Organizational Design and Control

McGraw-Hill/IrwinInternational Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

chapter fourteen

14-3

Learning Objectives

Explain why the design of organizational structure is important to international companies

Discuss the organizational dimensions that must be considered when selecting organizational structures

Discuss the various organizational forms available for structuring international companies

Explain the concept of the virtual corporation

14-4

Learning Objectives

Explain why decisions are made where they are among parent and subsidiary units of an international company

Discuss how an IC can maintain control of a joint venture or of a company in which the IC owns less than 50 percent of the voting stock

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

14-7

The relationship among International Environment, Competitive Strategy, and

Organizational Structure

14-8

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

14-9

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

14-10

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– Product– Function– Region– Customer classes

14-11

Evolution of the International Company

14-12

Global Corporate Form

• Product

• Geographic

14-13

Global Corporate Form

• Function

• Hybrid Forms

14-14

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

14-15

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

14-16

Changes in Organizational Form

• Result from pressure to act more quickly, reduce costs and improve quality

• Reengineering to – 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

14-19

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

– 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

14-23

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

14-25

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

14-30

De-Jobbing

• Replacing fixed jobs with tasks performed by evolving teams– Hierarchy not maintained

14-31

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