Chapter 11

1. International Business Oded Shenkar and Yadong Luo Chapter 11 Organizing and Structuring Global Operations Chapter 11: Organizing and Structuring Global Operations

2. Do You Know? • About organizational design in Multinational Enterprises? That design is a function of both strategy and structure? • That power relationships, information flow, and perceptions of strategic importance for Multinational Enterprise strategic business units will vary on a country basis, and on a cultural basis? Chapter 11: Organizing and Structuring Global Operations

3. Do You Know? • The varying types of structures that are available to Multinational Enterprises? • That integration of international operations is among the most important functions of organizational design in the Multinational Enterprise? Chapter 11: Organizing and Structuring Global Operations

4. Organization and Structure: Aetna • In 2000, Aetna announced it would restructure into two divisions: Global Financial Services and Global Health. • The new structure would improve knowledge flow globally, and was consistent with structural changes made by other large Multinational Enterprises. Chapter 11: Organizing and Structuring Global Operations

5. International Strategy and Organization Design • The objective of organizational design (OD) is to provide, maintain, and develop organizational structures that work toward the achievement of corporate goals. • OD helps create a workable structure of tasks and positions that create the physical organization and jobs. Chapter 11: Organizing and Structuring Global Operations

6. International Strategy and Organization Design • Organizational structure is ultimately driven by strategy; in the near term however, strategy is shaped by organizational structure, because structure provides a constraint to action. • Structure is relatively immobile in the short run; in the longer term, it can (and does) change. Chapter 11: Organizing and Structuring Global Operations

7. International Strategy and Organization Design • What’s the purpose of structure? Global Integration and Local Responsiveness. • Every business seeks efficiency and effective structures to organize tasks. In the global environment, structures take on differing forms in order to effectively answer cultural demands and respond to global environments. Chapter 11: Organizing and Structuring Global Operations

8. MNE Strategy and Design • As we indicated, the purpose of global OD is to create structures that work well in diverse locations, while aiding coordination, and allowing for quick responsiveness to market demands. • There are three main strategies global corporations use: The Transnational Strategy, The Global Strategy, and the Multi-Domestic Strategy. Chapter 11: Organizing and Structuring Global Operations

9. MNE Strategy and Design: The Transnational • The Transnational Strategy seeks to achieve global efficiency and local responsiveness. It has a shared vision under a corporate umbrella, but alters operations for local demands. Chapter 11: Organizing and Structuring Global Operations

10. MNE Strategy and Design: The Global • The Global Strategy has relative stability across markets in order to facilitate strategic and operational control. Chapter 11: Organizing and Structuring Global Operations

11. MNE Strategy and Design: The Multi-Domestic • The Multi-domestic Strategy has strategic and operational decisions allocated to business units in each country. It permits customization, but interferes with economy of scale, learning, and information coordination. Chapter 11: Organizing and Structuring Global Operations

12. Subsidiary Roles and Imperatives • Corporations commonly have subsidiaries that operate in host environments. • They play a key part in balancing integration and local responsiveness through playing an autonomous role, a receptive role, or an active role. Chapter 11: Organizing and Structuring Global Operations

13. Subsidiary Roles and Imperatives: Autonomous • The Autonomous Role has a subsidiary performing most activities of the value chain independently of HQ, selling output in a local market or in markets the autonomous subsidiary can arrange. • Commonly used with Multi-Domestic Strategy. Chapter 11: Organizing and Structuring Global Operations

14. Subsidiary Roles and Imperatives: Receptive • The Receptive Role has subsidiary functions that are integrated with HQ for other units. • An example is where the subsidiary imports or exports components to other subsidiaries for redistribution or final assembly. Commonly used with Global Strategy. Chapter 11: Organizing and Structuring Global Operations

15. Subsidiary Roles and Imperatives: Active Role • The Active Role has many activities performed locally, but coordinated with subsidiaries. • Commonly used with Transnational Strategy, with mandate from HQ, and flexibility for adaptation. Chapter 11: Organizing and Structuring Global Operations

16. Multinational Enterprise Organizational Structure • National Subsidiary Structure, the “mother – daughter design” • International Divisional Structure, with domestic business and all international operations shifted to a “specialist” international division • Global Functional Structure, where functions are performed in each location in order to be adaptive to local demands • Global Geographic Structure, where divisions can be based on political borders, cultural similarity, economic similarity, business prospects, regional integration, tax, or logistics considerations Chapter 11: Organizing and Structuring Global Operations

17. Multinational Enterprise Organizational Structure Chapter 11: Organizing and Structuring Global Operations

18. Multinational Enterprise Organizational Structure Exhibit 11-2: Nestle’s organization chart Chapter 11: Organizing and Structuring Global Operations

19. The Global Product Structure • The Global Product Structure locates manufacturing and value creation activities in appropriate global locations to increase efficiency, quality, or innovation. • Global divisions are responsible for Global Product Design and operate in divisional, cluster, or holding company formats. Chapter 11: Organizing and Structuring Global Operations

20. The Global Product Structure: advantages • Global vision, resource leverage, strategic focus, simplicity, accountability, standard product introductions, enhanced speed and decision quality, self-contained product development and introduction, development of talent, low interference from other divisions Chapter 11: Organizing and Structuring Global Operations

21. The Global Product Structure: disadvantages • No sharing of information, little cooperation between divisions, costly to maintain, duplicated functions, difficult to organize communication Chapter 11: Organizing and Structuring Global Operations

22. The Global Matrix Structure • The Global Matrix Structure contains simultaneous, intersecting differentiation bases, with employees reporting to a functional and a product manager simultaneously Chapter 11: Organizing and Structuring Global Operations

23. The Global Matrix Structure Exhibit 11-3a: Organization chart of the Dow Chemical Company Chapter 11: Organizing and Structuring Global Operations

24. The Global Matrix Structure Exhibit 11-3a: Organization chart of the Dow Chemical Company Chapter 11: Organizing and Structuring Global Operations

25. The Mixed Structure • The Mixed Structure is most common in the Multinational Enterprise. • It uses localization in product development, marketing, sales, and service. • At the same time functions that benefit from scale advantages, like purchasing, are centralized Chapter 11: Organizing and Structuring Global Operations

26. Integrating Global Operations • Integration of global operations is among the most important issues facing Multinational Enterprises. • At issue is Control, Coordination, and maintenance of a Strategic Orientation. Chapter 11: Organizing and Structuring Global Operations

27. Integrating Global Operations: Control • Control is the intervention in operations to maintain quality through feed-forward, concurrent, or feedback oriented information. • Multinational Enterprises use output, bureaucratic, cultural, and many other mechanisms to provide information that helps the firm maintain progress toward its goals while realizing desired outcomes. Chapter 11: Organizing and Structuring Global Operations

28. Integrating Global Operations: Coordination • Coordination provides linkages between different task units within an organization. • Coordination helps the Multinational Enterprise deal with breadth and diversity. • Mechanisms include centralization/decentralization, formalization, planning, output control, targets, and behavioral controls. • Organizations also use informal mechanisms for coordination which include informal relationships, informal communication, and culture. Chapter 11: Organizing and Structuring Global Operations

29. Integrating Global Operations: Strategic Orientation • Maintaining Strategic Orientation is “Mission Critical” to the competitive success of the Multinational Enterprise. • Creating a vision of shared direction and market orientation in lieu of more formal controls has the greater sustained effect, costs less, and is more acceptable to people associated with the firm. Chapter 11: Organizing and Structuring Global Operations

30. Tools for Global Integration • Data Management • Management And Human Resources • Communication Intensity • Socialization Practice • Expatriate Dispatching • Entry Mode Selection And Sharing Arrangements Chapter 11: Organizing and Structuring Global Operations

31. The Transition Challenge • Changing an organizational design is never easy. It requires clear communication, patience, and a clear role played by Corporate Headquarters which provides vision, leadership, forums, and decision making. Chapter 11: Organizing and Structuring Global Operations