Chapter 13: The Organization of International Business

International Business October 15, 2007 Park, Du-jung Naran, Zorigt Liu, Jia Ganaa

Content

Organizational Architecture Organizational Structure Park, Du-jung Liu, Jia Control systems and Incentives & Process Organizational Culture & Change Naran, Zorigt Ganaa

Organizational Architecture(1)

Structure Processes People Incentives And Controls Culture

Organizational Architecture(2)

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Maximizing its profitability

=>Internal consistency =>Consistency between architecture and strategy =>Consistency to competitive condition

Organizational Structure

 Vertical differentiation  Horizontal differentiation  Integrating mechanisms

Vertical differentiation

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Arguments for Centralization

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Arguments for Decentralization

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Strategy and Centralization in an International Business

Horizontal differentiation

International Structural Stages Model

Worldwide Product Division Global Matrix (“Grid”) Foreign Product Diversity Alternate Paths of Development International Division Area Division Foreign Sales as a Percentage of Total Sales

Integrating Mechanisms(1)

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Strategy and Coordination in the International Business

Localization firms Law International firms Global firms Need of coordination Transnational firms High

Integrating Mechanisms(2)

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Impediments to Coordination

- Different orientations  - Different goals

Formal Integrating Mechanisms

- Direct contact - Liaison roles  - Teams - Matrix structure

Informal Integrating Mechanism

=> Knowledge Networks : network for transmitting information

Types of control system.

 Personal control subordinates is control by personal contact with  Bureaucratic Controls subunits is control through a system of rules and procedures that directs the actions of  Output controls quality. involves setting for subunits to achieve and expressing those goals in term of relatively objective performance metrics such as profitability, productivity, growth, market share, and  Cultural Controls exist when employee “ buy into ” norms and value system of the firm. When this occurs, the employee tend to control their own behavior, which reduces the need of other controlling systems.

the

 Incentive refers to the devices used to reward appropriate employee behavior.  Important points to consider when using incentive system.

    The type of incentive used often varies depending on the employees and their tasks. Most firms use a formula for incentives that links a portion of incentive pay to the performance of subunit in which a manager or employee works and portion to the performance of the entire firm, or some level other higher level organization unit.

The incentive system used within a multinational enterprise often have to be adjusted to account for national differences in institutions and culture. Unintended consequences

 Performance ambiguity organization . is a function of the interdependence of subunits in an Cost control can be defines as the amount of time top management must devote to monitoring and evaluating subunits ’ performance. Costs of control Strategy localization International Global Transnational Interdependence Low Moderate High Very high Performance Ambiguity Low Moderate High Very high Low Moderate High Very high

 Process is defined as manners in which decisions are made and work is performed within the organization.

Organizational Culture: -Creating and Maintaining Organizational Culture -Organizational Culture and Performance in the international Business Synthesis: Strategy and Architecture -Localization Strategy -International Strategy - Global Standardization Strategy - Transnational Strategy - Environment, strategy, Architecture and Performance Organizational Change: - Organizational Inertia - Implementing Organizational Change

 Organizational Culture Creating and Maintaining Organizational Culture Influences on Organizational Culture 1.Important leaders can have a profound impact on an organizations culture.

Example: Japanese from Matsushita: - Natural Service through Industry - Fairness - Harmony and cooperation - Struggle for betterment - Courtesy and humility - Adjustment and assimilation - Gratitude 2.Broader social culture of the nation where the firm was founded 3.History of the enterprise, which over time may come to shape the values of the organization.

Culture is maintained by a variety of mechanisms.

1. Hiring and promotional practices of the organization 2. reward strategies 3. Socialization Process 4. Communication Strategy

 Organizational Culture & Performance in the International Business firms with strong Strong Culture culture are normally + A culture can be strong but bad seen by outsiders Example:1980General as having a certain Motors had a strong culture style or way of doing things Adaptive Culture Most Managers care deeply about and value costumers, stock-holders, and employees

 Environment, Strategy, Architecture and Performance A firm to succeed, two conditions must be fulfilled. 1.

2.

The firm ’ s strategy must be consistent with the environment in which the firm operates. The firm ’ s organization architecture must be consistent with its strategy.

 Organizational Change Organizational Inertia 1.

Inertia forces come from a number of sources.

Existing distribution of power and influence with on organization 2.

3.

4.

Existing culture, as expressed in norm and value system Senior managers ’ preconceptions about the appropriate business model or paradigm. Institutional constrains might also act as a source of inertia

Implementing Organizational Change The Basic Principles for successful Organizational damage Unfreezing the organization Moving to the new State Refreezing the Organization Whose power is threatened by change can too easily resist incremental change Movement requires a substantial change in the form of a multinational ’ s organization architecture so that it matches the desired new strategic postures Refreezing requires that employees be socialized into the new way of doing things