45
07/06/10 1 By : Prof. Amit Kumar

Gbm unit-08 (organizational structure in international business)

Embed Size (px)

Citation preview

07/06/10 1

By :

Prof. Amit Kumar

07/06/10 2

“A student pursuing management education from IILM-

Graduate School of Management, for example may find

himself or herself placed in a firm located in a totally

different country. Knowledge about international

business keeps the youngster mentally prepared to

accept assignment in an alien environment. Forewarning

is definitely forearming, for the fresh management

graduate”.

IILM-GSM

Importance of this course

Global Business Management

07/06/10 3

Course: Global Business Management

1. Globalization

2. Global Trade & Theory

3. Global Technological Environment

4. Global Economic Environment

5. Global Political-Legal Environment

6. Foreign Direct Investments

7. Regional Economic Integration

8. Strategy and Structure of International Business

IILM-GSM

Global Business Management

04/15/23 4

IILM-GSM

Global Business Management International Organization Structure

04/15/23 5

Contents• Nature of International Organization Design

• Factors influencing Organization structure

• Basic Organization Structure

– International Division

– Worldwide Functional

– Geographic Area

– Global Product Division

– Mixed ,Matrix, Networked structure

• Discussion on: Advantages & Disadvantages of Structures

• Presentation on: Issues in global organization design

• Case-Study: Organizational Change at Unilever

IILM-GSM

Global Business Management International Organization Structure

04/15/23 6

Al-Qaeda “ Al-Qaeda is a fundamentalist group established in the early 1980s and

headed by Osama bin Laden. It is reported that its overall aim is to restore all Islamic lands to what they consider a pure form of Islam. In the early 2000s bin Laden operated from Afghanistan, sheltered by the Taliban regime then in power.

The events of 11 September 2001, when aircraft piloted by members linked to al-Qaeda were flown into the World Trade Center in New York, jolted the USA and other Western governments into further action against al-Qaeda.

The USA declared war on Taliban regime in Afghanistan, which had been harboring bin Laden & succeed in overthrowing it. Some of his followers escaped, probably to the tribal lands on the Pakistan-Afghanistan border”.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 7

Al-Qaeda

“ It was thought that bin Laden was now isolated and powerless, and furthermore that al-Qaeda was broken because its leadership had been fragmented, its structure fractured, and much of its financial resources neutralized. US army applied war strategy ‘going for the head of the snake’. This strategy, it was believed, would result in killing enemy leaders, isolating them from their troops and affiliates.

In 2003, 2004, however, there were further terrorist attacks in Turkey, Spain, Saudi Arabia ,Iraq and several Western countries were put on high alert from the perceived threat of attack”.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 8

Al-Qaeda – Organization Structure

“ To believe that the actions of the US and its allies in Afghanistan had defeated al-Qaeda was to misunderstand the nature of its organizational structure and design. It was assumed that al-Qaeda must be organized like any other organization operating in many countries, with a well-defined hierarchy that was able to coordinate and control the actions of its operatives in the field. However, it was more amoeba-like-a loose association of like-minded groups with the same overall vision”.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 9

Motorola

“ Motorola’s share in the worldwide cellular market has been, of late, declining. The company has decided to expand operations in Asia, notably in China, Korea, Philippines and Taiwan. Simultaneously, Motorola has been restructuring its overall worldwide operations in order to increase efficiency and cut down costs. The company has recently merged half dozen separate businesses into two huge divisions, one focusing on consumers and the other on infrastructure equipment. Motorola hopes that this new organizational arrangement will help it better adapt to the global market which is becoming more competitive”.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 10

Hindalco

“ Nearer at home, several companies are restructuring themselves in a big way. Hindalco, the flagship of the AV Birla group took over Indo Gulf recently in order to restructure itself and build a global non-ferrous metals company. With the augmented balance sheet, Hindalco has plans to bid for National Aluminium Company (NALCO). Grasim and Indian Rayon, in the same group, have also undergone restructuring”.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 11

Strategy Vs Structure

IILM-GSM

Global Business Management International Organization Structure

04/15/23 12

Relationship between Strategy & Structure

• Two-way relationship (reciprocal) .• Normally, MNC establishes strategy, then create an

appropriate organization structure to implement/achieve strategy.

• Structure cannot be changed quickly or too frequently. Once in place, it sometimes influences future strategies.

Organization structure (often called organization design) is a basic vehicle through which strategy

is implemented.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 13

Nature of International Organization Design

A firm cannot function unless its various structural components are

appropriately assembled. Through its design, the firm shall:

– Allocate organizational resources

– Assign tasks to its employees

– Instruct employees about the firm’s rules, procedures and expectations relating to their jobs

– Collect and transmit information necessary for problem solving and decision making

The last task is particularly important for a large MNC, which needs to share vast amounts of information between corporate

headquarters and subsidiaries worldwide.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 14

Factors influencing Organization structure

OrganizationalStructureEnvironment Technology

Internal External

Managementorientation

Org.size

Employeestrength

UncertaintyDifferentiation& Integration

GlobalizationVs local

responsivenessRoutine

Non-Routine

IILM-GSM

Global Business Management International Organization Structure

04/15/23 15

Factors influencing Organization structureInternal Environment

• Management Orientation– Ethnocentric management orientation is characterized by strong control

by the parent company. Its structure reflects strong centralization in decision making, and most of the managers are parent country nationals.

– Polycentric management allows decentralization of authority and decision making.

– In geocentric management, the organization design is cosmopolitan, with little concentration of decision making or personnel with any particular nationality.

• As organizations grow, they tend to add more departments and levels, making their structure more complex and they tend to become more decentralized.

• When the number of employees increase, the company is likely to resort to more formalized ways of doing things. Its becomes necessary to introduce policies, procedures, and systems, because one can no longer expect people to relate informally on a face-to-face basis in the efficient execution of tasks.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 16

Factors influencing Organization structureExternal Environment

• The environment of a firm can be uncertain or may fit into a stable pattern.

• A firm that operates in a highly unstable and uncertain environment tends to have organic characteristics such as decentralized decision-making, fewer rules and regulations, and both hierarchical and lateral communication channels. More emphasis is on horizontal coordination.

• In contrast, a firm operating in a stable environment tends to have relatively mechanistic characteristics such as highly centralized decision-making, many rules and regulations and mainly hierarchical communication channels. More emphasis is on vertical coordination.

Environmental Uncertainty

IILM-GSM

Global Business Management International Organization Structure

04/15/23 17

Factors influencing Organization structureEnvironmental Uncertainty

Environmental Uncertainty HighLow

Strong Hierarchy Weak Hierarchy

High Standardization Low Standardization

High specialization Low specialization

High centralization Low centralization

Simple structure Complex structure

Mechanist structure Organic structure

IILM-GSM

Global Business Management International Organization Structure

04/15/23 18

Factors influencing Organization structureDifferentiation and Integration

• Differentiation means that within an organization, there are departments....Where there is insufficient co-operation among departments, integration becomes necessary.

• Where environments are unstable there is a greater differentiation among departments. Greater the differentiation, greater the need for integration.

• General Motors, for example, was formed with 25 different companies. Each company operated in its own way, made its own decisions and made its own range of cars. A high level of differentiation. When Alfred Sloan took over as president of GM, the first thing he did was to bring about integration, a strategy which proved to be successful.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 19

Factors influencing Organization structurePressure for Global Integration or Local Responsiveness

Multi-domesticStrategy-

worldwide area structure.

GlobalStrategy-

worldwide product division structure.

InternationalStrategy

International division structure

TransnationalStrategy-

matrix type structures

Pressure for Global IntegrationP

ress

ure

of L

ocal

Res

pons

iven

ess High

Low

Low High

IILM-GSM

Global Business Management International Organization Structure

04/15/23 20

Factors influencing Organization structure

OrganizationalStructureEnvironment Technology

Internal External

Managementorientation

Org.size

Employeestrength

UncertaintyDifferentiation& Integration

GlobalizationVs local

responsivenessRoutine

Non-Routine

IILM-GSM

Global Business Management International Organization Structure

04/15/23 21

Factors influencing Organization structure

Technology

• Within an org, technology exists at three levels: individual, departmental and organizational.– At individual level, technology is the personal skills and knowledge

employees posses.– At departmental/functional level, the procedures and techniques that

groups use to perform their work and create value constitute technology.

– At organizational level, technology refers to the efforts and machinery used to convert inputs to outputs.

• An international business takes inputs from the environment and creates value from the inputs by converting them into output through a conversion process. Generally, technology is perceived to exist only at the conversion stage. This is not true. It is present in all organizational activities: input, conversion, and output.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 22

Factors influencing Organization structure

Conversionprocess

Inputprocess

Outputprocess

Work enters

Work leaves

Input Conversion and Output ProcessAt conversion stage, a combination of machines, techniques, & work procedures- transforms input into outputs.

At output stage, technology allows an org to effectively dispose of finished goods and services to customers. To be effective, a firm must possess techniques for testing the quality of the end products, for marketing it, and for rendering post-sale service.

At input stage, technology- skills, procedures & techniques-allows each dept. to handle relationship with outside stakeholders so that the firm can manage its specific environment. The finance dept has techniques for obtaining funds at lower costs. HR dept has techniques such as

IILM-GSM

Global Business Management International Organization Structure

04/15/23 23

Factors influencing Organization structure

Dimension of Technology

RoutineNon-

Routine

• Routine– When tech. is routine, employees perform

clearly defined tasks according to set rules and procedures. The work process is programmed in advance and highly standardized.

– Decision-making is centralized…. kind of mechanistic structure

• Non-Routine– Here tasks become less routine and more

complex.

– Hence firms need to develop a structure (mostly organic) that allows employees to quickly respond to and manage .

– Decision-making is decentralized.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 24

Organizational Structure

Till now we have examined the impact of environment and technology on organization design. Do the same factors influence the org. design of an international business?

The answer is ‘YES’. MNCs, in general, tend to organize their international operations in the same way as they do

for domestic functions.

In fact, the major challenge for international managers in the years to come is to bring synergy between the

organization structure of an overseas subsidiary with local customs and cultures.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 25

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

IILM-GSM

Global Business Management International Organization Structure

04/15/23 26

Basic Organization Structure

Basic Organization Structures:

1. International Division Structure

2. Worldwide Functional Structure

3. Geographic Area Structure

4. Global Product Division Structure

5. Mixed structure

6. Matrix structure

7. Networked structure

IILM-GSM

Global Business Management International Organization Structure

04/15/23 27

Basic Organization Structure

International Division structure

Automotivedivision

Industrialdivision

CEO

Internationaldivision

Aerospacedivision

DieselCompany(France)

BrakeCompany(Mexico)

ElectronicsCompany(France)

IILM-GSM

Global Business Management International Organization Structure

04/15/23 28

Basic Organization Structure International Division structure• Each division is responsible for certain product and has its own

resources such as finance, marketing, warehouse, maintnenace,etc.

• Accordingly, this structures is a decentralized structure and thus allows for flexibility and quick response to environmental changes.

• It also enhances innovation and differentioan strategies.

• On the other hand, this struture results in duplication of resources becasue, for example, we need to have warehouse for each division.

• Obviuosly, it does not support the exchange of knowledge between people working in the same profession because part of them are working in one division and the others are working in other divisions.

“For example, an automobile company with a divisional structure might have one division for SUVs, another division for subcompact cars, and another division for sedans. Each division would have its own sales, engineering and marketing departments”.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 29

Basic Organization Structure

Worldwide Functional structure

MarketingManufacturing

Headquarters

OtherFunctions

Finance

Plant-AGermany

Plant-BBrazil US Africa Europe

Locations Locations

IILM-GSM

Global Business Management International Organization Structure

04/15/23 30

Basic Organization Structure Worldwide Functional structure• In this, the division of labor in an organization is grouped by the

functions that need to be performed within the organization—sales, marketing, human resources, and so on.

• Each functional group within the organization is vertically integrated from the bottom to the top of the organization. For example, a Vice President of Marketing would lead all the marketing people, grouped into the marketing department.

• Employees within the functional divisions of an organization tend to perform a specialized set of tasks, for instance the engineering department would be staffed only with engineers. This leads to operational efficiencies.

• As a whole, a functional organization is best suited as a producer of standardized goods and services at large volume and low cost. This structure saves us money because of the economies of scale.

• This structure makes the coordination between different department more difficult than other structures. Also lead to a lack of communication between the functional groups within an organization, making the organization slow and inflexible.

• It also does not allow for flexibility becasue of the centralization.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 31

Basic Organization Structure Geographic Area Structure

Europe andLatin America

Division

Headquarters

US Japan Canada

N.America andPacific Division

UK Venezuela Italy

ManufacturingMarketing

Finance

IILM-GSM

Global Business Management International Organization Structure

04/15/23 32

Basic Organization Structure Geographic Area Structure• In this structure, divisions are created to cover geographic regions.

Each regional manager is then responsible for the operations and performance of the countries within a given region. In this way, country and regional needs and relative market knowledge take precedence over product expertise.

• Local managers are familiar with the cultural environment, government regulations, and business transactions. In addition, their language skills and local contacts facilitate daily transactions and responsiveness to the market and the customer.

• While this is a good structure for consolidating regional expertise, problems of coordination across regions may arise.

• With the geographic structure, the focus is on marketing, since products can be adapted to local requirements.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 33

Basic Organization Structure Global Product Division

ProductDivision

A

Headquarters

ProductDivision

B

ProductDivision

C

S. America Africa Europe Australia Far East

UK Germany Spain Portugal France

Manufacturing

Marketing

Finance

Manufacturing

MarketingFinance

IILM-GSM

Global Business Management International Organization Structure

04/15/23 34

Basic Organization Structure Global Product Division

ElectronicGroup

CEO

ChemicalProducts

Group

FinancialServices

Group

Machinery &Heavy

EquipmentGroup

Other SmallBusinesses

Catering Services

Hotels & Resorts

Professional Sports

Hospital & Medical Center

Samsung Group is the largest businessin Korea. The group is organized into fivemajor divisions. Each of these groups isIndependent and has little in commonWith others.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 35

Basic Organization Structure Global Product Division• A product structure is a divisional structure in which products are

grouped into separate divisions, according to their similarities or differences.

• A product divisional structure will divide the company into product A, B, C etc and each division will have its own hierarchy.

ProductDivision -C

S. America Africa Europe Australia Far East

UK Germany Spain Portugal France

Manufacturing

MarketingManufacturing

Marketing

IILM-GSM

Global Business Management International Organization Structure

04/15/23 36

Basic Organization Structure Mixed structure

AreaPresidentN.America

Headquarters

PresidentProduct, AWorldwide

Except N.America

PresidentProduct, AWorldwide

Except N.America

SubsidiaryHead 1

SubsidiaryHead 2

SubsidiaryHead 1

SubsidiaryHead 2

SubsidiaryHead 1

SubsidiaryHead 2

IILM-GSM

Global Business Management International Organization Structure

04/15/23 37

Basic Organization Structure

Mixed Structure• Most firms follow a hybrid design which best suits their purpose as dictated

by size, strategy, technology, environment, and culture. Most MNCs are known to follow hybrid structures. Philips, Sanyo and Unilever etc.

• Unilever, the consumer products giant, uses a classical regional structure with local managers in three areas of the world: Africa/Middle East, Latin America, and East Asia /Pacific. But in Europe and North America, where consumer preferences are identical, the structure is different. The president of Lever Brothers in New York, for example, reports to the Unilever worldwide detergents products coordinator in London.

• But, problems emerge with communication flows, chains of command, and groups going their own way.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 38

Basic Organization Structure Matrix structure

CEO

Vice PresidentGlobalEngineering

Vice PresidentGlobalFinance

Vice PresidentGlobalPurchasing

Vice PresidentSales and Marketing

Vice President Research and Development

Product AManager

Product BManager

Product CManager

Product DManager

Product Team

Two-boss employee

IILM-GSM

Global Business Management International Organization Structure

04/15/23 39

Basic Organization Structure

Matrix Structure• A Matrix structure, combines both function and product structures.

For example, we can have a functional structure and then assign a manager for each product.

• Some employees will have two managers: functional manager and product manager. This type of structure tries to get the benefits of functional structure and also of product divisional structure; however, it is not easy to implement becasue of the dual authority.

• Matrix structure is the most complex of the different organizational structures

• This struture is vey useful for multinational companies.• This structure can combine the best of both separate structures.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 40

Basic Organization Structure Matrix StructureMatrix structure is the most complex of the different organizational structures.• Weak/Functional Matrix: A project manager with only limited authority is

assigned to oversee the cross- functional aspects of the project. The functional managers maintain control over their resources and project areas.

• Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is shared equally between the project manager and the functional managers. It brings the best aspects of functional and projectized organizations. However, this is the most difficult system to maintain as the sharing power is delicate proposition.

• Strong/Project Matrix: A project manager is primarily responsible for the project. Functional managers provide technical expertise and assign resources as needed.

Among these matrixes, there is no best format; implementation success

always depends on organisation's purpose and function.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 41

Basic Organization Structure Networked structure

• The networked structure is a form of organization in which many functions of an MNC are contracted out to the other independent firms and coordinated through the use of information technology networks to operate as if they were within a single corporation.

• In essence, managers in network structures spend most of their time coordinating and controlling external relations, usually by electronic means.

• H&M's is outsourcing its clothing to a network of 700 suppliers, more than two-thirds of which are based in low-cost Asian countries. Not owning any factories, H&M can be more flexible than many other retailers in lowering its costs, which aligns with its low-cost strategy.

• Benetton is a well-known example, using a networked structure.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 42

Basic Organization Structure

Networked Structure

• 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

IILM-GSM

Global Business Management International Organization Structure

04/15/23 43

Basic Organization Structure

Conclusion

“Whatever structure you have, the results are the most important. The results are not your perception that you are the best. Measure yourself compared with similar companies. Do you need one week to take a decision that they make in one hour? Are your employees motivated more than those in other companies? Are you devloping new products and services faster than other companies? Are you achieving your main strategy?”

IILM-GSM

Global Business Management International Organization Structure

04/15/23 44

Basic Organization Structure

Conclusion “Management should take necessary actions to decrease the

disadvantages of the chosen structure and to enhance its the positive effects. For example, if we think the divisional structure is the best type for our condition then we should have tools to exchange knowledge between engineers working in different divisions. These tools can include forums on the LAN and conferences to exchange knowledge. Conversely, if we adopt functional struture, we can form teams from different functions to solve problems and develop our products”.

IILM-GSM

Global Business Management International Organization Structure

04/15/23 45

Issues in global organization design Centralization

Vsdecentralization

Role ofSubsidiary directors

Integratingmechanisms

GlobalOrganization

design

Non-traditionalOrg. Arrangements

Impact of IT

Managingchange

Corporateculture

Controlsystems

IILM-GSM

Global Business Management International Organization Structure