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HSE: International Business Environments & Operations
7 Mar. Ch. 16 The Organization and Governance of Foreign Operations PART SIX: Functional Management and Operations Application of knowledge: 14 Mar. Supplement to textbook: How to organize a successful business in China: Some major problems, errors, and difficulties 21 Mar. Test 4-Date may change. Forthcoming schedule HSE: International Business Environments & Operations 15e, Global Edition Daniels ● Radebaugh ● Sullivan International Business Environments and Operations 15e, Global Edition by Daniels, Radebaugh, and Sullivan 1
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The Organization and Governance of Foreign Operations
Chapter 16 The Organization and Governance of Foreign Operations Chapter 16: The Organization and Governance of Foreign Operations
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Learning Objectives Profile the evolving process of organizing a company for international business Describe the features of classical structures Describe the features of neoclassical structures Compare and contrast the idea of the hierarchy versus the hyperarchy The Learning Objectives for this chapter are Profile the evolving process of organizing a company for international business Describe the features of classical structures Describe the features of neoclassical structures Discuss the systems used to coordinate and control international activities Profile the role and characteristics of organization culture
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Learning Objectives Discuss the systems used to coordinate international activities Discuss the systems used to control international activities Profile the role and characteristics of organizational culture Profile the role and characteristics of corporate universities
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Introduction Learning Objective:
Profile the evolving process of organizing a company for international business Learning Objective : Profile the evolving process of organizing a company for international business.
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Introduction The goal of MNEs is to standardize activities to maximize global efficiency and at the same time adapt activities to maximize local effectiveness To achieve this goal the MNE must establish the right structure to implement it Once a firm has developed a strategy, it needs to establish a structure that will allow it to be implemented. Organizing is the process of creating the structure, systems, and culture needed to implement the company’s strategy.
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Factors Affecting Organizing Operations
Introduction Factors Affecting Organizing Operations This Figure shows the different factors that can affect organizational operations. Note that the firm must specify the structure, install the systems to get it moving, and then promote a culture that will sustain it.
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Changing Situations, Changing Organizations
Environmental trends, industry conditions, and market opportunities are forcing change Expansion of international business The Internet as a design standard Managerial standards Social contracts Building a ‘magical’ organization In the early 20th century, companies, responding to the environment around them, established hierarchical structures. Today, the growth and diffusion of international business is demanding more sophisticated organizations. The Internet in particular has challenged managers to rethink traditional patterns of organization. Knowledge gaps are also disappearing prompting companies to develop new coordination and control systems. Similarly, changing social contracts are encouraging managers to reassess how they manage organizational culture. Companies now try to build magical organizations with the best mix of structure, systems, and values.
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Organization Structure
Learning Objective: Describe the features of classical structures Learning Objective : Describe the features of classical structures.
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Organization Structure
Organizational structure the formal arrangement of roles, responsibilities, and relationships in the MNE Vertical differentiation the balance between the centralization and decentralization of authority Horizontal differentiation involves specifying which people do which jobs in which units Organizing involves building the structure, systems, and culture necessary to implement a strategy. Managers must consider vertical differentiation issues, or the balance between the centralization and decentralization of authority as well as horizontal differentiation which involves determining which people do which jobs in which units.
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Vertical Differentiation
Centralization versus Decentralization Centralization degree to which high-level managers make strategic decisions and delegate them to lower levels for implementation Decentralization degree to which lower-level managers make and implement strategic decisions The question of where strategic decisions are made depends on the level of centralization in a firm. A company that is highly centralized concentrates decision making authority at the top of the organization while a decentralized structure allows decision making at the department and division levels. Keep in mind that the centralization versus decentralization decision is not an either/or issue. Instead, it’s something that should be rebalanced as the situation in which the firm operates changes.
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Horizontal Differentiation
Specifies the set of tasks to accomplish Divides the tasks among SBUs, divisions, departments, committees, teams, jobs, and individuals Stipulates superior and subordinate relationships Classical structures used to achieve this functional, area or divisional, matrix or mixed Vertical differentiation deals with the chain of command in a firm. Horizontal differentiation is concerned with how firms divide themselves into discrete units responsible for certain tasks. Common ways to achieve this are the functional structure, the area or divisional structure, and the matrix and mixed structures.
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Functional Structure The functional structure
groups people based on common expertise and resources is popular among companies with narrow product lines The functional structure works well when global integration is more important than local responsiveness, industry structure encourages cost leadership, and companies have anchored their value chains in global or international strategies. Keep in mind though, that the structure may encourage a company to neglect local opportunities.
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International Organisational Structure
Perlmutter: Ethnocentric, Polycentric, Regiocentric, Geocentric
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Howard V. Perlmutter (4 November 1925 – 8 November 2011) was an expert on Globalization and Internationalization of Companies. He specialized in the development of international enterprises. Perlmutter’s seminal article was the 1969 publication of the so-called EPG Model, which he expanded in 1979 together with his colleague David A. Heenan to become the EPRG-Model. The model's name is an acronym based on the names of the three basic international mindsets of managers described in the model:Ethnocentrism, Polycentrism, Geocentrism, and later Regiocentrism. The model is still basic in international management and international HR management. Perlmutter, H. V. (1969). The tortuous evolution of the multinational corporation. Columbia Journal of world business, 4(1), 9-18.
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Journal of World Business, 1969
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How multinational should your top managers be?
It may be easier to talk to your man in Rio if he speaks your language, but insisting on that may cause MNCs to lose some top people, not to mention profits Howard V.Perlmutter and David A. Heenan Harvard Business Review, Nov.-Dec., 1974
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Categories of International Firms
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Evolving motivations: Changing perspectives
High Global Transnational Global Coordination Integration International Multinational Low Low Local Responsiveness High
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Management philosophies (Perlmutter):
Ethnocentrism Domestic and International Polycentrism Regiocentrism (added in a later article) Geocentrism
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Between the two extremes of highly centralized, centocentric/global (standardization, global integration, efficiency, economies of scale…) and decentralized, multinational (host country focus, effectiveness…) strategies, there lies a possibility of combining the features of the two to better respond to the situation.
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Ethnocentric-Domestic
Domestic expansion only S H A Y I don’t care Junior. We’re staying at home.
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Ethnocentric-International Foreign expansion viewed as an appendage to domestic operations; same strategies are utilized in all countries. HQ You see…our way works best around the world.
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Polycentrism Activities and functions are planned and managed, often by local nationals, on a country-by-country basis (e.g., HRM is decentralized by country) HQ Would you look at this? The GMs do understand the local markets
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Regiocentrism Operations are geared towards a particular continental region with similar economies and cultures Betaminor HQ Alphaland Betaland
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Geocentrism Products are functional, reliable, and standardized low-cost products (e.g., HRM managed on a global basis) HQ I can see the whole world from here.
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Video: Staffing 7 minutes
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The Functional Structure
This Figure shows the functional structure.
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Divisional Structure The divisional structure
divides employees based on the product, customer segment, or geographical location duplicates functions and resources across divisions International division Global product structure Worldwide area structure The divisional structure assigns divisions responsibility for a different set of products or markets.
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The International Division Structure
Divisional Structure The International Division Structure This Figure shows the international division structure. It creates a critical mass of international expertise which competes with domestic divisions for resources.
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Product Division Structure
Divisional Structure Product Division Structure This Figure shows the product division structure.
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Geographic (area) Division Structure
Divisional Structure Geographic (area) Division Structure This Figure shows the geographic division structure. It’s popular when a firm has significant foreign operations and when no single country or region dominates.
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Matrix Structure The matrix structure
Institutes overlaps among functional and divisional forms Gives functional, product, and geographic groups a common focus Violates the unity of command principle has dual reporting relationships rather than a single line of command Matrix structure: Problem with matrix structure: 9 minutes The matrix structure is often established in response to simultaneous pressures for both local responsiveness and global integration.
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Matrix Division Structure
Matrix Structure Matrix Division Structure This Figure shows the matrix structure. Notice the dual lines of control.
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Mixed Structure The mixed structure
Combines elements of the functional, area, and product structures Allows the firm to better adapt to market conditions worldwide Some firms combine elements of each of the classical structures to build a mixed structure.
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Neoclassical Structures
Learning Objective: Describe the features of neoclassical structures Learning Objective : Describe the features of neoclassical structures.
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Neoclassical Structures
emphasize coordination and cultivation not command and control Network structure arranges differentiated elements in patterned flows of activity that allocate people and resources to problems and projects in a decentralized manner keiretsu, sogo shosha, chaebol Virtual organization dynamic arrangement among partners that efficiently adapts to market change Unlike classical structures that focus on command and control, neoclassical structures emphasize coordination and cultivation. Vertical, horizontal, and external boundaries hindering the flow of information and formation of relationships are eliminated. Keep in mind that neoclassical structures can be challenging because by definition they are fluid structures that are constantly changing.
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Neoclassical Structures: A Simplified Network Structure
This Figure shows a simplified network structure.
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Neoclassical Structures
Virtual Organization A virtual organization is a temporary arrangement among independent companies, suppliers, customers and rivals that “works across space time and organizational boundaries with links strengthened by webs of communication technology” A virtual organization is a temporary arrangement among independent companies, suppliers, customers and rivals that “works across space time and organizational boundaries with links strengthened by webs of communication technology”
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Coordinated Systems Learning Objective:
Discuss the systems used to coordinate international activities Learning Objective : Discuss the systems used to coordinate and control international activities.
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Coordinated Systems Coordination by:
Standardization - relies on objectives and schedules to set rules and regulations Plan - requires interdependent units to meet common deadlines and objectives Mutual adjustment - depends on managers interacting extensively with their counterparts Coordination helps ensure that a company uses its resources efficiently and makes decisions effectively. Coordination can be by standardization, by plan, and by mutual adjustment.
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Control Systems Learning Objective:
Discuss the systems used to control international activities
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Control Systems Control systems
define how managers compare performance to plans, identify differences, and where found, assess the basis for the gap and impose corrections Bureaucratic control Market control Clan control Companies can use several different types of control systems including bureaucratic control which emphasizes organizational authority and relies on rules and regulations, market control which uses external market mechanisms to establish objective standards, and clan control which uses shared values and ideals to moderate employee behavior. .
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Control Mechanisms Control tools include Reports
Visits to subsidiaries Evaluative metrics Information systems Companies can use a variety of tools to support their control systems including reports, subsidiary visits, evaluative metrics, and information systems. The choice will depend on the company’s strategy.
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Organization Culture Learning Objective:
Profile the role and characteristics of organizational culture Learning Objective : Profile the role and characteristics of organization culture.
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Organization Culture Organization culture
the coherent set of assumptions about an MNE and its goals and practices shared by its members management values and principles work climate and atmosphere ‘how we do things around here’ patterns traditions ethical standards Successful companies establish an organization culture that defines company goals and values. Keep in mind that good organization culture doesn’t just happen – it’s carefully developed.
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Organization Culture and Strategy
An organization’s culture shapes its strategic moves varies with the strategy the MNE pursues A company’s organization culture must go hand-in-hand with its strategy.
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Organization Culture and Strategy: Strategy and Organizational Culture in International Business
This Figure provides a summary of the different strategies and organizational culture in international business. Notice the need for “fit” between the different elements in the chart.
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Organizational Culture
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Learning Objectives Define organizational culture and know why it is important Distinguish among organizational, national, and global culture and understand the relationships among them Evaluate the culture-free approach to understanding organizational culture
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Learning Objectives (cont.)
Identify levels of organizational culture Know what organizational culture does Discuss the cultural dimensions and typology approaches to understanding organizational culture Understand how organizational culture can be managed
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Organizational Culture
A pattern of basic assumptions - invented, discovered, or developed by a given group as it learns to cope with its problems of external adaptation and internal integration That has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems (Schien, 1985).
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National and Global Culture
Relationship between national and corporate culture is complex: “Logic of industrialization" may affect all organizations the same way National culture and other elements in an organization's environment may determine internal organizational culture Globalization also affects organizational culture
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Henry Ford, founder of the Ford Motor Company said:
Getting together is beginning Keeping together is progress Working together is success
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National and Global Culture
One can not understand what’s going on inside an organizational culture without understanding what exists outside the boundary. National culture provides basic assumptions that legitimize and guide organizational behavior. Industrialization promotes changes in national culture. Globalization increases awareness of successful practices elsewhere. Modern communication enhances connections among manufacturers, merchants, financiers, consumers, etc. globally. MNCs seek consistency and shape organizational culture on a global basis.
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Culture-Free Approach
It argues that technology, policies, rules, organizational structure, and other variables that contribute to efficiency and effectiveness make national culture irrelevant for management. McDonald’s fast food service World Disney IKEA Disney Paris Ears
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Understanding Organizational Culture
Organizations are culture free in some respects, but culture bound in many others (Trice & Beyer, 1993). Global, national, and organizational elements interact to influence organizational culture and behavior.
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McDonald's Restaurants
Moscow or some others Types of the restaurant Food adaptation Service adaptation Perceptions of jobs Workplace culture Employee commitment U.S. Fast food life style Convenience Temporary jobs High turnover rate Standard food items
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Levels of Organizational Culture
Artifacts Espoused Values (should be) Actual Values (as is) Basic Underlying Assumptions Subcultures
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Artifacts
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Microsoft’s Mission: To enable people and businesses throughout the world to realize their full potentials
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Great People with Great Values
Delivering on our mission requires great people who are bright, creative, and energetic, and who share the following values: Integrity and honesty. Passion for customers, partners, and technology. Open and respectful with others and dedicated to making them better. Willingness to take on big challenges and see them through. Self-critical, questioning, and committed to personal excellence and self-improvement. Accountable for commitments, results, and quality to customers, shareholders, partners, and employees.
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National Vs. Organizational Culture
National culture Broader More complex Influence org. culture Primary and secondary socialization Organizational culture Narrower Manageable Secondary socialization Subcultures
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What Organizational Culture Does
FUNCTIONS Provides an external identity Creates a sense of commitment Acts as source of high reliability Defines an interpretive scheme Acts as a social control mechanism DYSFUNCTIONS Can create barriers to change Can create conflict within the organization Subcultures can change at different rates than other units
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Some Underlying Dimensions of Organizational Culture
Dimension Questions to be answered The organization’s relationship to its environment The nature of human activity The nature of reality and truth Does the organization perceive itself to be dominant, submissive, harmonizing, searching out a niche? Is it the “correct” way for humans to behave to be dominant/proactive, harmonizing, or passive/fatalistic? How do we define what is true and what is not true; and how is truth ultimately determined both in the physical and social world?
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Some Underlying Dimensions of Organizational Culture (cont.)
Dimension Questions to be answered What is our basic orientation in terms of past, present, and future, and what kinds of time units are most relevant for the conduct of daily affairs? Are humans basically good, neutral, or evil, and is human nature perfectible or fixed? 4. The nature of time 5. The nature of human nature
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Some Underlying Dimensions of Organizational Culture (cont.)
Dimension Questions to be answered 6. The nature of human relationships 7. Homogeneity versus diversity What is the “correct” way for people to relate to each other, to distribute power and affection? Is life competitive or cooperative? Is the best way to organize society on the basis of individualism or groupism? Is the best authority system autocratic/paternalistic or collegial/participative? Is the group best off if it is highly diverse or if it is highly homogeneous, and should individuals in a group be encouraged to innovate or conform?
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Trompenaars’ Four Corporate Cultures
Family Culture Eiffel Tower Culture Guided Missile Culture Incubator Culture
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Characteristics of Trompenaars’ Four Types of Corporate Culture
Variables Family Eiffel Tower Guided Missile Incubator Relationship between employees Diffuse relationships to organic whole to which one is bonded Specific role in mechanical system of required interactions Specific tasks in cybernetic system targeted upon shared objectives Diffuse, spontaneous relationships growing out of shared creative process Attitudes toward authority Status is ascribed to parent figures who are close and powerful Status is ascribed to superior roles, which are distant yet powerful Status is achieved by project group members who contribute to targeted goals Status is achieved by individuals exemplifying creativity and growth Ways of thinking and learning Intuitive, holistic, lateral, and error-correcting Logical, analytical, vertical, and rationally efficient Problems centered, professional, practical, cross-disciplinary Process oriented, creative, an hoc, inspirational Attitudes towards people Family members Human resources Specialists and experts Co-creators Ways of changing “Father” changes course Change rules and procedures Shift aim as target moves Improvise and attune Ways of motivating and rewarding Intrinsic satisfaction in being loved and respected Promote to greater position, larger role Pay or credit for performance and problems solved Participating in the process of creating new realities Management style Management by subjectives Management by job description Management by objectives Management by enthusiasm Criticism and conflict resolution Turn other cheeks, save others’ faces, do not lose power game Criticism is accusation of irrationalism unless there are procedures to arbitrate conflict Constructive task-related only, then admit error fast and correct Must improve creative idea, not negate it
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Managing and Changing Organizational Culture
Leadership and organizational culture Elements of culture leaders can change Employee selection criteria Socialization of new members Meaning of work Artifacts/surface manifestations of culture
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Convergence or Divergence?
Industrialization Emphasis on standardization Organizational strategies for managing culture globally Emphasis on consistency across borders MNCs Global institutions Use of organizational culture as a competitive tool Impact of diverse national cultures on organizational culture Benefits in specific and culturally sensitive ways Seniority Job security Group versus individual
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Implications for Managers
For managerial effectiveness, it is helpful to analyze organizational cultures in order to coordinate activities or change them; Understand what levels of culture can be influenced and how; Know how national culture and organizational culture can interact to influence management philosophy and employee behaviors. Person-culture fit for individual career success
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