Lecture International business (9e): Chapter 14 - Charles W.L. Hill

Chapter 14 - The organization of international business. The goals of this chapter are: Understand the concept of supply chain management, recognize the relationship between design and supply chain management, describe the five global sourcing arrangements, appreciate the importance of added costs of global sourcing,…

International Business 9e By Charles W.L Hill McGraw­Hill/Irwin         Copyright © 2013 by The McGraw­Hill Companies, Inc. All rights reserved Chapter 14 The Organization of International Business What Is Organizational  Architecture?  Organizational architecture is the totality of a firm’s organization including Organizational structure Control systems and incentives Processes, organizational culture, and people  To be the most profitable  the elements of the organizational architecture must be internally consistent  the organizational architecture must fit the strategy  the strategy and architecture must be consistent with each other, and consistent with competitive conditions 14­3 What Is Organizational  Architecture? Organizational Architecture 14­4 What Are The Dimensions Of  Organizational Structure?  Organizational structure has three dimensions Vertical differentiation - location of decisionmaking responsibilities within a structure  Centralized decision-making  Decentralized decision-making Horizontal differentiation - formal division of the organization into sub-units Integrating mechanisms - the mechanisms for coordinating sub-units 14­5 Why Is Horizontal  Differentiation Important?  Initially, most firms have no formal structure, but as they grow, develop a functional structure  Firms may switch to a product divisional structure where each division is responsible for a distinct product line  When firms expand internationally, they often group all of their international activities into an international division 14­6 What Is A  Functional Structure? A Typical Functional Structure 14­7 What Is A Product  Divisional Structure? A Typical Product Divisional Structure 14­8 What Is An International  Divisional Structure? One Company’s International Divisional Structure 14­9 What Happens Next?  Firms that continue to expand will move to either a Worldwide product divisional structure adopted by firms that are reasonably diversified Worldwide area structure - favored by firms with low degree of diversification and a domestic structure based on function The global matrix structure – tries to minimize the limitations of the worldwide area structure and the worldwide product divisional structure 14­10 What Is A Worldwide Product  Division Structure? A Worldwide Product Divisional Structure 14­11 What Is A Worldwide  Area Structure? A Worldwide Area Structure 14­12 What Is The  Global Matrix Structure? A Global Matrix Structure 14­13 How Does Organizational  Structure Change Over Time? The International Structural Stages Model 14­14 How Can Subunits  Be Integrated?  Regardless of the type of structure, firms need a mechanism to integrate subunits  Many firms use informal integrating mechanisms  a knowledge network  Formal integrating mechanisms include Personal controls Bureaucratic controls Output controls Cultural controls 14­15 What Is The Link Between Control,  Incentives, And Strategy?  Interdependence, Performance Ambiguity, and the Costs of Control for the Four International Business Strategies 14­16 What Is  Organizational Culture?  Organizational culture - the values and norms that employees are encouraged to follow  Evolves from  founders and important leaders  national social culture  the history of the enterprise  decisions that resulted in high performance  Managers in companies with a “strong” culture share a relatively consistent set of values and norms that have a clear impact on the way work is performed 14­17 What Is The Link Between  Strategy And Architecture?  Firms pursuing a localization strategy focus on local responsiveness Firms pursuing an international strategy create value by transferring core competencies from home to foreign subsidiaries Firms pursuing a global standardization strategy focus on the realization of location and experience curve economies Firms pursuing a transnational strategy focus on simultaneously attaining location and experience curve economies, local responsiveness, and global learning 14­18 What Is The Link Between  Strategy And Architecture?  A Synthesis of Strategy, Structure, and Control Systems 14­19 How Can Firms Implement  Organizational Change?  For a firm to succeed The firm’s strategy must be consistent with the environment in which the firm operates The firm’s organization architecture must be consistent with its strategy  To implement organization change Unfreeze the organization through shock therapy Move the organization to a new state through proactive change in architecture Refreeze the organization in its new state 14­20 ... firms expand internationally, they often group all of their international activities into an international division 14 6 What Is A  Functional Structure? A Typical Functional Structure 14 7 What Is A Product ... Vertical differentiation - location of decisionmaking responsibilities within a structure  Centralized decision-making  Decentralized decision-making Horizontal differentiation - formal division of... differentiation - formal division of the organization into sub-units Integrating mechanisms - the mechanisms for coordinating sub-units 14 5 Why Is Horizontal  Differentiation Important?  Initially,