Transcript Document

chapter fourteen
Organizational Design and
Control
McGraw-Hill/Irwin
International Business, 11/e
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
 Explain why the design of organizational structure
is important to international companies
 Understand the organizational dimensions that
must be considered when selecting organizational
structures
 Discuss the various organizational forms
 Understand the concept of the virtual corporation
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Learning Objectives
 Explain why decisions are made where they are
among parent and subsidiary units of an
international company
 Understand how an IC can maintain control of a
joint venture
 List the types of information an IC needs to have
reported to it by its units around the world
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Organizational Structure
• Organizational structure
– The way that an organization formally
arranges its domestic and international units
and activities, and the relationships among
these various organizational components
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Organization Design
• Organization design for international
– how an international business is organized in order
to ensure worldwide business activities are able to
be integrated efficiently and effectively
• Structures and systems must be consistent with
each other and with the environmental context
• Size and complexity of the organization must be
considered
• Structure must be able to evolve over time in
order to respond to change
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The relationship among International
Environment, Competitive Strategy, and
Organizational Structure
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Design Concerns
• Find the most effective way to
departmentalize to take advantage of
efficiencies gained from specialization of
labor
• Coordinate the activities of those
departments to enable the firm to meet
its overall objectives
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Design Dimensions
• Product and technical expertise
regarding the businesses
• Geographic expertise regarding the
countries and regions
• Customer expertise regarding the client
groups, industries, market segments, or
population groups
• Functional expertise regarding the value
chain activities
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Evolution of the International Company
• International Division
– A division in the organization that is at the same
level as the domestic division and is responsible for
all non-home country activities
• Worldwide organizations were established, as
a result of growth
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Product
Function
Region
Customer classes
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Evolution of the International Company
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Global Corporate Form
• Product
• Geographic
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Global Corporate Form
• Function
• Hybrid Forms
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Global Corporate Form
• Matrix Organizations
– Matrix overlay
• An organization in which top-level divisions are required to
heed input from a staff composed of experts of another
organizational dimension in an attempt to avoid the double
reporting difficulty of a matrix organization but still mesh
two or more dimensions
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Global Corporate Form
• Strategic Business Unit
– Business entity with a clearly defined
market, specific competitors, the ability to
carry out business mission, and a size
appropriate for control by single manager
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Changes in Organizational Form
• Result from pressure to act more quickly,
reduce costs and improve quality
• Reengineering to
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reduce levels of middle management
restructure work processes
reduce fragmenting across departments
Improve speed and quality of strategy execution
Empower employees
Communicate instantly
Transmit information swiftly
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Current Organizational Trends
• Virtual
Corporation
– An organization that
coordinates
economic activity to
deliver value to
customers using
resources outside the
traditional boundaries
of the organization
• Advantages
– Permits greater
flexibility
– Forms a network of
dynamic relationships
taking advantage of
the competencies of
other organizations
• Disadvantage
– Potential to reduce
management’s control
over the corporation’s
activities
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Current Organizational Trends
• Horizontal Corporation
– A form of organization characterized by lateral
decision processes, horizontal networks, and a
strong corporate wide business philosophy
– Employees worldwide create, build, and market
products through cultivated system of
interrelationships
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Control
• Where Are Decisions Made?
– All at IC headquarters
– All at subsidiary level
– Combination
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Control
• Variables determining the location of decision making
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Product and Equipment
Competence of subsidiary management
Size of international company and duration
Detriment of a subsidiary for the benefit of the
enterprise
– Level of subsidiary frustration
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Control
• Subsidiaries
– Companies controlled by other companies
through ownership of enough voting stock to
elect board-of-directors majorities
• Affiliates
– A term sometimes used interchangeably
with subsidiaries, but more forms exist than
just stock ownership
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Control
• Product and Equipment
– Existence of global product policy
– Degree standardized or localized
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Control
• Competence of Subsidiary Management
depends on
– How well executives know one another
– How well executives know company policies
– Whether headquarters management feels it
understands
• Host country conditions
• Distances between home and host countries
• Size and age of parent company
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Benefiting Enterprise Detriment of
Subsidiary
• Subsidiary detriment
– Situation in which a small loss for a subsidiary
results in a greater gain for the total IC
• Moving Production Factors
– Cost, labor, taxes, market, currency, political stability
• Which Subsidiary Gets the Order?
– Transportation, production, tariffs, currency, backlogs
• Multicountry Production
– Economies of scale
• Which Subsidiary Books the Profits?
– Taxes, currency controls, labor relations, political climate,
social unrest
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Subsidiary Frustration
• Subsidiary Frustration
– Management of subsidiaries must be
motivated and loyal
• If all decisions made at HQ they can lose
incentive and prestige or face with their
employees and the community
• They may become hostile and disloyal
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Joint Ventures and Subsidiaries Less than
100 Percent Owned
• A joint venture may be
– A corporate entity between IC and local owners
– A corporate entity between two or more companies
that are both foreign to the area where the joint
venture is located
– One company working on a project of limited duration
in cooperation with one or more companies
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Joint Ventures and Subsidiaries Less
than 100 Percent Owned
• Loss of freedom and flexibility
– shareholders can block HQ efforts to
• Move production factors
• Fill an order from another affiliate or
subsidiary
• Shareholders may bring
– Legal pressures
– Political pressures
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Joint Ventures and Subsidiaries Less than
100 Percent Owned
• Control Can Be Had
– Management contract
– Control of finances
– Control of technology
– People from IC in important executive
positions
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Effective Reporting
• Operating units must provide
headquarters with timely, accurate and
complete reports
– Financial
– Technological
– Market Opportunities
– Political and Economic
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De-Jobbing
• Replacing fixed jobs with tasks
performed by evolving teams
– Hierarchy not maintained
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Traits of De-jobbed Workers
• They make operating decisions that used to be
reserved for managers
• They have the information they need to make
such decisions
• They have training so that they understand the
business and financial issues that used to
concern owners and executives
• They have a stake in the fruits of their labor,
share of profits
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