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,...

chapter fourteen Organizational Design and Control McGraw­Hill/Irwin International Business, 11/e Copyright © 2008 The McGraw­Hill Companies, Inc. All rights reserved 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  Explain the concept of the virtual corporation 14-3 Learning Objectives  Explain why decisions are made where they are among parent and subsidiary units of an international company  Discuss how an IC can maintain control of a joint venture or of a company in which the IC owns less than 50 percent of the voting stock  List the types of information an IC needs to have reported to it by its units around the world 14-4 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 14-5 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 14-6 The relationship among International Environment, Competitive Strategy, and Organizational Structure 14-7 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 14-8 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 14-9 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 14-10 Current Organizational Trends • Virtual Corporation – An organization that coordinates economic activity to deliver value to customers using resources outside the traditional boundaries of the organization • Advantages – Permits greater flexibility – Forms a network of dynamic relationships taking advantage of the competencies of other organizations • Disadvantage – Potential to reduce management’s control over the corporation’s activities 14-17 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 14-18 Control • Where Are Decisions Made? – All at IC headquarters – All at subsidiary level – Combination 14-19 Control • 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 14-20 Control • 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 14-21 Control • Product and Equipment – Existence of global product policy – Degree standardized or localized 14-22 Control • 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 14-23 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? – Taxes, currency controls, labor relations, political climate, social unrest 14-24 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 14-25 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 14-26 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 14-27 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 14-28 Effective Reporting • Operating units must provide headquarters with timely, accurate and complete reports – Financial – Technological – Market Opportunities – Political and Economic 14-29 De-Jobbing • Replacing fixed jobs with tasks performed by evolving teams – Hierarchy not maintained 14-30 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 14-31 ... these various organizational components 1 4-5 Organization Design • Organization design for international – how an international business is organized in order to ensure worldwide business activities... around the world 1 4-4 Organizational Structure • Organizational structure – The way that an organization formally arranges its domestic and international units and activities, and the relationships.. .chapter fourteen Organizational Design and Control McGraw­Hill/Irwin International Business,  11/e Copyright © 2008 The McGraw­Hill Companies, Inc. All rights reserved