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International Business Management (BUSI 1346)

Organizational Issues in International Business

Week 26Dr Ajit Prasad, pa82@gre.ac.uk

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Purposes of structure Division of labor Mechanism for coordination Organizational boundaries

Extra constitutional centers of power Comparison with informal structure Political structure Legitimate basis of authority

Above allDistribution of decision rights

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TYPES OF STRUCTURES

linear chain of command is easily established

Hierarchy based structures M Form, SBU, Divisionalized, Functional

non-linear chain of command nebulous

Matrix form Core competency based

Cluster form, Mintzberg musings

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Vertical Differentiation Concerned with where decisions are made

Where is decision making power concentrated?

Two Approaches Centralization

Facilitate coordination Consistency of decisions Easier to make changes Avoids duplication

Decentralization Top freed from detail Increased motivation Greater flexibility Increased accountability Better on-the-spot

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Horizontal Differentiation

How a firm divides itself into sub-units Based on value creation activities Reconcile conflicting demands to organize

the firm around different products and different national markets

Typically Function Product, or Geography

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Divisional Structure

Centralizes all international operations Advantages

Raise the status of overseas operations Concentrated know-how and skills

Disadvantages Rivalries between domestic and international

divisions Difficult to think and act globally

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Functional Structure

Builds around the basic tasks of the firm Advantages

Allows tight and centralized control Little duplication of facilities

Disadvantages Difficult to coordinate production and

marketing Little diffusion of operating authority

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Product Structure

Groups similar products together Advantages

Consolidation of value creation activities More appropriate marketing strategy Strong concept of global market

performance Disadvantages

Duplication of facilities and staff personnel Managers may not know global markets Lack of coordination and cooperation

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Area Structure

Organizes operations into areas Advantages

More locally responsive Eliminate costly transportation

Disadvantages Shift of product emphasis to area

orientation Costly duplication of facilities Difficult to coordinate into overall

strategy

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Matrix Structure

Blends two organizational responsibilities

Advantages Bring together expertise of the firm Flexible Promote coordination and communication

Disadvantages Complexity and power struggles Too many meetings, no decision or action Scapegoat for failure

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Examples from MNCsType Imperative Example

Divisional Security Apple

Functional Process Efficiency Coke

Product Customer segmentation

National-Panasonic

Area Geographical concentration

ABB

Matrix Creativity 3M

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Structural Variables

Relative importance of international operations now and in the future

Firm’s past history and experience in the international arena

Firm’s business and product strategy

Management’s philosophy of operating

Firm’s ability to adjust to organizational changes

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Control Systems

Personal Personal contact

Bureaucratic Rules and

procedures Output

Goal-setting Cultural

Establishment of value system

Controlling is the process of determining that everything goes according to plan Establish

standards Compare against

performance Take action

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Strategy, Structure and Control

Structure & control Strategy

Multidomestic International Global Transnational

Vertical differentiation Decentralized Core competency; rest decentralized

Some centralized

Mixed; centralized & decentralized

Vertical differentiation Worldwide area structure

Worldwide product division

Worldwide product

Informal matrix

Need for coordination Low Moderate High Very high

Integrating mechanisms None Few Many Very many

Performance ambiguity Low Moderate High Very high

Need for cultural control Low Moderate High Very high

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Drucker’s check list Clarity

as opposed to simplicity Economy

In control Direction of vision

Of product rather than process Understanding

Of individual’s role Decision making

At the lowest levels Stability

Not rigidity Perpetuation and self renewal

Structure must be open to new ideas

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Comparison and Evaluationcriterion Funct’nl

divisional

SBU Matrix network

Resourcesexcellen

tPoor

Good, srPoor, lr

Moderate Good

Time poor Good Good Moderate Excellent

Responsiveness poorModerat

eExcellent Good Excellent

Adaptability poor GoodModerat

eModerate Excellent

Accountability Good Excellen

tGood Poor moderate

EnvironmentComposite

Stable, Hetero, Hetero Complex Volatile

Generic Strategy

Cost l’drship

Pdt diff’tion

Focus Pdt Diff. Pdt Diff.

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Summary

Describe various organizational structures and understand their respective advantages and disadvantages

Analyze key structural variables that influence international organization designs

Review the role of the control systems in ensuring that the structure is both effective and efficient

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Seminar Question for Next TermPost Easter meeting

In groups of 4, Identify one MNC operating in two continents

Explore the organization structure, examining differences if any..

Identify the adaptation that the MNC has made to local conditions

Come prepared with the presentation, (on acetates)