chapter copyright© 2007 thomson learning all rights reserved 8 organizational designs for...

Chapter

Copyright© 2007 Thomson Learning All rights reserved

8Organizational Designs for Multinational Companies

Copyright© 2007 South-Western/Thomson Learning All rights reserved

Learning Objectives

• Understand the components of organizational design• Know the basic building blocks of organization

structure• Understand the structural options for multinational

companies• Know the choices multinationals have in the use of

subsidiaries

• Understand the components of organizational design• Know the basic building blocks of organization

structure• Understand the structural options for multinational

companies• Know the choices multinationals have in the use of

subsidiaries


Learning Objectives

• See the links between multinational strategies and structures

• Understand the basic mechanisms of organizational coordination and control

• Know how coordination and control mechanisms are used by multinational companies

• Understand the need for knowledge management systems within organizations

• See the links between multinational strategies and structures

• Understand the basic mechanisms of organizational coordination and control

• Know how coordination and control mechanisms are used by multinational companies

• Understand the need for knowledge management systems within organizations


Organizational Design

• How organizations structure subunits and coordination and control mechanisms to achieve strategic goals

• Basic questions:- How to divide work among the organization’s

subunits?- How to coordinate and control the efforts of the units

created?

• How organizations structure subunits and coordination and control mechanisms to achieve strategic goals

• Basic questions:- How to divide work among the organization’s

subunits?- How to coordinate and control the efforts of the units

created?


Nature of Organization Design

• In small organizations, there is little reason to divide work- Everyone does the same thing and everything

• As organizations grow, there is a need to divide work and the organization

• There is no one best organizational design

• In small organizations, there is little reason to divide work- Everyone does the same thing and everything

• As organizations grow, there is a need to divide work and the organization

• There is no one best organizational design


The Basic Functional Structure

• Departments perform separate business functions such as marketing or manufacturing

• Simplest of organizations• Most smaller organizations have functional structures

• Departments perform separate business functions such as marketing or manufacturing

• Simplest of organizations• Most smaller organizations have functional structures


Exhibit 8.1: A Basic Functional Structure


The Basic Functional Structure

• Works best when organization has:- Few products- Few locations- Few types of customers- A stable environment- Routine technology

• Works best when organization has:- Few products- Few locations- Few types of customers- A stable environment- Routine technology


The Basic Product and Geographic Structures

• Product structure: departments or subunits based on different product groups

• Geographic structure: departments or subunits based on geographic regions

• Product structure: departments or subunits based on different product groups

• Geographic structure: departments or subunits based on geographic regions


The Basic Product and Geographic Structures (cont.)

• Usually less efficient than the functional organization• Allows a company to serve customer needs that vary

by region or product

• Usually less efficient than the functional organization• Allows a company to serve customer needs that vary

by region or product


Exhibit 8.2: Product Structure


Exhibit 8.3: A Basic Geographic Structure


The Basic Product and Geographic Structures

• Managers choose product structures when:• Product or an area sufficiently unique to require

focused functional efforts on one type of product or service

• Hybrid structure: mixes functional, geographic, and product units

• Managers choose product structures when:• Product or an area sufficiently unique to require

focused functional efforts on one type of product or service

• Hybrid structure: mixes functional, geographic, and product units


Organizational Structures to Implement Multinational Strategies

• When company first goes international, it seldom changes structure.- Passive exporter

• Licensing has little impact on domestic structures.• However, when international sales become more

central, structures need to be changed.

• When company first goes international, it seldom changes structure.- Passive exporter

• Licensing has little impact on domestic structures.• However, when international sales become more

central, structures need to be changed.


Export Department

• Coordinates and controls a company’s export operations

• Export department - Is created when exports become significant- Deals with international sales of all products

• Coordinates and controls a company’s export operations

• Export department - Is created when exports become significant- Deals with international sales of all products


Exhibit 8.4: A Functional Structure with an Export Department


Foreign Subsidiaries

• Subunit of the multinational company that is located in another country

• Types of foreign subsidiaries- Minireplica subsidiary: smaller version of the parent

company• Uses the same technology and producing the

same products as the parent company- Transnational subsidiary: has no companywide form

or function • Each subsidiary contributes what it does best

• Subunit of the multinational company that is located in another country

• Types of foreign subsidiaries- Minireplica subsidiary: smaller version of the parent

company• Uses the same technology and producing the

same products as the parent company- Transnational subsidiary: has no companywide form

or function • Each subsidiary contributes what it does best



• Many subsidiaries are neither minireplicas nor transnationals

• May take different forms or functions

• Many subsidiaries are neither minireplicas nor transnationals

• May take different forms or functions



• Multinationals choose the mix of functions based on:- The firm’s multinational strategy or strategies- The subsidiaries’ capabilities and resources- The economic and political risk of building and

managing a subunit in another country- How the subsidiaries fit into the overall multinational

organizational structure

• Multinationals choose the mix of functions based on:- The firm’s multinational strategy or strategies- The subsidiaries’ capabilities and resources- The economic and political risk of building and

managing a subunit in another country- How the subsidiaries fit into the overall multinational

organizational structure


International Division

• Larger and has greater responsibilities compared to the export department

• Responsible for managing exports, international sales, and foreign subsidiaries

• Usual step after export department• Deals with all products• Manages overseas sales force and manufacturing

sites

• Larger and has greater responsibilities compared to the export department

• Responsible for managing exports, international sales, and foreign subsidiaries

• Usual step after export department• Deals with all products• Manages overseas sales force and manufacturing

sites


Exhibit 8.5: An International Division



• Reasons to abandon the international division- Diverse products overwhelm capacities of

multinational- Not close enough to local markets- Cannot take advantage of global economies of scale

or global sources of knowledge

• Reasons to abandon the international division- Diverse products overwhelm capacities of

multinational- Not close enough to local markets- Cannot take advantage of global economies of scale

or global sources of knowledge



• Several options available to deal with these shortcomings- Worldwide product structure- Worldwide geographic structure- Matrix structure- Transnational-network structure

• Several options available to deal with these shortcomings- Worldwide product structure- Worldwide geographic structure- Matrix structure- Transnational-network structure


Worldwide Geographic Structure

• Has geographical units representing regions of the world- Prime reason is to implement a multidomestic or

regional strategy- Organizational design with maximum geographic

flexibility- Separate divisions for large market countries

• Has geographical units representing regions of the world- Prime reason is to implement a multidomestic or

regional strategy- Organizational design with maximum geographic

flexibility- Separate divisions for large market countries


Exhibit 8.6: Royal Vopak Geographic Structure


Worldwide Product Structure

• Worldwide product structure- Gives product divisions responsibility to produce and

sell their products or services throughout the world- Implements strategies that emphasize global

products- Provides an efficient way to organize and centralize

the production and sales of similar products

• Worldwide product structure- Gives product divisions responsibility to produce and

sell their products or services throughout the world- Implements strategies that emphasize global

products- Provides an efficient way to organize and centralize

the production and sales of similar products


Exhibit 8.7: Worldwide Product Structure


Hybrids

• Both worldwide product structure and worldwide geographic structure have advantages and disadvantages- Product structure: supports global products- Geographic structure: emphasizes local adaptation

• Multinationals often want both abilities• Use hybrids

• Both worldwide product structure and worldwide geographic structure have advantages and disadvantages- Product structure: supports global products- Geographic structure: emphasizes local adaptation

• Multinationals often want both abilities• Use hybrids


Front-back Hybrid Structure

• The front side has units based on geography to provide a multidomestic or regional focus

• The backside has units based on product groups to capture global economies of scale in R&D and production

• The front side has units based on geography to provide a multidomestic or regional focus

• The backside has units based on product groups to capture global economies of scale in R&D and production


Exhibit 8.8: Tetra Pak’s Front-Back Hybrid Structure


Worldwide Matrix Structures

• Symmetrical organization with equal emphasis on- Worldwide product groups and- Regional geographical divisions

• Geographic divisions focus on national responsiveness and product divisions focus on finding global efficiencies

• Symmetrical organization with equal emphasis on- Worldwide product groups and- Regional geographical divisions

• Geographic divisions focus on national responsiveness and product divisions focus on finding global efficiencies


Worldwide Matrix Structures

• Balances the benefits produced by area and product structures

• Creates equal lines of authority for products and areas- Works best with near equal demands from both

sides• Requires extensive resources for communication and

coordination• Requires middle and upper level managers with good

human relations skills

• Balances the benefits produced by area and product structures

• Creates equal lines of authority for products and areas- Works best with near equal demands from both

sides• Requires extensive resources for communication and

coordination• Requires middle and upper level managers with good

human relations skills


Exhibit 8.9: Worldwide Matrix Organization


Matrix Structures

• Problems emerging with worldwide matrix structures- Slow decision making process- Too bureaucratic- Too many meetings and too much conflict

• Problems emerging with worldwide matrix structures- Slow decision making process- Too bureaucratic- Too many meetings and too much conflict


Matrix Structures (cont.)

• Result- Some companies have abandoned their matrixes

and returned to product structures- Other companies have redesigned their matrix

structures to be more flexible with speedier decision making

• Result- Some companies have abandoned their matrixes

and returned to product structures- Other companies have redesigned their matrix

structures to be more flexible with speedier decision making


The Transnational-Network Structure

• Newest solution to the complex demand of being locally responsive and taking advantage of global economies of scale

• Combines functional, product, and geographic subunits- Dispersed subunits- Specialized operations- Interdependent relationships

• Newest solution to the complex demand of being locally responsive and taking advantage of global economies of scale

• Combines functional, product, and geographic subunits- Dispersed subunits- Specialized operations- Interdependent relationships


The Transnational-Network Structures

• Has no symmetry or balance in its structural form• Resources, people, and ideas flow in all directions• Nodes or centers in the network coordinate product,

functional, and geographic information

• Has no symmetry or balance in its structural form• Resources, people, and ideas flow in all directions• Nodes or centers in the network coordinate product,

functional, and geographic information


The Transnational-Network Structures

• Philips divides the world into three groups• Key countries: such as the Netherlands and the United

States produce for local and world markets and control local sales

• Large countries: such as Mexico and Belgium have some local and worldwide production facilities and local sales

• Local business countries: smaller countries that are primarily sales units and that import products from the product divisions’ worldwide production centers in other countries

• Philips divides the world into three groups• Key countries: such as the Netherlands and the United

States produce for local and world markets and control local sales

• Large countries: such as Mexico and Belgium have some local and worldwide production facilities and local sales

• Local business countries: smaller countries that are primarily sales units and that import products from the product divisions’ worldwide production centers in other countries


Exhibit 8.10: Geographic Links in the Philips Transnational Structure


Exhibit 8.11: Product Links in the Same Organization


Components of the Transnational-Network Structure

1. Dispersed subunits: subsidiaries located anywhere where they can most benefit the company

2. Specialized operations: subunits specializing in particular product, research areas, or marketing areas

3. Interdependent relationships: continuous sharing of information and resources by dispersed and specialized subunits

1. Dispersed subunits: subsidiaries located anywhere where they can most benefit the company

2. Specialized operations: subunits specializing in particular product, research areas, or marketing areas

3. Interdependent relationships: continuous sharing of information and resources by dispersed and specialized subunits


Metanational Structure

• Large entrepreneurial multinational• Can tap into pockets of innovation, technology, and

markets located around the world• Develops extensive systems to encourage

organizational learning and entrepreneurial activities

• Large entrepreneurial multinational• Can tap into pockets of innovation, technology, and

markets located around the world• Develops extensive systems to encourage

organizational learning and entrepreneurial activities


Metanational Characteristics

• Nonstandard business formulas for any local activity• Looking to emerging markets as sources of knowledge

and ideas• Creating a culture supporting global learning• Extensive use of strategic alliances to gain knowledge

for varied sources

• Nonstandard business formulas for any local activity• Looking to emerging markets as sources of knowledge

and ideas• Creating a culture supporting global learning• Extensive use of strategic alliances to gain knowledge

for varied sources


Characteristics of Metanationals

• High levels of trust between partners to encourage knowledge sharing

• Centerless organization that moves strategic functions away from headquarters to major markets

• Decentralization of decision making to managers who serve key customers and strategic partners

• High levels of trust between partners to encourage knowledge sharing

• Centerless organization that moves strategic functions away from headquarters to major markets

• Decentralization of decision making to managers who serve key customers and strategic partners


Micro-Multinational Company

• Micro-multinational companies: smaller organizations that take advantage of the Web to operate globally from Day One

• Micro-multinational companies: smaller organizations that take advantage of the Web to operate globally from Day One


Micro-Multinational Company

• Characteristics- They operate as born-global firms from the day they

are founded, and they operate everywhere around the world

- They are willing to start operations and hire workers from around the world and from where it makes the most sense to do so

- They are more likely to use various state-of-the-art technology for communication purposes

• Characteristics- They operate as born-global firms from the day they

are founded, and they operate everywhere around the world

- They are willing to start operations and hire workers from around the world and from where it makes the most sense to do so

- They are more likely to use various state-of-the-art technology for communication purposes


Multinational Strategy and Structure: An Overview

• Most companies support early internationalization efforts with export department

• Depending on globalization strategy, they evolve into product or geographic structure

• Pressure for local adaptation and global efficiencies result into matrix or transnational-network

• No company reaches any pure form—use hybrids

• Most companies support early internationalization efforts with export department

• Depending on globalization strategy, they evolve into product or geographic structure

• Pressure for local adaptation and global efficiencies result into matrix or transnational-network

• No company reaches any pure form—use hybrids


Exhibit 8.12: Multinational Strategy, Structure, and Evolution


Control Systems

• Control system: helps link the organization vertically, up and down the organizational hierarchy

• Basic functions of control system- Measure or monitor the performances of subunits- Provide feedback to subunit managers regarding the

effectiveness of their units

• Control system: helps link the organization vertically, up and down the organizational hierarchy

• Basic functions of control system- Measure or monitor the performances of subunits- Provide feedback to subunit managers regarding the

effectiveness of their units


Coordination Systems

• Coordination system: horizontal organizational links- Provide information flows among subsidiaries

• Coordination system: horizontal organizational links- Provide information flows among subsidiaries


Design Options for Control Systems

• Four types of control systems- Output control system- Bureaucratic control system- Decision-making control- Cultural control system

• Four types of control systems- Output control system- Bureaucratic control system- Decision-making control- Cultural control system


Output Control Systems

• Assesses the performance of a unit based on results, not on the processes used to achieve these results- Profit center: unit controlled by its profit or loss

performance

• Assesses the performance of a unit based on results, not on the processes used to achieve these results- Profit center: unit controlled by its profit or loss

performance


Bureaucratic control system

• Focuses on managing behaviors within the organization- Budgets: financial targets for expenditures - Statistical reports: information to top management

about nonfinancial outcomes- Standard operating procedures (SOPs): rules and

regulations of appropriate behavior

• Focuses on managing behaviors within the organization- Budgets: financial targets for expenditures - Statistical reports: information to top management

about nonfinancial outcomes- Standard operating procedures (SOPs): rules and

regulations of appropriate behavior


Control and Coordination Systems

• Decision-making control: level in the organizational hierarchy where managers have the authority to make decisions

• Cultural control system: uses organizational culture to control behaviors and attitudes of employees

• Decision-making control: level in the organizational hierarchy where managers have the authority to make decisions

• Cultural control system: uses organizational culture to control behaviors and attitudes of employees


Exhibit 8.13: Use of Control Mechanisms in Multinational Organizational Structures


Design Options for Coordination Systems

• Textual communication: e-mail, memos, and reports• Direct contact: face-to-face interaction of employees• Liaison roles: part of a person’s job in one department

to communicate with people in another department• Task forces: temporary teams created to solve a

particular organizational problem• Full-time integrators: cross-unit coordination is the

main job responsibility

• Textual communication: e-mail, memos, and reports• Direct contact: face-to-face interaction of employees• Liaison roles: part of a person’s job in one department

to communicate with people in another department• Task forces: temporary teams created to solve a

particular organizational problem• Full-time integrators: cross-unit coordination is the

main job responsibility


Teams

• Teams: permanent unit of the organization- Global virtual teams: groups of people from different

parts of the world who work together by using information and communication technologies such as intranets, web meetings, WIKI’s, e-mails and instant messaging

• Teams: permanent unit of the organization- Global virtual teams: groups of people from different

parts of the world who work together by using information and communication technologies such as intranets, web meetings, WIKI’s, e-mails and instant messaging


Problems with Global teams

• Team members’ native languages are different• Differences in cultural background• Global teams dominated by headquarters’

perspectives and experiences• Major challenges in building team collaboration• Challenges in meeting programmatic objectives

• Team members’ native languages are different• Differences in cultural background• Global teams dominated by headquarters’

perspectives and experiences• Major challenges in building team collaboration• Challenges in meeting programmatic objectives


Steps to ensure the global teams collaborate to function effectively

• Build relationships and trust• Devote significant attention to project planning and

hold project progress meetings regularly• Cultural, language, and active-listening training• Be aware of team-development stage

• Build relationships and trust• Devote significant attention to project planning and

hold project progress meetings regularly• Cultural, language, and active-listening training• Be aware of team-development stage


Knowledge Management

• Knowledge management: refers to the systems, mechanisms, and other design elements of any organization to ensure that the right form of knowledge is available to the right individual at the right time

• Knowledge management: refers to the systems, mechanisms, and other design elements of any organization to ensure that the right form of knowledge is available to the right individual at the right time


Knowledge Management

• Types of knowledge• Explicit form:found in records or other repositories of

information• Tacit knowledge: represents the knowledge that

usually resides within employees and is dependent on the organization’s culture and context

• Types of knowledge• Explicit form:found in records or other repositories of

information• Tacit knowledge: represents the knowledge that

usually resides within employees and is dependent on the organization’s culture and context


Exhibit 8.14: Knowledge Management Barriers


Knowledge Management: Steps to Develop Successful System

• Identify/support knowledge activists• Make knowledge management part of the general

strategy• Provide financial and human resources support• Emphasize importance of communication• Celebrate success

• Identify/support knowledge activists• Make knowledge management part of the general

strategy• Provide financial and human resources support• Emphasize importance of communication• Celebrate success


Conclusion

• Good strategies do not guarantee success – also need good implementation

• Need the right organizational designs to carry out strategies

• Chapter reviews basic organizational structures and discusses international organizational designs and structures

• Chapter also discusses knowledge management systems

• Good strategies do not guarantee success – also need good implementation

• Need the right organizational designs to carry out strategies

• Chapter reviews basic organizational structures and discusses international organizational designs and structures

• Chapter also discusses knowledge management systems

chapter copyright© 2007 thomson learning all rights reserved 8 organizational designs for...

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