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1
International Business Management (BUSI 1346)
Organizational Issues in International Business
Week 26Dr Ajit Prasad, [email protected]
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Purposes of structure Division of labor Mechanism for coordination Organizational boundaries
Extra constitutional centers of power Comparison with informal structure Political structure Legitimate basis of authority
Above allDistribution of decision rights
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TYPES OF STRUCTURES
linear chain of command is easily established
Hierarchy based structures M Form, SBU, Divisionalized, Functional
non-linear chain of command nebulous
Matrix form Core competency based
Cluster form, Mintzberg musings
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Vertical Differentiation Concerned with where decisions are made
Where is decision making power concentrated?
Two Approaches Centralization
Facilitate coordination Consistency of decisions Easier to make changes Avoids duplication
Decentralization Top freed from detail Increased motivation Greater flexibility Increased accountability Better on-the-spot
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Horizontal Differentiation
How a firm divides itself into sub-units Based on value creation activities Reconcile conflicting demands to organize
the firm around different products and different national markets
Typically Function Product, or Geography
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Divisional Structure
Centralizes all international operations Advantages
Raise the status of overseas operations Concentrated know-how and skills
Disadvantages Rivalries between domestic and international
divisions Difficult to think and act globally
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Functional Structure
Builds around the basic tasks of the firm Advantages
Allows tight and centralized control Little duplication of facilities
Disadvantages Difficult to coordinate production and
marketing Little diffusion of operating authority
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Product Structure
Groups similar products together Advantages
Consolidation of value creation activities More appropriate marketing strategy Strong concept of global market
performance Disadvantages
Duplication of facilities and staff personnel Managers may not know global markets Lack of coordination and cooperation
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Area Structure
Organizes operations into areas Advantages
More locally responsive Eliminate costly transportation
Disadvantages Shift of product emphasis to area
orientation Costly duplication of facilities Difficult to coordinate into overall
strategy
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Matrix Structure
Blends two organizational responsibilities
Advantages Bring together expertise of the firm Flexible Promote coordination and communication
Disadvantages Complexity and power struggles Too many meetings, no decision or action Scapegoat for failure
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Examples from MNCsType Imperative Example
Divisional Security Apple
Functional Process Efficiency Coke
Product Customer segmentation
National-Panasonic
Area Geographical concentration
ABB
Matrix Creativity 3M
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Structural Variables
Relative importance of international operations now and in the future
Firm’s past history and experience in the international arena
Firm’s business and product strategy
Management’s philosophy of operating
Firm’s ability to adjust to organizational changes
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Control Systems
Personal Personal contact
Bureaucratic Rules and
procedures Output
Goal-setting Cultural
Establishment of value system
Controlling is the process of determining that everything goes according to plan Establish
standards Compare against
performance Take action
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Strategy, Structure and Control
Structure & control Strategy
Multidomestic International Global Transnational
Vertical differentiation Decentralized Core competency; rest decentralized
Some centralized
Mixed; centralized & decentralized
Vertical differentiation Worldwide area structure
Worldwide product division
Worldwide product
Informal matrix
Need for coordination Low Moderate High Very high
Integrating mechanisms None Few Many Very many
Performance ambiguity Low Moderate High Very high
Need for cultural control Low Moderate High Very high
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Drucker’s check list Clarity
as opposed to simplicity Economy
In control Direction of vision
Of product rather than process Understanding
Of individual’s role Decision making
At the lowest levels Stability
Not rigidity Perpetuation and self renewal
Structure must be open to new ideas
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Comparison and Evaluationcriterion Funct’nl
divisional
SBU Matrix network
Resourcesexcellen
tPoor
Good, srPoor, lr
Moderate Good
Time poor Good Good Moderate Excellent
Responsiveness poorModerat
eExcellent Good Excellent
Adaptability poor GoodModerat
eModerate Excellent
Accountability Good Excellen
tGood Poor moderate
EnvironmentComposite
Stable, Hetero, Hetero Complex Volatile
Generic Strategy
Cost l’drship
Pdt diff’tion
Focus Pdt Diff. Pdt Diff.
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Summary
Describe various organizational structures and understand their respective advantages and disadvantages
Analyze key structural variables that influence international organization designs
Review the role of the control systems in ensuring that the structure is both effective and efficient
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Seminar Question for Next TermPost Easter meeting
In groups of 4, Identify one MNC operating in two continents
Explore the organization structure, examining differences if any..
Identify the adaptation that the MNC has made to local conditions
Come prepared with the presentation, (on acetates)