Organization Structure and Control Systems Chapter 8 Prentice Hall 2003 Chapter 8

Chapter 8 - Overview Organization structure Evolution and change in MNC organizational structures Organizing for globalization Emergent structural forms Choice of organizational form Control systems for global operations Managing effective monitoring systems Prentice Hall 2003 Chapter 8

Internationalization Internationalization is the process by which a firm gradually changes in response to international competition, domestic market saturation, and the desire for expansion, new markets, and diversification. Prentice Hall 2003 Chapter 8

Structuring International Activities Domestic structure plus export department Domestic structure plus foreign subsidiary International division Global functional structure Global product structure Prentice Hall 2003 Chapter 8

Domestic Structure Plus Foreign Subsidiary (Exhibit 8-1) Chief Executive Officer HQ Departments Finance Production Marketing HRM VP Int’l Operations Overseas Japan Germany Mexico Subsidiaries Prentice Hall 2003 Chapter 8

Global Functional Structure The global functional structure is designed on the basis of the company’s functions – production, marketing, finance, and so forth. Foreign operations are integrated into the activities and responsibilities of each department to gain functional specialization and economies of scale. Prentice Hall 2003 Chapter 8

Global Product (Divisional) Structure In the global product (divisional) structure, a single product (or product line) is represented by a separate division. Each division is headed by its own general manager, and each is responsible for its own production and sales functions. Prentice Hall 2003 Chapter 8

Global Product (Divisional) Structure (Exhibit 8-2) CEO Corporate Functional Staff Area Specialists: North America Latin America Europe Far East Product 1 Product 2 Product 3 Division Division Division Country A Country B Finance Production Marketing Prentice Hall 2003 Chapter 8

Global Geographic (Area) Structure In the global geographic (area) structure – the most common form of organizing foreign operations – divisions are created to cover geographic regions. Each regional manager is then responsible for the operations and performance of the countries within a given region. Prentice Hall 2003 Chapter 8

Global Geographic Structure (Exhibit 8-3) Board of Directors Chair CEO VP Group VP VP Finance N. America VP S. America VP Europe VP Pacific VP Plastics VP Agriculture France UK Finance Production Marketing Prentice Hall 2003 Chapter 8

Opposing Forces in Structural Choices The need for differentiation (focusing on and specializing in specific markets) The need for integration (coordinating those same markets) Prentice Hall 2003 Chapter 8

Emergent Structural Forms Interorganizational networks The global e-corporation network structure The transnational corporation (TNC) network structure Prentice Hall 2003 Chapter 8

Information Technology’s Impact on Organizational Forms “Competitive companies in the future will be elaborate networks of people and information, each exerting an influence on the other. [These networks will comprise] a small hub of staff connected to each other by their physical proximity, which is electronically connected to global associates who help control assets and negotiate agreements to extend the company’s business influence.” Kilmann Prentice Hall 2003 Chapter 8

The Global E-Corporation Network Structure (Exhibit 8-6) Supply Chain Network Suppliers Wholesale distributors Manufacturers Logistics providers Supplier exchanges Logistics exchanges Customers Customer exchanges Virtual manufacturers Contract manufacturers Logistics providers Information flow Goods flow Prentice Hall 2003 Chapter 8

Choice of Organizational Form Two major variables in choosing the structure and design of an organization are the opportunities and need for globalization and localization Prentice Hall 2003 Chapter 8

Organizational Alternatives and Development for Global Competition (Exhibit 8-7) TNC Global product structure Horizontal organization, alliances and networks Global company Transnational structure Opportunities and Need for Globalization MNC Matrix structure International company Geographic area structure Domestic functional with int’l division Opportunities and Need for Localization Prentice Hall 2003 Chapter 8

Locus of Decision Making in an International Organization (Exhibit 8-10 Headquarters authority Subsidiary/local unit authority Area of control by headquarters Centralized Decentralized Area of control at local level HQ management makes decision and informs local managers HQ management makes decision and recommends to local managers Local managers present problem and solution to HQ for decision Local managers make decision and inform HQ HQ management makes decision and “sells” to subsidiary managers HQ and local managers consult on decisions Local managers make decision and “sell” to HQ Prentice Hall 2003 Chapter 8

When is Change Needed? (Exhibit 8-9) A change in the size of the corporation – due to growth, consolidation, or reduction A change in key individuals – which may alter management objectives, interests, and abilities A failure to meet goals, capitalize on opportunities, or be innovative An inability to get things done on time A consistently overworked top management that spends excessive hours on the job A belief that costs are extravagant or that budgets are not being met Morale problems Lengthy hierarchies that inhibit the exercise of strategic control Prentice Hall 2003 Chapter 8

When is Change Needed? (contd.) Planning that has become increasingly staff-driven and is thus divorced from line management Innovation that is stifled by too much administration and monitoring of details Uniform solutions that are applied to nonuniform situations. The extreme opposite of this condition – when things that should or could function in a routine manner do not – should also be heeded as a warning. In other words, management by exception has replaced standard operating procedures Prentice Hall 2003 Chapter 8

When is Change Needed? (contd.) The following are a few specific indicators of international organizational malaise: A shift in the operational scope – perhaps from directing export activities to controlling overseas manufacturing and marketing units, a change in the size of operations on a country, regional, or worldwide basis, or failure of foreign operations to grow in accordance with plans and expectations Clashes among divisions, subsidiaries, or individuals over territories or customers in the field Divisive conflicts between overseas units and domestic division staff or corporate staff Prentice Hall 2003 Chapter 8

When is Change Needed? (contd.) Instances wherein centralization leads to a flood of detailed data that is neither fully understood nor properly used by headquarters Duplication of administrative personnel and services Underutilization of overseas manufacturing or distribution facilities Duplication of sales offices and specialized sales account executives Proliferation of relatively small legal entities or operating units within a country or geographic area An increase in overseas customer service complaints Breakdowns in communications within and between organizations Unclear lines of reporting and dotted-line relationships, and ill-defined executive responsibilities Prentice Hall 2003 Chapter 8

Coordinating Mechanisms Direct coordinating mechanisms Examples Design of appropriate structures Use of effective staffing practices Visits by head-office personnel Regular meetings Prentice Hall 2003 Chapter 8

Coordinating Mechanisms (contd.) Indirect coordinating mechanisms Examples Sales quotas Budgets Other financial tools Feedback reports Prentice Hall 2003 Chapter 8

Managing Effective Monitoring Systems Factors likely to affect the appropriateness of monitoring systems include: Management practices Local constraints Expectations regarding Authority Time Communication Prentice Hall 2003 Chapter 8

Managing Effective Monitoring Systems In deciding on appropriate monitoring and reporting systems, additional factors to be considered include: The role of information systems (adequacy of management information systems in foreign affiliates, noncomparability of performance data across countries) Evaluation variables across countries Prentice Hall 2003 Chapter 8