1. International Business Management (BUSI 1346)
Organizational Issues in International Business
Week 26
Dr Ajit Prasad,

2. Purposes of structure Division of labor Mechanism for coordination
Organizational boundaries
Extra constitutional centers of power
Comparison with informal structure
Political structure
Legitimate basis of authority
Above all
Distribution of decision rights

3. TYPES OF STRUCTURES linear non-linear
chain of command is easily established
Hierarchy based structures
M Form, SBU, Divisionalized, Functional
non-linear
chain of command nebulous
Matrix form
Core competency based
Cluster form,
Mintzberg musings

4. Vertical Differentiation
Concerned with where decisions are made
Where is decision making power concentrated?
Two Approaches
Centralization
Facilitate coordination
Consistency of decisions
Easier to make changes
Avoids duplication
Decentralization
Top freed from detail
Increased motivation
Greater flexibility
Increased accountability
Better on-the-spot

5. Horizontal Differentiation
How a firm divides itself into sub-units
Based on value creation activities
Reconcile conflicting demands to organize the firm around different products and different national markets
Typically
Function
Product, or
Geography

6. Divisional Structure Centralizes all international operations
Advantages
Raise the status of overseas operations
Concentrated know-how and skills
Disadvantages
Rivalries between domestic and international divisions
Difficult to think and act globally

7. Functional Structure Builds around the basic tasks of the firm
Advantages
Allows tight and centralized control
Little duplication of facilities
Disadvantages
Difficult to coordinate production and marketing
Little diffusion of operating authority

8. Product Structure Groups similar products together Advantages
Consolidation of value creation activities
More appropriate marketing strategy
Strong concept of global market performance
Disadvantages
Duplication of facilities and staff personnel
Managers may not know global markets
Lack of coordination and cooperation

9. Area Structure Organizes operations into areas Advantages
More locally responsive
Eliminate costly transportation
Disadvantages
Shift of product emphasis to area orientation
Costly duplication of facilities
Difficult to coordinate into overall strategy

10. Matrix Structure Blends two organizational responsibilities Advantages
Bring together expertise of the firm
Flexible
Promote coordination and communication
Disadvantages
Complexity and power struggles
Too many meetings, no decision or action
Scapegoat for failure

11. Examples from MNCs Type Imperative Example Divisional Security Apple
Functional
Process Efficiency
Coke
Product
Customer segmentation
National-Panasonic
Area
Geographical concentration
ABB
Matrix
Creativity 3M

12. Structural Variables
Relative importance of international operations now and in the future
Firm’s past history and experience in the international arena
Firm’s business and product strategy
Management’s philosophy of operating
Firm’s ability to adjust to organizational changes

13. Control Systems
Controlling is the process of determining that everything goes according to plan
Establish standards
Compare against performance
Take action
Personal
Personal contact
Bureaucratic
Rules and procedures
Output
Goal-setting
Cultural
Establishment of value system

14. Strategy, Structure and Control
Structure & control
Strategy
Multidomestic
International
Global
Transnational
Vertical differentiation
Decentralized
Core competency; rest decentralized
Some centralized
Mixed; centralized & decentralized
Worldwide area structure
Worldwide product division
Worldwide product
Informal matrix
Need for coordination
Low
Moderate
High
Very high
Integrating mechanisms
None
Few
Many
Very many
Performance ambiguity
Need for cultural control

15. Drucker’s check list Clarity Economy Direction of vision Understanding
as opposed to simplicity
Economy
In control
Direction of vision
Of product rather than process
Understanding
Of individual’s role
Decision making
At the lowest levels
Stability
Not rigidity
Perpetuation and self renewal
Structure must be open to new ideas

16. Comparison and Evaluation
criterion
Funct’nl
divisional
SBU
Matrix
network
Resources
excellent
Poor
Good, sr
Poor, lr
Moderate
Good
Time
poor
Excellent
Responsiveness
Adaptability
Accountability
moderate
Environment
Composite
Stable,
Hetero,
Hetero
Complex
Volatile
Generic Strategy
Cost l’drship
Pdt diff’tion
Focus
Pdt Diff.

17. Summary
Describe various organizational structures and understand their respective advantages and disadvantages
Analyze key structural variables that influence international organization designs
Review the role of the control systems in ensuring that the structure is both effective and efficient

18. Seminar Question for Next Term Post Easter meeting
In groups of 4,
Identify one MNC operating in two continents
Explore the organization structure, examining differences if any..
Identify the adaptation that the MNC has made to local conditions
Come prepared with the presentation, (on acetates)