MNCs and Organizational Structure

1. MNCs and Organizational Structure From: Amit : 02 Dhruv :45 Mohit : 46 Ankur : 52 Deepankar : 54

2. Defining Organizational Structure • organizational structure - the formal framework by which job tasks are divided, grouped and coordinated. • organizational structural designing - process of developing or changing an organization’s structure.

3. There is no permanent organization chart for the world. . . . It is of supreme importance to be ready at all times to take advantage of new opportunities. - Robert C. Goizueta, (Former) Chairman and Ceo, Coca-Cola Company

4. Evolution and Change in MNC • Internationalization is the process by which a firm gradually changes in response to international competition, domestic market saturation, and the desire for expansion, new markets, and diversification. • Structural Evolution occurs when managers redesign the organizational structure to optimize the strategy’s changes to work, making changes in the firm’s tasks and relationships and designating authority, responsibility, lines of communication, geographic dispersal of units and so forth

5. Six key elements : • Work Specialization – the degree to which tasks in an organization are divided into separate jobs • individuals specialize in doing part of an activity rather than the entire activity – too much specialization has created human diseconomies – an important organizing mechanism, though not source of ever-increasing productivity

6. Departmentalization – the basis by which jobs are grouped together • functional - groups jobs by functions performed • product - groups jobs by product line • geographical - groups jobs on the basis of territory or geography • process - groups jobs on the basis of product or customer flow • customer - groups jobs on the basis of common customers

7. Span of Control – number of employees that a manager can efficiently and effectively manage – determines the number of levels and managers in an organization – the wider the span, the more efficient the organization – appropriate span influenced by: • the skills and abilities of employees • the complexity of tasks performed • availability of standardized procedures • sophistication of organization’s information system

8. Centralization – the degree to which decision making is concentrated at a single point in the organization • top-level managers make decisions with little input from subordinates in a centralized organization • Decentralization – the degree to which decisions are made by lower level employees – distinct trend toward decentralized decision making

9. Formalization – the degree to which jobs within the organization are standardized • standardization - removes the need for employees to consider alternatives – extent to which employee behavior is guided by rules and procedures • employee allowed minimal discretion in highly formalized jobs – explicit job descriptions – clearly defined procedures

10. ORGANISATIONALSTRUCTURES

11. Chief Executive Officer Personnel Production Marketing Finance Paint Domestic Domestic International Domestic Domestic Division Division Division Division Division Hardware Tools Furniture Australia Japan Italy Office Marketing Government Operations Relations International Division Structure

12. PRESIDENT Manufacturing VP Marketing VP Controller Matrix Organisational Structure Director of Product Design Procurement Manager Product Manager A Product Manager B Product Manager C Product Manager D

13. PRESIDENT VICE PRESIDENT ENGG. VICE PRESIDENT FINANCE VICE PRESIDENT MANUF. VICE PRESIDENT PERSONNEL VICE PRESIDENT LEGAL AFF VICE PRESIDENT MARKETING MARKETING RESEARCH SALES RECORDS SHIPPING & RECIEVING PRODUCTION QUALTIY ASSURANCE PLANT1 PLANT2 PLANT3 RESEARCH GROUPS RECORD CLERKS SALES FORCE FUNCTIONAL STRUCTURE

14. Strategic Business Unit • The idea was developed by Mckinsey & Co. (Consulting Firm) & General Electric in 1971. • Separate operating entities within an organization. • After defining mission, a company establishes SBU’s which is self contained division, product line or product department within an organization. • To be identified an SBU, an entity should, • Be a separate identifiable business • Have a distinct mission • Have its own competitors • Have its own executive group with profit responsibility • General Electric & its SBU’s are electrical motors, Major appliances, Jet Engines Lighting Equipments and Commercial Credit and Broadcasting.

15. Classification of Organizations Sumantra Ghoshal& Christopher A. Bartlett

16. The Study…. 3 countries 3 industries 9 companies with worldwide interests Mode : Both personal interviews and survey questionnaires of key personnel. Aim : To develop a typology of organizations operating in the internationalbusiness environment.

17. Based on their results, these scholars identified four forms of organizations used to manage international businesses. • They labeled these • the multinational, • global, • international, • & transnational corporations.

18. The story so far……….

19. ….and the problem • Multinational enterprise : Differentiation as primary way to enhance performance. • Global enterprise : Scale and resulting cost leadership are the key sources of competitive advantage. • International enterprises : Innovation, Crated at HQ to reduce cost or increases revenue or both. • Each approach is partially true and has its own merits but none represents whole truth, the ideal-type thus created, they dubbed the transnational enterprise.

20. Attributes of Transnational Enterprise. • Selective decision, • complex configuration of assets and capabilities that are distributed, yet specialized. • Seeks efficiency not for its own but…, • It acknowledges the importance of local responsiveness but…, • Innovations are regarded as an outcome of a larger process of organization learning that encompasses every member of the company.

21. This thesis is thus consistent with the view that a new, stateless corporate identity with a network of systems and activities in different parts of the world, deriving value from whichever location provides it at the lowest cost, is emerging. (cf. Hedlund |1986~; Perlmutter and Trist |1986~; Prahalad and Doz |1987~).

22. CASE STUDIES TATA GROUP (INDIAN CASE) CATERPILLAR (FOREIGN CASE)

23. INDIAN BUSINESS HOUSES TATA GROUP • Metals • Automobiles • Energy • Engineering • Chemicals • Pharmaceuticals • IT and Communication • Exports • Finance Group Overview • India’s largest business house • More than 85 companies • 39 listed • 8% of India’s market capitalization • 2.6 Million shareholders • 2,70,000 employees • Turnover Rs 343 billion (1996-1997)

24. INDIAN BUSINESS HOUSES TATA GROUP Tata Heritage • Jamsetji Tata • Started textile mill in 1877 • Inspired steel and power industry • Technical education and philanthropy • JRD Tata • Pioneered civil aviation • Funded Hom Bhabha’s nuclear programme • Guided the Tata group for over half a century • Ratan Tata • Present Chairman since 1991

25. HOLDING COMPANIES • Tata Sons • Founded by Jamsetji Tata • Promoted many of the present Tata companies • 63% held by Tata philanthropic trusts • Tata Industries • 100% subsidiary of Tata Sons founded in 1945 • Managing agency till 1970 • Promoted new Tata companies in technology based businesses • Cross holdings among other Tata companies

26. INDIAN BUSINESS HOUSES TATA GROUP Restructuring • Prompted by post 1991 changing environment • Need to identify and focus on core businesses • Resistance from satraps • RussiMody, Darbari Seth, AjitKerkar • Shrink number of companies • From over 85 to about 30 • Shrink number of core businesses • From about 25 to around 10 or 12 • Mergers and divestments • McKinsey hired as a consultants

27. RESTRUCTURING STRATEGIES • Keep and grow • Power, watches, metals, chemicals, telecom, hospitality, financial services, infotech, emerging services, infrastructure, automobiles • Forge strategic tie ups • Tea and beverages, retailing • Remain only as strategic investors • Luxury cars, infotech, printing, cosmetics • Sell • Refrigeration, paints, textiles, trading, electronics, oil drilling, petrochemicals, pharma, specialty chemicals

28. AUTOMOTIVE CHALLENGES • Accelerating product introductions • Rapidly implementing changes • Improving time-to-market • Tightening Regulatory requirements • Efficiently transferring processes and best practices • More innovations

29. STRATEGIES ADOPTED • To meet these challenges, the TATA adjust their product development as follows: • Reducing the period of development • Optimizing the in-house capabilities • Modularizing the product • Increasing the number of products/ variants • Improving product performance i.e. Durability, NVH, Safety, and Ride quality • Some of the steps connected to these strategies are • Introduction of new working methods (Simultaneous Engineering, Concurrent Engineering, use of NPI process) • Usage of highly sophisticated functions of CAD systems (Parametric, Feature based Design, Digital Mock Up) • Early concept evaluation (Computation and Simulation)

31. CATERPILLAR Peoria, Illinois Highly Centralized before 1970 Blessings from Home!! Japanese and European Rivals – Hands-on Decisions Traditional Structure Engineering Manufacturing Finance Marketing Accounting

32. Change in Stance Marketing Division International Division • Huge Loses in International Market Share • 1985s • 1/3(1970) 1/5(1988) • Market Gap • Market Growth (By 1990)

33. 2nd Change in Stance Functional Divisions Essential Administrative Centers for Accounting, Legal and Regulatory Affairs and various Executive Support Systems • 1990 - 1995 - 2000 Caterpillar Financial Services, Tennessee Capital Asset Underwriting of Global Business • Organization Redefined (….2000)

34. CATERPILLAR Functional Divisions 13 Profit Centers 4 Service Centers 1997 1997 16 Integrated Profit Centers 5 Global Service Centers • Wheel Loaders and Excavators Division(WLED) • Tractor Dept + Heavy Equipment • Further branched acc. to customer • groups such as mining(full P n L responsibility)

35. Gains • Focus on Design, Manu., Procurement, Distribution, Service • Strengthened Foreign Subsidiaries and Dealerships • Customers contacts under local control • Do away with International Division OLD WAY NEW WAY Customer Alliance Office/Dealership Financing Available (through Company’s Subsidiary) Cross Border Customer Places order to Illinois Shipping Financing through US Institutions

36. Each division – CFT • Also part of Global Network • PROPRIETERY Caterpillar Parts or Free to • OUTSOURCE • Profits more, up by 20%, 1996 • 24% growth in net income,1997 • Heavy investments for repositioning International Division • with restructured subsidiaries, Foreign Sales improved • considerably • R&D across border to supplement Illinois R&D center “ BORDERLESS ORGANIZATION”

37. THANKS