Chapter 8 1Prentice Hall 2003

Organization Structure and Control Systems

Chapter 8

Chapter 8 2Prentice Hall 2003

Chapter 8 - Overview

Organization structure Evolution and change in MNC organizational structures Organizing for globalization Emergent structural forms Choice of organizational form Control systems for global operations Managing effective monitoring systems

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Internationalization

Internationalization is the process by which a firm gradually changes in response to international competition, domestic market saturation, and the desire for expansion, new markets, and diversification.

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Structuring International Activities

Domestic structure plus export department Domestic structure plus foreign subsidiary International division Global functional structure Global product structure

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Domestic Structure Plus Foreign Subsidiary(Exhibit 8-1)

Chief Executive Officer

HQ Departments Finance Production Marketing HRM

VP Int’l Operations

Overseas Japan Germany MexicoSubsidiaries

Chapter 8 6Prentice Hall 2003

Global Functional Structure

The global functional structure is designed on the basis of the company’s functions – production, marketing, finance, and so forth. Foreign operations are integrated into the activities and responsibilities of each department to gain functional specialization and economies of scale.

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Global Product (Divisional) Structure

In the global product (divisional) structure, a single product (or product line) is represented by a separate division. Each division is headed by its own general manager, and each is responsible for its own production and sales functions.

Chapter 8 8Prentice Hall 2003

Global Product (Divisional) Structure(Exhibit 8-2)

CEO

CorporateFunctional Staff

Area Specialists:North AmericaLatin AmericaEuropeFar East

Product 1 Product 2 Product 3Division Division Division

Country A Country B

Fance Production Marketingin

Chapter 8 9Prentice Hall 2003

Global Geographic (Area) Structure

In the global geographic (area) structure – the most common form of organizing foreign operations – divisions are created to cover geographic regions. Each regional manager is then responsible for the operations and performance of the countries within a given region.

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Global Geographic Structure(Exhibit 8-3)

Board of Directors

Chair

CEO

VP Group VP VPFinance N. America

VPS. America

VPEurope

VPPacific

VPPlastics

VPAgriculture

France UK

Finance Production Marketing

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Opposing Forces in Structural Choices

The need for differentiation (focusing on and specializing in specific markets)

The need for integration (coordinating those same markets)

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Emergent Structural Forms

Interorganizational networks The global e-corporation network structure The transnational corporation (TNC) network

structure

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Information Technology’s Impact on Organizational Forms

“Competitive companies in the future will be elaborate networks of people and information, each exerting an influence on the other. [These networks will comprise] a small hub of staff connected to each other by their physical proximity, which is electronically connected to global associates who help control assets and negotiate agreements to extend the company’s business influence.”

Kilmann

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The Global E-Corporation Network Structure(Exhibit 8-6)

Suppliers

Contract manufacturers

Supplierexchanges

Manufacturers

Virtualmanufacturers

Wholesaledistributors

Logisticsexchanges

Logisticsproviders

Logisticsproviders

Customerexchanges

Customers

Supply Chain Network

Information flow

Goods flow

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Choice of Organizational Form

Two major variables in choosing the structure and design of an organization are the opportunities and need for

• globalization and• localization

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Organizational Alternatives and Development for Global Competition

(Exhibit 8-7)

Globalproductstructure

Internationalcompany

Domesticfunctionalwith int’l division

Globalcompany

MNC

Matrix structure

TNC

Horizontal organization, alliancesand networks

Transnationalstructure

Geographicareastructure

Op

por

tun

itie

s an

d N

eed

for

Glo

bal

izat

ion

Opportunities and Need for Localization

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Locus of Decision Making in an International Organization

(Exhibit 8-10

Headquartersauthority

Area of controlby headquarters

Subsidiary/localunit authority

Area of controlat local levelC

entr

aliz

ed

Decentralized

HQ managementmakes decisionand informslocal managers

HQ managementmakes decisionand “sells” tosubsidiary managers

HQ managementmakes decisionand recommendsto localmanagers

HQ and localmanagers consult ondecisions

Local managerspresent problemand solution toHQ for decision

Local managersmake decisionand “sell” toHQ

Localmanagersmake decisionand informHQ

Chapter 8 18Prentice Hall 2003

When is Change Needed?(Exhibit 8-9)

A change in the size of the corporation – due to growth, consolidation, or reduction

A change in key individuals – which may alter management objectives, interests, and abilities

A failure to meet goals, capitalize on opportunities, or be innovative An inability to get things done on time A consistently overworked top management that spends excessive

hours on the job A belief that costs are extravagant or that budgets are not being met Morale problems Lengthy hierarchies that inhibit the exercise of strategic control

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When is Change Needed?(contd.)

Planning that has become increasingly staff-driven and is thus divorced from line management

Innovation that is stifled by too much administration and monitoring of details

Uniform solutions that are applied to nonuniform situations. The extreme opposite of this condition – when things that should or could function in a routine manner do not – should also be heeded as a warning. In other words, management by exception has replaced standard operating procedures

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When is Change Needed?(contd.)

The following are a few specific indicators of international organizational malaise:

A shift in the operational scope – perhaps from directing export activities to controlling overseas manufacturing and marketing units, a change in the size of operations on a country, regional, or worldwide basis, or failure of foreign operations to grow in accordance with plans and expectations

Clashes among divisions, subsidiaries, or individuals over territories or customers in the field

Divisive conflicts between overseas units and domestic division staff or corporate staff

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When is Change Needed?(contd.)

Instances wherein centralization leads to a flood of detailed data that is neither fully understood nor properly used by headquarters

Duplication of administrative personnel and services Underutilization of overseas manufacturing or distribution facilities Duplication of sales offices and specialized sales account executives Proliferation of relatively small legal entities or operating units

within a country or geographic area An increase in overseas customer service complaints Breakdowns in communications within and between organizations Unclear lines of reporting and dotted-line relationships, and ill-

defined executive responsibilities

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Coordinating Mechanisms

Direct coordinating mechanisms

Examples Design of appropriate structures Use of effective staffing practices Visits by head-office personnel Regular meetings

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Coordinating Mechanisms(contd.)

Indirect coordinating mechanisms

Examples Sales quotas Budgets Other financial tools Feedback reports

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Managing Effective Monitoring Systems

Factors likely to affect the appropriateness of monitoring systems include:

Management practices Local constraints Expectations regarding• Authority• Time• Communication

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Managing Effective Monitoring Systems

In deciding on appropriate monitoring and reporting systems, additional factors to be considered include:

• The role of information systems (adequacy of management information systems in foreign affiliates, noncomparability of performance data across countries)

• Evaluation variables across countries