Chapter Organizational Designs for Multinational Companies Copyright© 2004 Thomson Learning All rights reserved Learning Objectives •• •• •• •• Understand Understand the the components components ofof organizational organizational design design Know Know the the basic basic building building blocks blocks ofof organization organization structure structure Understand Understand the the structural structural options options for for multinational multinational companies companies Know Know the the choices choices multinationals multinationals have have inin the the use use ofof subsidiaries subsidiaries Copyright© 2005 South-Western/Thomson Learning All rights reserved Learning Objectives •• See See the the links links between between multinational multinational strategies strategies and and structures structures •• Understand Understand the the basic basic mechanisms mechanisms ofof organizational organizational coordination coordination and and control control •• Know Know how how coordination coordination and and control control mechanisms mechanisms are are used used by by multinational multinational companies companies Copyright© 2005 South-Western/Thomson Learning All rights reserved Organizational Design •• How How organizations organizations structure structure subunits subunits and and coordination coordination and and control control mechanisms mechanisms toto achieve achieve strategic strategic goals goals •• Basic Basic questions: questions: •• How How toto divide divide work work among among the the organization’s organization’s subunits? subunits? •• How How toto coordinate coordinate and and control control the the efforts efforts ofof the the units units created? created? Copyright© 2005 South-Western/Thomson Learning All rights reserved Nature of Organization Design •• InIn small small organizations, organizations, there there isis little little reason reason toto divide divide work work •• Everyone Everyone does does the the same same thing thing and and everything everything •• As As organizations organizations grow, grow, there there isis aa need need toto divide divide work work and and the the organization organization •• There There isis no no one one best best organizational organizational design design Copyright© 2005 South-Western/Thomson Learning All rights reserved The Basic Functional Structure •• Departments Departments perform perform separate separate business business functions functions such such as as marketing marketing or or manufacturing manufacturing •• Simplest Simplest ofof organizations organizations •• Most Most smaller smaller organizations organizations have have functional functional structures structures Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 7.1: A Basic Functional Structure Copyright© 2005 South-Western/Thomson Learning All rights reserved The Basic Functional Structure •• Works Works best best when when organization organization has: has: •• Few Few products products •• Few Few locations locations •• Few Few types types ofof customers customers •• AAstable stable environment environment Routine Routine technology technology Copyrightâ 2005 South-Western/Thomson Learning All rights reserved The Basic Product and Geographic Structures •• Product Product structure: structure: departments departments or or subunits subunits based based on on different different product product groups groups •• Geographic Geographic structure: structure: departments departments or or subunits subunits based based on on geographic geographic regions regions Copyright© 2005 South-Western/Thomson Learning All rights reserved The Basic Product and Geographic Structures (cont.) •• •• Usually Usually less less efficient efficient than than the the functional functional organization organization Allows Allows aa company company toto serve serve customer customer needs needs that that vary vary by by region region or or product product Copyright© 2005 South-Western/Thomson Learning All rights reserved Components of the Transnational-Network Structure •• Dispersed Dispersed subunits: subunits: subsidiaries subsidiaries located located anywhere anywhere where where they they can can most most benefit benefit the the company company •• Specialized Specialized operations: operations: subunits subunits specializing specializing inin particular particular product, product, research research areas, areas, or or marketing marketing areas areas •• Interdependent Interdependent relationships: relationships: continuous continuous sharing sharing ofof information information and and resources resources by by dispersed dispersed and and specialized specialized subunits subunits Copyright© 2005 South-Western/Thomson Learning All rights reserved Metanational Structure •• Large Large entrepreneurial entrepreneurial multinational multinational •• Can Can tap tap into into pockets pockets ofof innovation, innovation, technology, technology, and and markets markets located located around around the the world world •• Develops Develops extensive extensive systems systems toto encourage encourage organizational organizational learning learning and and entrepreneurial entrepreneurial activities activities Copyright© 2005 South-Western/Thomson Learning All rights reserved Metanational Characteristics •• •• •• •• Nonstandard Nonstandard business business formulas formulas for for any any local local activity activity Looking Looking toto emerging emerging markets markets as as sources sources ofof knowledge knowledge and and ideas ideas Creating Creating aa culture culture supporting supporting global global learning learning Extensive Extensive use use ofof strategic strategic alliances alliances toto gain gain knowledge knowledge for for varied varied sources sources Copyright© 2005 South-Western/Thomson Learning All rights reserved Characteristics of Metanationals •• High High levels levels ofof trust trust between between partners partners toto encourage encourage knowledge knowledge sharing sharing •• Centerless Centerless organization organization that that moves moves strategic strategic functions functions away away from from headquarters headquarters toto major major markets markets •• Decentralization Decentralization ofof decision decision making making toto managers managers who who serve serve key key customers customers and and strategic strategic partners partners Copyright© 2005 South-Western/Thomson Learning All rights reserved Multinational Strategy and Structure: An Overview •• Most Most companies companies support support early early internationalization internationalization efforts efforts with with export export department department •• Depending Depending on on globalization globalization strategy, strategy, they they evolve evolve into into product product or or geographic geographic structure structure •• Pressure Pressure for for local local adaptation adaptation and and global global efficiencies efficiencies result result into into matrix matrix or or transnational-network transnational-network •• No No company company reaches reaches any any pure pure form—use form—use hybrids hybrids Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 7.12: Multinational Strategy, Structure, and Evolution Copyright© 2005 South-Western/Thomson Learning All rights reserved Control Systems •• Control Control system: system: helps helps link link the the organization organization vertically, vertically, up up and and down down the the organizational organizational hierarchy hierarchy •• Basic Basic functions functions ofof control control system system •• Measure Measure or or monitor monitor the the performances performances ofof subunits subunits •• Provide Provide feedback feedback toto subunit subunit managers managers regarding regarding the the effectiveness effectiveness ofof their their units units Copyright© 2005 South-Western/Thomson Learning All rights reserved Coordination Systems •• Coordination Coordination system: system: horizontal horizontal organizational organizational links links •• Provide Provide information information flows flows among among subsidiaries subsidiaries Copyright© 2005 South-Western/Thomson Learning All rights reserved Options for Control Systems •• Four Four types types ofof control control systems systems •• Output Output control control system system •• Bureaucratic Bureaucratic control control system system •• Decision-making Decision-making control control •• Cultural Cultural control control system system Copyright© 2005 South-Western/Thomson Learning All rights reserved Output Control Systems •• Assesses Assesses the the performance performance ofof aa unit unit based based on on results, results, not not on on the the processes processes used used toto achieve achieve these these results results •• Profit Profit center: center: unit unit controlled controlled by by its its profit profit or or loss loss performance performance Copyright© 2005 South-Western/Thomson Learning All rights reserved Bureaucratic control system •• Focuses Focuses on on managing managing behaviors behaviors within within the the organization organization •• Budgets: Budgets: financial financial targets targets for for expenditures expenditures •• Statistical Statistical reports: reports: information information toto top top management management about about nonfinancial nonfinancial outcomes outcomes •• Standard Standard operating operating procedures: procedures: rules rules and and regulations regulations ofof appropriate appropriate behavior behavior Copyright© 2005 South-Western/Thomson Learning All rights reserved Control and Coordination Systems •• Decision-making Decision-making control: control: level level inin the the organizational organizational hierarchy hierarchy where where managers managers have have the the authority authority toto make make decisions decisions •• Cultural Cultural control control system: system: uses uses organizational organizational culture culture toto control control behaviors behaviors and and attitudes attitudes ofof employees employees Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 7.13: Use of Control Mechanisms in Multinational Organizational Structures Copyright© 2005 South-Western/Thomson Learning All rights reserved Design Options for Coordination Systems •• •• •• Textual Textual communication: communication: e-mail, e-mail, memos, memos, and and reports reports Direct Direct contact: contact: face-to-face face-to-face interaction interaction ofof employees employees Liaison Liaison roles: roles: part part ofof aa person’s person’s job job inin one one department department toto communicate communicate with with people people inin another another department department Copyright© 2005 South-Western/Thomson Learning All rights reserved Design Options for Coordination Systems •• Task Task forces: forces: temporary temporary teams teams created created toto solve solve aa particular particular organizational organizational problem problem •• Full-time Full-time integrators: integrators: cross-unit cross-unit coordination coordination isis the the main main job job responsibility responsibility •• Teams: Teams: permanent permanent unit unit ofof the the organization organization Copyright© 2005 South-Western/Thomson Learning All rights reserved ... how coordination coordination and and control control mechanisms mechanisms are are used used by by multinational multinational companies companies Copyright© 2005 South-Western/Thomson Learning... Allows Allows aa company company toto serve serve customer customer needs needs that that vary vary by by region region or or product product Copyright© 2005 South-Western/Thomson Learning All rights... reserved Worldwide Matrix Structures •• Balances Balances the the benefits benefits produced produced by by area area and and product product structures structures •• Creates Creates equal equal lines