Chapter 8 Organization Structure and Control Systems

1. Chapter 8 Organization Structure and Control Systems PowerPoint by Kristopher Blanchard North Central University

2. Organizational Structure 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

3. 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 (Stages Model) 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

4. Basic Organizational Structures • A number of basic structures exist that permit an MNC to compete internationally • Structure must meet the need of both the local market and the home-office strategy of globalization • Contingency approach • Balances the need to respond quickly to local conditions with the pressures for providing products globally • Most MNCs evolve through certain basic structural arrangements in international operations

5. High Aircraft Cameras Consumer electronics Computers Telecommunications Aerospace Automobiles Synthetic fibers Pressure for globalization Steel Clothing Cement Packaged goods Low Low High Pressure for local responsiveness Organizational Consequences of Internationalization

6. Basic Organizational Structures (cont.) • Global Structural Arrangements • Global Product Division • Structural arrangement in which domestic divisions are given worldwide responsibility for product groups • Global Area Division • Structure under which global operations are organized on a geographic rather than a product basis • Global Functional Division • Structure which organizes worldwide operations primarily based on function and secondarily on product • Matrix Organization Structure • Structure that is a combination of a global product, area, or functional arrangement

7. Typical ways that firms organize international activities • Domestic structure plus export department • Domestic structure plus foreign subsidiary • International division • Global functional structure • Global product structure • Global Geographic Structure

8. Domestic Plus Foreign Subsidiary Return

9. Global Product Division Return

10. Global Geographic Structure Return

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

12. Chief Executive Officer Production Marketing Finance Personnel Industrial Goods Europe North America Manager, Manager, Industrial Goods Industrial Goods North America Europe Multinational Matrix Structure

13. How would you redesign the structure of the Faculty of Management at U of L?

14. Integrated Global Structures • The global functional structure is designed on the basis of the company’s functions – production, marketing, finance, and so forth. Foreign operations are integrated into the activities and responsibilities of each department to gain functional specialization and economies of scale. • Matrix Structure is a hybrid organization of overlapping responsibilities – it is used by some firms but has generally fallen into disfavor recently

15. Organizing for Globalization If you misjudge the market [by globalizing], you are wrong in 15 countries rather than only in one. —Ford European Executive

16. Organizing for Globalization • Two opposing forces in structural decisions • The need for differentiation (focusing on and specializing in specific markets) • The need for integration (coordinating those same markets) • Globalization – a specific strategy that treats the world as one market by using a standardized approach to products and markets

17. Organizing for Globalization • Organizing to facilitate a globalization strategy typically involves rationalization and the development of strategic alliances • Organizing for global product standardization necessitates close coordination among the various countries involved • The problem facing companies in the future is that the structurally sophisticated global networks leave the organization exposed to the risk of environmental volatility from all corners of the world

18. Comparative Management Focus: Chinese Global Network • The Chinese commonwealth is a form of global network that has become the envy of Western multinationals • Network of entrepreneurial relationships in Asia primarily • Includes mainland China, 1.3 billion citizens, and more than 55 million Chinese in Taiwan, Indonesia, Hong Kong, and Thailand • Estimated to control $2 Trillion in liquid assets

19. Comparative Management Focus: Chinese Global Network • Most observers believe that this China-based informal economy is the world leader in economic growth, industrial expansion, and exports • Comprises most mid-sized, family-run firms linked by transnational network channels • Channels move information, finance, goods, and capital • Network alliances bind together and draw from the substantial pool of financial capital and resources available in the region

20. Emergent Structural Forms • Inter-organizational networks • The global e-corporation network structure • The transnational corporation (TNC) network structure

21. Choice of Organizational Form

22. Organizational Change and Design • When does a company need to make a change in organizational structure? • Makes a change in goals or strategy • Makes a change in scope of operations • Indications of organizational inefficiency • Conflicts among divisions and subsidiaries • Overlapping responsibilities • Complaints regarding customer service

23. Organizational Change and Design

24. Control Systems for Global Operations The establishment of a single currency makes it possible, for the first time, to establish shared, centralized accounting and administrative systems. —Francesco Caio, CEO, Merloni Elettrodomestici

25. Monitoring Systems

26. Direct Coordinating Mechanisms • Design of appropriate structures • Use of effective staffing practices • Visits by head-office personnel • Regular meetings

27. In-Direct Coordinating Mechanisms • Sales quotas • Budgets • Other financial tools • Feedback reports

28. Appropriateness of Monitoring and Reporting Systems • Factors likely to affect the appropriateness of monitoring systems include: • Management practices • Local constraints • Expectations regarding: Authority, Time, and Communication

29. Managing Effective Monitoring Systems • In deciding on appropriate monitoring and reporting systems, additional factors to be considered include: • The role of information systems (adequacy of management information systems in foreign affiliates, non-comparability of performance data across countries) • Evaluation variables across countries

30. Inter-organizational networks • Views the various companies, subsidiaries, suppliers, or individuals as a relational networks • Allows the different network partners to adopt unique structures that are adapted to the local context Return

31. Global E-Corporation Network Return

32. How much autonomy and control you would want if you are a subsidiary manager, and when you run a the home office?

33. Global Structural Arrangements (cont.) • Transnational Network Structures • Multinational structural arrangement that combines elements of function, product, and geographic designs, while relying on a network arrangement to link worldwide subsidiaries • Dispersed subunits • Subsidiaries that are located anywhere in the world where they can benefit the organization • Specialized operations • Activities carried out by subunits that focus on a particular product line, research area, or market area • Designed to tap specialized expertise or other resources in the company’s worldwide subsidiaries • Interdependent relationships • Share information and resources throughout the dispersed and specialized subunits

34. Transnational Corporation • Involves linking foreign operations to each other and to headquarters in a flexible way • Leverages local and central capabilities • Not a matter of boxes on an organizational chart; it is a network of company units and a system of horizontal communication • Requires the dispersal of responsibility and decision making to local subsidiaries • Effectiveness is dependant on the ability and willingness to share current and new learning and technology across the network Return

35. An American-Japanese IJV: New United Motor Manufacturing, Inc (NUMM) www.nummi.org Are there anything interesting to report? Organization structure of the UN-What changes would you make to streamline the organization? http://www.unhchr.ch/hrostr.htm

36. Looking Ahead • Chapter 9 – Staffing, Training, and Compensation for Global Operations • Staffing philosophies for global operations • Global selection • Training and development • Compensating expatriates • Compensating HCNs