders must be able to exercise it.
The leader must be both the architect of the reason, the designer of the
operational approach, and creative context. These are three great ways to
exercise operational leadership. As an architect of the rationale, the leader
cares about the values and principles that guide the organization. The role
of the leader is crucial. It is his duty to transmit values within the organiza-
tion, and it is he who must ensure that these values preside over major
decisions of the organization. When an organization is imbued with strong
values, these values are reasserted and defended in time, and acquires a
strong social recognition, we speak of institution.
184 Applied Managing for Entrepreneurship

By comparing businesses in the same industry, requires that compa-

nies with a pragmatic idealism, that is, to say a few core values and a
concern for economic efficiency, are more efficient and better developed
than those concerned than by profit. The values they have identified
may be of different types: contributions to society with useful products
(Merck), concern for the needs of all stakeholders (Johnson & Johnson),
or development of the best of each employee (Sony). But what matters to
these authors is that leaders ensure that these values are enshrined in the
mission of the company and the shares of the latter are consistent with the
values enshrined in the mission. This concerns both the type of implanted
structure.
But the leader can exercise leadership in a different way, being the
designer of the operational approach. This is the most classic to consider
exercising operational leadership so. At first, the officer working on the
formulation of the operational approach in trying to establish a fit between
opportunities and threats of the business context and the strengths and
weaknesses of the organization, taking into account its own values and
of its social responsibility. To accomplish this daunting task, especially in
complex organizations and large, the officer may be assisted by planners
or industrial economists. But it is the leader, and he alone, has the task of
synthesizing and ultimately to the strategic choices required.
When the operational approach is formulated, the leader then uses
its communication and persuasion skills so that it is implemented with
the least possible distortion by the rest of the organization. It therefore
ensures the implementation of the operational approach formulated. He is
the guardian of the values of the organization and ensures that it stays on
course. It works, when necessary, as a mediator and negotiator between
different individuals and groups. It puts in place structures and reward and
punishment systems to ensure satisfactory implementation of the opera-
tional approach. This is an important way to exercise strategic leadership
with the least possible distortion by the rest of the organization. It therefore
ensures the implementation of the operational approach formulated.
It is the operational approach that has revitalized GE. GE was a
diversified company in several business areas, and leaders understand
more clearly what this business, despite the structure of strategic business
centers and strategic planning process that had been set up. We had to
address this complexity. It was defined corporate operational approach
from three circles (the original business, high-tech activities, and service
Metadata and the Complexity Mechanisms 185

activities) and it stated two clear goals: to be number 1 or number 2 and

have an annual growth rate of 15%. From there, he changed the company
structure and management process, including the planning.
Apple also recognizes the merit of having been able, at different times
in the life of the company, to develop a vision that not only made the
business success but also redefined the rules of the industry. This role of
the operational approach of designers is a very demanding role. It is neces-
sary that the leader has the vision, that is to say the ability to imagine the
future and project the organization in the future. It is also the perception
of the business context and organization is the least distorted possible
through abnormal cognitive biases; by inadequate categorizations; by an
oversimplification of the context of business and organization; by obses-
sions, conditions, or dysfunctional personality profile. Finally, the leader
can exercise strategic leadership of a third way, being the creator of the
context.
It is then no longer defined as being solely responsible for the formula-
tion and implementation of the operational approach. It is defined as one
whose job it is to set up an environment that will enable the participation
of other members of the organization to the operational approach. The case
of the Oticon business is very interesting as it allows us to understand both
the roles of leaders and the role of other shareholders in the organization
of the operational process. The Danish company Oticon is a world leader
in hearing aids. The study of strategic initiatives that have characterized
this business over time brought the two authors to design the operational
approach as a “guided evolution.”
The members of the top management group had five responsibilities’
at hand: (1) to develop and articulate strategic goals qui defined the stra-
tegic intent of the organization; (2) to sponsor strategic initiatives; (3) to
allocate financial capital to strategic initiatives; (4) to recruit people to the
organization; and (5) to take responsibility for the development of one
area of functional expertise and knowledge in the organization. As seen,
executives have an important strategic leadership as their responsibility to
make clear what the operational objective of the company is. They are the
architects of the reason, but they are also the creators of context because it
is their responsibility to set up the context for the development of various
strategic initiatives.
In practice, this is to encourage all people to start a project and assign to
these projects the necessary human and financial resources. The significant
186 Applied Managing for Entrepreneurship

role played by leaders does not drain that of other players in the organiza-
tion. Instead within the leadership set by a firm's strategic intent, celebri-
ties have some leeway in deciding qui external opportunities to pursue and
qui forms and combinations of human and social capital to preserve and
develop. Over time, this freedom may result in the actual decision-making
and resource allocation processes exercising some "stress" on the strategic
intent. This view of operational leadership has several implications. On
the one hand, the leader is no longer considered the only actor involved in
the formulation of the operational approach.
There are other people in the organization who play an important
operational role, and it is up to the leader to ensure that the context allows
these individuals and groups to play their role. It is therefore a much more
collective and participatory approach to operational approach. Moreover,
the operational approach may well not be made before the action, but be
defined during the action. The leader must ensure that the context makes
possible an operational action daily to the various shareholders of the orga-
nization. It is therefore a much more collective and participatory approach
to operational approach. Moreover, the operational approach may well not
be made before the action, but be defined during the action.
Moreover, as the operational approach is not than intentional and that
may emerge during the action, the leader must ensure that the organiza-
tion structures and management modes that enable it to identify these
emerging operational approach. Given that the literature on this third type
of leadership is much more recent and it is based on new approaches both
in organizational theory and operational approach (mainly constructivism
and structuralism), given as the difficulties of the leaders to make only
relevant operational approach in situations of complexity, so it is this third
type of operational leadership that we will devote the following pages. We
will show that leaders who are context creators are relying on some strong
values, by setting up appropriate structures and developing appropriate
management. When people cannot perform some complex tasks, they are
forced to work with others.
What are the limits of people, both cognitive and physical, leading
to define the organization as a system of cooperation? It must be said
that without cooperation, there was no organization. And add that the
role of managers is to get individuals to cooperate for the achievement
of organizational objectives. We must highlight the fact that the coopera-
tion of members of the organization is essential for effective and efficient
Metadata and the Complexity Mechanisms 187

production of goods and services. This is a design very "functional" of

cooperation, which is often valued only at the implementation stage.
However, cooperation in the organization can go beyond that of the
execution and implementation of plans and programs already formulated
by management, and is seen as very important for the operational choices.
Thus, the organization's members cooperate when they perceive that
their contribution is offset by a fee they consider fair. This compensation
may be hard, but we know that the material compensation cannot, by itself,
ensure sustainable and economically viable cooperation. It is therefore
necessary that cooperation is also induced in more intangible mechanisms
“persuasion,” and persuasion is often possible when trust between leaders
and groups in the organization. To establish cooperative relationships in a
context of uncertainty, confidence would be more effective than coercion
or rational calculation that involves a rigid and expensive control system,
and therefore inefficient. The trust would be perceived by the agents as a
modality of action, an arrangement leading to cooperation. Trust acts as
coordination mechanism between agents to remove uncertainty about the
expected results of a relationship.
Leaders must work to build that trust, every day, over time, in different
decisions, operational and strategic, they are taking or are taken by the
other managers of the organization. Trust is often fueled by symbolic
actions of the leaders. When available, the trust allows members of the
organization to work effectively to implement operational practices and
make significant changes. The existence of trust relationships within
organizations can reduce the intensity of political games, but it cannot
evacuate.
The stakeholder community is not a homogenous whole, oriented
toward a common goal. It consists of individuals and groups who may
have divergent or conflicting interests. One has only to think of the inter-
ests of the leaders, which may be different from those of shareholders and
the interests of these two groups in relation to those workers. Think also
to the divergent interests of different professional groups (doctors, nurses,
and paramedics) who work in a hospital; crystallize their interests when
it comes time to discuss strategic orientations to the hospital system but it
cannot evacuate.
Within the community of shareholders, power and influence are
unevenly distributed and are based on assets whose shareholders have.
These assets can be of all kinds: sex, ethnicity, education level, professional
188 Applied Managing for Entrepreneurship

competence, capital, control of a significant uncertainty for the organiza-

tion, recognition outside the organization, place in the hierarchy, privileged
links with the context, etc. Being a white man, having a university degree
(in engineering rather than anthropology), that certain power bases that
give those who hold a place and a privileged role within organizations, and
therefore in the process of decision, optimal decision. It was emphasized
the dynamic nature of power relations in the 100 largest US companies.
The dominance of entrepreneurs and production staff, we went to that of
sales and marketing staff, and finally to the people of finance. With these
competing interests and power unequally distributed within organizations,
so it is not surprising that we are witnessing political games of all kinds.
This is an unavoidable reality of organizations. Very often, in order
to increase their ability to affect the action and impose their vision on
the organization, individuals form coalitions. These coalitions can be very
effective. How dominant coalition could have enough power to change
the mission and goals of an organization and to uphold its own definition
of the future of the organization? When we created some hospitals, they
had a priority to prevention rather devote their resources to the curative
aspect, as was the case in most hospitals at the time. The project should
be based on general practitioners, not medical specialists. He must finally
give emphasis to health care professionals other than doctors and nurses
(psychologists, physiotherapists) as was the case in most of the hospitals
at the time.
This mission contrasted with the traditional mission of a hospital and
was to redistribute power between the various stakeholders of the hospital.
In doing so, she questioned the place, role, and privileges of the specialist
physician. For a subtle coalition with nurses, specialists have managed
in less than 5 years to change the mission of the hospital and to ensure
that their interests would be preserved in the new hospital. Leaders cannot
eliminate the formation of coalitions and political games. But it is up to
managers to monitor these political games so that the organization does
not turn into a political arena.
They must ensure that we do not attend a politicization of the func-
tioning of the organization. They must use their leadership so that the
objectives of the organization are needed to confront specific objectives
of certain individuals, groups, or coalitions. The participation of different
stakeholders of the organization to operational choices cannot be done
if there are structures that enable such participation. The operational
Metadata and the Complexity Mechanisms 189

approach in large companies often emerges projects defined by certain

individuals and groups working on the operational side of the business.
These innovative projects are subsequently supported and defended by
intermediate management levels that are promoting with the management
team. Also, the existence of operational subsystems, dealing with partic-
ular issues (acquisitions, expansion, government relations, etc.) allows
different subgroups of the organization to participate in the determination
of operational measures. The role of leadership at the top is then to define
these operational subsystems and to coordinate their action. This is from
the action of different subgroups, and their coordination, which forms the
corporate operational approach of the company.
It takes a lot to emphasize the establishment of structures that allow
diverse groups of the organization to play a role operational choice. These
can be committees or transverse structures that bring members of the
organization to know, to exchange, and find solutions to operational or
strategic problems. In this sense, project management can be a structure
and a management that enable the participation of different shareholders
in the organization. The establishment of communities of practice can be
another way to promote the participation of individuals in the formation
of the process.
For such a system to work, it is necessary that the structure operation-
ally allow the emergence of innovative projects. It is also entrusted to
middle management an important role in the promotion and defense of
these projects. It should also emphasize the need to set up structures and
management modes that enable them to play that role. Finally, we must
accept that the leaders are the architects of the purpose and the creators
of the context, but they are defined more as the only developers of the
operational approach itself. The management team has to continue to
play the important role of “guardians of values” of the company, to define
“the playing field” to promote a participatory approach and to establish a
context for creative participation.
For instrumentalists, the reality is too complex and rationality leaders
too small to operate in the classical models of strategic analysis and
planning. It is best to deal with the context of business and organization
incrementally, in small steps. This is a “disjointed incrementalism” open to
organized voluntary, or better, it a “logical incrementalism” which is based
on the existence of strategic subsystems we talked, and which attaches
great importance to flexible coordination by leaders guided coordination
190 Applied Managing for Entrepreneurship

objectives. These leaders have a general idea of the direction the company
should take; they evaluate the initiatives of the various subsystems, accept
or refuse incrementally according to events and opportunities. Thus is
forged corporate operational approach of the company.
Operational incremental approach is based on various processes,
including that of learning. Organizations learn, but they do so through
individuals who learn and thereby creating tacit or explicit knowledge.
These individual learning eventually constitutes the memory of the orga-
nization, that is to say, a shared mental model. When we talked about the
culture, we refer to these shared mental models, which can be associated to
directories, the "dominant logic" of the organization or the “organizational
paradigm.” This memory is manifested, among others, in the form of
artifacts, structures, and routines.
The learnings that are members of an organization are of several types.
We are sensitive to functional learning, but much less to strategic learning.
Or, they can be critical to a company to be competitive. In a knowledge
economy, such as that to which we belong, effective management of
learning and knowledge can be the source of a strong and sustainable
competitive advantage. The leaders then have an important role to play in
the establishment of an environment that enables and facilitates strategic
learning by members of the organization. A context for learning is charac-
terized by discipline, overtaking, the trust and support.
But organizations also need to unlearn when their ways to allow them
not to be competitive. Leaders must ensure that they have organizational
practices that allow the questioning of prior learning and promote
“unlearning” when necessary. Unlearning is usually easier when an orga-
nization is in crisis, but it is a situation that organizations seek to avoid.
The challenge of leadership is therefore to ensure that their organization is
able to unlearn, even in periods of relative stability, when the environment
changes or the competition changes.
A longitudinal approach on the evolution of cooperation in strategic
alliances shows that collaborative projects that have successfully passed
through the learning cycles, reassessment and readjustment, while failed
projects were characterized by little learning, by divergent learning, and
an inability to adjust behavior, which led to much frustration. Honda's
operational approach on American soil, illustrates how members of the
organization, who were not at the top of the company, have been instru-
mental in the operational formulation.
Metadata and the Complexity Mechanisms 191

Honda thought displacements 250 cc and 305 cc were the most likely
to be successful in the US, but these models have quickly seen major
failures, related to how to drive the Americans. Until corrective action is
taken at the initiative of field representatives, Honda has decided to sell
50 cc engine capacity that the company did not consider it appropriate for
the US market. The success was resounding. A new operational approach
has therefore emerged from the action, and Honda then used his power
to appropriate this market with distribution networks and a completely
different mode of operation of those it planned out.
So the operational choices that emerge during the action, and then it is
important that the organization has the means to find them. This is the new
role given to planners. In traditional approaches to planning, planners' role
is to analyze the context of business and organization, to synthesize and
make strategic choices that flow from their analysis. We must remember
that, planners revert to what they should always have been, namely
analysts responsible for “operational planning.” They must “work around
operational action.”
They then have to play various roles, including that of “acting as
discoverers of the operational approach.” An important role for planners
willing to think beyond the planning may well is to discover emerging
operational approach in their organization (or in the activities of competing
organizations). After emerging operational approach are discovered, plan-
ners can get a better strategic control over them by assessing their viability
in the same way they do for deliberate operational approach. Planners
must therefore be on the lookout for the operational option that emerges
during the action. This work is important because it allows the operational
approach that emerged slowly to be identified and codified.
Acknowledging the emerging operations is therefore not to eliminate
the position and role of deliberate choice. However, it is to say that the
operational approach in the business can take different paths that planners
must be sensitive if they want to truly help the company to be competitive
and efficient. It is up to leaders to ensure that planners and analysts they
surround themselves have the training and skills to truly play their role.
As we have seen, culture and leadership are two closely related realities.
These are the leaders who transmit values within the organization and
ensure their protection. Culture and leadership are therefore very important
elements for understanding the behavior of an organization and business
processes that take place there. Competitive advantage is often due to the
192 Applied Managing for Entrepreneurship

particular ability to converge and work together. He comes from a general

willingness to cooperate on the part of individuals, each bringing a unique
and creative contribution. Leaders can allow the organization to shape the
organizational culture that competitors will struggle to replicate.
CHAPTER 15

Optimizing Enterprises Managerial

Innovation

Concerning the reasons for the dominance of some companies in their

respective industries, it is important to note that the development of
these firms had nothing to do with the invisible hand of the market, but
everything to do with the visible hand of the management. They are firms
that have been able to solve the new problems posed by managing the
incredible growth of networks of production and distribution that have
become more complex and difficult to manage. Managerial innovation,
rather than products or finances, is critical to business success in a given
market (Chandler, 1986). Whereas, the activities of single unit of tradi-
tional companies were monitored and coordinated by market mechanisms,
which produced and distributed the units.
Within a modern business enterprise are monitored and coordinated
by middle managers. Top managers, in addition to evaluating and coor-
dinating the work of middle managers, took the place of the market in
allocating resources for future production and distribution. In order to
carry out functions’ thesis, the managers had to invent new practices
and procedures which, in time, became standard operating methods in
managing the generation and distribution.
As more sophisticated technology developed and markets expanded,
administrative coordination replaced market coordination in an increas-
ingly larger portion of the economy. By the middle of the 20th century, the
salaried managers of a relatively small number of broad mass producing,
wide mass retailing, and broad mass transporting enterprises coordinated
the current flow of goods through the processes of generation and distri-
bution and allocated the resources to be used for future production and
distribution in major sectors of the American economy.
By then, the revolution in business had begun. For instance, the history
of Standard Oil of New Jersey showed how the multiplication of activities
194 Applied Managing for Entrepreneurship

led to difficulties increasingly large that required original adaptations to

the functioning of the organization. In particular, to survive the multiple
crises resulting from the growth, the company first had to focus on central-
ization facilitated by the functional structure, to prevent the dispersion and
to increase efficiency.
However, centralization, that provided more efficiency in the begin-
ning, became a problem later, when the activities were so numerous and
diverse that the local initiative was needed. This then gave way to a major
decentralization made possible through a decision structure by product
or project. In the case of Standard Oil, the division approach was then
accompanied by numerous innovations, including the creation of several
committees’ side to facilitate coordination. Such operation left room for
the initiative of entrepreneurs.
The reorganization of Jersey had followed the operational action. But,
the reaction was slower, more hesitant, and less decisive than General
Motors (GM). This difference is partly due to the fact that Jersey had the
most difficult problems. Jersey was both a centralized group, with func-
tional departments, such as DuPont, and an association with no specific
links, and ultra-decentralized, such as GM before the reorganization.
Further, if it were to create operating divisions like DuPont, and general
management like GM, then both had to be created at the Jersey, and
revised, in addition to the organization of certain functional departments.
In order to effect these reforms, Jersey had (in addition) to get rid of many
of strong established (toxic to business) corporate culture. The ''explosives
company" was less instrumental in this success. On the other hand, Pierre
du Pont was the great architect of this success. It should be noted that
the principle of management by committee and a tendency to neglect
organizational problems were part of this corporate culture that had to be
gotten rid of.
Teagle and his staff waited long to upset these traditions and to adapt
the structures to the operational action. We must attribute this shift to the
personality, training, and activities of the leaders of Jersey. Except Sadler,
Howard, and perhaps Clark, they thought little in terms of organization.
They ran daily, and neglected the long-term problems, preferring action to
analysis. That was why the reorganization of Jersey was made overnight
without following a predetermined plan. It, by cons, adding a few other
oil companies, if it were, addressed the organizational problems in a more
rational way than Jersey. Standard Oil was a unique company because it
Optimizing Enterprises Managerial Innovation 195

was composed of a multitude of shady entrepreneurs, concerned about their

independence, who had at heart the success of their part of the business and
at the same time had the desire to maintain the integrity of the whole.
Decentralization could, in this case, be seen as natural, since the
company was in fact only an association of its constituent entrepreneurs.
Moreover, when asked to Rockefeller, how he explained his success, he
replied with a terse formula that showed the importance of all these entre-
preneurs they managed because they were able to share.
In fact, this profit sharing is especially accompanied by a division of
responsibilities, which left a lot of initiative to sectoral or local officials.
But, more importantly, it facilitated the company's management. It had
become so large and diversified that the leaders at the summit could not
understand enough to act wisely. The decision had to be local, with a
minimum of overall coordination. This arrangement was simplified within
the overall management of the company so that reasonable decisions, if
not perfect, could be taken. This is the first reaction one should have with
regard to the complexity: simplify to function. In this regard, the history
of Standard Oil is not unique.
With the proliferation of activities, we must recognize that the difficul-
ties of management have gradually increased today. Producers of food,
medicine, and other brand of products in packaging, manufacturers of
electrical and electronic equipment, and all kinds of engineering compa-
nies showed the ability to use their internal capabilities in order to outper-
form the competition by penetrating the markets of their related products.
However, the same success of these growth strategies, facilitated by the
multidivisional structure, created new challenges. The rapid expansion in
branches in distant relationship with that of the company, or even unrelated
to it, exerted enormous pressure on the multidivisional structure. It led to
a breakdown in communication between the managers of the central staff
and operational senior divisions.
This dysfunction had two causes. First, leaders of the headquarters
often had little knowledge of the diverse technical processes and markets
of the many companies they had bought or they had little experience. Then,
the acquisition of more divisions simply created an overload for decision-
making at headquarters. Before World War II, the staffs of large diversified
firms and multinationals rarely managed more than 10 divisions, and only
the giant firms were managing about 25. In 1969, there were 40 companies
that administered many divisions and some even more.
196 Applied Managing for Entrepreneurship

Senior executives from headquarters, unlike their predecessors, did not

have the time required to establish and maintain personal contacts with
the heads of the divisions. They had no more detailed product experi-
ence, which was needed to evaluate proposals as operational managers
to monitor their performance. Overloading was not the result of any lack
of information, but the quality of information and the ability of the most
senior leaders that needed evaluation. Indeed, they were beginning to lose
the skills needed to maintain a unified company. Note that in this case, the
whole is more than the sum of its parts. The complexity of the situation
was just that the executive action capability was reduced significantly.
Without getting into technical definitions, we will retain that a situation
is complex when: activities and technologies are so numerous that leaders
can all understand, but, in general, they have a limited understanding of the
resulting system; power is shared and dispersed so that these leaders have
little constructive power to bring the organization in the desired direction.
The question that arises from this situation is this: how can we run a
business when, simultaneously, it is not clear what is going on and we
have not all the required power to act? Here, we will concern with some
tools that are useful to simplify the task of the leader, including decision-
making for resource allocation. The first part will be devoted to methods
of analysis interested in the content of decisions. The second part will
address the process by which decisions are made and how these processes
can be modified to get the desired results. We are concerned here only
with methods that simplify the problems of decisions faced by executives
in large complex organizations. Essentially, these problems are related to
the distribution of resources among the different activities of the organiza-
tion. Traditionally, the decision of resource allocation was dominated by
investment appraisal procedures recommended in the financial analysis
textbooks. These can be summarized as follows:

• assess the flow of funds, especially funds for expenditure necessary

to achieve the envisaged investments, and cash inflows that the
investment is supposed to result in the future;
• calculate the present value of inflows and outflows, using as
discount rate the rate of return required of the company by the
market (Christmas, 1989); make the balance between the updated
inputs (positive) and outputs (negative); the result is the net present
value of the proposed investment;
Optimizing Enterprises Managerial Innovation 197

• choose investments that produce the highest net present value or

profitability of the investment (ratio of net present value and the
total capital expenditure) the highest.

This type of assessment, which still dominates the investment proce-

dures of firms, is very sensitive to the quality of projections of future
results, but it does not make an informed judgment on these projections.
Companies like GE were then forced to maintain a large number of skilled
employees at headquarters to monitor the quality of evaluations by the
operational divisions. More importantly, these methods do not allow
to understand how the competitive position of the activities, which the
company was subjected to, would be affected by the investment concerned.
This led the consulting firm McKinsey to develop a product portfolio
model that met the needs of General Electric (GE). Most of the major
operational management consulting firms have subsequently created their
own version of this model. Items in this section supplement the general
presentation of portfolio analysis, covering the operational choices. What
determines the complexity lies precisely in the diversity of activities. But,
the activities are not always easy to distinguish each other. The defini-
tion of the activities is in itself an operational decision. Thus, the railway
companies had missed a rare opportunity to dominate the market for mass
transportation of the 20th century, notably by road and air, defining them-
selves not as goods and passenger transport companies, but as the “rail
transport companies.”
This narrow definition caused the decline of these companies throughout
this century. The reverse is also true. It can be defined so broadly that we
may not be able to excel in all activities that implies. Thus, no company
would be defined today as “Computer Company” because it does not want
to say much, given the large number of possible activities in this sector.
Defining the strategic activities is then a key step in the operational
approach, when in complex situation. In general, a strategic activity can
be defined as an activity (or a set of product-market couples) fairly autono-
mous, for which we can define a strategy. This implies that we can clearly
identify the competitors, and the resources used (equipment, staff, etc.)
can be clearly separated from other activities. Many rules and guidelines
have been proposed to facilitate this, what is generally called “strategic
segmentation.” Recall that the model BCG (Boston Consulting Group)
198 Applied Managing for Entrepreneurship

focuses on strengths, in terms of “market position” and “attraction market,”

the product portfolio, markets or strategic activities of a company.
The key to the model is the relationship between the net cash flow (cash
flow) of strategic activity and its characteristics in terms of market share
or market growth. The goal is to acquire the portfolio that will produce the
cash flow, which becomes higher and more stable over time, taking into
account the patterns of each of the activities in this field. Using the model
portfolio of activities, the manager then aims to maximize the strengths of
the company, by balancing the production and use of its funds.
The central proposal indicates that in most competitive situations,
there is a strong relationship between relative market share and market
growth on the one hand, and the characteristics of the production and
use of funds for operational activities, on the other hand. Thus, when a
company makes, for a given activity, a strategy that allows an increase in
the volume of business faster than its competitors cost advantages result.
This cost-volume of business is justified by what is called the experience
curve.
The BCG model describes the experience curve as a predictable
relationship between the unit cost and the cumulative production volume.
Building on previous work, made especially by the Army, US Air, and the
learning curve in terms of production, BCG proposed that the learning
effect extends to all the factors involved in value added, such as capital,
labor, and fixed costs. The reasons for applying the experience curve are
not known precisely, but several outcomes are mentioned, including:
improving the efficiency of the workforce; the effects of improving
methods and the introduction of new production processes; new designs
and improvements in product design that allow saving raw materials;
improved manufacturing efficiency or the use of less expensive resources;
the effects of possible standardization of the product.
The curves of experiments are often presented on a graph where the
x-axis usually represents the cumulative production volume, while the
unit cost is represented on the ordinate. Because of the experience curve,
the competitor who has the share of higher relative market activity (or
product) is the one that has the most important cumulative volume and,
therefore, the lowest unit cost. He thus generates the highest margin for a
given market price. If the production fund is clearly related to the experi-
ence, and therefore the relative market share, use of funds, particularly
for investment, of course depends on market growth. Maintaining or
Optimizing Enterprises Managerial Innovation 199

increasing market share in a growing market creates capital requirements

that are even greater than the growth rate and thus the gains in market
share referred are high. The dynamic between the production and the use
of funds permits the classification of the activities to facilitate strategic
decision-making, among others and also to facilitate the allocation of
resources among different strategic activities.
When an activity has a strong relative market share, thus generating
a lot of funds, and in a growing market, thus uses a lot of funds, we have
an ideal situation. Indeed, not only we have the opportunities for growth,
but also we have the resources to exploit them. Activity in this situation is
called “star.”
When an activity has a strong relative market share, thus generating
a lot of money, and is in a low growth market, we do not use a lot of
money, it becomes a net capital provider that become available to other
uses. Activity in this situation is often called “cash cow.”
When an activity has a low relative market share, that does not generate
much money, and is in a strong growth market, thus requiring much capital,
if only to keep that, it is in a delicate situation. It can only progress if we
decide to invest money there, sometimes in large quantities. Activity in
this situation is often called “question mark.”
Finally, when a strategic activity has a small market share in a low
growth market, we are facing a situation that people at BCG see as prob-
lematic and why they tend to suggest to abandon this activity. Activity
in this situation was generally called “lame duck,” which is unfortunate,
because it would be more accurate to say that these situations, on a closer
look, probably have to redefine their position or make an adjustment. The
divestment should be considered only after a more detailed analysis.
It is desirable to take the funds produced by the cows to invest in the
most promising question marks to make them stars, which, over time,
become cash cows. A balanced portfolio should then include activities in
the three boxes “virtuous,” the box of “lame ducks” to be empty. When
McKinsey made the diagnosis of GE, its consultants had recommended
a similar portfolio management to that of BCG. However, GE executives
were uncomfortable with the quantitative nature of the decisions implied
in that model. They preferred among others to follow more sophisticated
judgments about the competitive position of the business, rather than
relying on the relative market share; they preferred also to think more
deeply about the attractiveness of the market, rather than considering
200 Applied Managing for Entrepreneurship

only the market growth rate. However, in order to perform a systematic

approach, they decided that these decisions would be guided by a set of
dimensions.
The competitive position and the attractiveness of the market for a
given activity are then represented, as in the model of BCG in a matrix
diagram. The recommendations for allocating resources resemble those
of BCG, with a classification of activities along the selected dimensions.
What then of the benchmarking model? The Marketing Science Institute
has developed a database and a methodology that helps to clarify the
competitive position of business as described in the model portfolio.
The methodology, called Profit Impact of Market Strategy (PIMS),
compares the performance of a given activity to those of some 2700 units
of the database, replacing the data on this activity in one of the derived
regression equations empirically from bank data. PIMS thus produce four
types of books, by substituting the data about this activity in one of the
derived regression equations empirically from the data bank:

(1) a book of “Par,” indicating how are the return on investment (ROI)
and the net cash flow (cash flow, or FM) compared to RCI FM and
similar activities;
(2) a book of “strategic sensitivity” by suggesting scenarios how ROI
and FM can change if we change the characteristics of the model
variables;
(3) a book of “optimum strategy,” which aims to determine the
combined decisions that maximize ROI and FM;
(4) a book “Lim,” which allows a selective combination of the results
of Par and strategic sensitivity.

The model is based on mathematical equations that are supposed to

explain over 80% of the variability in profitability and net cash flow. The
variables can be grouped into five main groups:

(1) the characteristics of the business context, including the growth

rates in the short and long term, inflation of prices and costs,
frequency of purchase, the number and size of users and buyers;
(2) the competitive position of the business, including the part of the
market served, the relative share, the relative quality of products,
price, the marketing effort and activity of new products;
Optimizing Enterprises Managerial Innovation 201

(3) the structure of the production process, including capital intensity,

the degree of vertical integration, capacity utilization, productivity,
equipment, and persons;
(4) discretionary budget allocations, including budgets for research
and development and marketing budgets;
(5) strategic actions, including changing patterns in the mentioned
controllable variables.

PIMS uses two types of regression, one to 37 variables for the predic-
tion of RCI and the other 18 variables for the prediction of FM. The
main feature of PIMS is that it can replace many subjective assessments
of the McKinsey-GE model derived by feedback of empirical data. Like
most, important strategic variables, that may affect the performance,
were introduced in the PIMS model; the differences between this and the
observed performance can be attributed to non-strategic variables such as
operational management.
Models such as BCG and PIMS, and those derived, have been designed
to streamline decision-making when the complexity is too high and is
testing the cognitive abilities of leaders, especially their ability to under-
stand organizational phenomena and act effectively. The simplification
proposed in the product portfolio model is actually a simplification of
the strategic analysis. Instead of forcing the leaders to gain knowledge
of a considerable amount of information on the strategic situation of each
activity before taking a decision, the model digests this information: first,
by reducing the two parts of the strategic formulation or internal analysis
and external analysis with dimensions that can be examined and evaluated
in a systematic way by collaborators; second, by offering “standardized”
decisions to maintain portfolio balance.
Thus, the internal analysis is replaced by the relative market share in
the model of BCG, or clearly explained in other dimensions’ replacement
models. Similarly, the external analysis is reduced to the market growth or
dimensions that can facilitate the systematic assessment of the nature of
the context. The model then suggests decisions that are based on logic. As
leaders are in control of financial resources, we suggest they divide so that
the portfolio of strategic activities is balanced. They must therefore ensure
that the company's activities include producing activities funds today (the
cows), that is, the dominant activities in their fast growing market, and
generating funds for the future.
202 Applied Managing for Entrepreneurship

The leader only has to confirm the result of the analysis by affixing
his seal to a decision after the technical work. It must also ensure that the
portfolio is maintained in a state of dynamic equilibrium, that is to say,
anticipate problems that could jeopardize the balance or, when the balance
is not achieved, take decisions to achieve this. Thus, for the company
Harlequin, a leading global public love novels publisher, his biggest
strategic problem in the 1980s was to find activities that could gradually
replace the company's successful activities. Over a period of about ten
years, and despite several acquisitions, the results were rather unfortunate:
it has hardly managed to do it. Simplifying the task of the leader resulting
from portfolio model is significant, which explains the popularity that this
instrument has experienced in media consulting strategy.
The model PIMS also proved outstanding as a complement to the port-
folio model. It allows to document the competitive position of the busi-
ness, and thus makes it a more convincing classification resulting in the
model. Running a large complex organization provides a return amount to
manage the portfolio of activities it carries out.
In terms of disadvantages, it must be said that most of the problems
come from the same power of the model and the comfort it provides to
decision makers. The analysis is so convincing that the leaders feel that
the results will follow. This often results in decisions based on stereotyped
and dangerous behavior. First, the terminology itself can be a problem for
the company's management. Indeed, the classification generates behaviors
that tend to confirm the correctness of the chosen term. Thus, the activities
staff who have been classified as “stars” will have behaviors that require
compliance related to this status. Similarly, the staff of classified activities
“lame ducks” will be demobilized and thus confirm the “prophecy.”
Moreover, leaders tend not to use their judgment and also do not
encourage the judgment of their employees. The result of the analysis can
become a kind of dogma that everyone will strive to meet. The model then
becomes a kind of intellectual magic that can repel leaders of the reality
of business management. Like children before powerful new toys, they
forget that the model is only a mechanism simplification of reality.
The model simplifies life, to understand it better, but it does not elimi-
nate it. Moreover, the model can forget assumptions that are underlying
the analysis. Thus, the first big bet guess is the strategic segmentation,
and so the current definition of strategic activities seems adequate and
can produce a competitive advantage. Nothing is less certain, because
Optimizing Enterprises Managerial Innovation 203

the validity of segmentation is influenced by the actions of competitors

and customer behavior, which are constantly changing. So vigilance at
all times is required to ensure that, for a work on a sufficiently credible
representation of reality, the assumptions are confirmed by reality elements
what we have access.
Finally, all decisions are made based on projections of future behavior
of markets and important players. These projections are often specula-
tion, because the future is still very difficult to predict. Moreover, if we
take into account that the political issues within the organization are
significant, access to resources by the success or failure of a leader—a
leader receives more resources to manage its business, more is considered
a good manager—and the temptation to disguise or distort reality are also
considerable. Let us take an example. Let us suppose that in a company the
resources are granted only if an activity has the characteristics of profit or
growth (or both) defined. Assume also that by slightly modifying the data,
a strategic business leader can meet these requirements. As he knows that
the uncertainty is large, he may decide to “cure the Don-born” to meet the
requirements. This will gain him some time to keep intact his chances for
personal success in the organization.
Thus, despite the usefulness of the analysis models mentioned the
difficulties they cause have led to a take closer look at how companies
are doing to cope with these difficulties. It was then noted the importance
of the process by which the efforts of members of the organization are
managed in complex situations. We had a close look at the process by
which decisions were also taken. Decision-making in complex systems is
so elusive that we cannot admit that it is incremental and therefore “less
than perfect” when compared to the traditional rational model require-
ments. It has been proposed including three perspectives or models—
rational models, organizational and political—to show how the decision
meant not only logical analytical choices but also had to take into account
problems of the operation of devices that were used to achieve the policies,
and finally the preferences and actions of key individuals participating
in decision-making. Finally, it was shown how, specifically, the rational
models, organizational and policy combined to explain the decisions and
actions in a situation of great complexity.
To simplify, we can say that decision-making in a large complex orga-
nization assumed a kind of “vertical specialization” of the management
task as strategic action-related ideas can only come from people who are
204 Applied Managing for Entrepreneurship

in touch with the realities of the environment and the organization. Their
knowledge of the community and the environment allows them to make a
strategic analysis. Their task is essentially strategic. The people at the top
really have no way to assess the validity of the proposals made to them.
They can neither redo the studies nor evaluate without devoting so much
time and energy to this and by that time the entire organization can be
paralyzed. They can then only say yes or no to what is proposed. They do
this with the help of middle managers, who know better the ground reali-
ties, and better managers of the land requirements of the summit. These
managers then make a task of translation and reconciliation between
levels, a task whose characteristics are essentially interpersonal.
The people at the top, however, are the guardians of the rules. Not
only can they identify key persons of “strategic” levels and “intermediate”
mentioned above, but they can also change the structural arrangements,
including rewards and punishments, so as to encourage desired behaviors,
including behaviors of managers at the operational action. To do this, they
need the help of middle managers, including their presence with strategic
managers, and their understanding of cause and effect in management.
Middle managers then have a decisive role to play in the system. How can
such a set function properly? Why do not we have the same shortcomings
as those that have been mentioned in the discussion of the portfolio model?
The first studies showed that the management of such a system requires
monitoring and constant adjustments. The leaders at the summit should run
their business by changing the rules of the game bit by bit, with the help of
middle managers. They have the interest to cooperate better, because their
credibility and their future in the organization depend on it.
Indeed, if the performance of a middle manager is good, that is to say,
more advice and projects supported were wise, and there was more influ-
ence on the decision at the summit, the rewards will be great. To use a
North American metaphor, it seems that, as a baseball player, he is judged
on his “batting average.” So try to choose the best projects and make the
best decisions, from the perspective of the organization as a whole. Simi-
larly, executives at the strategic level in their interest do propose, at the
intermediate level, the decisions that will enhance their credibility with it.
Again, the batting average is important. We do not generally seek to play
games that are artificial to deceive the organization.
Thus, the system is constructed to reduce the risk of dysfunctional
political games for the whole organization. Talented intermediate leaders
Optimizing Enterprises Managerial Innovation 205

are to precisely recognize the proposals that will strengthen the ability of
the organization to survive long term. It is at their level that the management
of the business portfolio can be achieved. The talent of the top leaders is
to have a sufficient understanding of the functioning of the organization to
build and constantly adapt the structures and rules of the game to produce
the most favorable behavior for the survival of the organization.
The rational or strategic model dominates at the operational level, that
of the definition of the decision. The organizational model, concerned
about the nature and operation of devices, dominates the institutional
level, that of context management. The political model, or interpersonal,
dominates the intermediate level, the management of the pulse (which
allows a decision to be brought to the attention of leaders who can say yes
or no). Managing a complex organization appears as managing managers
that allow the organization to make the best decisions for the survival of
the overall organization in the long term. Thus, the complexity goes from
the normal management of people and their actions (the management) to
leaders involved in all phases of the decision.
Managing a complex organization is no longer about managing all
decisions throughout the organization. It is mainly about managing the
leaders who take decisions of a strategic nature, that is to say, the choice of
areas and navigation in each of these areas, with the help of intermediaries’
leaders to make this feasible task. Managing complex situation requires
first and foremost that makes life easier for those who have the responsi-
bility to lead the organization. In these cases, the operational action, that
is to say the ability to integrate the operations of the entire organization,
requires the development of decision-making models which enable better
appreciation and better control of the relationship of cause and effect, and
which better advise the members of the organization the directions that
senior management values.
Managing complex situations means therefore to deal with cognitive
limits imposed to the leaders and all those who contribute to “build”
operational activities of the organization. There are two great ways to meet
these limits: (1) by developing “content models” that suggest specific deci-
sions—the portfolio model is one example; and (2) by developing “process
models” descriptive of the operation of the system without suggesting the
decisions, that reveal enough about the mechanisms by which the overall
behavior is shaped, so that the leaders can design the necessary decisions.
206 Applied Managing for Entrepreneurship

Both models are useful, but higher the complexity, the greater the
models feel simplistic and inadequate. It is then necessary to turn to the
process models that are often more rudimentary. The great problem of
content models lies in the fact that the behavior of the organization in
complex situation is less linear and that there are more decisions that are
generally enough to be applicable to situations anew. Experimentation is
the crux of the complexity of situation. When examining the history of
large complex organizations like GE and Canon, and the actions of their
leaders, one is struck by the originality of their approach. One is also struck
by their willingness to take head on the unique problems they face and the
unique solutions they adopt. To facilitate experimentation and learning,
we must focus on the construction of the system and its constant adapta-
tion. That is what the process models do. They focus on understanding the
functioning of the organization and what influences their operation. They
provide the tools, without proposing a specific solution. From this point of
view, they seem to be difficult to use with managers who are pressurized or
frustrated by the hardships of daily life and experimentation managers, but
they are unfortunately irreplaceable in complex situations. Process models
show the importance of management to the success of organizations. They
also reveal the importance of managers. If they do not want to play their
role, because management is too taxing, it is surely time to replace them.
CHAPTER 16

Optimization of Business Diversification

Diversification is a common phenomenon in companies. Many reasons

militate in its favor. Diversification occurs naturally in the context of
growing a business. For instance, DuPont has become a big chemical
company that we know today by gradually building on its core activities
that were the manufacturing and marketing of explosives and, later on, by
moving away from its core products. With the start of the First World War,
the small explosives company had taken a considerable scale, and one of
the first problems to be solved was the disposal of the by-products because
there were no viable customers. This was termed as aromatic chemicals
(benzene, toluene, etc.), that is to say products which were the foundations
of what we today know as petrochemicals.
As the DuPont Company had a lot of additional resources, such as
talented managers, scientists, highly experienced engineers, and surplus
funds, it assigned its people to the evaluate these by-products, thereby
engaging in manufacturing dyes, synthetic leather, nylon, etc., and thus,
it began a process that would make this business into a large chemical
industry company. In general, diversification is often stimulated by the
presence of excess resources. The desire to use these resources effectively
pushes the company in directions that are more or less different from those
that exist. These balanced efforts in the use of resources are an important
reason why companies are diversifying their activities. Diversification can
also be stimulated by many other factors, such as the occurrence of unex-
pected opportunities or threats, the dynamics of competition, the pressure
of the stock market or government pressure, etc.
Diversification is a measure of very common growth.
As companies inevitably reach the limits of growth due to the limita-
tions of their industry, they should attempt to extend their activities also
in other industries, that is either closely connected or sometimes unrelated
manner or “conglomerate.” But diversification raises the same issues of
208 Applied Managing for Entrepreneurship

creating value growth in the home business industry. Diversification is

justified only when there is value creation for partners. Does that mean
creating value for partners? First, we must identify the relevant partners:
usually one prominently includes shareholders, but we consider that the
creation of value for shareholders is sustainable only if other key partners,
such as employees, suppliers, or sometimes customers, find their accounts
in the planned diversification, making the calculation value created for
shareholders, who are calculating residual value, where the interests of all
other key partners have been reasonably addressed.
Diversification can be through acquisition or internal development
diversification, although internal development is carried out using the
internal resources of the company as a basis for new activities. This
kind of diversification requires an explicit strategy, dynamic and fruitful
research and development activities, an organizational capacity to protect
and develop new activities, and a lot of time.
Companies like 3M are typical companies that have been able to
diversify through internal development. GE and DuPont were also precur-
sors for a long time in this field. One of the few studies on this subject,
conducted by Biggadike (1979), covering the practices of 40 major US
companies, showed that the average time for a new activity to produce
a positive rate of return of investment is eight years. Nowadays, it is
likely that we can reduce this time, but is possible only when leaders find
a formula to manage the complexity associated with the proliferation of
activities. Japanese companies, Sony and Canon in particular, showed that
it was possible. But, for many others, this exercise remains a cross. In
contrast, diversification through mergers and acquisitions may take only a
few months to be profitable. For this reason, diversification often raises the
possibility of mergers and acquisitions.
Sometimes this type of diversification is being planned, as is often the
case in large traditional companies, but this is not the case of acquisition.
In acquisition, candidates present themselves without warning, the market
conditions become favorable or unfavorable without warning, competing
offers completely upset the logic of the acquisition and exert more pres-
sure on policymakers. Therefore, taking the opportunity with determina-
tion can be viewed as essential, because diversification often raises the
possibility of mergers and acquisitions.
Diversification through mergers and acquisitions can save time in a busi-
ness or it can reduce the cost of entry into a new industry. Diversification
Optimization of Business Diversification 209

by internal development cannot be the solution when the situation is stable,

and there is no way in the replacement market, which provides quick access
to the desired growth in the desired areas. Economists have often treated
this subject, namely “make or buy” as an optimization problem in the use
of resources. In this chapter, we rarely unlink mergers and acquisitions of
diversification. Given the considerable activity of mergers and acquisi-
tions in recent years, it is useful to take a fresh look at diversification in
general, and diversification through mergers and acquisitions in particular.
Our goal is to help managers develop a program in this area that ulti-
mately serves the interests of the company and its partners, including those
of its shareholders. Our focus is primarily strategic; however, mergers
and acquisitions are often approached from a purely financial point of
view. We first mention the reasons that lead to diversification. Later, we
will discuss the historical development of mergers and acquisitions as a
phenomenon associated with diversification. Then we discuss the diversi-
fication strategies and the reasons behind diversification through mergers
and acquisitions, including the need to create value.
Finally, why diversify? The word “diversification” is used to mean a lot.
Ralph Cordiner, who was president of General Electric (GE) until 1963,
spoke of “developmental diversification (RD),” “functional diversification”
of “product diversification,” “customer diversification” of “geographical
diversification (international)” and diversification of funding. A restrictive
definition limits this concept to the diversification of products and markets
that we generally consider here. Many reasons underlying the decision to
diversify: the need for growth; the need to balance the use of resources;
the need to acquire new resources or maintain existing ones; competitive
dynamics; the intervention of external powers (regulation, public policy,
business controls, etc.). We describe here the 14 most common reasons,
knowing that leaders are in regular news to justify their actions in the
matter.
The most common reason is that a firm is constantly pushed toward
growth and that its “growth driver” is predictable. It will grow by expanding
its product or current market or it will go toward new products or markets.
These four possibilities can be considered as diversification, except,
perhaps, the growth in current markets using current products, which
could also be defined as a greater penetration into the sector in which the
company already operates. However, as soon as one makes this penetra-
tion through mergers and acquisitions, such as the Royal Bank had done
210 Applied Managing for Entrepreneurship

in acquiring Royal Trust, we find ourselves in markets shades, sometimes

in product nuances that some might consider new, which would justify the
talk of diversification. Ansoff also suggested that proper diversification,
that is to say when moving toward new products and new markets, takes
place in the following situations: when goals cannot be achieved by the
expansion (market penetration, product development or market); when
funds exceed the expansion needs; when the diversification benefit prom-
ises are larger than expansion; when the information does not compare, in
confidence, between the profitability of diversification and the expansion.
Another reason for diversification, which is similar to the previous
one, is the pressure exerted by lower growth in its original area. For
example, Alcan began to diversify its activities in 1980 in the applica-
tions of aluminum because the aluminum demand began to show signs
of slowing. Similarly, in the 1980s and 1990s, beverage companies like
Coca-Cola or Pepsi-Cola began to enter into beverage markets other than
its original products. In general, this situation applies to all companies that
have significant business or even dominant in one area and consider that
this activity has reached a stage of maturity.
Another pressure sometimes comes from research and development
(R&D) efforts. Technological dynamism of a firm and the development of
new products are important for diversification of a company. Thus, Sony is
diversifying into electronic products; DuPont, in chemistry and its appli-
cations; 3M in consumer products; and most multinational pharmaceutical
companies in new applications of their skills. In fact, all documentation
was done to examine the process by which one can boost the creation of
new products and, in doing so, moving “natural” of entre taken out of its
current activities.
Some companies have advantages or underutilized resources such as
the control of a distribution system, and wish them to be more profitable.
This was the case when Gillette introduced in its distribution network
blades, other consumer products, such as complementary products for
shaving, lighters, pens, and even surfboards. Many oil companies have
also developed networks of supermarkets attached to their gasoline
distribution networks. These benefits can also consist of a management
capacity out of the ordinary. General Electric believes that this advantage
has made it successful because it led her to diversify into new high-tech
industries and new services. That is why today, in some sectors, including
GE Capital, the company is conducting multiple acquisitions as it is able
Optimization of Business Diversification 211

to integrate and manage better than other companies. In the 1980s, the
president of Daewoo also used the internal know-how in management
reorganization as leverage to make acquisitions. The company has now
become a powerful conglomerate.
The financial resource is often a cause of diversification. The avail-
ability of surplus funds to needs often led the company to consider
diversification, including mergers and acquisitions. This happened to most
businesses, including the recent unfortunate event of the French company
Vivendi. Vivendi made from the company “LYEA,” had, thanks to the
latter, an important source of funds. This led her to consider diversifica-
tion. The media was considered a chosen field, and thus gradually the
company started in publishing, advertising, television, and, merged with
universal music and cinema.
Sometimes, competitive pressure can lead to unexpected diversifica-
tion. For example, if competitors go to unexpected areas, we tend to copy
them. This is especially true with regard to geographic diversification, but
we also find this in the diversification of products. So when BP began
after the oil crisis, to diversify into other energy sources, it was gradually
followed by Shell, Exxon, and all other multinationals. When the Conti-
nental Can Company began to diversify into products other than metal
cans, all its immediate competitors had followed. Closer to home, in the
late 1990s, Hydro-Q's diversification through acquisitions, particularly
internationally, was also justified by the actions of major North American
competitors.
The actions of competitors can also provoke retaliatory actions that
explain diversification. Thus, in the 1970s, Xerox's interest in electric
typewriters prompted IBM to consider making photocopiers. In consumer
electronics, this type of warfare is constant; Sony, Matsushita, and others
follow by systematically copying. The establishment of US multinationals
in the auto market, before the globalization of it, was often motivated by
the desire to keep distance companies competitors by putting himself in a
favorable position to disrupt their main market.
The globalization of markets and industries has created a new
competitive dynamic where economies of scale and scope are becoming
more spacious. Many major acquisitions, particularly in the automotive,
telecommunications, and the Internet, and at the regional level for many
other sectors (railways, printing, food distribution, etc.) seem to have had
212 Applied Managing for Entrepreneurship

justification for the emergence of new market logic and encompassing

larger spaces.
Globalization is often accompanied by a surprising convergence in many
areas previously considered relatively tight. Thus, in telephony, computer
software was integrated into the conventional switches. This generated so
many risks for companies in both sectors as we saw cross acquisitions of
major companies in the two sectors. Thus, Microsoft acquired a telephone
company, and several telephone companies positioned themselves in the
computer software market.
Some companies are diversifying to avoid takeovers. This happens
mostly to companies that have unused resources, poorly valued by the
stock market, and that could be the envy of “financial sharks” looking for
opportunities to make money quickly.
It also happens that personnel issues are so important that they justify
diversification. In particular, when one wants to attract or retain top talent,
they can be encouraged to go into new and attractive areas. The Japanese
companies have experienced this situation during the recession of the
Japanese economy in the 1980s. Many spin-offs (spin-off), sometimes
stimulated by surplus managers were supported by large companies, as
there have been not only opportunities to keep near them valuable cadres
but also interesting opportunities. In general, many companies think that
to attract and retain world-class managers, we must offer them opportuni-
ties for development that allows diversification.
The desire to reduce the effects of the economic cycle and changes in
net cash flow that can result prompted many companies to design business
portfolios balanced in the matter, which led them to areas of new business.
Bombardier has deliberately built a portfolio of activities that allowed it to
balance inflows and outflows going toward different segments of the aero-
space manufacturing, to different segments of transit, and to the financing.
Government actions, including deregulation, can also stimulate diver-
sification. Thus, in the United States and Canada, changes in banking
laws led all banks to diversify into a range of financial activities (portfolio
management, national and international investment, brokerage, insurance,
financial advice), on the sidelines of the activities of deposits and loans.
The same can be said of the activities of transport companies (rail and
air), which have become more international in scope (and sometimes
much more diversified in terms of products). Canadian National is now
a transportation company that covers all North America. Similarly, the
Optimization of Business Diversification 213

train or RATP30, specialized French company in transportation, provides

consultation and selling, everywhere, on know-how and technology, as
would a consulting firm in the field. In newly industrialized countries, the
government's economic policy has also been an important factor in busi-
ness diversification.
Korean chaebol are the product of government policies of South
Korea. In some countries we have seen deposit boxes and investment.
Finance and investment companies make acquisitions for reasons that are
probably more related to socioeconomic development than the traditional
business logic. The internationalization of Chinese enterprises, especially
in building construction and energy, follows the same logic.
In the United States, antitrust laws have also pushed many companies
that were in low-growth areas to seek growth through acquisitions outside
their area of origin. Thus, Exxon tried, with little success, to diversify by
going to the office systems market. The chemical entre taken also tried to
get out of their traditional markets. This resulted in major interpenetrating
fields of biotechnology, food processing, and pharmaceuticals. Finally,
Microsoft gained control of full repositioning connected with major
diversifications.
All these reasons justify the diversification of logical operations, but
do not overlook some emotional reasons, such as preferences of leaders
and their desire to build great empires, to leave their mark in the industry,
the thrill of the bet, etc. These emotional reasons may accompany the
reasons mentioned above, but they can also play a key role. Governments
also intervene according to a logic that is not that of the business world,
where national or merely partisan interests are involved. The efforts of the
French government to marry companies Gaz de France and Suez is based
on the same logic.
What if we make a history of mergers and acquisitions to better under-
stand this problem? Mergers and acquisitions are a phenomenon almost
as old as businesses themselves. However, systematic surveys of mergers
and acquisitions have started in the US at the end of the 19th century;
in Canada, the data is a little more recent. Salter and Weinhold (1979)
demonstrated that this practice in the United States has manifested cycli-
cally. We have completed the work of these authors in formulating the
proposition that there has been, since 1976, a fourth wave (Christiansen,
1987) which shows that mergers and acquisitions remain at a high level.
214 Applied Managing for Entrepreneurship

The first wave of mergers and acquisitions lasted from 1895 to 1904,
experiencing a peak in 1900. This wave was characterized by Stigler
(1950) as “monopolistic mergers.” Indeed, there have emerged many of
the large companies today, especially the descendants of Standard Oil of
New Jersey, US Steel, GE, United Fruit, Eastman Kodak, American Can,
American Tobacco, US Rubber, DuPont, PPG, International Harvester,
etc. This wave has been driven by the development of the railways, which
opened for the first time the US market as a single market. Economies of
scale were like today globalization, the dominant factor in deciding the
conduct of a merger or acquisition. The end of this wave occurred around
1903–1904 and coincided with a major economic recession. The second
wave, which occurred in the 1920s, began around 1922 and ended in 1929
with the famous stock market crash and global depression that followed,
from 1930 to 1933.
Stigler described the wave as “oligopolistic mergers.” Indeed, this
wave has given rise to strong "number twos", increasing the degree of
concentration in most manufacturing industries. Thus has emerged the
Bethlehem Steel, Allied Chemical, Continental Can, etc. During this wave
have also emerged major holding companies in the fields of manufacturing
and distribution of electricity, gas, and water. This wave has been driven
by the development of highways and automobile, that offered a prom-
ising and viable alternative to rail transport. The third wave began after
the Second World War and lasted till the late 1960s; however, this wave
did not hit the big traditional businesses. The acquiring companies were
generally small or medium sized and were often remote acquisitions of
their home areas. This has led to companies of a particular type called
conglomerates, with operations in unrelated fields.
These acquisitions were clearly associated with the diversification.
This wave has been driven by high technology, and a lot of new companies
who saw the day wore brand.
Thus prospered the likes of Litton companies, Raytheon, Teledyne,
Textron, United Technologies, and Trilon Genstar. Speculation had
reached record highs. Malkiel called this “the Tronics Boom” because
many companies having no value can be easily sold on the market as long
as they had “Tronics” in their name. In 1973, North America experienced
the most severe recession since the depression of the 1930s. Since 1976,
there has been the emergence of a fourth wave marked by different strate-
gies on the part of firms involved. According to Christiansen, they are of
Optimization of Business Diversification 215

three types: growth, focus, and create barriers. Under the influence of a
need for growth (the first type of strategy), there has been consolidation of
new fragmented industries (software, health food, etc.) or the application
of new technologies to older industries (factory automation, computer
use in entre taken as Xerox, for example). The focus (the second type of
strategy) aimed at increasing margins and efficiency (Renault, America
has tried to do that to reach a market size required in the small car sector)
to recover an identity and a position in the market when the diversification
of the previous period had led to diversion (e.g., GE), or to ensure stability
and performance.
The third type of strategy (creating banners) sparked conventional
vertical and horizontal integration, which have achieved economies of scale
or scope or, again, to restore technological leadership that had collapsed
(e.g., DuPont). We can say this wave as “strategic.” It is dominated by
the search for a favorable strategic position and the quasi-revolutionary
influence of information technology in all industries. The movement
of mergers and acquisitions declined in the late 1980s, but it remained
relatively high. In the 1990s and 2000s, a new outbreak of mergers and
acquisitions that we tend to relate to globalization and the revolutionary
effect of the convergence of computing and communications technologies
was known. This new wave seemed to bring us back to a combination of
the desire to achieve economies of scale due to the globalization of many
industries, the desire to refocus on global segments, the desire to protect
major turbulence in some industries and speculation whose dimensions
exceeded those of the 1960s; it is still too early to characterize this new
wave, but we can already say that the number of transactions and the
amounts involved were considerably higher than in the preceding waves.
To a great degree, the M&A market at the dawn of the 21st century
represents a synthesis of the myriad forces impacting business and
the expeditious way managements are dealing with them. The fallout
should include more combinations of giant concurrents, escalating price
thresholds for mega-transactions, increasing incidences of hostile bids
and bids contested, an obsession among corporate survivors to seek first-
mover advantages and concurrents to beat to the punch especially for
the most desirable targets, and, perhaps, less worries about niceties like
pure strategy synergies. It is an overactive decade. The race for the most
favorable position is accompanied by movements, almost like Napoleonic
military, instead of reflection and strategic integrations.
216 Applied Managing for Entrepreneurship

Diversification is itself a business strategy. It is a decision that leads

a company beyond its current activities. This expansion of activities can
be so close and compatible with current activities or be in completely
different areas, not related to current operations. As we have seen in our
historical overview, the waves of mergers and acquisitions have in fact
been dominated by an underlying strategy of diversification.
The first wave, whose zenith was located in 1900, was led by market
control strategy, with a focus on economies of scale and buying competi-
tors. The second wave, that of 1920, was made possible thanks to antitrust
decisions in the United States. It looked like the first, with a focus on the
acquisition of smaller competitors to create companies able to compete
with what remained of the large companies born from the first wave. The
third wave, in the 1960s, has been a wave of conglomerate diversification
outside the territories in which the acquiring firms were. Then, in terms of
the waves of the 1980s and 1990s, the strategy was more explicit and more
diverse, bringing all the possibilities of monopolistic temptation.
Rumelt (1991) constructed a typology widely used today on the strate-
gies of companies in general, and that applies particularly well to strategies
for diversification through mergers and acquisitions. He proposed four
major types of businesses according to the chosen strategy:

(1) Enterprises’ simple activity (single-business company) which, as

the name suggests, are companies with a strategy of focusing on
one activity in one area of activity.
(2) Dominant business activity (dominant-business company), in
which the major field of activity (single activity or vertically
integrated activities) represents 70–95% of sales. General Motors,
Texaco, IBM, Scott Paper, and Alcan were typical businesses in
that class until the early 1980s.
(3) Businesses-related activities (related-business company), which
are diversified by adding activities that are connected in a tangible
way to their strengths and their expertise. In this case, no activity
accounts for over 70% of company sales. DuPont companies, GE,
and General Foods in the United States, Bombardier in Canada,
and BSN or Rhone-Poulenc in France, at the beginning of the
century, are typical of this class.
(4) Companies’ unrelated activities (unrelated-business company),
also called conglomerates, which have diversified without worrying
Optimization of Business Diversification 217

links between activities. No activities will account for over 70% of

sales. Among the representative companies of conglomerates are
the chaebol in Korea, Chinese big family companies, or Taiwanese
Onex Canada, and Vivendi in France.

This categorization is generally well accepted everywhere and in all

disciplines. The links between the new business and core activities are an
essential element in defining the strategy of diversification. These links
also appear in the work of Rumelt (1977), as a tool permit that reliably
predicts business performance. Thus, companies whose diversification
is connected seem to eventually achieve better performance in terms of
profitability, with conglomerates having the least good profitability. By
cons, as you would expect, conglomerates arouse the greatest sales growth
and stock price. These works were carried out on a sample of the wave of
diversification through mergers and acquisitions in the 1960s, and all the
work that has been done since tend to confirm these results. We provide
the support for the curvilinear model; that is, performance increases as
firms shift from single-business strategies related to diversification, and
performance decreases as firms’ aim changes from diversification related
to unrelated diversification. These results are not surprising. The concept
of strategy suggests that the company should not move away from what
it does best. As a result, the most interesting is the strategy of the related
diversification. It generates synergy, that is, real opportunities for value
creation. It assumes that the company is trying to find and make a link
between the new activities and market products in place.
If management skills are critical elements for success, then it is appro-
priate to classify diversification strategies connected using these capabili-
ties as criteria, as we offer further. In contrast, a conglomerate normally
does not seek to exploit existing capabilities. He expects little transfer
of knowledge between activities. Companies that diversify so connected
can be divided into two groups. There are those who go to the market,
functional products that require similar skills to those available, such
as using the same distribution networks, the same facilities or even the
know-how of production, the same marketing skills, etc. This strategy of
diversification can be called additional connected.
The second group of companies is represented by those who are diver-
sifying by adding expertise and functional activities (marketing, distribu-
tion, production, etc.) to their current base. This strategy can be called
218 Applied Managing for Entrepreneurship

connected complement. The pure form of this strategy is vertical integra-

tion, as when a producer of crude oil purchases refineries and gas stations.
The horizontal axis measures the addition of market products, while the
vertical axis measures the addition of functional activities. Mergers and
acquisitions can of course involve both addition of functional activities
and extension for contracts-products, but if the ruling is functional, we talk
about complementary connected diversification, and if the dominant key
is market-products, we speak of additional connected diversification. An
important question is to ask is whether the diversification strategy creates
value.
Creating value involves determining for whom value is created. Without
entering into the debate on the importance of stakeholders, we make a
heuristic assumption that the ultimate target group to meet once every
other group taken into account is represented by shareholders. We talk
about creating value for shareholders. Value creation can come from any
of the strategies outlined by Rumelt. It involves one of the two following
options, or both: (1) increase yields, that is to say, income streams, for
diverse business (after merger or acquisition) beyond what may be achieved
by separate companies (before merger or acquisition); (2) reduce the risk
of diversified business below the risk level to the companies before the
acquisition or merger. This is what we will look at now.
It must be said that a diversification strategy makes sense only if it helps
generate value for the company's shareholders. Value creation in particular
assumes a favorable positioning of the company compared to its competi-
tors and has to maintain this advantage in a sustainable way. Sustained
favorable positioning is generally based (Andrews, 1987; Prahalad and
Hamel, 1990) on quality resources and a balanced and dynamic inner
workings. This should result in a favorable risk-return profile. Salter and
Weinhold (1979) proposed a systematic approach to dealing with the
creation of value. They suggest that reducing risk and accruement returns,
beyond which it enables simple financial diversification portfolio, can be
done through the following actions.
In terms of increased yields, we must say that for companies that are
diversifying by mergers and acquisitions, there are six different ways (see
following pages) to generate returns that exceed those obtained by an
investor diversify his portfolio shares. The first three methods are more
relevant to a related diversification, and the other three are more for an
unrelated or conglomerate diversification. To better appreciate the benefits
Optimization of Business Diversification 219

of diversification, connected or not, it is useful to use models that affect the

operation of entre taken and their evaluation by investors, including policy
templates, portfolio of products and markets, and financial resources.
These models suggest that the more acquisition is related to expertise and
resources of the buyer, greater are the potential profits for shareholders of
the combined company. In particular, the concept of strategy suggests that
the benefits are only generated when there are resource transfer opportuni-
ties or skills between partners of a merger or acquisition.
This is what normally increases the productivity of an investment in
the combined company and therefore creates value for shareholders. This
creative transfer value is what is usually called “synergy.” Concretely, this
manifests itself as follows.
The M&A diversification can increase the productivity of capital when
the particular skills and detailed knowledge of the industry of one of the
partners can be used to strengthen the resources and capabilities of the
other partner (and therefore, help to better take advantage of opportuni-
ties or to better deal with threats that come to him). Thus, the traditional
skills of Bombardier for government relations have been very helpful to
the development of Canadair and later, to all acquisitions and aeronautical
activities of the company. Similarly, Royal Bank hoped at the time of
the acquisition of Royal Trust, crossword benefits in terms of customer
relationships and sharing knowledge In France, the successful merger of
BNP and Paribas in 1999 was based on the same hopes.The investment in
markets that are similar or related to current activities can lead to a reduc-
tion in long-term average costs. These reductions can come from effects of
scale and rationalization of production costs and other managerial activi-
ties. Thus, the acquisition of IG by Transcontinental Group in 1998 was to
put rationalization in marketing, human resources management, financial
management, supply management, and generate economies of substantial
scale, reducing the long-term average costs very significantly. We can say
the same of the BNP Paribas merger or acquisition of Canada Trust by
Toronto-Dominion Bank.
The expansion in the areas of competence can also generate a critical
mass of resources to do better than competitors. When a small business
makes an acquisition or merger in the near field, it can have access to
additional resources (money, staff talent, skills, etc.) which can then be
used to develop skills at or above those of the established competitors.
All the mergers and acquisitions of “the wave of oligopolies,” mentioned
220 Applied Managing for Entrepreneurship

earlier, were intended to do that. The tremendous development of GE

Capital since 1980 enabled this, before the armada of traditional financial
institutions.
One of the most frequently mentioned arguments to talk about the
benefits of unrelated acquisitions is the stabilization of financial flows.
The argument suggests that the diversified company can work in activities
against cyclical, which allows a business to be on top when the other is
hollow with a relatively stable average. This argument is obviously super-
ficial. First, it is difficult to find activities perfectly against cyclical, but,
more importantly, the benefits of stabilizing the flow can be obtained by
the single investor when using the instruments available on the financial
markets. Even if the direct benefits are overstated, some indirect benefits
would be substantial, as the capital increases efficiency, in particular,
through the centralized liquidity management and the management of debt
and debt capacity.
Another direct benefit is the possibility of development of a certain cash
flow, in particular for high growth companies or capital intensive. This
would avoid double taxation (corporate and personal) of the individual
investor, while achieving the same results, if the decisions of the company
and the individual investor are identical or similar. Somehow, by doing
this, “we buy cash” with certain acquisitions. Of course, be careful to the
actual cost of liquidity and their actual availability in time. In connection
with this idea of buying liquidity, there is the idea, more contemporary,
to use surplus cash to maturity activities to support new and promising
activities. These arguments can be summarized as follows.
The diversified company can operate as a bank that takes the funds
generated by units with a surplus and then directs them to those in deficit,
reducing the need to resort to the financial market for working capital
needs. This benefit is intended operational (with reduction of transaction
costs) and has nothing to do with the allocation of resources for investment,
as described them in the presentation of the product portfolio model.
Diversified companies may also, under the portfolio model, use the
resources generated by the units that have net cash flow (cash flow) to
provide high investment funds to units that currently have negative cash
flows or zero, but the prospects are promising. This can improve long-term
profitability of the entire company. This is the same principle of the product
portfolio model. This is a factor even more decisive than the diversified
company, since it acts internally as a market in which it would have inside
Optimization of Business Diversification 221

information not available to the investor in the financial market. It has

access not only to a greater number of investment opportunities but also to
a better appreciation of the costs and benefits that would normally allow it
to make better investment choices. The allocation of corporate resources
process is then more “efficient,” that it cannot be found in the market.
By aggregating the risks of its various activities, the diversified
company can also reduce and achieve a lower cost of debt than can sepa-
rate activities. This also allows it to have more leverage. In general, the
cost of capital decreases and yields increase.
The reduction of risk diversification is closely related to increasing
yields. Indeed, the risk is often an expression of the variability of cash flow
generated. Anything that reduces this variability is seen as a risk reduction.
Thus, in particular, aggregation of risks (risk pooling) allows for this by
reducing both the liquidity requirements and changes in flow. The total
risk of the diversified businesses can thus seem lower. But it is not always
the case.
Indeed, the perception of professional investors risk is also related to
the quality and transparency of information available on a company. The
highly diversified businesses can also be perceived as more risky because
they are less transparent. Furthermore, having more debt, which is a
potential advantage for the company diversified, can also be considered by
investors as more financial risk. Anyway, it is assumed that the diversified
company is often able to provide more stable flow that can help an investor
by diversifying its investment portfolio, thanks to six main actions that we
talked about earlier.
Diversification by M&A creates economic value if the present value
of expected returns is greater than the cost of the acquisition. When the
price of an asset changes, this reflects the need for a reassessment made
by market participants, the size of life, and lead-time of future net cash
flows. It may also reflect a greater ability to predict the characteristics of
the flow in question. If predictability increases (if the variability of flow
decreases), then the risk decreases and the value of the underlying assets
increases. Managers know the value of their assets increases when they
reduce uncertainty, perceived by the market in terms of expected returns.
Salter and Weinhold (1979) suggest that in assessing the creation of valor,
you have to use three models: the strategic model, the model of carrier
sheet, and the risk-return or financial model.
222 Applied Managing for Entrepreneurship

The use of these three models is described by Alain Noël (1987). Each
of these models reflects the need to address the risk and uncertainty of
business, but each model approaches this need differently. The strategic
model focuses mainly on business activity or single units of multi-product
and multi-market companies. This type can be called “operational.” The
risk faced is of two types:

 In terms of management judgment, on the variability of returns of

their business: This judgment is exercised by answering questions
like what factors can negatively impact this business and what are
the chances for them to do?
 In terms of their ability to assess the future financial performance
of the business through the process of budgeting and resource
allocation: This method is essentially a forecasting method based
on the relationship between the budget and actual results. This will
find the activities whose performance is the easiest to predict.

The portfolio model focuses on the management of the product port-

folio and enterprise markets. This management is made at the corporate
level, undertaken by a group of value of the portfolio (VP). Obviously,
it is also interested in flow of funds, but for the entire portfolio. We try
to reduce risk by stabilizing the flow. We then tend to choose a portfolio
that includes activities at different phases of their life cycle, so there are
more mature activities to fund emerging business, both for their daily
functioning (i.e., working capital) and their development (that is to say,
the investments required to achieve a dominant market share).
Doing so reduces the negative perception of the investor in respect
of the risk. The financial model or risk-return adopts the perspective of
a rational investor, knowledgeable and acting in a reasonably efficient
market. The type of analysis is that of the financial market. Risk measures
have been set by sophisticated statistics. But fundamentally, we measure
the volatility of returns of a security to assess the risks. As investors can
diversify the specific risk to a title by building a portfolio equivalent to the
market, analysts consider that the only relevant risk is “market risk” or, if
preferred, the part of the risk of a title that is related to the overall market.
In financial jargon, this is called systematic risk or market risk.
From these risk assessments, we can talk about the value of a business
as its market value. This is the best way to appreciate the worth of an
Optimization of Business Diversification 223

asset or revenue stream. The market value is what an informed and moti-
vated buyer is willing to pay a vendor for a title or an asset. Buyers and
sellers confront their opinions on what the security or asset will generate
as revenue streams and agree on a price that represents a compromise
between those views. The finance studies show, and generally admits, that
the market value of a financial asset can be calculated using the standard
formula of discounting. Of course, the investment or, in this case, the
M&A should only be made if the market value, i.e. the expected value,
exceeds the cost of the investment or the M&A.
These three models are complementary. The risk-return or financial
model suggests paying attention to the relationship between the returns of
an asset and those of the economy as a whole. It suggests that managers
must develop strategies whose aim is to have better control of cash flows
(cash flow) and future returns on their assets. However, the policy templates
and portfolio of market products provide the manager a methodology to
do this.
Leaders who choose to diversify their activities must first decide if they
want to do so connected or not connected, keeping in mind the benchmarks
that have been provided throughout this chapter. They should especially
remember that related diversification, especially through mergers and
acquisitions, should allow some synergy in the use of resources in both
partners. However, the definition of what is the source of links is creative,
and, in a sense, it is a highly strategic decision. People tend to consider as
connected implying similar products or markets, technologies or similar
scientific research or activities that complement the length of the same
trade chain.
Diversifying conglomerate seeks no such links. But management
challenges, particularly on strategic and financial plans, and various
activities such as conglomerate diversification have a chance of success
if the company has recognized those challenges and has surplus manage-
ment talent. We can then say that the appropriate methodology for
making related acquisitions is different from that which is appropriate for
unrelated acquisitions. The first concerns with the creation of value that
assumes that the individual expertise of the partners can be applied to the
problems and possibilities of the other. While in the second, one especially
seeks to improve the risk-return profile of all by making a more efficient
management of funds or assets. However, it is important to use this grid,
inspired by Salter and Weinhold (1979), taking into account the particular
224 Applied Managing for Entrepreneurship

characteristics of each entre taken. Thus, a cash-rich company that expects

steady cash flow over the next five years cannot have the same goals
(therefore cannot fulfill the same way the evaluation grid) as a company
that lacks liquidity and expects significant demands on the matter since its
start of activities.
CHAPTER 17

Optimizing Global Business

The phenomenon of globalization of markets is not new. For modern

enterprises, internationalization of activities is a natural stage of develop-
ment (Chandler, 1977, 1990; Wells, 1976). In the past (Chandler, 1962),
a company like Exxon (formerly Standard Oil of New Jersey) could
consider the oil market other than as global. The strategy of this company,
like its competitors, was thus built on a vision of the world which looked
strangely like the current idea of the global village. The market that most
companies think is a huge market, even when they deliberately choose to
focus on only part of it.
Globalization thus corresponds more to the will of a particular company
to go elsewhere, but it stems from the desire of all companies to do so. Even
when a company does not plan to internationalize its activities, it should
still expect that others from elsewhere come to defy its own territory. So
globalization, which was a specific strategy a company has become a
structural element that changed the nature of the competitive dynamics for
all companies. The competition caused by globalization, as competition in
a particular territory, poses significant problems for governments.
When competition is global, the overall logic is no longer under the
direct control of a single government. It affects several governments at
a time, and each one is tempted to act without regard to the interests of
others.
Unfortunately, act unilaterally, without regard to the overall logic of an
industry, can result in adverse outcomes for the country. Moreover, if the
government is accepting the economic logic of globalization, he abandons
the same time its regulator prerogatives of national socioeconomic life.
This assumes that a government should try to understand and to influ-
ence the logic of firms in the interests of the nation, hence the idea of
national competitiveness. In this chapter, we try to clarify all those ideas
that become commonplace for the manager. The chapter consists of three
226 Applied Managing for Entrepreneurship

main parts. The first is devoted to the dynamics of globalization. We first

see what globalization. We then consider a set of specific questions about
globalization and conclude on an overall reflection on the evolution to a
global village. In the second part, we will discuss the global strategies and
in the third part, we discuss the management of a global company.
The idea of globalization covers different realities. Thus, we speak of
globalization of markets as if it were a reality independent of the will
of the shareholders (Porter, 1986). The electronics market or that of the
pianos is often presented as a global market. We talk about globalization
of the company and its strategy (Doz, 1986; Porter, 1986). IBM or Ford
are presented as companies worldwide. For a long time, economists are
studying the phenomenon of internationalization of activities, especially
trade, linking it to the fundamental economic paradigm (Caves and
Jones, 1981). Ricardo's theory is both the simplest and the oldest. For
him, shopping patterns were dictated by supply. So, a country should
export food and clothing import if food production in terms of produc-
tivity was relatively higher than that of others. In this case, concerned
countries should completely specialize in activities that benefited them.
The model of Ricardo was the base from which refinements have been
built. In particular, the Swedish economists Heckscher (1919) and Ohlin
(1933) argued that countries exporting commodities whose production
requires relatively intensive use of factors (labor, capital, raw materials,
etc.), locally more abundant while trade in commodities tends to eliminate
international differences in factor remuneration.
These major theories and all the sophistications that were made to them
(Caves and Jones, 1981) do not explain the internationalization of firms,
although they provide interesting insights into the internationalization of
trade. We must move toward broader and more managerial theories for
answers that are close to our concerns. The largest study on multinationals
conducted at Harvard in the 1970s led to a particular theory of the interna-
tionalization of the company explains how and why major US companies
have become multinationals. According to Vernon and Wells (1976), data
on the internationalization of the activities of these companies show that
it has completed a cycle linked to the life cycle of the product, with three
phases: export, overseas production, and import. When the product has
been launched, usually as the result of an innovation, the company has a
sort of monopoly on it and then you just have to sell it on as many markets
as possible. This is then the easiest and most obvious step. This will export
Optimizing Global Business 227

to more or less distant countries, depending on experience and the capacity

of the firm.
When the product reaches the beginning of the mature phase, the
technology is usually already available for some competitors in the export
countries. They then begin competing activities. Quickly, the competition
becomes too strong and disadvantages of the location, too important. It
is then necessary to establish in the markets in question, to enjoy similar
production conditions. Finally, when mature or even declining, it may
happen that the comparative advantages of some countries make it cheaper
to import the products in the country rather than producing them locally.
Thus, the product cycle generates a process of internationalization of the
firm that is predictable.
In more recent work, particularly on the management of multinational
companies (Doz, 1986; Porter, 1986; Prahalad and Doz, 1987; Bartlett,
Goshal and Doz, 1991, 1992; Rugman, 1990), the “globalisation34”
appears as the result of changes in the environment, including the structure
of the industry and government action on the one hand, and corporate action
on the other. Thus, in the automotive industry, considered by Doz (1986)
as an industry in the world, the path toward globalization was caused or
facilitated by three factors: (1) the formation of the European Community,
which significantly increased trade between European countries; (2) the
efforts and success of penetration of Japanese with substantial benefits in
terms of productivity and quality; (3) reducing differences in consumer
preferences in the US, European, and Japanese markets. The energy crisis
of 1973 and the living standards of leveling have facilitated the evolution
toward advanced technology and similar products.
Added to this are some fundamental characteristics of the automotive
industry: economies of scale in production, distribution, and marketing;
productivity differences between countries at the international level and
the move toward free trade, which tends to push toward market consolida-
tion or to link between them.
For a long time, governments have resisted the trend toward the
globalization of markets such as automotive, but the movement was so
strong that some of them decided to play the game more open, provided
that social situations, including employment, are taken into account by
the affected companies. Other governments have been obliged to follow,
continuing to try to impose rules to safeguard national economic interests.
The result is not a complete globalization, but a “managed” globalization,
228 Applied Managing for Entrepreneurship

like any national market is “administered” provided that social situations,

including employment, are taken into account by the affected companies.
Globalization is also the result of corporate action. Porter (1986)
proposed to use the value chain as an element of appreciation. Companies
are, according to him, constantly trying to determine where best to locate
the various elements of the value chain. It can then occur that one or the
other or more elements of the value chain are located in different countries,
to take advantage of factor productivity differences in those countries.
This location is what he calls a configuration.
However, the configuration options are constrained by the difficulties
of coordination that too much dispersion could pose. We must then make
a strategic choice to find the best combination of configuration and coor-
dination. This combination can then be called a “global approach.” Doz
(1986) goes a step further and note that, depending on the nature of the
industry, three major strategies seem to be frequently used: the integration
strategy, national strategy, and sensitivity of multifocal strategy, a mixture
of the two previous. When the industry is truly global, with few external
constraints, the strategy adopted by companies is an overall integration
strategy.
This is the case in the automotive industry where, subject to national
constraints considered minimal, companies locate their activities in
obeying only the law of the economic optimum. The only constraint on
the integration strategy is a physical coordination constraint flows. When
the industry is controlled by the government, as is the case at present in
the space industry, the most appropriate strategy is a national strategy
sensitivity, in which each national party company behaves like a small
independent company, sensitive to national competitive dynamics.
Finally, when the industry is mixed, that is to say subject to both a
structural dynamic that pushes for integration, and significant government
intervention, as is usually the case of computers and microelectronics
in Europe, the most appropriate strategy seems to be one that tries to
combine the most favorable aspects of integration and national sensitivity.
The appropriate combination can change from one industry to another and
may vary from one region to another or from one company to another.
There are at least three concepts, which partly overlap: (1) globalization
of national markets; (2) globalization of the industry or competition; and
(3) globalization of the company.
Optimizing Global Business 229

Globalization of a national market is directly related to lower prices.

A national market can be said overall when the opening of this market
to the presence of international competitors is sufficient that there is no
reason that, for all important industries in the country, most of the large
global competitors are active there and compete with each other. The
globalization of the industry or competition occurs when the competitive
situation in a country is linked to that of many other countries. This usually
occurs as a result of the action of one or more companies trying to link
their activities from one country to another to take advantage of a global
competitive advantage. In this case, the only way for competitors answer
is to find similar solutions. Globalization is also facilitated by a series of
factors, including the standardization of education, access to technology,
general access to information, and above all, the convergence of tastes and
needs of consumers (Cvar, 1986). Again, one must think of degrees in the
globalization of industry and competition. Finally, the globalization of the
business is related to the collapse of its value chain. More activities of the
value chain are scattered around the world, the more the company is global
convergence of tastes and needs of consumers (Cvar, 1986).
The strategies of companies in globalization conditions are different
strategies. Yet, the globalization of industries and reduced competition,
perhaps temporarily, is the relative size of each player. Therefore, it makes
the strategies of domination by costs rather random and difficult to main-
tain. This is why the differentiation and focus strategies are more frequent
and often more defensible. The strategy of differentiation, in particular,
is quite favored by globalization because it is often driven by the same
factors. For example, the standardization of tastes created in the same
market segments that cater to similar populations throughout the major
markets of the world (e.g., automotive, electronics, clothing, cosmetics).
Globalization also creates many opportunities concentration. Thus, the
Canadian company Peerless Clothing has focused on the production of
high quality men's suits for the US market. Doz (1986) reminds us that
globalization does not eliminate the government and its actions. In fact,
there is no completely free global competition. For smaller players, it does
not matter, but for the big players, this requires finesse in assessing the
situation and the formulation of the strategy.
Involving the government to reflection enriches the possibilities.
Considering the degree of globalization may be low, medium, or high,
according to the discussion in the previous section, and if you consider
230 Applied Managing for Entrepreneurship

that the government is interventionist or liberal, previously mentioned

strategies become more or less relevant. So:

 When the government is allowed to make and that competition is

local, the main shareholders find themselves in opportunistic situ-
ations. They try to leverage their local position to strengthen their
overall position, but they must do so with caution not to trigger
reactions that would increase global competition.
 When the government is allowed to make while the competition
is in the process of globalizing, the most common strategies are
those that take advantage of the competitive dynamic toward more
openness. Doz (1986) mentioned including the integration or the
location of production facilities so as to take maximum advan-
tage of economies of scale. While globalization is not complete,
integration must be cautious, because it leads to rigidity and very
important commitments that cannot be easily undone. Probably the
most flexible strategy in this case is differentiation. An interesting
example is that of Becton Dickinson, the leader in disposable
syringes.
 When the government comes shortly and that the globalization
of competition is high, there is an accentuation of trends outlined
above. Reduce costs can take a regional or global. On all possible
segments, can also be limited to specific segments when these
segments are tight enough on the cost side and image to customers.
The example often cited, the latter two types of strategic location,
is the automotive industry. In this industry, the economic scales
for many important components, such as engines (more than two
million units) and gearboxes (over two million) are so great that
no national market is sufficient for existing production capacity. In
some cases, however, as in some luxury segments where differen-
tiation is the dominant strategy, companies generally produce lies
in one place and serve a global market. The German and Japanese
companies have used this strategy in the years 1980. The increasing
globalization of the automotive market leads to combination of
integration and differentiation sounds specific to each company.
 When the government can exert significant pressure on companies
to take into account local needs, the necessary strategy is called
“national sensibility.” This occurs in industries where the stakes
Optimizing Global Business 231

for the country are considered important, while international

competition is weak, companies with behaviors of mutual accom-
modation. This is particularly the case breweries in China since the
early 21st century.
 When the government exerts pressure on businesses, but the
competition is feverish, in the process of globalization, as was the
case in the computer equipment industry or telecommunications
equipment to the mid 1980s, type of strategy to be drawn is often a
strategy of concentration or a mixed strategy of differentiation and
integration. Doz (1986) described the strategic behavior multifocal
(mixed strategy) of the telecommunications industry in Europe.
Mixed strategies include alliances on particular aspects, such
as the production of engines in the automotive industry (agree-
ment between Renault and Volvo, for example) or the conduct of
research in common
 When the stakes are important for governments on the one hand,
and the competition is global and strong, on the other hand,
possible strategies are either sway strategies, so by necessity mixed
with alliances of all kinds, either strategies whose ambitions are to
reduce the battlefield by the concentration. In the aviation industry,
the two main players in the world (Airbus and Boeing) are, in fact,
increasingly, business combinations with more or less permanent
alliances.

Also, the globalization of markets, industries, and companies has

significantly reduced the ability of governments to act directly to influence
corporate behavior. They are then obliged to act indirectly by creating
conditions that lead to the decisions taken Entre favorable government
policies (e.g., job creation, local technological development, etc.). In doing
so, the companies become customers of States, and competition among
nations for their "favors" is exacerbated. The competitive ability of nations
becomes a useful concept to consider. To measure the competitiveness of
nations, Porter (1990) offers industry by industry make and use a simple
model: the diamond of national competitiveness. The diamond defines
the competitiveness of a nation in a given industry, such as its ability to
encourage companies to make the country a platform for action in their
international competition. The four constituent diamonds are:
232 Applied Managing for Entrepreneurship

• The characteristics of demand for industry products. Porter

suggests more demand is demanding and sophisticated, most busi-
nesses should be drawn, as it should encourage them to develop
competitive capabilities (products and technology) that would
keep them in the forefront.
• The characteristics of factors of production, including labor,
capital, and technology. More labor is quality, more capital is
available at a cost and competitive conditions more technology in
the country is considered advanced for the industrial sector, and
the country is attractive to large companies sector.
• The characteristics of the structure of the sector and therefore
competition in the relevant industrial sector. Thus, contrary to
what one might think, a dynamic industrial sector, where competi-
tion is strong, without being wild and fierce, is preferred by larger
companies because it maintains a healthy tension, the source of
health and the strength of committed companies.
• The quality of support industries. A country attractive to a company
in a given industry is a country in which there are complementary
and support industries that are dynamic and innovative. When
this is the case, we can expect that increase ability to innovate the
whole industrial system, the ability to meet the needs of industry
and the synergy between the system components. Note that the idea
of the diamond suggests that a country without a strong diamond’s
interest to give up in the relevant industrial sector.

The approach of the Porter diamond is valid for companies or countries

that are in a dominant position in a particular industry, but businesses in
peripheral or marginal position are then forced to conceive the world
differently. For these companies, it is better to speak of a kind of virtual
diamond, the points can be dispersed all over the world in search of
competitive advantage for the firm. Thus, it is possible that a local clothing
firm believes that his country is advantageous for certain factors (capital,
technology, and labor, for example), that the application is regional, and
the competitive dynamics and industry support are international. In a
way, the virtual diamond is a construction firm rather than a feature of the
country.
With further the logic of the virtual diamond, one might even say that
strategists at the national or regional level can adopt a pragmatic approach
Optimizing Global Business 233

by examining the international conditions and the areas in which the

companies of the country can play a role, even if it is not dominant. If
the garment is in Canada, from this point of view, typical. It is clear that
Canada has great benefits in regard to the availability and cost of capital.
Similarly, all design technology and competitive workforce is very high
quality. Moreover, it would be absurd not to recognize that, for supporting
industries, especially equipment manufacturers, it is best to turn to the
major international producers are the German and Swiss companies, in
particular. Similarly, the US market, accessible and powerful, remains a
reference.
The idea of national diamond is an interesting and useful idea for the
analysis of the global competitive situation. The formal diamond should
not, however, be considered as a special case of the idea, more generally,
to virtual diamond. In this case then, we return to the idea of a diamond
that would build a firm or group of firms, the state is trying to understand
these diamonds to better influence them, so to promote the goals of which
he is the guardian.
In terms of economic confrontation between nations, the substantial
opening of trade and the intensification of competition between firms
worldwide have spawned in recent economic behavior that were soon in
conflict, at least in the short term, with the goals and the political problems
of governments. In particular, three major centers have gradually found
themselves in direct competition for influence and markets: Japan and,
by extension, Southeast Asia, Europe, and North America. The debates
on the triad as economic confrontation field have given to the agenda the
question of the role of the state. Curiously, when the state is attacked from
all sides, some forces pushing for a vision of the state strategist (White,
1993).
Even in the United States, the US government's actions are clearly in
the service of US companies or those that behave in “American citizens.”
The confrontation between Europe, the United States, and China reveals,
firstly, the importance of the issues and, secondly, the difficulties involved
in reconciling without involving diplomacy and, therefore, the traditional
relations between nations. The well-being in the short- and long-term
economic is perceived to go through economic domination of some over
others. Diamond concept we have seen, suggests that success depends on
building a series of factors and conditions, in a given industry. It should be
noted that the situation in any industry depends on companies, customers
234 Applied Managing for Entrepreneurship

or suppliers, which are upstream and downstream of it. It is useful to think

in groups based on industries related to each other. The idea of industry
cluster and complements the old name “die” time used by economists,
especially in France.
A cluster is a set of industries that are related. Implicitly, it is assumed
that the health of one depends on the health of others. That's when govern-
ments began to take an interest not only to an industrial sector, as part of the
formal diamond, but a set of sectors, trying to encourage the development
of the most promising clusters for countries (Won and Lefevre, 1993). It
suggests that a country must strengthen or abandon whole areas of the
economy if it wants to become attractive to the field of dynamic compa-
nies. Ohmae, who was interested in the competition between the countries
of the triad, suggested that the new form of strengthening of competitive-
ness is one that is explored or exploited by the Chinese government with
developments by city or region.
In times of globalization, the two main external forces that shape
business strategy are: the dynamics of the industry and the bargaining
power of states. A sound global strategy can ignore neither the one nor
the other. A sound strategy should also take into account the capabilities
and enterprise resources, as the source of competitive advantage. The
dynamics of a global industry is described in great detail by theories that
treat oligopolistic competitive advantages and those dealing with foreign
investment (Rugman, 1990). We resume here that what serves our purpose,
which is to show how the dynamics of the industry strength recognizable
strategic behavior. The dynamics of competition in an industry is gener-
ally determined by the following main factors (Doz, 1986): economies
of scale; economies of experience; localization economies; the bases of
the differentiation; nature of technology; distribution channels and export;
access to capital.
You should also know that there are several types of economies of
scale, the most important being those related to production, distribution,
and customer service. Economies of scale in production are interacting
with technological developments. They can be facilitated but also chal-
lenged by them. In general, there is enough stability in the development
of manufacturing equipment for economies of scale, even if they are ulti-
mately likely to be reconsidered, can first be decisive and favor companies
that benefit the first.
Optimizing Global Business 235

Take, for example, the petrochemical industry. In the ranges of Capa,

most common cities, when building production plants, a 2X capacity plant
would cost only 20–50% more than a plant capacity X. Thus, in 1990, a
single oil refinery, with a capacity of 90,000 barrels per day, costing 400
million dollars, while the same type of plant with a capacity twice as large,
did not cost more than 600 million. These considerable economies of scale
exist in all major manufacturing industries such as automotive, pulp and
paper, steel, etc. It must, however, mention that most scales, the greater
rigidities and inertia of the system are large, which can cause significant
management costs and transaction that cancel the benefits of scale. This
is why the emergence of small but solid competitors in traditionally
dominated by economies of scale industries. The scale effect can also be
cancelled or substantially affected by opportunities for differentiation.
Economies of scale, when the problems of management and sales are
controlled, force decisions that can transcend the boundaries of a single
country. Thus, in the automotive industry (Abernathy and Ginsburg, 1980),
the convergence of tastes and needs among the countries of the triad (the
United States, Europe, Japan), as well as the rationalization and compat-
ibility between models introduced by businesses, has made the agenda
the idea of “efficient size of production units.” For example, General
Motors had developed a standard size for the production of modules that
contribute to the manufacture of a vehicle, which could go from 300,000
units to assemble a million for some molded equipment. As few national
markets can support such large capacities, it is then necessary that these
modules were built for several countries at once. Moreover, it is clear
that the optimal use of these capabilities requires coordination between
different national subsidiaries for product development, engineering,
product introduction dates, and plant extensions.
Specialization is then inevitable, but it can be done if the states do
not disrupt the coordination required between the specialized modules.
It is therefore, in practice, a compromise between the requirements of
States in the employment and research and development on the one hand,
and the requirements of specialized production on a large scale, on the
other. Thus, economies of scale in production are forcing plant special-
ization and multinational integration. Economies of scale in distribution
of matter can also force specific behaviors. Or take the example of the
automotive industry. Consider that for a given brand, a market share of
4–5% is required for a distribution network and dense enough service to
236 Applied Managing for Entrepreneurship

be maintained. Consequently, economies of scale in the distribution plan

will allow for wide or limited coverage strategies (concentrated) market.
This is likely to be economies of distribution of matter in scale that have
thwarted Renault France's efforts to become firmly established in North
America.
In the case of the auto industry, economies of scale in production and
distribution can have contradictory effects: the distribution economies
of scale create pressures for the proliferation of models and their rapid
replacement (to maintain consumer interest); the manufacturing economies
of scale encourage rather high volumes for each model over several years.
R & D costs also push manufacturers to large volumes per model. The
experience effect can be described technically as the constant percentage
decrease in costs for each doubling of production. This percentage is
generally known for each type of industry or product and usually varies
between 15 and 25%.
These savings are due to the increased expertise of employees (at all
levels), which comes from the renewed production of the same product.
Some of the savings are due to the gradual improvement of design and
design, applicable to all facilities. However, much of these savings are
related to location (where the business is located). In other words, they
would not be available if a new plant was built elsewhere. This effect is
therefore encouraging specialization and strengthening the scale effect.
Also, differences in the cost factors are sources of benefits and savings for
companies who can benefit.
In particular, this is true when one is able to locate intensive activities
within a factor in countries that have an advantage in this factor. So, the
countries of South Asia and Southeast were able, thanks to a low-wage
workforce quality, attract production in many industrial sectors. These
countries have also set up various mechanisms putting attract multina-
tionals, the free trading zone 35 one can mention. It is clear, however,
that if all countries offer the same benefits, localization economies may
be lower. Similarly, the technology, including automation, tends to reduce
the importance of the advantage of the “cost of labor” in some locations.
These countries have also set up various mechanisms putting attract
multinationals.
The distinction may seem the antithesis of globalization. In fact, it is
common internationally. It may be based on the particular type of customer,
the type of product and local tastes. For example, in the field of skiing, the
Optimizing Global Business 237

market is homogeneous across the globe; differentiation is therefore made

according to the skill and the size of the skier, giving a series of global
segments that are often operated by different competitors. Differentiation
can also be the result of clever marketing, including for some consumer
products, especially when the approaches can be transferred from one
market to another. This happens for example in the grain market, where
Kellogg manage to distinguish in the minds of consumers, and in the beer,
Differentiation may also be based on very strong local and regional
characteristics, which reduces its applicability globally. Thus, food
in general, local tastes are usually very specific and force a distinction
between different markets. Yet, some companies manage to stand out glob-
ally through massive advertising, but also to local adaptations; in the case
of Nestlé Nescafe. Differentiation when promotes local content, opposes
multinational integrations, particularly in terms of production, although
it is not necessarily inconsistent with global harmonization of marketing
expenses, research and development, and super general structure. Inter-
national segmentation, however, has considerable advantages, and firms
devote much of their creativity to recognize and exploit the opportunities
segmentation applicable to several countries. Every day, new or clever
advertising convergences allow to succeed where all seemed very local.
For example, nobody would have believed that Kellogg’s or McDonald’s
to take root so easily in France and worldwide, from Montreal to Casa-
blanca via Moscow and the Champs Elysees.
Generally, in intensive industries working in the field of high tech-
nology (the ratio of sales allocated to spending on research and develop-
ment is high) and companies that can spread the costs over larger volumes
of production have a certain advantage. It is also clear that the internal
technology is more likely to produce an advantage over those who do not
have access, which shows the importance of spending on research and
development. The technology, interacting with economies of scale, can
promote greater specialization and integration activities. First, the volumes
allow specialization can encourage the adoption of more advanced and
efficient technologies. On the other hand, technological changes have
often increased the economic size of the facilities. Doz (1986) mentions
how the introduction of nuclear technology in the electricity industry has
upset not only the production industry, but also production equipment
significantly increasing plant size of 600 MW over 1000 MW.
238 Applied Managing for Entrepreneurship

Distribution channels are becoming important in at least four cases:

(1) it must have its own channels; (2) when the flexibility of supplies
is important; (3) when the channels are dominated by a small group
of companies; and (4) when the tasks of service and sales are intense.
Export channels are often expensive. The most powerful companies
such as multinationals are more able to meet these costs and develop
their own channels, while smaller domestic companies are forced to use
agents or importers. However, domestic companies can sometimes more
easily take advantage of government support. The nature of the sale may
also encourage some strategies. Where distribution channels are easy to
penetrate, they can promote a strategy of domination that connects several
national markets; by cons, if the channels are controlled by manufacturers,
most local strategies are favored. When there are no permanent channels,
as in the sale of aircraft or sale of electric generation plants to developing
countries, domestic companies can be successful in competing against
multinationals.
When the sale involves intensive interaction with a fragmented customer
or if it requires intensive services, promotes local businesses more familiar
with the community, and is able to meet its needs. This raises the issue
of access to capital: a presence in many markets can facilitate access to
capital and can even reduce the cost of capital. Indeed, investors often
have preference for foreign currency debt to diversify their portfolios.
In conclusion, these dynamics appear to favor three types of strategies:
(1) strategies that emphasize linkages between countries (including
production linkages); (2) strategies that exploit the distinctiveness of each
national market; and (3) strategies that attempt to take advantage of the
homogenization of tastes and needs around the world.
In this regard, the competitive advantage of a company in a globalizing
world context comes from its ability to provide resources compatible with
the dynamics of the industry. In particular, a global company faces the
need to respond to either local dynamics or to global and general dynamics
for an entire industry or to global dynamics but on a specific need within
a sector industrial. The company responds by using functional resources
(general administration, production, marketing, finance, research and
development, etc.) which are concentrated in a single country or who
are dispersed in several countries. However, it is useful to clarify these
functional resources by linking them to the value chain.
Optimizing Global Business 239

The concentration or dispersion of the elements of the value chain

provides many interesting combinations. First, not only the elements can
be made in different regions or countries, with production in a country,
research and development in another, etc., but each element of the value
chain can also be dispersed or concentrated. So, Toyota has long concen-
trated its production and most of its functions in Japan, dispersant that
the marketing function to ensure the sale of its products in international
markets. It is also, as is the case for companies such as Corning Glass
Works (Corning called since 1989), a specialist technology glass product,
distribute most of the activities of the value chain,
When the degree of globalization of the business is very large, each
activity of the value chain is generally dispersed. Thus, if we take IBM,
the activities of the chain directly involved in the creation of value are
divided, but all support activities, including administrative infrastructure
activities are also dispersed. For example, research and development are
entrusted to a series of centers located everywhere in the world, including
France, Germany, Italy, the United Kingdom, Japan, India, Canada and,
of course, in the United States. Also, each region makes its own financial
management, leaving the center for the international fund management
movements. In general, the center is mainly responsible for international
coordination. So, the possibilities of concentration or dispersion used
to respond uniquely to the dynamics of competition. For example, an
industry in which economies of scale are large, especially in production,
will tend to favor a concentration of production activities or dispersion of
these activities with a strong central coordination. Similarly, in an industry
where the possibilities of global differentiation are large, the concentra-
tion of production activities may be required. Furthermore, if the nature
of the product requires intensive customer relations, so it is necessary to
disperse the marketing activities. An industry in which economies of scale
are large, especially in production, will tend to favor a concentration of
production activities or dispersion of these activities with a strong central
coordination. Similarly, in an industry where the possibilities of global
differentiation are large, the concentration of production activities may
be required. Furthermore, if the nature of the product requires intensive
customer relations, so it is necessary to disperse the marketing activities.
It is worth mentioning the terminology proposed by Prahalad and Doz
(1987) because it largely coincides with that we have adopted so far. They
use two dimensions: the degree of need for integration and the degree of
240 Applied Managing for Entrepreneurship

need for local sensitivity (responsiveness). These two dimensions are then
used, as we also do, to appoint, to clarify and assess the various strategic
situations that may arise. Strategic definition proposed here and in the
sections which follow, is only the first step of development of competitive-
ness in an industry globalization. A critical resource in the management
of resources is the general management capacity, including the ability to
direct and coordinate activities worldwide.
The matrix of Prahalad and Doz, linking integration and local sensitivity,
suggests some basic strategies. These strategies are benchmarks rather
than real strategies. In practice, the strategies will be a unique combination
of integration and local sensitivity. However, this tells us that, even if the
combination possibilities are numerous, even infinite in number, there are
patterns that were often held in the literature. As for us, we will use the
two dimensions of “dynamic industry” and “dispersion of the value chain”
to establish some common combinations that allow consistency between
the industry dynamics and characteristics of the value chain. When the
dynamics of the industry is global, it often means that the economies of
scale and experience are important. Similarly, the location of savings and
the possibilities of access to capital can be numerous and easy to use by
major players such as multinationals.
A global dynamic is often a stimulus to the technological developments
that facilitate and sometimes even boost. Of course, global integration is
possible only if the stakeholders have minimal control over distribution
channels.
If, moreover, the value chain can be easily dispersed because the
company has the resources and, among others, the managerial capacity to
do so, then we are in a situation where the conditions favor a strategy where
the system is facing a maximum cost reduction and therefore toward global
integration. The typical example is that of large Japanese and American
car companies, but also large computer companies like IBM or Microsoft.
In the same industry globalization conditions, but when the value chain
can be dispersed either because the company has neither the resources nor
sufficient managerial capacity, either because the technology is sensitive
and should be concentrated and protected, then the only possible strategy
becomes an export strategy. This is often the case for companies still in the
process of globalization or who have not yet gained sufficient confidence
internationally.
Optimizing Global Business 241

As examples can be mentioned the textile and clothing companies such

as Daewoo was in its creation (Aguilar, 1990), or as is the costume Peerless
Clothing (Bonneau, 1995). The aircraft construction industry is another
case. Markets are global, but the technology is sensitive and binding.
Competition in different segments is global, and the shareholders are
powerful; yet essentially, exports are dominant, even if, for ease, leading
enterprises to agree to terms that promote local subcontracting. When the
globalization of industry conditions are not yet together, especially with
economies of scale, experience and location that does not disadvantage
domestic players only.
The national sensitivity is also encouraged by the pressures of govern-
ments, and therefore the relationships that develop between competing
firms, and incentives or penalties that governments put in place. In this
case, when the resources and the company's capacity is large enough to
allow the dispersion, often part of the value chain, one would think that
the national sensitivity is the most appropriate strategy. Location decisions
can be negotiated according to the benefits that the company can withdraw
from the relationship with local governments. When the dynamics are not
yet global and the value chain cannot be dispersed, (although sometimes
it can be replicated in different places), one can speak of a multi-domestic
strategy and a concentration strategy. The multidomestic strategy is when
the company is reproduced locally without the possibility of linking activi-
ties at the international level; it is surprising to some technologically and
geopolitically sensitive products, such as telecommunications, hazardous
to health or the products taxed as cigarettes.
We speak of concentration strategy when capacity and corporate
resources do not allow global coverage, as Entre State made working in
the field of tobacco or alcohol.
The challenge of managing a global company is directly related to the
strategy it gives. It is clear that the difficulties in managing the concentra-
tion or dispersion of the value chain are at the heart of the competitiveness
of the company. These difficulties were already fairly discussed in the
chapter on managing a complex organization. We consider here that issues
related to the complexity engendered by the collapse in the world.
We can say that the international complexity poses three main types of
problems: (1) a traditional, permanent problem effective implementation
of the strategy, which generally ensures the convergence of efforts of the
various subsidiaries; (2) an occasional problem of change in the relations
242 Applied Managing for Entrepreneurship

between subsidiaries and senior management to meet the changing direc-

tion needs; (3) a flexibility problem keeping order to take advantage of
opportunities that may arise or to meet unexpected difficulties in the
implementation of the chosen direction.
These problems do not arise in the same way in all organizations. The
strategic choices, as was discussed earlier, largely determine the nature
of management required for implementation. In general, however, the
management of a complex international organization is always a kind of
meta-management. This meta-management is conducted using tools that
are similar, regardless of the chosen strategy. It is the combination of these
tools will change according to the strategy. To analyze these tools, it is
useful to group according to the major challenges facing global compa-
nies, which generates three categories of tools: (1) tools for managing
information and data systems that influences management behavior; (2)
the tools to solve confrontations and conflicts that arise from the need to
bring together shareholders who have different perspectives and who are
exposed to different realities; (3) tools to directly manage the behavior of
managers.
As we mentioned, the effect of the use of these tools can be felt in the
short or long term. So everything related compensation and the situation
of managers, including their powers and responsibilities, has a short-term
effect. These tools are usually more concrete. Anything that affects the
future situation of managers and their integration with the philosophy, way
of behavior and traditions of the organization will have long-term effects.
These tools have a cognitive and symbolic score. Moreover, it should be
clear that the tools and actions of management information and data are
technical and do not require constant involvement of senior management.
On the other hand, direct management of managers and conflict resolu-
tion require attention and commitment of every moment. This is also the
main task of the high direction organizations with significant international
operations. As we said, the use of these tools is not the same as we need
to integrate the system or being sensitive to local realities and pressures.
Without addressing all situations, we refer to these extremes, the most
important challenges and the means generally used to cope. The use of
these tools is not the same as we need to integrate the system or being
sensitive to local realities and pressures.
Multinational integration requires paying close attention to cost reduc-
tion and thus optimization of production and logistics system, while not
Optimizing Global Business 243

neglecting the attention to be customer needs and market changes. It also

raises significant problems in terms of relationships between headquarters
and subsidiaries and on the relations between the local authorities and
the company. An integrated production means among other things that
factory output is closely interconnected. Thus, in the case of automotive
companies, all components must be produced in time for the assembly
to take place. Furthermore, production must be harmonized with market
requirements. This requires considerable sophistication of the system and a
complex international logistics management and high precision. However,
there must be room for flexibility, as the system is open to exogenous
shocks, including from the market.
Questions expansion or contraction of the system is even more
complex. We must first assess the effects on the whole system, which is
already not easy, but we must also reconcile the needs of efficiency and
effectiveness with the requirements of the most important governments
for business. Finally, it must be remembered that international investments
still account for more risk and uncertainty due to exchange rate issues and
changes in the relative position of factors from one country to another. In
the case of an integrated company, the nature of the research and develop-
ment can also make the problem management. Globalization of produc-
tion can, under pressure from the government, force the globalization of
research and development, which is not necessarily favorable to techno-
logical development. We meet so often in situations where the research
and development system should require coordination as important as the
production-logistics system with all the problems this can cause.
Thus, IBM maintenance of many research and development centers
worldwide, facilitate integration. The company has experienced often,
particularly by entrusting "missions" (design and starting innovation)
and "controls" (development marketing) permanent to its most important
centers. Thus, outside the United States, the four major centers of research
and development in Germany, France, Japan, and the United Kingdom
each have a special responsibility. For IBM, or automotive companies or
chemistry, in integration voltages are then inevitable. Indeed, too much
sensitivity to local realities can question the need for effective integration,
while too much integration can affect market penetration.
Integration is seen with great suspicion by national governments, who
see it as an attack on the nation's decision-making autonomy. They are
subscribed until they understand the need of the industry dynamics and
244 Applied Managing for Entrepreneurship

when they have developed confident and relaxed relationship with the
companies in question. This is why the diplomatic efforts that integrated
multinationals tend to do. For example, Ford has created, in the 1980s, a
European advisory board, composed of individuals influencing EU policy.
The other problem concerns the relationship with the unions, which have
deteriorated because of the burst of integrated business systems. Trade
unions are often in conflict with each other to support or oppose the deci-
sions of production and investment of these companies. Governments
are then often forced to intervene diplomatically to resolve disputes, but
they do it differently. The Spanish government, for example, a large direct
influence, the French government rather plays the role of referee, while the
government of the United Kingdom intervenes very little.
The biggest problem remains the ability to measure and assess the
performance of the subsidiaries. This is disrupted when interdependencies
are many and involve the transparency of contributions. The accounting
system must help to increase the visibility of local actions and conse-
quences to prevent local prejudices disrupt the overall strategy. Doz (1986,
p. 180) described some solutions implemented by large multinationals.
The problems with the management of national sensitivity are generally
well known. One can mention these: the need for all the risks and allocate
resources among the subsidiaries; the need to avoid duplication in R & D,
and spread the costs of it on a larger volume of activities; export coordina-
tion subsidiaries that produce the same equipment or products; technology
transfer and, in general, know-how in all areas.
Resource allocation is disturbed largely because of different accounting
standards, different investments, and taxation regulations differ from one
country inflation rate to another, forcing many companies to accept coor-
dination less than perfect. Corning Glass Works has many imperfections
generally accepted in the enterprise systems where national sensitivity
was required. Its interventions to ensure better coordination (Case Corning
Glass Works, 1987) have generally not been successful. It remains that
the leaders of multinationals in situations of national sensitivity are trying
to ensure consistency in behavior. In particular, they use the following
instruments:

 Some consistency of information systems, especially for plan-

ning, budgeting, and control. Note that the allocation of resources
remains an act of confidence in the abilities and judgment of
Optimizing Global Business 245

subsidiary leaders, underscoring the importance of personalities in

the management of such a strategy.
 Encouraging corporate behavior through measurement and
systems of rewards and punishments. For this, we tend to measure
performance based on the objectives set by the subsidiaries them-
selves rather than standard measuring instruments, less necessary
here only when there is integration.
 The peer review, which can be done when peers are involved both
in the design, with collective responsibilities, and evaluation of
plans and requests for funds and other resources. This is done by
creating “business teams or products” for the coordination and
responsibility of the profits.
 The direct involvement of senior management. This may be
precisely in operations, as did Geneen (1984), or more vaguely on
behavior, as did the president of Schlumberger Riboud.

After this overview, we can imagine what to do so that there are no

problems in the management of a large global company. It is probably
necessary to demonstrate a great genius in strategic design and develop-
ment of the required management instruments and not to forget that even
though everyone tries, few succeed. This probably means that the tools
and analysis that we discussed so far are not sufficient. These are the ingre-
dients of a truly artistic nature of construction. This construction assumes
that leaders are able of leadership and there are also mechanisms to all go
in the right direction. These mechanisms are of symbolic, ideological, and
cultural.
Conclusion

Throughout this book, we are interested in understanding meander of the

applied management. Traditionally, the management of the organization
is exercised by the executive or by a team of leaders. Following external
and internal diagnostics, the leader establishes consistency between the
elements it needs, wants or can consider. Once strategy is formulated, it
is communicated to other levels of the organization, and implementation
tools, primarily a structure and appropriate management processes, facili-
tate its implementation.
This process is often presented in a linear way from formulation to
implementation. It is also presented as one-time, localized in time, and
lying before the action. Despite some problems, among others, the unpre-
dictability of the future and limited cognitive abilities of leaders, this
process is possible in smaller organizations operating in relatively stable
industries. But when the size of the company increases, the organization
becomes complex, as in the case of the diversified businesses, or the
context becomes more complex, as in the case of global companies, the
officer often need be helped to properly undertake its maker business.
It is in this context very well described by Ansoff (1965), what is opera-
tional planning. It also is in this context that Porter systematic approaches
such as the industrial economy have become increasingly important in
decision optimization.
All of these tools to establish internal and external diagnostics busi-
ness are useful to the leader and his management team. This is why the
traditional approach to business strategists is still widespread, both in
organizations and in business schools. This also explains the importance
we have given to the planning of activities throughout the book.
This part of the book focuses on how leaders can conduct an orderly
operational thinking, and discusses several tools that can help them realize
the analysis of the business context and the organization, and make stra-
tegic choices appropriate. Having ordered activity of strategic thinking,
analyze and make operational choices consistent with the elements of the
analysis, plan activities and programs based on these choices: this system-
atic procedure has many advantages. It leads the company to discipline
248 Applied Managing for Entrepreneurship

one to think of the future; it forces him to have goals to reach and organize
action to achieve these objectives; it provides the basis for evaluating the
performance of organizational units and individuals; it creates order in the
organization and is safe for executives, managers, and employees.
But there are also problems with this approach, problems that have
been experienced by several companies that have been identified by
several authors in the late 1960s (Loasby, 1967; Steiner, 1972; Wildavski,
1973; Morgan, 1983), which were summarized by Mintzberg (1994). For
Mintzberg, a major problem lies in the fact that this process can disem-
power the leader leaving too much room to analysts. However, there are
other problems that seem more important.
First, an approach to training strategies which implies that the
company’s leaders fail of the strategic competence of other members of
the organization and the contribution they can make. On the other hand,
an approach that wants a formalized process taking place mainly before
the action, may not be sensitive to strategies that may emerge during the
action. It is then necessary to design the exercise of the strategist art can
take another form. It is no longer for the leader to first formulate a strategy
and then implement it. It is rather to facilitate the strategic action of all
members of the organization and to establish an environment that enables
their contribution to training strategies.
It is more a one-off activity, but an action that is done in small steps,
“along the way” in the words of Avenier (1997). And it is this process of
this strategic action daily strategy emerges. Such an approach does not
eliminate the role of leaders, on the contrary. As we have seen, the leaders
remain the architects of the rationale and context of creators, and these
roles are both important and demanding. It did not evacuate the importance
of intentional strategies. These can be an element of the strategic action
around what action of players develops; they can no longer be regarded as
THE business strategy. This strategic action leads to daily strategy.
This approach to training strategies is particularly relevant in situations
of complexity, turbulence, and instability, when it is difficult to understand
the operational context in which the organization operates, and the skills
to cope. Some approaches attempt to reduce the complexity of the context
of business. This is what Porter chooses to focus primarily competitive
economic environment and reduce strategic diversity in three generic
strategies. Other approaches recognize the complexity, but put forward
simple rules that companies must adopt if they want to deal with it. This
Conclusion 249

is what Eisenhardt and Sull explain in their article “Strategy as Simple

Rules” (2001).
In both approaches we have just mentioned, it was the same with the
tools we have presented on the strategic management of diversified busi-
ness and global business. It is still mainly the leaders who are responsible
to find solutions that allow the company to operate and be successful in
complex situations.
In addressing the training strategies through strategic action of all
members of the organization, we offer a different path. The strategy is a
social construct, involving all members of the organization. They have a
strategic competence flowing of learning they have acquired and tacit and
explicit knowledge they have acquired over time. This knowledge is then
put to use on a daily basis to solve problems that occur or for projects of
all kinds.
This is the daily work of all shareholders that form the organization’s
strategy. Avenier (1997) prefers to talk about groping strategy. This strategy
differs from incremental strategy, since it may allow radical changes. It is
also different from the emerging strategy because it allows the realiza-
tion of “deliberate actions in emergent situations”; it also promotes “the
emergence of deliberation, that is to say the emergence of deliberate
projects.” The tentative strategy is therefore built step by step, through
multiple oscillations between reflection and action in a permanent tension
between deliberate and emergent. It allows the organization to adapt
and to adjust continuously in a changing business context: by multiple
oscillations between reflection and action in a permanent tension between
deliberate and emergent. As we mentioned earlier, the leaders continue to
play important roles, but they no longer act as the only designers of the
strategy. As architects of the reason, they ensure that the shared represen-
tations correspond to the values and major objectives of the organization;
they also ensure that the procedures and routines are consistent with this
system of representations. As creators of context, they set up a context
for participation and innovation, and they ensure that the structure and
different management systems make possible participation and creativity.
It is through their leadership that leaders create an environment that
enables members of the organization to participate actively and creatively,
the strategic action of the company.
Thanks to their leadership that all members of the organization have
to work together in the same direction, so that the company performs
250 Applied Managing for Entrepreneurship

economically and socially. Designed in this way, the strategy formation

process becomes a sense of co-construction process, shared by the different
levels of the organization, and a co-management process “along the way.”
The analysis and action become interrelated processes; the action can no
longer be conceived as a simple implementation of strategic choices made
at the top of the organization; so the company performs economically and
socially.
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Index

A Qwest Communications, 85
Toyota and Wal-Mart, 85–86
Advanced operational business analysis,
Stevenson’s framework, 76–77
73–90
strategy, 84
benchmarking model, 77
on costs, 77
business context, 73
sustainable competitive advantage, 74
airline industry, 73
Calyx & Corolla, 73 examples conclusion, 75
Google, 74 Terra Networks, 74–75
sustainable competitive advantage, 74 traditional analytical approaches, 75
use of e-commerce, 73 value chain
carrier product, 88–89 completed, 80
changes to manufacturing process, 78 components, 80
changing distribution channels, 87 coordination, 80
carrier product, 88–89 knowledge of contribution, 80
coffee, 87 Porter’s suggestion, 79
Couche-Tard chain, 87 weakness, 76
migration of product portfolio, 88 Applied management
competitive advantages administrative systems, 157
central competence, 81–82 anti-smoking advertising, 143
companies who benefit, 81 approaches, 19–27
Prahalad and Hamel’s article, 80–82 Athens, 21
value chain and Porter’s suggestion, 79 canonical model of decision making, 140
complexity, 84 Canam Group, case study, 149
customers’ behaviors, 86 Champions’ low costs, 155
Levi Strauss Company, 86 changing business decisions, 155
Personal Pair program, 86 classification of definitions
distinctive competence, 79 theme aims, 19
economies of scale, 77 theme of business context, 20
experience curve, 78 theme of change, 20
forces, 75–76 theme of plan, 20
identifying key success factors, 75 complex enterprises, 149
industry, 73 cost leadership, 151
learning curve, 77 Cray Research, 154
microsegmentation, 86 decision differentiation, 153
pattern of strengths and weaknesses, 76–77 decision-making functions, 140
PIMS, 77 degree of satisfaction, 157
profit generating behaviors, 84–85 differentiation action, 153
customers, 86 different and unique, 100–101
Gap, 85 difficulties, 145–146
Li & Fung, 85 diversification, 144
262 Index

domain, 19 sales movements, activities of, 149

economic analysis shareholder expectations, 158
traditional, 22 systematic use of
entrenchment of eliminating, 148 business schools, 19
environmental groups, 158 universities, 19
evaluation of effectiveness, 157 transformations, 159
GazM, investment policy and wave of diversification, 149
diversification of, 149 withdrawal approach, 148
growth Applied operational analysis, 115–123
approach, 144–145 adapt to circumstances, 117
optimization, 146 analysis of activities, 118
strategy, 144 BCG, 116
guiding mechanisms, 143 cases, 118
Harlequin, case, 146 ExpertActions ExiGlobal Group, 120
Hermes differentiation action, 153 Foie-Gras producer, 119–120
imperfect and monopolistic competition, Mr. and Mrs. CQCI, 118–119
22 distinguish between operational
industrial customers, 154 diagnoses, 115
institutional action, 141–142 first draft of action, 121
issue of efficiency, 159 importance of introduction, 115–116
leaders, 142 operational decisions
levels control function, 122
business optimization, 20–21 diagnosis phase, 123
corporate optimization, 20 programed in time, 122
maintenance role of the adviser or consultant,
approach, 144 122–123
decision, 143 sequence of operations, 122
Montreal Exchange, 148 organizational adaptation boards, 117
Multi-Marques, 152
performance, 121–122
Napoleonic wars, 21
presentation of “operating system,” 121
newspaper, 142
proposed method, 117
notables, 21
business decision, 118
operational
corporate level, 117
alliances, 156
relevance, 121
choices, 140–141
SWOT, 116
management, 156
tactics, 147
optimized management, 20
B
Porter, 151 Boston Consulting Group (BCG), 116
private companies Business context, 73
portfolio analysis models, 150 Business diversification
quality of transformations, 157 competitors, actions of, 211
quantitative models, 150–151 connected complement, 218
range of products, 101 creating banners, 215
relative market share, 150 curvilinear model, 217
removal action, 148 financial resource, 211
resources, 101 financial sharks, 212
Index 263

globalization, 212 leaders

markets and industries, 211 communicator of organization, 13
government actions, 212 Hippocrates method, 13–14
growth driver, 209 motivator and as negotiator, 13
Hydro-Q’s diversification, 211 relationship with management, 24–25
internationalization of Chinese Roethlisberger, recall analytical
enterprises, 213 framework, 16–17
investment in markets, 219 role of psychology, 24
know-how and technology, 213 Selznick studies about Communist
Korean chaebol, 213 parties of Eastern Europe, 12–13
management skills, 217 writing the plan, 21
market value, 223
mergers and acquisitions (M&A), 208, C
213–214, 218, 219
Canadian Radio-television and
market, 215
Telecommunications Commission
stabilization of financial flows, 220
(CRTC), 67
wave of oligopolies, 219
Capitalist enterprise, 44
model of carrier sheet, 221–222
competitive environment, 46
oligopolistic mergers, 214
operational risk, 222 moral judgment, 47
portfolio model, 220, 222 profit maximization is not
professional investors risk, 221 clear, 44
research and development (R&D) operational, 44–45
efforts, 210 relationship between ownership and
risk, 221 management, 45
risk-return or financial model, 221–222 leader, 45
strategic model, 221–222 total identification, 46
strategy, types of businesses, 216 values of liberal consumer society,
technological dynamism, 210 46–47
Tronics Boom, 214 verbose on implementation conditions, 48
value creation, 218 Case studies
Business optimization, 11–17, 20–21 DuPont, 166–167
applied management, 17 ExpertActions ExiGlobal Group, 120
case studies on students issues, 11–12 Foie-Gras producer, 119–120
competitiveness, 25–26 Mr. and Mrs. CQCI, 118–119
conceptualization of general Oticon business, 185
management activities, 12 students issues, 11–12
corporate culture, 15 Competitive advantages
current trends in, 25 central competence, 81–82
decisions and actions pattern, 30–31 companies who benefit, 81
diversity, 21 information, 89–90
foundations of governance strategies, 29 knowledge, 89
four dimensions of decision examples of strategic choices, 89
optimization, 29 increase in success rate of innovation,
goal, 23 89
Herbert Simon’s suggestion of unit precision merchandising, 89
action, 12 stock-keeping units (SKU), 89
264 Index

Miller and Shamsie’s view on resource social background, 3

perspective, 83 heir, 4
Prahalad and Hamel’s article, 80–82 innovative, 4
questions on core competencies in studies conducted by Miles and Snow, 4
company, 82 Contractor entrepreneurs, 6
resources, 82 Corporate optimization, 35–36
Sony’s capacity, 83 model “LCAG”, 41
sustainable benefits, 83 overwhelming majority, 43
resource theory, 83–84 principles, 41–48
value chain and Porter’s suggestion, 79 “SWOT” analysis, 41
Competitiveness, 25–26
based on specific skills of company, D
25–26
Decision optimization, 91
choice of activities, 26
business, 30
Concept of entrepreneur, 1–9
corporate optimization, 35–36
capitalist system actions, 2
decisions and actions pattern, 30–31
generates capital, 3
designing ways, 29
innovates market, 3
development of competitive advantage, 36
organizes production, 3
activities, 38
classification
contribute to society, 39
based on aspirations of leaders, 4–5
customer, 38
CAP, 5
examples, 37
by Norman Smith, 4
focus on productivity, 39
PIC, 5
integration of activities, 39
controlling operational variables
meeting needs of customers, 38
large companies, 2
Nestle Company, 40
intracontractors, 8–9
printing, 37
merchant capitalism, 1
resources, 38–39
multitude of aids, 6
travel agency, 37–38
disadvantages, 6–7
example of large retailers, 33
mythical image awareness
four dimension, 29
need of/for achievement, 3
novelization, 32
social background, 3–4
Norman Smith’s classification objective, 31
Artisan, 4 pluralistic conception, 35
Optimist, 4 relationships between company and its
questions by applied management business context, 29–30
specialists role of leaders in companies, 34
circumstances and terms of creation, 8 situation of independent firms, 31
prediction of success of business Sony Corporation, 32–33
project, 7 unique and practical, 33
single building project, 7–8 Deliberate process, 112
rehabilitation and spirit, 1–2 nature, 112
failure of major organizations, 2
contractor entrepreneurs, 6 E
Schumpeter, 2 Economic analysis, 22
small business, 2 focus points, 23
Index 265

traditional, 22 changing demographics strength, 64

Emerging process, 112 competitors, 60
Enterprise optimization, 41 conventionalist theory, 53–54
Entrepreneur CRTC and radio or TV station, 67
Coase’s observation, 22–23 culture and its effects, 65
Joseph Schumpeter’s observation, 22–23 Dahl’s pluralistic conception, 68
traditional economic analysis, 22 differentiation and strong branding, 58
definition, 53
F economies of scale, 58
Foundations of governance strategies, environmental issues, 65–66
29–40 examining profitability indices, 63
global auto, 59
H growth of the size, 62
Historical analysis increase in size of the market, 62
focus points, 23 increase sales and purchases, 62
interest in corporate networks, 70
I laws and regulations, 67
life cycle, 57
Implementation of business luxury, 63
optimization mechanisms, 91–104 market influence, 68
analysis models, 93 model of Andrews, 64
business context, 93 network organizations, 70–71
choice among number of options, 93 patent system, 69
leadership and social responsibility, 93 political context, 66
skills and resources, 93 production factors, access to 59
competitors, 94
regulations, 59
context of case, 94–95
research strategy, 64
customer profile, 92
Socialist Party in France, case, 66–67
decision optimization, 91–92
steel, 57–58
discount stores, 92
strategic group, 60
manufacturing transportation equipment
strategic management, 71
company, 95
strategic management of corporate
new company name, 93
identity, 68–69
new leaders, 92
strategy of company, 63
optimization mechanism elements, 94
structural changes by Porter, 61–62
resources, 92
structure, 63
strategic thinking, 92
suppliers, 57
strengths and weaknesses of
organization, 95–96
systematic approach, 93
L
Industry, 53 LCAG (Learned, Christensen, Andrews &
access to distribution channels, 59 Guth) model, 41
advent of knowledge economy, 64 capitalist enterprise, 44
aerospace division of Bombardier, 65 process of valorization of capital
barriers to entry by Porter, 58–59 employed, 44
The Body Shop, 60–61 “SWOT” version, 42
capital investments, 58 hidden solution, 43
266 Index

large companies, 43 occupational and professional cultures, 175

never linear decisions, 42–43 operational
no useful information, 42 approach, 184, 186
Leaders, 99 incremental approach, 190
communicator of organization, 13 leadership, 183
demographic characteristics, 99–100 planning, 191
growth by creativity, 102 organizational culture phenomenon, 182
Hippocrates method, 13–14 organization’s members, 187
motivator and as negotiator, 13 set of basic assumptions, 173–174
Life cycle of industry, 57 stakeholder community, 187
suppliers, 57 strategic analysis and planning
classical models of, 189
M strategic leadership, 183
Managerialism, 45 strategist, 179
Metadata and complexity mechanisms strong culture, 176
AT & T monopoly, dismantling of, 177 structures and systems, 179
tangible manifestation, 174
case
time relationships, 180–181
Oticon business, 185
traditional
coherent organizational culture, 177
approaches, 191
corrective action, 191
mission, 188
cultural and linguistic differences, 180
type of analysis, 181
cultural dynamics, analysis of, 181
VISA Desjardins card, 178
cultural revolution, 177
Walmart, 175
culture, 173–175
leadership, 191
N
deductive approach, 181
disjointed incrementalism, 189 Nonprogramable decisions, 106–108
distinctive culture, 176 soft decisions, 107
dominant Novelization, 32
culture, 182
logic, 178, 190 O
entrepreneurs and production staff Operational context in applied
dominance of, 188 management, 49–61
ethnographic beer industry of Canada, 56
approach, 179 changes in demand, 55
work, 180 consulting companies, 50
financial reasoning, 183 consumer, 55
innovative projects, 188–189 changes in behavior, 56
leaders and leadership, 176, 182, 184, detour on organizational theory, 51
187, 190 global auto industry, 59
long observation, 180 importance, 50
longitudinal approach, 190 industry, 53
management of cultural diversity, 175 access to distribution channels, 59
management team, 183, 189 advent of knowledge economy, 64
national culture, 175 aerospace division of Bombardier, 65
Notre-Dame Hospital, study, 182 barriers to entry by Porter, 58–59
Index 267

The Body Shop, 60–61 The Relevance of a Decade, 54

capital investments, 58 SAP financial accounting system, 49
changing demographics strength, 64 SME, 50
competitors, 60 strategic thinking, 55
conventionalist theory, 53–54 Swiss manufacturers, 49
CRTC and radio or TV station, 67 systems theory, 51
culture and its effects, 65 Timex Company, 49
Dahl’s pluralistic conception, 68 Operational decision-making, 105–113
differentiation and strong branding, 58 decentralization, 109
economies of scale, 58 decision theory, 105
environmental issues, 65–66 entrepreneur, responsibility holder as, 111
examining profitability indices, 63 game theory, 108–109
global auto, 59 integration, 111
growth of the size, 62 leader, 105
increase in size of the market, 62 nature and type, 105
increase sales and purchases, 62 nonprogramable decisions, 106–108
interest in corporate networks, 70 procedures, 110
laws and regulations, 67 process
life cycle, 57 emerging and deliberate process, 112
luxury, 63 limited information, 112
market influence, 68 reactive and proactive processes, 112
model of Andrews, 64 programed decisions, 105–106
network organizations, 70–71 role in large organizations, 105
patent system, 69 semiprogramed decisions, 106
political context, 66 small businesses, 113
production factors, access to 59 solution, 108–109
regulations, 59 structure of large productive
research strategy, 64 organizations, 110
Socialist Party in France, case, 66–67 Operational values for management
steel, 57–58 optimization
strategic group, 60 administration, 165
strategic management, 71 by-products, 166
strategic management of corporate centralized functional structure, 168
identity, 68–69 co-alignment, 163
strategy of company, 63 compensation effect, 170
structural changes by Porter, 61–62 conglomerate, 167
structure, 63 contingency theory, 163
suppliers, 57 cooperative structure, 172
institutional approach, 53 customers, 166
manufacturing companies, 49 divisional structure, 168
open system, 51–52 DuPont, 166–167
conception of the company, 52 case of, 164
Katz and Kahn’s specifications, 52 executive recruitment, 169
PeopleSoft, 50 five generic structures, 162–163
population ecology of organizations, 53 global structure, 167
Porter’s theory leaders, 168
seven elements, 54–55 management process, 168
268 Index

mass production, 163 Boston Consulting Group (BCG),

matrix, 167 model, 197–198
mechanisms of operation, 163 competitive position, 200
new type of structure allows, 165 complex organization, 205
operational approach, 167, 171, 172 Computer Company, 197
organizational structure, 161 curves of experiments, 198
pay and promotion systems, 170 decentralization, 195
physical stimulation, 170 decision-making, 203
red tape recruitment, 169 disadvantages, 202
remuneration system, 170 dysfunction, 195
Sherman Act Antitrust Law, 165 political games, 204
strategic management, 169 experimentation, 206
structural arrangements, 164 financial analysis, 196–197
tools, 169 forget assumptions, 202
young leaders, 166 internal analysis, 201
Optimization mechanism land requirements for summit, 204
analysis of internal capabilities, 103 leaders, 202
applied management, 100–101 managing complex situations, 205
combination of ingredients, 100 market position, 198
competitive advantage, 104 McKinsey-GE model, 201
coordination, 102 middle manager, performance of, 204
decision-making approach, 100 political model, 205
elements, 94 portfolio management, 199
leaders, demographic characteristics, Profit Impact of Market Strategy (PIMS)
99–100 mathematical equations, model, 200
major social concerns, 98 regression equations, 200
organizational community, 99 regression, types, 201
resources, 101 projections, 203
social contribution, 98 proliferation of activities, 195
strengths and weaknesses of rational or strategic model, 205
organization, 95–97 star, 199
administrative expertise, 96 state of dynamic equilibrium, 202
company’s salesmen, 97 strategic activities, 197
customer proximity, 98 strong relative market share, 199
expertise interpersonal aligns, 96 technical definitions, 195
funds, 96 variables, groups, 200–201
organizational know-how, 96 vertical specialization, 203
practice and organizational Optimizing global business
functioning, 96 aircraft construction industry, 241
state of technology and equipment, 96 auto industry, 236
technical skills, 96 automotive industry, 227–228
values and culture of groups, 98 cluster, 234
Optimized management, 20 combination of
Optimizing enterprises managerial configuration and coordination, 228
innovation competition, 225
attraction market, 198 diamond defines, 231–232
BCG and PIMS, models, 201–202 idea of national diamond, 233
Index 269

differentiation, 237 Porter systematic approaches, 135–136

diplomatic efforts, 244 process directive, 134
distribution channels, 238 radical change, 126
domestic companies, 238 management, 135
economic confrontation, 233 recreation, 127
economies of scale, 235 reorganization or restructuring
electronics market, 226 short-term survival, 129
expansion or contraction, 243 revitalization, 127–128
global dynamic, 240 role of leaders, 136
globalization, 225, 227–228 stimulus identification, 132
antithesis of, 236 strategic
idea of, 226 management, 125, 137
of national market, 229 positioning, 128
strategies of companies, 229–231 thinking activity, 136
times of, 234 structural arrangements, 130
integration, 243 symbolic management and
international complexity, 241–242 identification, 131
internationalization of activities/firms, technical management, 131
226–227
tentative strategy, 137
management instruments, 245
training strategies, 136, 137
meta-management, 242
transformation, 128
multinational integration, 243
type of transformation, 135
national sensitivity, 241
resource allocation, 244
sound global strategy, 234
P
specialization, 235 Patent system, 69
strategies, 238, 240 Pluralistic conception, 35
theories, 226 Proactive process, 112
tools, 242 nature, 112
value chain, 239 Profit Impact of Market Strategy (PIMS), 77
Optimizing operational choices mathematical equations, model, 200
business strategist, 135 regression
changing beliefs and structure, 128 equations, 200
Chrysler, 130 types, 201
cultural management, 131 Programed decisions, 105–106
cultural revolution, 130
DuPont, transformation of, 129 R
dynamic model, 131
Reactive process, 112
hybridization, 134
Resource theory, 83–84
Hydro-Q, transformation of, 127
institutionalization phase, 134
leaders and leadership, 130, 138
S
control evaluation, 134 Semiprogramed decisions, 106
maturation phase, 132 Small or medium-sized enterprise (SME),
Nortel Networks, case, 130 50
participatory model, 134 Soft decisions, 107
policy change, 133 Strategic management, 60, 125
270 Index

Strengths, Weaknesses, Opportunities, T

Threats (SWOT), 41, 116
The Body Shop, 60–61
Systems theory, 51
The CEO, 26
approach by Talcott Parsons, 51
The Relevance of a Decade, 54
open system, 51–52
conception of company, 52
Katz and Kahn’s specifications, 52