International Strategy
CMSE11214
Dr Dave Mackay
dave@alterity-ltd.com
Lecture 6 – Influences on
International strategy –
knowledge, innovation &
diversification
11am – 1pm 9th November 2015
FINISHING GROUP WORKING
Wednesday by 12pm – email the slides for your presentation to the office
(office+ibem@business-school.ed.ac.uk)
(N.B. Only the visuals for your presentation please … no audio)
Friday – deliver the presentation to your tutorial grouping at the following times:
Tutorial grouping 1 (0900) – 0900 – 1000
Tutorial grouping 2 (1000) – 1010 – 1110
Tutorial grouping 3 (1100) – 1120 – 1210
Tutorial grouping 4 (1200) – 1220 – 1300
– Be at the lecture theatre ready to start at the given time – groups that are late
will be penalised marks
Friday by 12pm – submit your group report by the usual channels to the office
TUTORIAL OBSERVATIONS
– All groups seem to have understood (and evidenced) the process of option
generation and evaluation through to making recommendations
– Varying degrees of success in application of the process:
Some presentations lacking in detail, others with extremely high levels of detail
Some presentations very focused on international strategy, others focused on global strategy
Some presentations formatted in a reviewer friendly way, others hard to follow
Key checking questions arising from the tutorials:
– Do the ideas we include in the SWOT analysis appear in the internal and external
analysis?
-Have we made the content of our SWOT and TOWS specific enough to
international strategy?
-How easy is it for others to look at our work and understand what is going on?
-Have we made an appropriate set of recommendations which are justified by the
SWOT, TOWS, SAFe process?
TODAY’S AGENDA
“How might knowledge, innovation and diversification influence
international strategy?”
1. Introducing part 2 of the course
2. Review of Individual Assignment
3. Theorising impacts on international strategy
4. Examining influences on LEGO – part 1:
A knowledge based view of the firm
Innovation – process and outcome
Diversification
5. Tasks for next time
PART 2 OF THE COURSE
– Key terms and considerations in international strategy
1-
– Strategic considerations in established international business environments
– Internal organisational factors influencing international strategy
– Examining the business environment in emerging markets
– Strategic management of the internationalisation process
– The strategic role of knowledge and innovation
– Partnerships, alliances, networks and relationships in international business
2-
– Organizing and resourcing for sustainability
– Implementing strategies for International business
– Bringing it all together
What might influence the management of
international strategy?
INDIVIDUAL ASSIGNMENT – TASK (1/3)
From the course handbook:
“Participants will be required to submit an individual critical reflective
essay of no more than 3000 words which explores the practicalities of
an aspect of the management of international strategy
implementation. This will require students to focus on material covered
in the second half of the course (lecture sessions 6-9/ semester weeks
8-11) of the course.”
Due on 4th December 2015 @ 12pm (midday) to the IBEM office
Worth 40% of your overall grade for the class
INDIVIDUAL ASSIGNMENT – TASK (2/3)
From the course handbook:
“The format of the essay will be:
1- define the specific question of the essay by selecting a focal topic, and
identifying a case firm (not the same one as studied for the group work)
which will be used to illustrate arguments
2- explain and define the key aspects of the factor to be managed within
international strategy using theory and concepts from the course literature
and also original reading
3- describe how the focal topic seems to be managed at the selected
case study firm, and any resulting performance effects
4- critically comment on theory-practice by comparing the case data with
literature
5- draw implications for managerial practice as a result of the critical
commentary”
INDIVIDUAL ASSIGNMENT – TASK (3/3)
Essays will be assessed on the following criteria:
i. Presentation of an effective piece of writing which addresses a
clearly stated question in line with assignment requirements
ii. A theoretically sound review of related concepts from literature,
including original sources (beyond the course material)
iii. Use of a convincing, relevant case study data to communicate
practical illustrations of the factor to be managed
iv. A justified, coherent critical comparison of theory and practice
v. Identification of a set of managerial implications which are justified
by the essay content
vi. Appropriate formatting, style, referencing and original thinking
INDIVIDUAL ASSIGNMENT – HOW TO…
1. Decide what “X” should be to make a question of the format “how
does X influence international strategy?”
Think about:
What topics are you interested in?
What topics do you understand well?
Topics to be considered in the second half of the course – knowledge, innovation,
diversification, collaboration, partnerships, networks, sustainability, organisation
structure, resources, people and cultural factors.
You can pick any of the topics that we cover in the course. You are advised to
focus on ONE topic only.
You can also pick a management topic that we don’t directly cover on the course –
please ask the class tutor to confirm your choice before proceeding.
INDIVIDUAL ASSIGNMENT – HOW TO…
2. Research the topic in the academic literature
– Familiarise yourself with key considerations from the textbooks
– Seek out at least c. 5-10 key supporting papers from relevant
journals
– “Follow the references” – from both textbook and key papers, look
for any further reading that would help you describe, explain and
evaluate your chosen topic’s impact on international strategy
– For most people, this will be a good time to try to write the first
1000 words of the essay
INDIVIDUAL ASSIGNMENT – HOW TO…
3. Research a suitable case example to help you explain your
insights from literature
– Identify a case organisation for your individual work:
That interests you
For which you can ask relevant data to your topic
That was NOT YOUR case organisation for the group assignment
Note down any reference sources – websites, media, journals, government
papers etc. – which provide relevant insights.
Write a short piece of descriptive text introducing your case organisation and
how the topic of interest seems to influence international strategy in this
specific case
INDIVIDUAL ASSIGNMENT – HOW TO…
4. Compare theory and practice to build insights
– This is the most important part of the writing task – doing this well is
vital for gaining a good grade
– With your knowledge of the topic from literature and the case organisation
from your research, look for ways in which:
You can illustrate theory with examples from practice
You can explain events from practice using points of theory
– This discussion section gives you a chance to build an argument – using
explanation and evaluation IN ADDITION to description in order to justify
your point of view
– Any assignment that gains a distinction pass will have a well-developed
discussion section with this sort of content
INDIVIDUAL ASSIGNMENT – HOW TO…
5. Draw conclusions
– Tie the main points arising in your discussion section back to the original
question to make some conclusions
E.g. if the opening question was “how can innovation affect international
strategy?”, seek to identify 2 or 3 ‘answers’ to this question in a
concluding few paragraphs
– These ‘answers’ will most likely be tentative as they are linked to limited
reading and a single case
– Please do not write about proving anything e.g. “the case of
organisation Z proves that innovation influence international strategy…
etc.”
– Look for managerial implications or theoretical insights which are wellsupported by the rest of your document
INDIVIDUAL ASSIGNMENT:
APPROXIMATE TIMETABLE
Task
Notes
I would aim to
complete by
1. Define Question
– can check with tutor if unsure
13/11/15
2. Review literature
– Use journal papers and text
books
19/11/15
3. Research case
– A case that interests you that is
NOT the same as your group
submission
25/11/15
4. Compare theory
& practice
– This is vital to gaining a good
grade
30/11/15
5. Draw conclusions
– be sure to connect discussion
with original question
2/12/15
6. Tidy-up & proof
– Reference to Harvard standard
3/12/15
7. Submit
4/12/15 midday
KNOWLEDGE, INNOVATION & DIVERSIFICATION
As managers in a firm seek to implement international strategy, it is
likely that they will have to engage with ideas of knowledge,
innovation and diversification management.
Knowledge – facts, information, and skills acquired through experience
or education; the theoretical or practical understanding of a subject
Innovation – the successful exploitation of new ideas
Diversification – increasing the range of products or markets served by
an organisation
About knowledge
“Knowledge is a highly contentious topic” for which no universal definition exists
(“Making Knowledge the basis of a dynamic theory of the firm”, Spender, 1996, p46)
For example
Narrow Technical
Knowledge
How to do a SWOT
analysis
Broad Technical
Knowledge
How an organisation’s
formal strategy process
works
A sense for how things
work broadly
What makes a ‘good’
strategy
A sense for how things
work in the moment
How to gain agreement
from an individual to a
difficult strategic task
Explicit, codified
knowledge
‘know what’
Tacit, experiential
knowing
‘know how’
THE KNOWLEDGE SPIRAL
The knowledge spiral is a famous model of the continuing management challenge to
work with, integrate and create new knowledge.
Socialisation
(tacit-tacit)
Externalisation
(tacit-explicit)
Internalisation
(explicit-tacit)
Combination
(explicit-explicit)
[Frynas and Mellahi, 2011, p393]
[Adapted from Nonaka and Takeuchi, 1995, The Knowledge Creating Company]
KNOWLEDGE BASED VIEW OF THE FIRM
‘A firm is a repository of knowledge that consists of how information is
coded and action coordinated.’
(Kogut & Zander JIBS 24/5, 1995, “Distributed Knowledge and Creativity in the International Software Industry”)
International firms only have long-term competitive advantage
because of their possession and use of unique knowledge
A core role of international businesses is:
To gain knowledge from across the world
To recombine that knowledge in new ways in order to develop new knowledge
Exploit that knowledge
This requires abilities to collect (learn), use and manage knowledge –
how this is done will be an important influencer of international
strategy in practice
International operations need to be crafted to best possess & make
use of unique knowledge – particularly when entering new markets to
compete effectively with incumbent firms
[Frynas and Mellahi, 2011, p347-375]
INNOVATION IS…
• Purposefully exploiting ideas
to generate new value for
your organisation and
customers
• Originality implemented
• Business as usual
“Innovation is something different
that has impact” Scott Anthony
WHY DOES INNOVATION MATTER?
According to the Innovation Report 2014 published by BIS,
innovation is vital for prosperity:
Creates economic growth
Enhances productivity
Creates new market opportunities
Improves welfare and living standards
Addresses social challenges
Clean and sustainable energy
Food security
Demographic changes
For those seeking to manage international strategy, innovation capabilities are about
converting good ideas / knowledge into business results. This requires decisions to be
made, and resources to be used, according to the needs of the situation. This can be
complicated though, particularly when working across borders
Novelty in
product or
service
offering
Offering
something no
one else can
do
Robust platform
design
Establish platform
which will serve
future variations
of products
Novelty in process
Offering something
in ways others
cannot match (eg.
Cost, speed etc.)
Re-write the
industry rules
Wave of
Destructive –
make competitors
obsolete
Complexity of
operation
Offering
something in ways
others find
difficult to master
Process
Reconfiguration
Change how
system operates
Legal protection
of intellectual
property
Offering
something in ways
others have to
pay to access
Reapplication
of ideas across
contexts
Efficiency in
reaching new
markets
Extend range
of competitive
factors
Move basis of
competition
Timing of
market entry
First mover or
fast follower
advantage
Innovation can take
many different forms
of strategic action
Mechanism
of Innovation
Strategic
Advantage
Tidd and Bessant
(2013:14-15)
Managing Innovation
THE INNOVATION LANDSCAPE MAP
DIVERSIFICATION
Innovation can drive Diversification, which involves increasing the range of
products or markets served by an organisation
Related diversification involves expanding into products or services with relationships to the
existing business
Conglomerate (or unrelated) diversification involves diversifying into products or services
with no relationships to existing businesses.
When understanding diversification, parenting advantage refers to the
value added to individual business units by the head office of an
organisation.
** This is a key overlap with international strategy – as the head office
pursues an international strategy, what parenting advantage can it pass on
to its international subsidiaries? **
An example of parenting advantage is economy of scope, which refers to
efficiency gains through applying an organisation’s existing resources or
competences to new markets or services
[Frynas and Mellahi, 2011, p248-259]
ANSOFF’S CORPORATE STRATEGY MATRIX
Depending on the diversification approach taken by a firm, the impact on international
strategy will vary.
(Johnson et al, 2013, pp228 “Exploring Strategy”)
PORTFOLIO MANAGEMENT
A famous model of diversification portfolio management is the BCG matrix, which can
help explain the form of international strategy according to the markets pursued
(Johnson et al, 2013, pp245 “Exploring Strategy”)
KNOWLEDGE, INNOVATION & DIVERSIFICATION
– the management of knowledge – explicit and tacit – can have a
profound impact on what should be in international strategy and how it
should be executed.
To adopt this as an assignment focus, you could explore the ‘knowledge based view’ of the
firm and international business/strategy
– innovation management/strategy theory can help explain how new
knowledge is exploited for commercial gain in different markets through
international strategy
To adopt this as an assignment focus, you could explore theory about innovation
management, processes and outcomes and international business/strategy
– an organisation’s portfolio and approach to diversification – which
might be modified through innovation – will be a key influencer of
international strategy possibilities
To adopt this as an assignment focus, you could explore theory about diversification and
corporate strategy
INFLUENCES ON LEGO
Introducing the case
KNOWLEDGE, INNOVATION & DIVERSIFICATION
Let’s review the case of the LEGO group, thinking about how:
– Knowledge and knowledge management
– Innovation (including creativity and execution)
– Diversification and portfolio management
occurs within the group.
We’ll think about how the organisation operates today, and also how
it has changed over the last 20 years, in order to understand the
impacts of these topics on international strategy.
Let’s start with some background…
LEGO STRATEGIC PURPOSE
“LEG GODT” – DANISH FOR “PLAY WELL”
DKK :GBP
0.11:1
2014 STATEMENT*
Global Business
Management Comment
2014 – Strong Growth
“More than 200 designers from 26
different countries make up the
creative core of product
development that is mainly based
at the company headquarters in
Billund, Denmark”
15% increase in profit (vs 2013)
13% increase in turnover (vs
2013)
“All major LEGO markets
experienced growth in 2014. The
Group’s largest market, the US,
grew double digit as did the UK,
France, Russia and China, while
Central and Northern European
markets achieved healthy single
digit growth rates”
FDI in production operations in
Mexico, China, Hungary, Czech rep
FDI in sales & marketing
subsidiaries in Brazil, Turkey,
Malaysia
New HQs in Shanghai & London
* Details taken from http://www.lego.com/en-us/AboutUs/lego-group/annual-report
AN INTERNATIONALISING BUSINESS
Management Comment
“As new products make up approximately 60% of the total
sales each year, an innovative and consumer-oriented
development process is a fundamental parameter to the
continued success. Furthermore, the LEGO Group’s strategy
of globalising its operations has resulted in reaching new
consumers in new areas. This has only been possible through
an ongoing focus on optimisation and improvement, while
securing frictionless collaboration in the entire value chain
to deliver on customer demands.” p4
* Details taken from http://www.lego.com/en-us/AboutUs/lego-group/annual-report
NOT ALWAYS SO STRONG
Lego late 90s – a lifestyle brand with its own lines of clothes,
watches and video games. Aimed products at girls, ignoring its
main customers, boys aged five to nine.
"Without doubt, we shall
General malaise in the traditional toy industry & turbulence for reach our goal of being the
world`s strongest brand
toy makers:among families with children
low-cost copycats
before 2005“
competition from high-tech gadgets
economic crises in Asia and Russia
falling birth rates in many developed countries.
Big discount chains squeezing margins
Supply chains migrating to low cost economies
Rumours in 2003 America’s Mattel, the World’s biggest toymaker,
would take over Lego.
CEO and President,
Kristiansen after Lego
makes first ever loss in
1998
TOO MUCH CREATIVE LICENCE?
Approximately 140 designers from about 20 different
countries make up the creative core of product
development… from 1997, they were given free reign to
diversify the company and increase sales
By 2004 the number of components had exploded,
climbing from about 7,000 to 12,400 in just seven years.
Supply costs had spiralled out of control too.
LEGO City line, once among the largest pieces of LEGO’s
business, into a shell of its former self, accounting for just 3
percent of the company’s total revenue, down from roughly
13 percent in 1999
"Management was to blame,“ (VP Products and Markets)
"The same people who were doing crappy products then
are making world-class products today”
NEW CEO JORGEN VIG KNUDSTORP 2004
Lego’s first leader from outside the founding family
Former management consultant at McKinsey
Replaced "nurturing the child" as the top priority in Lego’s
employee mission statement with "I am here to make money
for the company”
Listened to retailers and left the brand alone
Put boundaries on diversification, avoiding businesses Lego
did not understand
Laid off 3500 of 8000 staff
Moved production to low cost economies
Introduced performance related pay
Sold off theme parks
IN BRIEF – IMPACTS OF KNOWLEDGE, INNOVATION AND
DIVERSIFICATION ON INTERNATIONAL STRATEGY IN THE LEGO GROUP
Many types of explicit and tacit knowledge influence international strategy at the
LEGO group – from “codified knowledge” in the form of standardised business
processes (production, marketing etc.) that are rolled out around the world, to “tacit
knowledge” about what works for customers in their highly diverse, international
workforce (that grows in diversity and locations as they diversify to new markets)
Innovation is vital to the continuing international success of the group as c.60% of their
sales come from new products each year. Internal innovation processes drive cost
savings, efficiency and collaboration, whilst externally focused innovation processes
drive market growth through engagement with customers and their needs around the
world. International strategy fosters innovation capability through the establishment of
on-the-ground operations in increasingly diverse locations
Large-scale diversification nearly killed the company in 2003 – the company now
manages its diversification work – particularly internationally – through a careful
selection of partnerships, collaborations and networks.
QUESTIONS AND DISCUSSION
(1) How do:
A) Knowledge and knowledge management
B) Innovation (including creativity and execution)
C) Diversification and portfolio management
influence the LEGO Group in general and the LEGO group’s
international strategy in particular?
(2) What historical lessons does it seemed to have learned about how
to manage these concerns?
ACTIVITIES FOR BEFORE NEXT TIME
Complete your group assignment!
Arrive at the next lecture with
-a draft individual essay question
-a possible case to illustrate your question
Be prepared to discuss your choices with your colleagues
Next Lecture – 16/11/15 – 1100 – 1300
