organizations of international business-international business
TRANSCRIPT
Organizations of International Business
Objectives
Understand what is meant by or organization architecture.
Be familiar with the different organizational choices that can be made in an international business.
Explain how organization can be matched to strategy to improve the
performance of an international business.
Be able to discuss what an international business requires to change its organization to better
match its strategy.
ContentI. Organizational ArchitectureII. Organizational Structure1. Vertical Differentiation2. Horizontal DifferentiationIII. Control Systems and IncentivesIV. ProcessesV. Organizational CultureVI. Synthesis: Strategy and ArchitectureVII. Organization ChangeVIII. Case Study and Questions
Organizational ArchitectureOrganizational
Structure
• The formal divisions into subunits
• The location of decision-making responsibilities
• The establishment of integrating mechanisms
Control systems and Incentives
• Measure the performance of subunits
• Used to reward appropriate managerial behavior
Processes
• Processes for formulating strategy,
• for deciding how to allocate resources within a firm
• for evaluating the performance of managers and giving feedback.
Organizational Culture
• The norms and value systems that employees of an organization share
People
• Employees of an organization
• The strategy used to recruit, compensate, and retain people
Organizational Architecture
People
Structure
Incentives and
Controls
Culture
Processes
Objectives
Understand what is meant by or organization architecture.
Be familiar with the different organizational choices that can be made in an international business.
Explain how organization can be matched to strategy to improve the
performance of an international business.
Be able to discuss what an international business requires to change its organization to better
match its strategy.
ContentI. Organizational ArchitectureII. Organizational Structure1. Vertical Differentiation2. Horizontal DifferentiationIII. Control Systems and IncentivesIV. ProcessesV. Organizational CultureVI. Synthesis: Strategy and ArchitectureVII. Organization ChangeVIII. Case Study and Questions
Organizational Architecture
People
Structure
Incentives and
Controls
Culture
Processes
I. ORGANIZATIONAL STRUCTURE
• The formal division of the organization into subunits
• The location of decision-making responsibilities
within structure
• The establishment of integrating mechanisms to
coordinate the activities of subunits
1. Vertical differentation:
• Determines where decision- making power is
concentrated
• 2 kinds of decision: centralized and decentralized
decision
Centralized decision• Facilitates coordination
• Ensures decision are consistent with organization’s
objectives
• Give managers the means to bring about
organizational change
• Avoids duplication of activities
Decentralized decision
• Relieves the burden of centralized decision
• To motivate individuals
• Permits greater flexibility
• Can result in better decisions
• Can increase control
2. Horizontal differentiation
• Refers to how the firm divides into subunits
• Based on function, type of business, geographicial
area
• The organization is split into functions reflecting the
firm’s value creation activities
• The functions are typically coordinated and
controlled by top management
• Decision-making is centralized
• Product line diversification requires futher
horizontal differentiation.
A typical funtional structure
A typical product divisional structure
• When firms expand internationally, they often group all of their international activities into an international division
• Many firms that continue to expand will abandon
their international division structure and move to
Worldwide product divisional structure
Worldwide area structure
Worldwide product divisional structure
• Tends to be adopted by diversified firms that have
domestic product division
• Helps realize location and experience curve
economies
• Facilitates the transfer of core competencies
• Does not allow for local responsiveness
Worldwide product divisional structure
Worldwide area structure
Worldwide area structure• Tends to be adopted by undiversified firms whose
domestic structures are based on funtions
• Divides the world into autonomous geographic areas
• Decentralizes operational authority
• Facilitates local responsiveness
• Can result in a fragmentation of the organization
• In consistent with a localization strategy
• The global matrix structure is an attempt to minimize the limitation of the worldwide area structure and the worldwide product divisional structure
• Allows for differentation along two dimensions- product division and geographic area
• Has dual decision-making: product division and geographic area have equal responsibility for operating decisions
INTEGRATING MECHANISMS
1• Strategy and Coordination in the International
Business
2• Impediments to Coordination
3• Formal Integrating Mechanisms
4• Informal Integrating Mechanisms: Knowledge
Networks
Strategy and Coordination in the International Business
Transnational
Strategy
Global Strategy
International Strategy
Localization Strategy
Impediments to Coordination
Different Orientations, Tasks
Production managers Marketing
managers
Impediments to CoordinationDifferent Goals
Formal Integrating Mechanisms
The formal mechanisms used to integrate subunits vary in complexity from simple direct contact and liaison roles, to teams, to a matrix structure .
Formal Integrating Mechanisms
• This is the simplest integrating mechanisms. Managers of the various subunits just contact each other wherever they have a concern.
Direct contact
• this is a bit more complex than direct contact. As the need for coordination between subunits incease, integration can be improved by assigning a person in each subunit to coordinate with another subunit.
Liaison roles
• When the need for coordination is greater still, firms use temporary or permanent teams composed of individuals from the subunits that need to achieve coordination.
Teams
• When the need for integration is very high, firms may institute a matrix struture, in which all roles are viewed as integrating roles.
Matrix Structure
Informal Integrating Mechanisms: Knowledge Networks
• A Knowledge Networks: is a network for transmitting information within an organization that is based not on formal organization structure, but on informal contacts between managers within an enterprise and on distributed information systems.
• A Knowledge Networks: is a non bureaucractic conduit for knowledge flows.
• To be successful, a knowledge network embrace as many managers as possible and managers must adhere to common set of norms and values that override differing subunit orientations.
040301 02
OUTPUT CONTROLS
CULTURAL CONTROLS
BUREAUCRATIC CONTROLS
PERSONAL CONTROLS
TYPES OF CONTROL SYSTEMS
01
02
03
04
BUREAUCRATIC CONTROLSA system of rules and produces that directs the actions of subunits.Budget and capital spending rules.
PERSONAL CONTROLSPersonal contact with subordinates.Most widely used in small firms.
CULTURAL CONTROLS
Exist when employees “buy into” the norms and value systems of the firm.Strong culture implies less need for other forms of control.
OUTPUT CONTROLSSetting goals for subunits to achive and expressing those goals in terms of objective performance metrics.Compare actual performance against targets and intervene selectively to take corrective action.
WHAT ARE INCENTIVE SYSTEMS
Should reflect national
differences in situations and
culture.
Should vary depending on the employee
and the nature of the work being
performed.
Should promote cooperation
between managers in
different subunits.
Can have unintended
consequences.
Usually closely tied to performance metrics used
for output controls.
1
2
3
4
5
PERFORMANCE AMBIGUITY
Is common when subunit’s performance is dependent on
the performance
of other subunits.
Is lowest in firms with a localization
strategy.
Is higher in international
firms.
Is still higher in firms with a
global standardization
strategy.
Is highest in transnation
al firms.
Interdependence, Performance Ambigiuty, and the Costs of Control for the Four International Business Strategies
PROCESSES
PROCESSESDefinition: Processes are the manner in which decisions are made and work is performed within the organization. Processes have many different levels like: processes for formulating strategy, processes for allocating resources, processes for improving product quality, processes for evaluating employee performance,…
PROCESSES
lower the costs of value creation
add additional value to a product
Effective processes
ProcessesThe core competencies
The valuable skills
Two basic remarks about managing processes
• Many processes cut not only across headquater, among different subunits, but also across national boundaries.
• It is particularly important for a multinational enterprise to recognize new valuable processes which might lead to a competitive advantage and can be developed anywhere within the organization’s global network of operations.
Organizational Culture
ORGANIZATION CULTURE
Culture
Values: abstract ideas about what a group believes to be good, right, and desirable.
Norms: mean the social rules and guidelines that prescribe appropriate behavior in particular situations.
Creating and maintaining Organizational culture
Creating organization culture• Wide agreement between founders and
important leaders. • The broader social culture of the nation where
the firm was founded.• The history of the enterprise.
Creating and maintaining organizational culture
Maintaining organization culture • Hiring and promotional
practices of the organization.• Reward strategies.• Socialization processes.• Communication strategy.
Organizational culture and performance in the international business
• Strong culture share a relatively consistent set of values and norms that have a clear impact on the way work is performed.
• Adaptive culture care deeply about and value customers, stockholders, and employees.
• Common culture have the same across a multinational global network of subsidiaries probably varies with the strategy of the firm.
A DECADE OF ORGANIZATIONAL
CHANGEAT UNILEVER
Summary• One of the oldest multinational corporation in the
world.• Annual revenue in excess of USD $50 billion (2008)• Unilever was organized on a decentralized basis. In
the early 1990s, in Western Europe, the company had 17 subsidiaries, each focused on a different national market.
• Each subsidiary– profit center – accountable for own performance
Summary• By the mid-1990s, the decentralized structure was
increasingly out of step with competitors in a rapidly changing environment.– Lots of duplication, particularly in manufacturing– Lack of scale economies– High cost structure– Slow to introduce new product lines.
Summary• It introduced a new structure based on business
groups, each focusing on a specific category of products. For example, Lever Europe consolidated the production of detergents.– 17 companies relinquished autonomy– Cut European plants manufacturing soap from 10
to 2– Product sizing and packaging was harmonized
Summary• As a result of that:
− It saved as much as $400 million
− Speeded up new product introduction• By 2000, Unilever realized that their present strategy
were still lagging behind their competitors; so they
decided to reorganize.
• So that, they introduced a new structure based on
regional business groups.
Summary• Each business group included a number of divisions,
each focusing on a specific category of products.
• These groups and divisions coordinated the
activities of national subsidiaries within their region
to drive down operating costs and speed up the
process of developing and introducing new products.
DISCUSSION QUESTION
1. Why did Unilever’s decentralized organizational structure make sense from the 1950s through the 1970s? Why did this structure start to create problems for the company in the 1980s?
2. What was Unilever trying to do when it introduced a new structure based on business groups in the mid1990s? Why do you think that this structure failed to cure Unilever’s ills?
3. In the 2000s Unilever has switched to a structure based on global product divisions. What do you think is the underlying logic for this shift? Does the structure make sense given the nature of competition in the detergents and food business?
Question 1: Why did Unilever’s decentralized organizational structure make sense from the 1950s through the 1970s? Why did this structure start to create problems for the company in the 1980s.
• Decentralized make sense from the 1950s through the 1970s because at first it drive to the localization which means this structure allowed the local manager to match product offerings and marketing strategy to local taste and preferences. It also alter sales and distribution strategies to fit the prevailing retail system.
• This structure start to create problems for the company in the 1980s because there are existence of a lot of duplication in manufacturing, a lack of scale economies and need high cost structure. It also resulting Unilever falling behind its rivals in term of bring new product to the market.
Question 2: What was Unilever trying to do when it introduced a new structure based on business groups in the mid1990s? Why do you think that this structure failed to cure Unilever’s ills?
• Unilever introduced structure based on business
groups actually are to cut down operating and
purchasing costs and tp speed up the introduction of
new product.
• Based on my opinions, this structure failed to cure
Unilever’s ills because the manager are no longer
allowed to match product offerings and marketing
strategy to local tastes and preferences.
Question 3: In the 2000s Unilever has switched to a structure based on global product divisions. What do you think is the underlying logic for this shift? Does the structure make sense given the nature of competition in the detergents and food business?
• Unilever tried to improve its product availability and flexibility for its local responsiveness, and at the same time wanted to reduce operation costs while creating global brands.Since both the food and detergent industry are very competitive, it requires great local responsiveness.
• Moving from a de-centralized localization strategy to a more centralized transnational strategy made sense because of the reduction of operation costs as well as better communication and efficiency. By cutting back the brands from 1600 to 400 they were able to focus more on their global and regional brands as well as raising its local responsiveness standards.