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CHAPTER 13

CHAPTER 13. The Organization of International Business. Learning Objectives. Define and identify different forms of the organizational architecture that international businesses use to manage their global operations Explore the various components of the architecture

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CHAPTER 13

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  1. CHAPTER 13 The Organization of International Business

  2. Learning Objectives • Define and identify different forms of the organizational architecture that international businesses use to manage their global operations • Explore the various components of the architecture • Describe the control systems and integrating mechanism available to multinational firms • Discuss the advantages and disadvantages of centralized versus decentralized decision systems • Look at ways to match architecture and competitive strategy to achievehigh performance IBUS 330 Dr. Nini Yang

  3. Organizational architectureis the totality of a firm’s organization, including Structure Control systems and incentives Processes Culture People Superior enterprise profitability requires three conditions: An organization’s architecture must be internally consistent. Strategy and architecture must be consistent. Strategy, architecture and competitive environments must be consistent. Organizational Architecture and Profitability IBUS 330 Dr. Nini Yang

  4. Organization Architecture Structure Controls & Incentives People Processes Culture Figure 13.1 IBUS 330 Dr. Nini Yang

  5. Control systems: Metrics used to measure subunit performance Make judgments about managers’ abilities to run units Incentives are devices to reward appropriate managerial behavior. Processes: Manner in which decisions are made Manner in which work is performed Conceptually distinct from location of decision-making responsibility Organization Architecture IBUS 330 Dr. Nini Yang

  6. Culture: Norms and value systems shared by the employees People: Not just current employees, but also the strategy to recruit, compensate, and retain individuals with necessary skills, values and orientation Organizational Architecture If a firm is going to maximize its profitability, it must pay close attention to achieving internal consistency among the various components of its architecture. IBUS 330 Dr. Nini Yang

  7. Organizational Structure at Unilever European Business Group Detergents Frozen Food Margarine France Minimize component inconsistencies through intelligent design. Germany Spain Figure 13.2 IBUS 330 Dr. Nini Yang

  8. Centralization: Facilitates coordination Ensure decisions consistent with organization’s objectives Top-level managers have means to bring about organizational change Avoids duplication of activities Decentralization: Give top management time to focus on critical issues Motivational research favors decentralization Permits greater flexibility Can result in better decisions Can increase control Vertical Differentiation Concerned with where decisions are made. IBUS 330 Dr. Nini Yang

  9. Strategy and Centralization Global Centralize Transnational Both Centralize And Decentralize International Centralize for core competencies Decentralize for operating decisions Multi-domestic Decentralize IBUS 330 Dr. Nini Yang

  10. Horizontal Differentiation How a firm divides itself into subunits Function A firm must reconcile conflict between product and location. Type of business Geographical area IBUS 330 Dr. Nini Yang

  11. A Typical Functional Structure Top Management Purchasing Manufacturing Marketing Finance Buying units Plants Branch sales units Accounting units Figure 13.3 IBUS 330 Dr. Nini Yang

  12. The Functional Structure Typically, the structure evolves in a company’s early stage. Coordination and control rests with top management. IBUS 330 Dr. Nini Yang

  13. A Typical Product Division Structure Headquarters Division Product line A Division Product line B Division Product line C Department Purchasing Department Manufacturing Department Marketing Department Finance Branch sales units Accounting units Plants Buying units Figure 13.4 IBUS 330 Dr. Nini Yang

  14. Product Division Structure Probable next stage of international business development. Reflects company growth into new products. Each unit responsible for a product. Semi-autonomous and accountable for its performance. Eases coordination and control problems. IBUS 330 Dr. Nini Yang

  15. International Division Structure Headquarters Domestic Division General Manager Product Line A Domestic Division General Manager Product Line B Domestic Division General Manager Product Line C International Division General Manager Area Line Functional units Country 2 General Manager (Product A, B and/or C) Country 1 General Manager (Product A, B and/or C) Functional units Figure 13.5 IBUS 330 Dr. Nini Yang

  16. International Division Widely used. Growth can lead to worldwide structure. • Can create conflict between domestic and foreign operations. • Implied lack of coordination between domestic and foreign operations. IBUS 330 Dr. Nini Yang

  17. Worldwide Area Structure Favored by firms with low degree of diversification. Area is usually a country, and largely autonomous. Encourages fragmentation. Facilitates local responsiveness. IBUS 330 Dr. Nini Yang

  18. The International Structural Stages Model H Foreign Product Diversity Worldwide Product Division Global Matrix (“Grid”) Alternate Paths of Development Area Division L International Division L Foreign Sales as a Percentage of Total Sales H Figure 13.4 IBUS 330 Dr. Nini Yang

  19. Worldwide Area Structure Headquarters Regional VP North America Regional VP Europe Regional VP Far East Regional VP Latin American Regional VP Middle East/Africa President Subsidiary 1 President Subsidiary 2 President Subsidiary 3 Figure 13.5 IBUS 330 Dr. Nini Yang

  20. A Worldwide Product Division Structure Headquarters Worldwide Product Group or Division B Worldwide Product Group or Division C Worldwide Product Group or Division A Area 1 (domestic) Area 2 (international) Functional units Functional units Figure 13.6 IBUS 330 Dr. Nini Yang

  21. Product Division Reasonably diversified firms. Attempts to overcome international division and worldwide area structural problems. Weak local responsiveness. Believe that product value creation activities should be coordinated worldwide. IBUS 330 Dr. Nini Yang

  22. Headquarters Area 1 Area 2 Area 3 Product Division A Product Division B Manager here belongs to Division B and Area 2 Product Division C A Global Matrix Structure Figure 13.7 IBUS 330 Dr. Nini Yang

  23. Matrix Structure Attempts to meet needs of transnational strategy. May not work as well as theory predicts. “Flexible” matrix structures. Conflict and power struggles. IBUS 330 Dr. Nini Yang

  24. Need for Coordination: Impediments: Different managerial orientations, e.g. Labor relations Legal conditions Cultural environment Differing goals Time zones, distance, nationality Integrating Mechanisms High Transnational Global International Multidomestic Low IBUS 330 Dr. Nini Yang

  25. Formal Integrating Mechanisms Low Direct contact Liaison roles Teams Matrix structures High Increasing complexity of integrating mechanism Figure 13.8 IBUS 330 Dr. Nini Yang

  26. G E B C D A F A Simple Management Network Informal contacts between managers within an enterprise. Figure 13.9 IBUS 330 Dr. Nini Yang

  27. Types of controls: Personal Bureaucratic Output Cultural Incentives: Depends on employee and his/her tasks. Can be used to improve managerial coordination between units. Need to account for national differences in institutions and culture. Beware of the rule of unintended consequences. Control Systems and Incentives IBUS 330 Dr. Nini Yang

  28. Performance Ambiguity It is a function of the interdependence among subunits. Control Systems Multinational Output/Bureaucratic Global/Transnational Cultural IBUS 330 Dr. Nini Yang

  29. Strategy Inter- Performance Costs of dependence Ambiguity Control Multi-domestic Low Low Low International Moderate Moderate Moderate Global High High High Very high Very high Very high Transnational Interdependence, Performance Ambiguity, and the Costs of Control for the Four International Business Strategies Table 13.1 IBUS 330 Dr. Nini Yang

  30. Processes • The manner in which decisions are made and work is performed within an organization • Cut across national boundaries as well as organizational boundaries • Can be developed anywhere within the firm’s global operations network IBUS 330 Dr. Nini Yang

  31. Organizational Culture • Values and norms shared among people • Sources: • Founders and important leaders • National social culture • History of the enterprise • Decisions that result in high performance • Cultural maintenance: • Hiring and promotional practices • Reward strategies • Socialization processes • Communication strategy IBUS 330 Dr. Nini Yang

  32. A “strong” culture: Not always good Sometimes beneficial, sometimes not Context is important Adaptive cultures Culture must match an organization’s architecture. Culture does not necessarily translate across borders. Culture Organizational Culture and Performance Transnational Strong Global International Weak Multidomestic IBUS 330 Dr. Nini Yang

  33. Structure and controls Multi- domestic International Global Transnational Mixed Decentralized Core competency; Vertical Some centralized and differentiation centralized rest decentralized decentralized Horizontal Worldwide Worldwide product division Worldwide Informal matrix differentiation area structure Product division Need for coordination Low Moderate High Very high Integrating None Few Many mechanisms Very many Performance Low Moderate High Very high ambiguity Need for Low Moderate Very high High Cultural controls A Synthesis of Strategy, Structure and Control Systems Table 13.2 IBUS 330 Dr. Nini Yang

  34. Organizational Change • Change to match competitive and strategy environment • Hard to change: • Existing distribution of power and influence • Current culture • Managers’ preconceptions about the appropriate business model or paradigm • Institutional constraints • Principles for change • Unfreeze the organization • Moving to the new state • Refreezing the organization IBUS 330 Dr. Nini Yang

  35. Implications • An organization’s architecture should be consistent internally and externally. • The consistencies are critical to organizational performance and profitability. • Organizational architecture should be flexible and adapt according to organizational strategy, growth, the external changing environment. • Changes may face resistance, and managers need to learn principle methods in order to launch and implement necessary changes successfully. IBUS 330 Dr. Nini Yang

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