International Business Environments & Operations Daniels ● Radebaugh ● Sullivan International Business Environments and Operations 14e by Daniels, Radebaugh, and Sullivan Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Organization of International Business Chapter 15 The Organization of International Business Chapter 15: The Organization of International Business Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Learning Objectives Profile the evolving process of organizing a company for international business Describe the features of classical structures Describe the features of neoclassical structures Discuss the systems used to coordinate and control international activities Profile the role and characteristics of organization culture The Learning Objectives for this chapter are Profile the evolving process of organizing a company for international business Describe the features of classical structures Describe the features of neoclassical structures Discuss the systems used to coordinate and control international activities Profile the role and characteristics of organization culture Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Introduction Learning Objective 1: Profile the evolving process of organizing a company for international business Learning Objective 1: Profile the evolving process of organizing a company for international business. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Introduction The goal of MNEs is to standardize activities to maximize global efficiency and at the same time adapt activities to maximize local effectiveness To achieve this goal the MNE must establish the right structure to implement it Once a firm has developed a strategy, it needs to establish a structure that will allow it to be implemented. Organizing is the process of creating the structure, systems, and culture needed to implement the company’s strategy. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Introduction Factors Affecting Organizing Operations This Figure shows the different factors that can affect organizational operations. Note that the firm must specify the structure, install the systems to get it moving, and then promote a culture that will sustain it. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Changing Situations, Changing Organizations Environmental trends, industry conditions, and market opportunities are forcing change Expansion of international business The Internet as a design standard Managerial standards Social contracts Building a ‘magical’ organization In the early 20th century, companies, responding to the environment around them, established hierarchical structures. Today, the growth and diffusion of international business is demanding more sophisticated organizations. The Internet in particular has challenged managers to rethink traditional patterns of organization. Knowledge gaps are also disappearing prompting companies to develop new coordination and control systems. Similarly, changing social contracts are encouraging managers to reassess how they manage organizational culture. Companies now try to build magical organizations with the best mix of structure, systems, and values. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Organization Structure Learning Objective 2: Describe the features of classical structures Learning Objective 2: Describe the features of classical structures. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Organization Structure Organizational structure the formal arrangement of roles, responsibilities, and relationships in the MNE Vertical differentiation the balance between the centralization and decentralization of authority Horizontal differentiation involves specifying which people do which jobs in which units Organizing involves building the structure, systems, and culture necessary to implement a strategy. Managers must consider vertical differentiation issues, or the balance between the centralization and decentralization of authority as well as horizontal differentiation which involves determining which people do which jobs in which units. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Vertical Differentiation Centralization versus Decentralization Centralization degree to which high-level managers make strategic decisions and delegate them to lower levels for implementation Decentralization degree to which lower-level managers make and implement strategic decisions The question of where strategic decisions are made depends on the level of centralization in a firm. A company that is highly centralized concentrates decision making authority at the top of the organization while a decentralized structure allows decision making at the department and division levels. Keep in mind that the centralization versus decentralization decision is not an either/or issue. Instead, it’s something that should be rebalanced as the situation in which the firm operates changes. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Horizontal Differentiation Specifies the set of tasks to accomplish Divides the tasks among SBUs, divisions, departments, committees, teams, jobs, and individuals Stipulates superior and subordinate relationships Classical structures used to achieve this functional, area or divisional, matrix or mixed Vertical differentiation deals with the chain of command in a firm. Horizontal differentiation is concerned with how firms divide themselves into discrete units responsible for certain tasks. Common ways to achieve this are the functional structure, the area or divisional structure, and the matrix and mixed structures. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Functional Structure The functional structure groups people based on common expertise and resources is popular among companies with narrow product lines The functional structure works well when global integration is more important than local responsiveness, industry structure encourages cost leadership, and companies have anchored their value chains in global or international strategies. Keep in mind though, that the structure may encourage a company to neglect local opportunities. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Functional Structure The Functional Structure This Figure shows the functional structure. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Divisional Structure The divisional structure divides employees based on the product, customer segment, or geographical location duplicates functions and resources across divisions International division Global product structure Worldwide area structure The divisional structure assigns divisions responsibility for a different set of products or markets. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Divisional Structure The International Division Structure This Figure shows the international division structure. It creates a critical mass of international expertise which competes with domestic divisions for resources. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Divisional Structure Product Division Structure This Figure shows the product division structure. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Divisional Structure Geographic (area) Division Structure This Figure shows the geographic division structure. It’s popular when a firm has significant foreign operations and when no single country or region dominates. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Matrix Structure The matrix structure Institutes overlaps among functional and divisional forms Gives functional, product, and geographic groups a common focus Violates the unity of command principle has dual reporting relationships rather than a single line of command The matrix structure is often established in response to simultaneous pressures for both local responsiveness and global integration. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Matrix Structure Matrix Division Structure This Figure shows the matrix structure. Notice the dual lines of control. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Mixed Structure The mixed structure Combines elements of the functional, area, and product structures Allows the firm to better adapt to market conditions worldwide Some firms combine elements of each of the classical structures to build a mixed structure. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Neoclassical Structures Learning Objective 3: Describe the features of neoclassical structures Learning Objective 3: Describe the features of neoclassical structures. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Neoclassical Structures emphasize coordination and cultivation not command and control Network structure arranges differentiated elements in patterned flows of activity that allocate people and resources to problems and projects in a decentralized manner keiretsu, sogo shosha, chaebol Virtual organization dynamic arrangement among partners that efficiently adapts to market change Unlike classical structures that focus on command and control, neoclassical structures emphasize coordination and cultivation. Vertical, horizontal, and external boundaries hindering the flow of information and formation of relationships are eliminated. Keep in mind that neoclassical structures can be challenging because by definition they are fluid structures that are constantly changing. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Neoclassical Structures A Simplified Network Structure This Figure shows a simplified network structure. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Coordinated Systems Learning Objective 4: Discuss the systems used to coordinate and control international activities Learning Objective 4: Discuss the systems used to coordinate and control international activities. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Coordinated Systems Coordination by Standardization relies on objectives and schedules to set rules and regulations Plan requires interdependent units to meet common deadlines and objectives Mutual adjustment depends on managers interacting extensively with their counterparts Coordination helps ensure that a company uses its resources efficiently and makes decisions effectively. Coordination can be by standardization, by plan, and by mutual adjustment. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Control Systems Control systems define how managers compare performance to plans, identify differences, and where found, assess the basis for the gap and impose corrections Bureaucratic control Market control Clan control Companies can use several different types of control systems including bureaucratic control which emphasizes organizational authority and relies on rules and regulations, market control which uses external market mechanisms to establish objective standards, and clan control which uses shared values and ideals to moderate employee behavior. . Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Control Mechanisms Control tools include Reports Visits to subsidiaries Evaluative metrics Information systems Companies can use a variety of tools to support their control systems including reports, subsidiary visits, evaluative metrics, and information systems. The choice will depend on the company’s strategy. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Organization Culture Learning Objective 5: Profile the role and characteristics of organization culture Learning Objective 5: Profile the role and characteristics of organization culture. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Organization Culture Organization culture the coherent set of assumptions about an MNE and its goals and practices shared by its members management values and principles work climate and atmosphere ‘how we do things around’ here patterns traditions ethical standards Successful companies establish an organization culture that defines company goals and values. Keep in mind that good organization culture doesn’t just happen – it’s carefully developed. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Organization Culture and Strategy An organization’s culture shapes its strategic moves varies with the strategy the MNE pursues A company’s organization culture must go hand-in-hand with its strategy. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Organization Culture and Strategy Strategy and Organizational Culture in International Business This Figure provides a summary of the different strategies and organizational culture in international business. Notice the need for “fit” between the different elements in the chart. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Rise of Corporate Universities Expanding mission Integrating diversity Crucible of change Filling gaps Many companies today including McDonald’s, Walt Disney, and J.P. Morgan Chase are using corporate universities to develop organizational culture. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall