CHAPTER 13 THE STRUCTURE OF INTERNATIONAL FIRM

Learning Objectives After studying this chapter, you should be able to explain: The variety of structures a firm can employ and their benefits and drawbacks How to pick the structure that is right for your organization Issues surrounding restructuring firms, including firm turnaround and reengineering

Different Organizational Structures Organizational structure is the manner in which the various parts of a business are to report and coordinate with each other, and at what levels decisions are made. The need for different types of organizational structure is consistent with a firm’s growth and evolution.

Different Organizational Structures As an enterprise becomes more complex, it is essential to introduce a greater administrative component. Administrative component - Is the ratio of support staff to line staff directly engaged in the production and distribution of an organization’s products and services.

Different Organizational Structures Increasing the administrative component results in better planning, training, and coordination. However, it also increases time taken for decision making, impedes communication among departments, and reduces commitment to the organization.

Different Organizational Structures Structure Type Description Advantages Limitations Simple This structure is associated with family-owned business. CEO is the centre of business and everything is coordinated through that founder. CEO can monitor all the actions and ensure that the business achieves its goals. Employees feel they are part of a team. Organizational growth is hindered. CEO cannot focus on all the key elements as the business grows. Functional Adapted by organizations requiring greater coordination. The firm is organized around the organization’s major functions. Duplicating of activities is avoided. Firm can benefit from scale of economies. Employees focus more on their functional area and are less engaged with the firm as a whole.

Different Organizational Structures Structure Type Description Advantages Limitations Multidivisional or M-Division Closely associated with Alfred Sloan. The firm is divided into different divisions each having its internal set of functional area. Allows each division to operate more efficiently in the specific business area. Helps develop expertise specific to its technology and market. Decision making is decentralized, allowing those closer to the customers more decision power. Duplicates functional skills. Lack of coordination between divisions. Problems sharing resources and capabilities.

Different Organizational Structures Strategic Business Unit (SBU) A business division within a larger firm that is charged with managing a particular category of product or service. Allows for greater ease and speed in decision making. Prompt responsiveness to customers.

Different Organizational Structures Strategic Business Unit (SBU) (cont.): Better management of the organization’s time and focus. Allows each SBU to develop the special skills necessary for its businesses.

Different Organizational Structures Matrix Is a hybrid structure, combining different organizational forms. Allows fast decision making by tying different aspects of the business together. Leads to conflict as employees have two mangers. One of the most difficult to manage.

How to Decide Which Structure is Right Size - As an organization grows, new management layers are introduced to effectively control various entities. Stakeholders - The organizational structure should satisfy stakeholders’ interests.

How to Decide Which Structure is Right Degree of diversification A large organization with activities that are strongly related to each other can have a functional structure or a divisional structure. If a firm utilizes unrelated diversification, a divisional structure might be adopted. If a firm is large and using related diversification, an SBU form of organization could be adopted.

How to Decide Which Structure is Right Technology Business domains focused on low-technology areas tend to function in a stand-alone capacity. High-technology business is closely connected and better integrated as the products developed are created with inputs from across the firm.

How to Decide Which Structure is Right Degree of internationalization A firm with a multidomestic strategy may have a divisional structure, organized around the business in the countries in which it operates. A firm with a global strategy will organize around product divisions that cut across national borders.

How to Decide Which Structure is Right Geographic scope If a firm is involved in a set of countries that can be subdivided into distinct cultures, then a divisional structure can be adopted to address each one. If a firm’s international operations are among close nations (in both distance and culture) a functional structure may work best.

How to Decide Which Structure is Right Task Mechanistic structures are focused on stability and hierarchical decision making. This structure is appropriate in low-technology domains and business with a low-cost strategy. Mechanistic structures are highly inflexible and static.

How to Decide Which Structure is Right Task (cont.): An organic structure is more flexible, innovative, and able to adapt to its environment. It is suitable for environments where change is rapid. Organic structures need highly skilled and motivated employees, which leads to a particular type of organic structure called the learning organization.

How to Decide Which Structure is Right Task (cont.): The learning organization concept is closely associated with Peter Senge. An organization must embrace the following five disciplines to become a learning organization: Build shared vision to achieve a common commitment to long-term results and achievement. Foster the understanding and examination of people’s mental models as important to strategic planning and change.

How to Decide Which Structure is Right Task (cont.): An organization must embrace the following five disciplines to become a learning organization (cont.): Team learning is needed so that the learning is passed on from the individuals to teams. Personal mastery is the individual’s motivation to learn and become better. Systems thinking allows individuals to see a holistic, systemic view of the organization as a function of its environment.

Implementing Change in an Organizational Structure Fundamental rules to implement change in an organizational structure: Employees should be told why change is necessary. It must be ensured that employees are supportive of a change; one way to ensure this is to connect the compensation system to changes in structure.

Implementing Change in an Organizational Structure Fundamental rules to implement change in an organizational structure (cont.): Top management and the affected units should support the structure change. The plan, regarding how and when the change is to occur, should form the backbone of the effort to ensure that those plans are followed.

Informal Organizations Are the unofficial connections that exist among individuals in a business. These networks of connected individuals and departments within and across firms reveal important patterns of connectivity outside formal structures. These informal structures can be stronger than the formal structures and should be understood.