Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Organisational Structure and Control in Global and Transnational Businesses Chapter 13

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Introduction This lecture: –explores the determinants of organisational structure –summarises the alternative organisational structures available to international organisations –introduces recent alternative configurations, –examines links which between global strategies and organisational structure and control

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. ‘Height’ and ‘width’ of structures ‘Height’ refers to the number of layers that exist within a structure 'Width' of organisational structures refers to the extent to the organisation is centralised or decentralised Larger organisations tend to be higher ICT has allowed organisations to: –be flatter –combine centralisation and decentralisation

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Determinants of structure - contingency approach nature of the business environment of the organisation global strategy of the business age and history of the organisation size of business and limitations of span of control level of technology in the organisation geographical span of activities culture of the organisation leadership and leadership style

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Determinants of structure - configuration approach Design parameters: –job specialisation - logical division of tasks –behaviour formalisation - standardised work processes –training - to provide employees with the necessary skills –indoctrination - organisational norms in workers –unit grouping - according to business function and market served - may conflict with each other –unit size - number of positions in single unit of business –planning and control systems –liaison and integrating devices e.g.task forces –need for centralisation or decentralisation

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Types of international organisational structure Export department Mother - daughter structure International divisional Global structures Functional Product Geographic/regional Matrix and Transnational

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. International structures I Export Department –Responsibility for foreign sales transferred from product divisions to separate export department reporting to the Group CEO Mother - daughter structure –Parent company holding company for largely autonomous foreign subsidiaries whose managers management report directly to CEO –Subsidiaries granted substantial operating freedom subject to satisfactory performance

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. International structures II International divisional structure –Responsibility for all foreign operations transferred to a separate international division based at the corporate centre –Foreign subsidiaries report directly to the international centre

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Corporate Headquarters Product Division A Product Division B International Division Production Marketing Finance & Accounting Human Resources Area A Production Marketing Finance & Accounting Human Resources Production Marketing Finance & Accounting Human Resources Area B Production Marketing Finance & Accounting Human Resources International Product Division Structure

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Global structures I Functional –Responsibility for foreign operations allocated to functional line managers at the centre. – Foreign subsidiaries report directly to functional executives at the centre (production; marketing; human resources; finance etc). Product –Responsibility for foreign operations allocated to product divisions based at the centre. –Foreign subsidiaries report directly to product divisions.

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Corporate Headquarters Product Division A Product Division B Area AArea B Production Marketing Finance & Accounting Human Resources Production Marketing Finance & Accounting Human Resources Area AArea B Production Marketing Finance & Accounting Human Resources Production Marketing Finance & Accounting Human Resources International Product Division Structure

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Global structures II Geographic/regional –Responsibility for foreign operations allocated to area executives. Foreign subsidiaries report directly to geographic/regional division based at the centre or abroad. Matrix –Responsibility for foreign operations divided between product and geographic divisions. Foreign subsidiaries report directly to both product and geographic centres.

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Corporate Headquarters Western Europe North America Asia South America Eastern Europe Product Divisions ABCDEFABCDEF Areas Global Matrix Structure

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Global Matrix Structures I attempt to co-ordinate and integrate worldwide functional, product and area responsibilities responsibility for foreign operations is divided between global product and regional divisions with subsidiary managers reporting to two bosses co-ordination and integration of product and area responsibilities is achieved through frequent interchanges between the product and regional divisions and through the CEO.

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Global Matrix Structures II Benefits of a matrix structure include: –co-ordination and integration of activity on a global scale can be achieved through global product divisions –combination of both product and geographic divisions achieves both global co-ordination and national responsiveness simultaneously –ability to accommodate managers with worldwide (product) responsibilities for particular businesses & country managers responsible for specific area markets.

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Global Matrix Structures III Drawbacks of the global matrix structure are: –conflicts of interest between product & regional groupings –decision-making procedures are complex because it is a group process, compromises & time consuming –overlapping responsibilities –reporting duplication to two or more bosses, often with conflicting objectives –duplication of information, communications and activities –increased administrative costs –Dow Chemical and Citibank have abandoned matrix

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Development of Global Matrix Structures Diversity of foreign product range Foreign sales as a percentage of total sales International division World-wide product division Geographical area division Global Matrix structure Path 1 Path 2

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Development of Transnational Organisations Bartlett & Ghoshal –"formal structure is a powerful but blunt instrument of strategic change" (1995) –developed concepts of transnational business management –European businesses developed as decentralised federations in 1920s as only limited communications –American businesses 1950/60s co-ordinated federations - rigid structures & centralised planning –Japanese businesses - centralised hubs - cost based strategies depended upon tight centralised control of activities

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Problems of European, American and Japanese models decentralised federation achieves local responsiveness but duplicates activities and a fails to gain co-ordination efficiencies centralised hubs - advantages of co- ordination but at the expense of local responsiveness. matrix has failed to reconcile these problems

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. (a) Decentralised Federation Mainly financial flows - capital out and dividends back Loose, simple controls; strategic decisions decentralised (b) Co-ordinated Federation Mainly knowledge flows - technology, products, processes, systems Formal system controls - planning, budgeting, replicating parent company administrative system

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. (c) Centralised Hub Mainly flows of goods Tight, simple controls- key strategic decisions made centrally (d) Integrated Network Model Distributed, specialised resources and capabilities Large flows of components, products resources, people, and information among interdependent units Complex process of co-ordination and co-operation in an environment of shared decision making

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Features of Transnationals industries have changed from being international, multinational or global to being 'transnational'. organisations must therefore become transnational and "optimise efficiency, responsiveness and learning simultaneously in their worldwide operations" (Bartlett and Ghoshal) difficulty is to achieve a three way balance of organisational perspectives and capabilities among product, function and (geographical) area

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. The Transnational Challenge how to simultaneously be integrated to gain global economies and locally responsive corporate managers must determine the overarching strategy and co-ordinate activities. strong geographical management is required to ensure local responsiveness to national and regional markets only a multidimensional organisation can provide the three strands of management simultaneously

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Transnationals a transnational is multidimensional by ensuring that: –tasks are systematically differentiated by treating different businesses, functions and areas differently and by allowing them to be organised differently; –relationships between the different parts of the business are based on interdependence rather than independence; –co-ordination and co-option of differentiated and interdependent organisational units are achieved through shared vision and integrative mechanisms.

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Transnational characteristics Bartlett and Ghoshal (1995) - transnationals are integrated networks with 3major characteristics: multidimensional perspectives –strong global, subsidiary and functional management distributed, interdependent capabilities flexible integrative processes –Centralisation –Formalisation –Socialisation

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Evaluating performance serves a number of functions: –co-ordination & integration of strategy –internal benchmarking of performance –ensuring a realistic level of profitability. –early identification of problems –resource allocation –information –motivation –communications

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Management and control systems are influenced by: transnational strategy of the organisation strategic predispositions and value systems of the transnational as in the EPRG profile the geographical extent of its operations the nature of its international business environment.

Global and Transnational Business: Strategy and Management 2 nd Edition © John Wiley & Sons Ltd. Structure and control in the Transnational co-ordination and responsiveness are both essential to competitive advantage through transnational strategy it is necessary to build an organisation which is 'transnational'. –strong global, subsidiary and functional management and multidimensional perspectives; –distributed, interdependent capabilities; and, –flexible integrative processes.