1. © McGraw Hill Companies, Inc., 2000 The Organization of International Business Chapter 13

2. © McGraw Hill Companies, Inc., 2000 Royal Dutch Shell  Shell organizational structure  Double matrix: Region/Business Activity.  McKinsey and Company  Business consequence:  Decision by consensus.  Structure decentralized decision making.  Reorganized along divisional lines.  No international division. 13-1

3. © McGraw Hill Companies, Inc., 2000 Shell Organizational Structure - 1998 13-2

4. © McGraw Hill Companies, Inc., 2000 Wiring Diagrams  What are they?  Why use wiring diagrams?  Important to the company.  Important to the manager 13-3

5. © McGraw Hill Companies, Inc., 2000 Vertical Differentiation  Concerned with where decisions are made.  Where is decision making power concentrated?  Two Approaches  Centralization  Decentralization 13-4

6. © McGraw Hill Companies, Inc., 2000 Centralization  Pros:  Facilitate coordination.  Consistency of decisions.  Easier to make changes.  Avoids duplication. 13-5

7. © McGraw Hill Companies, Inc., 2000 Centralization  Cons:  Overburdened top management.  Motivational research favors decentralization.  Decentralization permits flexibility.  Decentralization lets decisions be made closer to the information source.  Decentralization can increase control. 13-6

8. © McGraw Hill Companies, Inc., 2000 Strategy and Centralization  Global strategy - centralization.  Multi-domestic firms - decentralization.  International firms - centralize for core competencies (R&D) and decentralize for operating decisions.  Transnational - use both. 13-7

9. © McGraw Hill Companies, Inc., 2000 Vertical Differentiation - Decentralization  Top is over-burdened and makes poor decisions.  Increased motivation at lower levels.  Greater flexibility.  Better on-the-spot decisions.  Increased accountability and control. 13-8

10. © McGraw Hill Companies, Inc., 2000 Horizontal Differentiation  How a firm divides itself into sub- units - value creation activities.  Demands to great for one individual.  Firm diversifies its product offerings.  Typically: function, business area or geography. 13-9

11. © McGraw Hill Companies, Inc., 2000 A Typical Functional Structure Figure 13.1 Purchasing ManufacturingMarketingFinance Top Management Buying units PlantsBranch sales units Accounting units 13-10

12. © McGraw Hill Companies, Inc., 2000 Horizontal Differentiation  Usually firms start with an international division.  Leads to coordination problems, and  Conflict between domestic and foreign operations. 13-11

13. © McGraw Hill Companies, Inc., 2000 A Typical Product Division Structure Figure 13.2 Department Purchasing Department manufacturing Department marketing Department finance Buying units PlantsBranch sales units Accounting units Division product line A Headquarters Division product line B Division product line C 13-12

14. © McGraw Hill Companies, Inc., 2000 One Company’s International Division Structure Figure 13.3 DomesticdivisionGeneralmanager Product line A InternationaldivisionGeneralmanager area line Headquarters DomesticdivisionGeneralmanager Product line B DomesticdivisionGeneralmanager Product line C Country 1 Generalmanager (product A, B, and / or C) Country 2 Generalmanager (product A, B, and / or C) Functional units 13-13

15. © McGraw Hill Companies, Inc., 2000 The International Structural Stages Model Global Matrix (“Grid”) Area Division Worldwide Product Division International Division Alternate Paths of Development Foreign Product Diversity Foreign Sales as a Percentage of Total Sales Figure 13.4 13-14

16. Horizontal Differentiation - Two Structures (A)  Worldwide area.  Used by firms with  Little diversification.  Domestic structure based on function.  Fits multi-domestic strategy because of local responsiveness capability. 13-15

17. © McGraw Hill Companies, Inc., 2000 Worldwide Area Structure European area Middle East / Africa area Far East area Headquarters Figure 13.5 North American area Latin American area 13-16

18. © McGraw Hill Companies, Inc., 2000 Horizontal Differentiation - Two Structures (B)  Worldwide product division.  Used by firms with structure based on product divisions.  Fits global strategy because of realization of experience curve and location economies. 13-17

19. © McGraw Hill Companies, Inc., 2000 A Worldwide Product Division Structure Worldwide product group or division A Worldwide product group or division C Headquarters Worldwide product group or division B Area 1 (domestic) Area 2 (international) Functional units Figure 13.6 13-18

20. © McGraw Hill Companies, Inc., 2000 Matrix Structures  Multinational and Transnational attempt to use a matrix structure.  High failure rate because of bureaucratic (turf) problems. 13-19

21. © McGraw Hill Companies, Inc., 2000 A Global Matrix Structure Figure 13.7 Headquarters Area 1 Area 2 Area 3 Product division A Product division B Product division C Manager here belongs to division B and area 2 13-20

22. © McGraw Hill Companies, Inc., 2000 Dow Chemical  Triple matrix structure.  Function  Business  Geography  Flexibility. 13-21

23. © McGraw Hill Companies, Inc., 2000 Japanese Organizational Structure  NEC  Regional ‘optimum locations’ manufacture.  Work together, with or w/o support from Japan.  Matsushita  Rearranging 69 overseas plants into a ‘global localization’ plan to supply four major ‘poles’: NA, Europe, Japan, rest of Asia. Japanese accustomed to strong central control. Problems dealing with minorities. Problems with labor unions. 13-22

24. © McGraw Hill Companies, Inc., 2000 Formal Integrating Mechanisms Increasing complexity of integrating mechanism Direct contact Liaison roles Teams Matrix structures Figure 13.8 13-23

25. © McGraw Hill Companies, Inc., 2000 Formal Integrating Mechanisms  Communications.  Inter and Intranets.  Direct contact and liaison - requires leadership.  Management schools.  creates networks.  imposes culture. 13-24

26. © McGraw Hill Companies, Inc., 2000 Informal Integrating Mechanisms  Management networks.  Organization Culture. 13-25

27. © McGraw Hill Companies, Inc., 2000 A Simple Management Network B C D A G F E Figure 13.9 13-26

28. © McGraw Hill Companies, Inc., 2000 Control Systems  Personal.  Personal contact.  Bureaucratic.  Rules and procedures.  Output.  Goal-setting.  Cultural.  Establishment of value system. 13-27

29. © McGraw Hill Companies, Inc., 2000 Interdependence, Performance Ambiguity, and the Costs of Control for the Four International Business Strategies StrategyInter-depend- ence Performance Ambiguity Costs of Control Multi-domestic Low International Moderate GlobalHigh Transnational Very high Table 13.1 13-28

30. © McGraw Hill Companies, Inc., 2000 A Synthesis of Strategy, Structure and Control Systems Structure and control Multi-domesticInternationalGlobalTransnational Vertical differentiation DecentralizedCore competency; rest decentralized Some centralized Mixed centralized and decentralized Horizontal differentiation Worldwide area structure Worldwide product division Worldwide product division Informal matrix Need for coordination LowModerate HighVery high Integrating mechanisms None Few ManyVery many Performance ambiguity LowModerate HighVery high Need for cultural controls LowModerateHighVery high Table 13.2 13-29