Globalization and Organization Structure

1. Globalization and Organization Structure Keywords: Configuration: - the geographic location of activity Co-ordination - integration of activities - there is interdependence Last lecture we were looking at possible strategies: Global Trans-National Pressure toward global integration Domestic Multi- domestic Pressure for localization Focus: Our choice of strategy impacts on, or determines, our choice of structure - Strategy and Structure interact

2. Growth of International Structure: 1. Start with exporting - accident - ad hoc structure 2. Growing importance of international activity leads to establishing an international division - Differentiate it from domestic activity so that it gets proper attention Requirement: International Manager needs to understand the product-market strategies of all domestic product-market divisions - This is a tall order! 3. Next stage: go in one of two possible directions depending on whether product globalization or market differentiation is the more important i.e. whether we will be relatively centralized (globalization), or decentralized (market differentiation)

3. International Division India Japan EEC 3(a) If local differentiation is more important, go to an area structure We see the relevance of this in the extreme case of a multi-domestic strategy The organizational answer is to have relatively autonomous area managements to run all aspects of the business in its particular market niche. The more local conditions influence decision making, the higher the level of local autonomy. The local company becomes a miniature replica of the parent company. N.B. Host governments like this as all types of skills and technologies are transferred, and local autonomy caters to nationalistic feelings

4. Problems: • High autonomy can lead to communication problems with Head Office • and lack of H/O control over standards, policies, reporting and control • processes • 2. Excess autonomy inhibits MNC learning (GM ‘s Opel in Germany is a good • example - virtually independent of Detroit in every sense - no inputs • in either direction) • 3. Challenge to home office authority • 4. Low volume implies high cost operation • 5. Lack of scale to warrant some activities such as R&D

5. International Division Drugs Chemicals Textiles 3 (b) Product standardization dominant - leads to Organizing on Product Lines - global strategy is classic case International Division Each product division becomes a more or less self contained entity with R&D, production, marketing, accounting, services, all centrally organized and located

6. Local organizations do not have much autonomy . May have local offices either for local sales representation, or perhaps to manufacture components for subsequent centralized assembly (e.g. Airbus) The profit centre concept doesn’t fit because local offices have no control over design or production, nor overall marketing strategy Problems: 1. Inflexible, slow to respond to changes in markets or product design 2. Loss of contact by H/O with other markets, sources of R&D, technology 3. Low local autonomy - limited ability to respond to particular market needs 4. All activities dominated by home office - risk of national/cultural imperialism.

7. 4. Trans-national Operation - Merge the two dimensions of concern N.B. May not be necessary for some companies But may be essential for others, e.g. telecommunications High centralization for R&D, achieving economies of scale High pressure for localization to provide local networks, cope with local political pressures e.g. Cable & Wireless was largely area based, in Boswana, Bahrain, Hong Kong, etc. But has been slow to adapt to changes in the industry which are driving towards globalization Possibly some of the current problems of AT&T and BT are similar in nature Difficulty: Must move toward a matrix type of organization to integrate products and markets ## This is inherently difficult, even in a single country market ##

8. What we need to achieve: 1. Two-way flow of ideas and resources 2. Free and frequent movement between offices 3. Use of local boards of directors 4. A global perspective both at H/O and in the field Hence leadership roles are not fixed - sometimes in the areas, - sometimes in H/O Maximization is over the organization as a whole (global), not over individual elements (area or product) Matrix management places a premium on horizontal flows of information and flexibility

9. So we have a mixed situation: - Some products are standardized, produced at the centre for all markets - Some products are localized and produced in local country for local market - Some products are manufactured in local (dispersed) countries for global markets The complexity of management planning, implementation and control is obvious

10. Fundamental Question: What is the breadth and depth of management talent, especially at the level of the affiliates? Parent seeks alliances or acquisitions High Affiliate takes strategic initiative Localization pressure Affiliate influences parent strategy Affiliate follows parent instructions Low Low High Affiliates Capability

11. Managers need to abandon self interest and work towards the benefit of the organization as a whole Matrix structure implies shared responsibility Put the matrix concept into the heads of all managers, so that the organization will work that way regardless of the formal organization structure Successful matrix management is more a question of management attitudes than a question of organization structure - style - attitude - mind set

12. Seamless organization - Suggests that the organization eliminate the barriers between parts of the organization, using devices such as - teams - clusters But note that this only shifts boundaries outward - there still remains a boundary, and the question remains, how do we communicate across it? Note the ability of communication technology to penetrate barriers: - In effect email, www, the internet punch holes in the old barriers. But what of the individuals who need/crave structure and clarity? There is a reduced pool of potentially competent managers - can we train up managers who are comfortable with ambiguity?