Lecture International business (11/e) - Chapter 14: Organizational design and control

The main goals of this chapter are to: Explain why the design of organizational structure is important to international companies, discuss the organizational dimensions that must be considered when selecting organizational structures, discuss the various organizational forms available for structuring international companies,...

Organizational Design and

Control

chapter fourteen

Learning Objectives

 Explain why the design of organizational structure

is important to international companies

 Discuss the organizational dimensions that must

be considered when selecting organizational

structures

 Discuss the various organizational forms available for structuring international companies

 List the types of information an IC needs to have reported to it by its units around the world

Organizational Structure

• Organizational structure

– The way that an organization formally

arranges its domestic and international units and activities, and the relationships among these various organizational components

Organization Design

• Organization design for international

– how an international business is organized in order

to ensure worldwide business activities are able to

be integrated efficiently and effectively

• Structures and systems must be consistent with

each other and with the environmental context

• Size and complexity of the organization must be

considered

• Structure must be able to evolve over time in

order to respond to change

The relationship among International Environment, Competitive Strategy, and

Organizational Structure

Design Concerns

• Find the most effective way to

departmentalize to take advantage of

efficiencies gained from specialization of labor

• Coordinate the activities of those

departments to enable the firm to meet its overall objectives

Design Dimensions

• Product and technical expertise

regarding the businesses

• Geographic expertise regarding the

countries and regions

• Customer expertise regarding the client

groups, industries, market segments, or population groups

• Functional expertise regarding the value

chain activities

Evolution of the International Company

• International Division

– A division in the organization that is at the same

level as the domestic division and is responsible for all non-home country activities

• Worldwide organizations were established, as

a result of growth

– Product– Function

– Region– Customer classes

Evolution of the International Company

Global Corporate Form

• Product

• Geographic

Global Corporate Form

• Function

• Hybrid Forms

Global Corporate Form

• Matrix Organizations

– Matrix overlay

• An organization in which top-level divisions are required to

heed input from a staff composed of experts of another organizational dimension in an attempt to avoid the double reporting difficulty of a matrix organization but still mesh

Global Corporate Form

• Strategic Business Unit

– Business entity with a clearly defined

market, specific competitors, the ability to carry out business mission, and a size

appropriate for control by single manager

Changes in Organizational Form

• Result from pressure to act more quickly,

reduce costs and improve quality

• Reengineering to

– reduce levels of middle management

– restructure work processes

– reduce fragmenting across departments

– Improve speed and quality of strategy execution– Empower employees

– Communicate instantly

Current Organizational Trends

• Disadvantage

– Potential to reduce

management’s control

Current Organizational Trends

• Horizontal Corporation

– A form of organization characterized by lateral

decision processes, horizontal networks, and a strong corporate wide business philosophy

– Employees worldwide create, build, and market

products through cultivated system of

interrelationships

• Variables determining the location of decision making

– Product and Equipment

– Competence of subsidiary management

– Size of international company and duration

– Detriment of a subsidiary for the benefit of the

enterprise

– Level of subsidiary frustration

• Subsidiaries

– Companies controlled by other companies

through ownership of enough voting stock to elect board-of-directors majorities

• Affiliates

– A term sometimes used interchangeably

with subsidiaries, but more forms exist than

just stock ownership

• Product and Equipment

– Existence of global product policy

– Degree standardized or localized

• Competence of Subsidiary Management

depends on

– How well executives know one another

– How well executives know company policies

– Whether headquarters management feels it

understands

• Host country conditions

• Distances between home and host countries

• Size and age of parent company

Benefiting Enterprise Detriment of

Subsidiary

• Subsidiary detriment

– Situation in which a small loss for a subsidiary

results in a greater gain for the total IC

• Moving Production Factors

– Cost, labor, taxes, market, currency, political stability

• Which Subsidiary Gets the Order?

– Transportation, production, tariffs, currency, backlogs

• Multicountry Production

– Economies of scale

• Which Subsidiary Books the Profits?

Subsidiary Frustration

• Subsidiary Frustration

– Management of subsidiaries must be

motivated and loyal

• If all decisions made at HQ they can lose

incentive and prestige or face with their employees and the community

• They may become hostile and disloyal

Joint Ventures and Subsidiaries Less than

100 Percent Owned

• A joint venture may be

– A corporate entity between IC and local owners

– A corporate entity between two or more companies

that are both foreign to the area where the joint venture is located

– One company working on a project of limited duration

in cooperation with one or more companies

Joint Ventures and Subsidiaries Less

than 100 Percent Owned

• Loss of freedom and flexibility

– shareholders can block HQ efforts to

• Move production factors

• Fill an order from another affiliate or

subsidiary

• Shareholders may bring

– Legal pressures– Political pressures

Joint Ventures and Subsidiaries Less than

100 Percent Owned

• Control Can Be Had

– Management contract– Control of finances

– Control of technology– People from IC in important executive

positions

Effective Reporting

• Operating units must provide

headquarters with timely, accurate and complete reports

• Replacing fixed jobs with tasks

performed by evolving teams

– Hierarchy not maintained

Traits of De-jobbed Workers

• They make operating decisions that used to be

reserved for managers

• They have the information they need to make

such decisions

• They have training so that they understand the

business and financial issues that used to

concern owners and executives

• They have a stake in the fruits of their labor,

share of profits