Organization of international business

Nukhba Jurri 13024854-098Organization Architecture

Maryam Nazir 13024854-073Types of structures

Sonia Noreen 13024854-084Control System And Incentive

Marium Shabbir 13024854-083Processes, organizational Culture & People

Group Members

If we talk about the Organization of international business then we refers to organization architecture

Now lets define organization architecture : “The totality of a firm’s organization, including formal organization structure,

control systems and incentives, processes, organizational culture, and people”

To be the most profitable, firms need to be sure: the different elements of the organizational architecture are internally consistent.the organizational architecture matches or fits the strategy of the firm.the strategy and architecture of the firm are consistent with each other, and consistent with competitive conditions.

Organization Architecture

Organization ArchitectureArchitecture

StructureIntegrating Mechanism

Vertical Differentiation Centralized

Decentralized

Horizontal Differentiation Functional structure

Product divisional structure

International division structure

World Wide Product Division Structure

World Wide Area Structure

Global Matrix Structure

Control & Incentives

Processes & culture & people

Continue.1. Organization structure

o Departmento Division o Region make organization o The location of decision-making responsibilities

2. Control system & Incentives o Measure performance of subunit o Judgments about how well managers are running those subunits.o Incentives are the devices used to reward appropriate managerial behavior

3.Process, Organization culture & Peopleo Processes are the manner in which decisions are made & work performed.o Refers to the norms and value shared among the employees of organization.o Organization architecture also made by people.

Interrelationship:Structure ProcessesIncentive & controlCulture

All these concentrate on the people to make organization performance well.

Organization structure “Department, division ,region make organization the

location of decision-making responsibilities”

Further Organization structure have 3 dimension

a) Integrating Mechanismb) Vertical Differentiationc) Horizontal Differentiation

a. Integrating Mechanism It can be define as coordination between subunits of organization.

( lowest co-ordination localization

strategy) ( Highest co-ordination

Transnational strategy)

Continue.

Formal :1. Direct contact.2. Liasion Roles.3. Teams4. Matrix structures

Informal 1. Knowledge network2. All information collected in one place.

Types of Integration mechanism :

Continue. (2) Vertical DifferentiationIt enables the managers to locate the location of decision making.It has two type:

Centralized Decision Making “The decision making is done by only top management”

Advantages: Facilitates coordination Ensure decisions consistent with organization’s objectives Gives top-level managers the means to bring about organizational change Avoids duplication of activities

Continue. Decentralized Decision Making“Decision making power is distributed in different levels of management” Advantages: Relieves the burden of centralized decision-making Motivate individuals Permits greater flexibility Can result in better decisions can increase control It can be worthwhile to centralize some decisions and decentralize others

(3) Horizontal Differentiation: “Horizontal differentiation is concerned with how

the firm decides to divide itself into sub-units”“It describes the division of organization”

The decision is usually based on: function type of business geographical area

Continue.

TYPEs of structures:

1. Functional structure2. Product divisional structure3. International division structure4. World Wide Product Division Structure5. World Wide Area Structure6. Global Matrix Structure

1. Functional structure “A functional organization is a type of organizational structure in

which the organization is divided into smaller groups based on specialize functional areas”

One product One head quarter One country Small firm

2. Product Divisional structure The divisional structure is a type of organizational

structure that groups each organizational function into a division.

More then one product . One headquarter Local country Small & Large firm

3. International divisional structure

When firms internationally expand production is known as international divisional structure.

More then product ( local production) Head quarter (domestic and international) Each product with own functional structure. Sometimes conflicts raise .

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4. World wide product division structure

Highly diversified firm adapt this structure. More then one products Local and international production. Every subunits has its own functional structure.

Advantages: Value creation coordination with other units. Realized cost economy and location economies. Transfer core competencies. Not locally responsive.

Continue.

Low diversification and a domestic structure based on function

Divides geographic areas Decentralizes operational authority local responsiveness Consistent with a localization strategy

5. Worldwide area structure:

Continue

Head quarter

Division( country)1

Division( country)2

Division( country)3

Product A

Product B

Product C

6. Global matrix structure A matrix organizational structure is a company structure in

which the reporting relationships are set up as a grid, or matrix,. Employees have dual reporting relationships generally to both a functional manager and a product manager.

Advantages: Remove limitation of World wide area structure &

worlds wide product structure. Differentiate product line and area vise Disadvantages: Result in conflict between areas and product divisions Finger pointing.

Continue.

The International Structural Stages Model

Control System And Incentive A firm’s leaders major task to ensure that the action of

subunits are consistent with the firm’s overall strategy and financial objectives

This is achieved through control and incentive system Evaluate the performance of Organization and how

effect on the control system

What is control?Definition:“Control helps to check the errors and to take the

corrective action so that deviation from standards are minimized and stated goals of the organization are achieved in a desired manner.”

Types of Control System

There are four main type of control system:1. Personal Control:

Direct control the subordinates Mostly use in the small firms

2. Bureaucratic Control: This system through set the rules regulation that

directs the action of subunits The most important bureaucratic control are budget

and capital sending rules

Continue.3.Output Control: Setting goals for subunits and achieve them. Output more receive then control system more good Control system is achieved by comparing actual

performance against targets and intervening selectively to take corrective action

4.Cultural Controls: Norms , values, custom play major role for increase the

performance Firms with strong culture have less need for other forms of

control

Incentive system Incentive are the devices used to reward behavior Tie performance for output control => reward Incentives depend on employer and nature of work Co-operation and co-ordination increase between

manger and subordinates Different nation and different culture use different

devices

Concept of Performance Of Ambiguity The key of understanding the relationship between

international strategy, control systems and incentive systems is performance ambiguity which exist that subunits poor performance are not clear.

Performance ambiguity is mostly subunits performance depend on the other subunits performance

Processes: “Processes can be define as the manner in which

decisions are made and work is performed” Sometimes processes used across national boundaries as

well as organizational boundaries. Can be develop anywhere within a firm’s global

operational network. Integrating mechanisms can help firms leverage processes

Formal => Exchange Ideas Helps in Leverage processes. Informal => Efficient working

Processes, organizational Culture & People

Culture refers to a systems of values and norms that are shared among people

Organizations have their own values and norms that employees are encouraged to follow.

Organizational culture tends to change very slowly.

Organizational Culture

Organizational culture comes from:

Founders and important leaders of Organization. National social culture. The history of organization. Decisions made in past.

Creating Organizational Culture

Organizational culture can be maintained through: Hiring on merit base Promotional practices Reward strategies Socialization processes

Formal ways (training programs)Informal ways(friendly Advices)

Communication strategies

Maintaining Organizational Culture

When organization moves into international market it faces hurdles like different language, norms and beliefs, tastes and preferences etc.

If the organization does not align itself with the prevailing culture then it cannot attain benefits of expansion.

“Strong” culture:Not always goodMay not lead to high performanceCould be beneficial at one point, but not at another

“Adaptive” cultures Companies with adaptive cultures have the highest

performance.Flexible to decision making.

Organizational Culture In The International Business

The interrelationship between the four basic strategies

1. Localization2. International 3. Global standardization +organization architecture 4. Transnational

Architecture & Strategy

Combination of Strategy, Structure, and Control Systems

Strategy And Architecture

Strategies Interdependency Performance Ambiguity

Control

LocalizationStrategy(locally responsive Pressure high)

Low [local production & sale in international]

Low [easily identify factors of error]

Low [subunit manager understand better then headquarter management]

International Strategy(Both pressure low)

Medium [ subunit management tell the needs and demand of that area]

Medium [nor easy not difficult to identify factors of error cause of low pressures]

Medium [headquarter mgt & subunit mgt both take decisions]

Global Standard Strategy (cost reduction pressure high)

High[to achieve cost eco firm need to coordinate with subunits]

High[difficult to identify factors of error ]

High[headquarter mgt control the subunits]

Transnational strategy (Both pressure are high)

Very high[-Value addition from one country -locally responsiveness from all other countries]

Very high [so difficult to identify factors of error]

Very high [mgt should control al subunits]

For a firm to succeed, two conditions must be met:

i. The firm’s strategy must be consistent with the environment and place in which the firm operates.

ii. The firm’s organization architecture must be consistent with its strategy.

Environment, Strategy, Architecture, & Performance

INERTIA: “Property by which a thing continues its existing

condition” Organizations are difficult to change Sources of inertia include:

The existing distribution of power and influenceThe current cultureSenior managers’ preconceptions about the appropriate business

model.

Organizational Inertia

Management should take necessary actions to chose structure of organization to enhance its positive effects.

Alliance the strategies with organizational structure and their requirement

Organization of IB & Management :

Thank you