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18
Organizational DesignOrganizational DesignAnd ControlAnd Control
International Businessby Ball, McCulloch, Frantz,
Geringer, and Minor McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
This chapter covers:
•Design of organizational structures
•Organizational dimensions
•Organizational forms
•The virtual corporation
•Decision making in an IC
•Control of a joint venture
•Reports needed by an IC
Chapter ObjectivesChapter Objectives
Explain why the design of organizational structure is important to international companies
Understand the organizational dimensions that must be considered when selecting organizational structures
Discuss the various organizational formsUnderstand the concept of the virtual corporation Explain why decisions are made where they are among
parent and subsidiary units of an international companyUnderstand how an IC can maintain control of a joint
venture List the types of information an IC needs to have
reported to it by its units around the world
18-2
Organizational StructureOrganizational Structure Organizational structure
The way organization arranges its various domestic and international units and activities
The relationships among these components
Determines where formal power and authority will be located
Presented in an organization chart
18-3
Organization DesignOrganization Design
Organization design deals with how an international business should be organized in order to ensure its worldwide business activities are able to be integrated in an efficient and effective manner Structures and systems must be consistent
with each other and with the environmental context
Size and complexity of the organization must be considered in design
Structure must be able to evolve over time in order to respond to change
18-4
Design ConcernsDesign Concerns
Organizational Design ConcernsTwo concerns that management faces in
designing the organizational structureFinding the most effective way to
departmentalize to take advantage of the efficiencies gained from specialization of labor
Coordinating the activities of those departments to enable the firm to meet its overall objectives
18-5
Design DimensionsDesign 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 activities18-6
Evolution of the International CompanyEvolution of the International Company
International DivisionA division in the
organization that is at the same level as the domestic division and is responsible for all non-home country activities
Organization on a regional or geographic basis
As overseas operations grow global structures are formed
18-7
Management changes to global product or global geographic form to Be more capable of
developing competitive strategies
Obtain lower production costs
Enhance technology transfer and the allocation of resources
Global Corporate FormGlobal Corporate Form Product
Product divisions responsible for the worldwide operations such as marketing and production of products
Each division generally has regional experts Eliminates duplication of product experts Creates a duplication of area experts
18-8
Global Corporate FormGlobal Corporate Form
Geographical RegionsResponsibilities for all
activities under area managers who report directly to the CEO
This kind of organization simplifies the task of directing worldwide operations Every country is
clearly under the control of someone who is in contact with headquarters
18-9
Global Corporate FormGlobal Corporate Form
Geographical Regions Used for both multinational and global
companies Used by
Companies that manufacture products with a low or stable technological content that require strong marketing ability
Firms with diverse products Producers of consumer products
Creates duplication of product and functional specialists
18-10
Global Corporate FormGlobal Corporate Form
Function Few firms are
organized by function at the top level Senior executives
responsible for each functional area report to CEO
Users of the functional form are those with a narrow and highly integrated product mix
18-11
Hybrid Forms A mixture of the
organizational forms is used at the top level and may or may not be present at the lower
Often result of regionally organized company introducing new and different product line or
Firm selling to sizable, homogeneous class of customers
Global Corporate FormGlobal Corporate Form
Matrix Organization Organization based on one or two
dimensions superimposed on organization based on another dimension
Evolved from attempt to mesh product, regional, and functional expertise
Requires multiple managers to agree on decision
Matrix overlay attempts to correct this problem
18-12
Strategic Business UnitsStrategic Business Units
An organizational form in which product divisions
have been defined as though they were distinct, independent businesses
Most SBUs are based on product lines18-13
Changes in Organizational FormChanges in Organizational Form
Pressure to act more quickly, reduce costs and improve quality have created new forms
Reengineering to reduce levels of middle management restructure work processes reduce fragmenting across departments empower employees improve communication respond more quickly become more innovative
18-14
Current Organizational TrendsCurrent Organizational Trends
Virtual Corporation Coordinates activity
to deliver value to customers using resources outside traditional boundaries
Relies to a great extent on third parties to conduct its business
Also called a network corporation
Advanced by technology
18-15
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
Current Organizational TrendsCurrent Organizational Trends
Horizontal CorporationGives flexibility to
respond quickly “antiorganzation”
removes constraints of conventional structures
Employees worldwide create, build, and market the company’s products through a carefully cultivated system of interrelationships
18-16
ControlControl
Where Are Decisions Made?All at IC headquartersAll at subsidiary levelCombination
Variables determining the location of decision making
Product and EquipmentCompetence of subsidiary managementSize of the international company and how
long it has been oneDetriment of a subsidiary for the benefit of
the enterpriseSubsidiary frustration
18-17
ControlControl Product and Equipment
Standardized product affiliates have to follow company policy
Without global product policy, still attempt to standardize as much as possible
If profit potential greater when subsidiary customizes, subsidiary can proceed with parent approval
18-18
Competence of Subsidiary Management depends on How well do executives
know one another How well do they know
company policies Understanding of host
country conditions Distances between
home and host countries
Size and age of parent company
ControlControl
Greater reliance on subsidiary management if Executives are moved
around between headquarters and subsidiaries
HQ less familiar with host country
Greater distance Smaller company lacks
internationally experienced managers and cannot afford to hire them18-19
ControlControl
Benefiting the Enterprise to the Detriment of a Subsidiary IC can source raw
materials and components, locate factories, allocate orders and govern intrafirm pricing that may benefit the IC but be a detriment to the subsidiary
18-20
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
ControlControl
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 HQ management should delegate as much
as reasonably possible Subsidiary managers should be kept
informed18-21
Joint Ventures and Subsidiaries Joint Ventures and Subsidiaries Less than 100 Percent OwnedLess than 100 Percent Owned
A joint venture may be A corporate entity
between an IC and local owners
A corporate entity between two or more companies that are 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 other companies
18-22
Joint Ventures and Subsidiaries Joint Ventures and Subsidiaries Less than 100 Percent OwnedLess than 100 Percent Owned
Loss of freedom and flexibility because shareholders can block HQ efforts to Move production
factors Fill an order from
another affiliate or subsidiary
Shareholders may bring legal pressures Political pressures
18-23
Methods HQ can use to maintain control include A management
contract Control of the finances Control of the
technology Putting people from
the IC in important executive positions Joint venture partner
will want their own or host government personnel in executive positions
ControlControl
For controls to be effective all operating units of an international
company must provide headquarters with timely, accurate, and complete reports
Types of reporting required Financial Technological Market opportunity Political and economic
18-24
De-JobbingDe-Jobbing
Mass production and large organizations are disappearing
New computer and communication technologies are “de-jobbing” the workplace
Fixed jobs are being replaced with tasks performed by evolving teams18-25
De-JobbingDe-Jobbing
Traits of Companies with De-Jobbed WorkersThey encourage employees to make
operating decisions that used to be reserved for managers
They give employees the information they need to make such decisions
They give employees lots of training to create an understanding of business and financial issues that used to concern only an owner or executive
They give employees a stake in the fruits of their labor--a share of the profits
18-26