chapter thirteen the organization of international business
TRANSCRIPT
![Page 1: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/1.jpg)
![Page 2: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/2.jpg)
Chapter Thirteen
The Organization of International Business
![Page 3: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/3.jpg)
13 - 3
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Opening Case
• One of world’s oldest multinational corporations• Organized on a decentralized basis• Annual conferences on company strategy and executive
education sessions establish connections between managers• Duplication of facilities and high cost structure a problem in
new competitive environment• 1996: introduced structure based on regional business groups• “Lever Europe” established to consolidate the company’s
detergent operation in order to reduce costs and speed up new product information
![Page 4: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/4.jpg)
13 - 4
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Introduction
• Organizational architecture includes the totality of a firm’s organization, including formal organization structure, control systems and incentives, processes, organizational culture, and people
• Superior enterprise profitability requires three conditions- The different elements of a firm’s organizational
architecture must be internally consistent- The organizational architecture must match or fit the
strategy of the firm- The strategy and architecture of the firm must not only
be consistent with each other but they also must be consistent with competitive conditions
![Page 5: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/5.jpg)
13 - 5
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Organizational Architecture
• Organizational structure refers to three things- The formal division of the organization into sub-units- The location of decision-making responsibilities within that
structure- The establishment of integrating mechanisms to coordinate
the activities of subunits
• Control systems are the metrics used to measure the performance of sub-units and make judgments about how well managers are running them
• Incentives are the devices used to reward appropriate managerial behavior
![Page 6: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/6.jpg)
13 - 6
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Organizational Architecture
• Processes are the manner in which decisions are made and work is performed within the organization
• Organizational culture refers to the norms and value systems that are shared among the employees of an organization
• People are not just the employees of the organization; the term refers also to the strategy used to recruit, compensate, and retain those individuals and the type of people they are in terms of their skills, values, and orientation
![Page 7: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/7.jpg)
13 - 7
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Organizational Architecture
![Page 8: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/8.jpg)
13 - 8
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Organizational Structure
• This should be thought of in terms of three dimensions- Vertical differentiation: the location of decision-
making responsibilities within a structure - Horizontal differentiation: the formal division of the
organization into sub-units - Establishment of integrating mechanisms:
mechanisms for coordinating sub-units
![Page 9: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/9.jpg)
13 - 9
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Centralization Versus Decentralization
• Centralization:- Facilitates coordination- Ensure decisions consistent
with organization’s objectives
- Top-level managers have means to bring about organizational change
- Avoids duplication of activities
• Decentralization:- Overburdened top
management- Motivational research
favors decentralization- Permits greater flexibility- Can result in better
decisions- Can increase control
![Page 10: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/10.jpg)
13 - 10
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Horizontal Differentiation: The Design of Structure
• Horizontal differentiation is concerned with how the firm decides to divide itself into sub-units.
• The decision is normally made on the - Basis of function- Type of business- Geographical area
![Page 11: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/11.jpg)
13 - 11
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Typical Functional Structure
![Page 12: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/12.jpg)
13 - 12
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
The International Division
• Many manufacturing firms expanded internationally by exporting the product manufactured at home to foreign subsidiaries to sell
• In time it might prove viable to manufacture the product in each country
• The result could be that- Firms with a functional structure at home would replicate the
functional structure in every country in which they do business - Firms with a divisional structure would replicate the divisional
structure in every country in which they do business
![Page 13: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/13.jpg)
13 - 13
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
The International Division
![Page 14: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/14.jpg)
13 - 14
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Problems with the International Structure
• Potential for conflict and coordination problems between domestic and foreign operations
• Heads of foreign subsidiaries are not given as much voice in the organization as the heads of domestic functions
- The international division is presumed to be able to represent the interests of all countries to headquarters
• Lack of coordination between domestic operations and foreign operations
• To combat these problems firms choose one of the following structures
- Worldwide product divisional structure which tends to be adopted by diversified firms that have domestic product division
- Worldwide area structure which tends to be adopted by undiversified firms whose domestic structures are based on functions
![Page 15: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/15.jpg)
13 - 15
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
The International Structural Stages Model
![Page 16: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/16.jpg)
13 - 16
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Worldwide Area Structure
• Worldwide area structure- Favored by firms with low degree of diversification and
domestic structure based on function- World is divided into autonomous geographic areas- Operational authority decentralized- Facilitates local responsiveness - Fragmentation of organization can occur- Consistent with multi-domestic strategy
![Page 17: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/17.jpg)
13 - 17
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Worldwide Area Structure
![Page 18: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/18.jpg)
13 - 18
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Worldwide Product Divisional Structure
• Adopted by firms that are reasonably diversified• Original domestic firm structure based on product division• Value creation activities of each product division
coordinated by that division worldwide- Help realize location and experience curve economies- Facilitate transfer of core competencies
• Problem: area managers have limited control, subservient to product division managers, leading to lack of local responsiveness
![Page 19: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/19.jpg)
13 - 19
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Worldwide Product Divisional Structure
![Page 20: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/20.jpg)
13 - 20
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Global Matrix Structure
• Helps to cope with conflicting demands of earlier strategies
• Two dimensions: product division and geographic area• Product division and geographic areas given equal
responsibility for operating decisions• Problems
- Bureaucratic structure slows decision making- Conflict between areas and product divisions- Difficult to make one party accountable due to dual
responsibility
![Page 21: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/21.jpg)
13 - 21
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Global Matrix Structure
![Page 22: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/22.jpg)
13 - 22
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Integrating Mechanisms
• Need for coordination follows the following order on an ascending basis
- Localization- International- Global- Transnational
![Page 23: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/23.jpg)
13 - 23
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Impediments to Coordination
• Differing goals and lack of respect• Different orientations due to different tasks• Differences in nationality, time zone, and distance• Particularly problematic in multinational enterprises
with their many sub-units both home and abroad
![Page 24: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/24.jpg)
13 - 24
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Formal Integrating Systems
• Direct contact between sub-unit managers• Liaison roles: an individual assigned responsibility to
coordinate with another sub-unit on a regular basis• Temporary or permanent teams from sub-units to
achieve coordination• Matrix structure: all roles viewed as integrating roles
- Often based on geographical areas and worldwide product divisions
![Page 25: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/25.jpg)
13 - 25
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Formal Integrating Systems
![Page 26: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/26.jpg)
13 - 26
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Informal Integrating Mechanisms
• Informal management networks supported by an organization culture that values teamwork and a common culture
• Non-bureaucratic flow of information• It must embrace as many managers as possible• Two techniques used to establish networks
- Information systems- Management development policies
• Rotating managers through various sub-units on a regular basis
![Page 27: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/27.jpg)
13 - 27
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Informal Integrating Mechanisms
![Page 28: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/28.jpg)
13 - 28
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Control Systems and Incentives
• Types of control systems- Personal controls- Bureaucratic controls- Output controls- Cultural controls
• Incentive systems- Refer to devices used to reward appropriate behavior- Closely tied to performance metrics used for output
controls
![Page 29: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/29.jpg)
13 - 29
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Factors that Influence Incentive Systems
• Seniority and nature of work - Reward linked to output target that the employee can
influence
• Cooperation between managers in sub-units- Link incentives to profit of the entire firm
• National differences in institutions and culture • Consequences of an incentive system should be
understood
![Page 30: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/30.jpg)
13 - 30
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Performance Ambiguity
• Key to understanding the relationship between international strategy, control systems and incentive systems is performance ambiguity
- Caused due to high degree of interdependence between sub-units within the organization
• Level of performance ambiguity depends on number of sub-units, level of integration, and joint decision making
• Descending order of ambiguity in firms• Transnational companies • Global companies• International companies• Multi-domestic corporations
![Page 31: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/31.jpg)
13 - 31
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Performance Ambiguity
![Page 32: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/32.jpg)
13 - 32
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Implications for Control and Incentives
• Costs of control- Time top management must devote to monitoring and
evaluating performance of sub-units- Performance ambiguity increases cost of control- Creates conflicts as the costs of controlling transnational
strategy are much higher- Cultural controls
• Incentive pay of senior managers should be linked to the entity to which both subunits belong
![Page 33: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/33.jpg)
13 - 33
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Processes
• Manner in which decisions are made and work is performed
- Cut across national boundaries as well as organizational boundaries
- Can be developed anywhere within the firm’s global operations network
![Page 34: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/34.jpg)
13 - 34
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Organizational Culture
• Values and norms shared among people• Sources
- Founders and important leaders- National social culture- History of the enterprise- Decisions that result in high performance
• Cultural maintenance- Hiring and promotional practices- Reward strategies- Socialization processes- Communication strategy
![Page 35: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/35.jpg)
13 - 35
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Culture and Performance
• A “Strong” Culture- Not always good- Sometimes beneficial, sometimes not- Context is important
• Adaptive cultures- Culture must match an organization’s architecture- Culture does not necessarily translate across borders
![Page 36: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/36.jpg)
13 - 36
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Synthesis: Strategy and Architecture
![Page 37: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/37.jpg)
13 - 37
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Organizational Change
• Firms need to periodically alter their architecture to conform to changes in environment and strategy
• Hard to achieve due to organizational inertia• Sources of inertia
- Possible redistribution of power and influence among managers
- Strong existing culture- Senior manager’s preconceptions about the appropriate
business model- Institutional constraints such as national regulations
including local content rules regarding layoffs
![Page 38: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/38.jpg)
13 - 38
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Organizational Change
• Change to match competitive and strategy environment
- Hard to change• Existing distribution of power and influence• Current culture• Manager’s preconceptions about the appropriate business
model or paradigm• Institutional constraints
• Principles for change- Unfreeze the organization- Moving to the new state- Refreezing the organization
![Page 39: Chapter Thirteen The Organization of International Business](https://reader036.vdocuments.net/reader036/viewer/2022062404/551c45df550346b1458b4782/html5/thumbnails/39.jpg)
13 - 39
McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Looking Ahead to Chapter 14
• Entry Strategy and Strategic Alliances- Basic entry decisions- Entry modes- Selecting an entry mode- Greenfield venture or acquisition- Strategic alliances