prentice hall 2003chapter 81 organization structure and control systems chapter 8
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Prentice Hall 2003 Chapter 8 1
Organization Structure and Control Systems
Chapter 8
Prentice Hall 2003 Chapter 8 2
Chapter 8 - Overview
Organization structure Evolution and change in MNC organizational structures Organizing for globalization Emergent structural forms Choice of organizational form Control systems for global operations Managing effective monitoring systems
Prentice Hall 2003 Chapter 8 3
Internationalization
Internationalization is the process by which a firm gradually changes in response to international competition, domestic market saturation, and the desire for expansion, new markets, and diversification.
Prentice Hall 2003 Chapter 8 4
Structuring International Activities
Domestic structure plus export department Domestic structure plus foreign subsidiary International division Global functional structure Global product structure
Prentice Hall 2003 Chapter 8 5
Domestic Structure Plus Foreign Subsidiary(Exhibit 8-1)
Chief Executive Officer
HQ Departments Finance Production Marketing HRM
VP Int’l Operations
Overseas Japan Germany MexicoSubsidiaries
Prentice Hall 2003 Chapter 8 6
Global Functional Structure
The global functional structure is designed on the basis of the company’s functions – production, marketing, finance, and so forth. Foreign operations are integrated into the activities and responsibilities of each department to gain functional specialization and economies of scale.
Prentice Hall 2003 Chapter 8 7
Global Product (Divisional) Structure
In the global product (divisional) structure, a single product (or product line) is represented by a separate division. Each division is headed by its own general manager, and each is responsible for its own production and sales functions.
Prentice Hall 2003 Chapter 8 8
Global Product (Divisional) Structure(Exhibit 8-2)
CEO
CorporateFunctional Staff
Area Specialists:North AmericaLatin AmericaEuropeFar East
Product 1 Product 2 Product 3Division Division Division
Country A Country B
Finance Production Marketing
Prentice Hall 2003 Chapter 8 9
Global Geographic (Area) Structure
In the global geographic (area) structure – the most common form of organizing foreign operations – 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.
Prentice Hall 2003 Chapter 8 10
Global Geographic Structure(Exhibit 8-3)
Board of Directors
Chair
CEO
VP Group VP VPFinance N. America
VPS. America
VPEurope
VPPacific
VPPlastics
VPAgriculture
France UK
Finance Production Marketing
Prentice Hall 2003 Chapter 8 11
Opposing Forces in Structural Choices
The need for differentiation (focusing on and specializing in specific markets)
The need for integration (coordinating those same markets)
Prentice Hall 2003 Chapter 8 12
Emergent Structural Forms
Interorganizational networks The global e-corporation network structure The transnational corporation (TNC) network
structure
Prentice Hall 2003 Chapter 8 13
Information Technology’s Impact on Organizational Forms
“Competitive companies in the future will be elaborate networks of people and information, each exerting an influence on the other. [These networks will comprise] a small hub of staff connected to each other by their physical proximity, which is electronically connected to global associates who help control assets and negotiate agreements to extend the company’s business influence.”
Kilmann
Prentice Hall 2003 Chapter 8 14
The Global E-Corporation Network Structure(Exhibit 8-6)
Suppliers
Contract manufacturers
Supplierexchanges
Manufacturers
Virtualmanufacturers
Wholesaledistributors
Logisticsexchanges
Logisticsproviders
Logisticsproviders
Customerexchanges
Customers
Supply Chain Network
Information flow
Goods flow
Prentice Hall 2003 Chapter 8 15
Choice of Organizational Form
Two major variables in choosing the structure and design of an organization are the opportunities and need for
• globalization and• localization
Prentice Hall 2003 Chapter 8 16
Organizational Alternatives and Development for Global Competition
(Exhibit 8-7)
Globalproductstructure
Internationalcompany
Domesticfunctionalwith int’l division
Globalcompany
MNC
Matrix structure
TNC
Horizontal organization, alliancesand networks
Transnationalstructure
Geographicareastructure
Op
por
tun
itie
s an
d N
eed
for
Glo
bal
izat
ion
Opportunities and Need for Localization
Prentice Hall 2003 Chapter 8 17
Locus of Decision Making in an International Organization
(Exhibit 8-10
Headquartersauthority
Area of controlby headquarters
Subsidiary/localunit authority
Area of controlat local levelC
entr
aliz
ed
Decentralized
HQ managementmakes decisionand informslocal managers
HQ managementmakes decisionand “sells” tosubsidiary managers
HQ managementmakes decisionand recommendsto localmanagers
HQ and localmanagers consult ondecisions
Local managerspresent problemand solution toHQ for decision
Local managersmake decisionand “sell” toHQ
Localmanagersmake decisionand informHQ
Prentice Hall 2003 Chapter 8 18
When is Change Needed?(Exhibit 8-9)
A change in the size of the corporation – due to growth, consolidation, or reduction
A change in key individuals – which may alter management objectives, interests, and abilities
A failure to meet goals, capitalize on opportunities, or be innovative An inability to get things done on time A consistently overworked top management that spends excessive
hours on the job A belief that costs are extravagant or that budgets are not being met Morale problems Lengthy hierarchies that inhibit the exercise of strategic control
Prentice Hall 2003 Chapter 8 19
When is Change Needed?(contd.)
Planning that has become increasingly staff-driven and is thus divorced from line management
Innovation that is stifled by too much administration and monitoring of details
Uniform solutions that are applied to nonuniform situations. The extreme opposite of this condition – when things that should or could function in a routine manner do not – should also be heeded as a warning. In other words, management by exception has replaced standard operating procedures
Prentice Hall 2003 Chapter 8 20
When is Change Needed?(contd.)
The following are a few specific indicators of international organizational malaise:
A shift in the operational scope – perhaps from directing export activities to controlling overseas manufacturing and marketing units, a change in the size of operations on a country, regional, or worldwide basis, or failure of foreign operations to grow in accordance with plans and expectations
Clashes among divisions, subsidiaries, or individuals over territories or customers in the field
Divisive conflicts between overseas units and domestic division staff or corporate staff
Prentice Hall 2003 Chapter 8 21
When is Change Needed?(contd.)
Instances wherein centralization leads to a flood of detailed data that is neither fully understood nor properly used by headquarters
Duplication of administrative personnel and services Underutilization of overseas manufacturing or distribution facilities Duplication of sales offices and specialized sales account executives Proliferation of relatively small legal entities or operating units
within a country or geographic area An increase in overseas customer service complaints Breakdowns in communications within and between organizations Unclear lines of reporting and dotted-line relationships, and ill-
defined executive responsibilities
Prentice Hall 2003 Chapter 8 22
Coordinating Mechanisms
Direct coordinating mechanisms
Examples Design of appropriate structures Use of effective staffing practices Visits by head-office personnel Regular meetings
Prentice Hall 2003 Chapter 8 23
Coordinating Mechanisms(contd.)
Indirect coordinating mechanisms
Examples Sales quotas Budgets Other financial tools Feedback reports
Prentice Hall 2003 Chapter 8 24
Managing Effective Monitoring Systems
Factors likely to affect the appropriateness of monitoring systems include:
Management practices Local constraints Expectations regarding• Authority
• Time
• Communication
Prentice Hall 2003 Chapter 8 25
Managing Effective Monitoring Systems
In deciding on appropriate monitoring and reporting systems, additional factors to be considered include:
• The role of information systems (adequacy of management information systems in foreign affiliates, noncomparability of performance data across countries)
• Evaluation variables across countries
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