Global Structure & Design International Business Strategy 301LON Unit: 10 Knowledgecast: 2

Module Learning Outcomes • Demonstrate a sound appreciation of current strategic management concepts • Communicate an in-depth understanding of the complexity of the environment and its applications on decision-making process • Integrate and apply strategic approaches to practical situations in various types of organisations • Assess current developments in the organisational environment and alternative responses related to strategy

International Strategy and Organisation Design The objective of organisational design and structure (OD&S) is to provide, maintain, and develop organisational structures that work toward the achievement of corporate goals. OD&S helps create a workable structure of tasks and positions that create the physical organization and jobs.

International Strategy and Organization Design Organisational structure is ultimately driven by strategy; in the near term however, strategy is shaped by organisational structure, because structure provides a constraint to action. Structure is relatively immobile in the short run; in the longer term, it can (and does) change.

Organizational Architecture The totality of a firm’s organization, including the structure, control systems and incentives, processes, culture and people

Organizational Architecture 3 Conditions Required for Superior Enterprise Performance Different elements of the organizational architecture are internally consistent Organizational architecture matches or fits the strategy of the firm Strategy and architecture of the firm are consistent with each other, and consistent with competitive conditions

Organizational Structure Formal division of the organization into subunits Location of decision-making responsibilities within that structure (centralized versus decentralized) Establishment of integrating mechanisms to coordinate the activities of subunits including cross-functional teams or pan-regional committees

Organizational Structure Three Dimensions Vertical Differentiation Location of decision-making responsibilities within a firm Horizontal Differentiation Formal division of the organization into subunits Integrating Mechanisms Mechanisms for coordination between subunits

Vertical Differentiation Centralization And Decentralization Vertical differentiation determines where in the firm’s hierarchy is the decision-making power concentrated

Vertical Differentiation Facilitates coordination Helps ensure that decisions are consistent with the organization’s objectives Gives top-level managers the means to bring about organizational change Avoids duplication of activities across subunits

Vertical Differentiation Arguments for Decentralization Relieves the burden of centralized decision-making Individuals with freedom and control are motivated Permits greater flexibility to environmental changes Results in better decisions made closer to the situation Increases control by creating subunit accountability

Strategy and Centralization The choice between centralization and decentralization is not absolute and depends on the: type of decision being made firm’s strategy

Horizontal Differentiation: The Design of Structure Concerned with how the firm decides to divide itself into sub-units The decision is usually based on: organizational function type of business geographical area

Organizational challenges of international expansion Configuration Compatibility Coordination Modularity Complexity Structure of interfaces

An export department structure

Use of subsidiaries during the early stages of internationalization

International Divisional Structure CEO Domestic Marketing Operations Support services International Division Some support services Area 1 Area 2 Area 3 Area 4 International Divisional Structure, with domestic business and all international operations shifted to a “specialist” international division

The international division The international division structure centralizes all the international operations Advantages: It reduces the CEO’s burden of direct operation of overseas subsidiaries and domestic operations It raises the status of overseas operations to that of the domestic divisions

International Division Structure (Partial Organization Chart) Chief Executive Officer Home-office departments Human Resources Finance Marketing Production Operating divisions Domestic Division: Plant Tools Hardware Furniture International Division: Japan Italy Australia Government Relations Marketing Office Operations

Global organizational structures As MNEs generate more and more revenues from their overseas operations, their strategies and the structures used to implement these strategies become more global in focus.

Global organizational structures cont’ The Global Product Structure locates manufacturing and value creation activities in appropriate global locations to increase efficiency, quality, or innovation. Global divisions are responsible for Global Product Design and operate in divisional, cluster, or holding company formats.

Global Product Structure For Product-diversified Firms Global HO Global functions Product Group A Product Group B Product Group C Product Group D Group support functions Columbia Columbia Argentina Brazil Venezuela USA Argentina Marketing Operations Support services Distribution Sales After sales Production Procurement Personnel Office services IT Legal services

The Global Product Structure

The Global Product Structure Supports a global strategy in treating each product division as a stand-alone entity with full worldwide— as opposed to domestic—responsibilities for its activities. Facilitates attention to pressures for cost efficiencies in allowing for consolidation on a worldwide (or regional) basis and reduction of inefficient duplication in multiple countries. Problems: It is the opposite of the geographic area structure: Little local responsiveness.

Global area structure Primary operational responsibility is delegated to area managers, each of whom is responsible for a specific geographic region

Global area structure cont’s Organizes the MNE according to different geographic areas (countries and regions). Is the most appropriate for a multidomestic strategy. Its ability to facilitate local responsiveness is both a strength and a weakness. Problems: While being locally responsive can be a virtue, it may also encourage the fragmentation of the MNE into highly autonomous, hard-to-control “fiefdoms.”

Global function structure Builds around the basic tasks of the organization. For example, in manufacturing firms, production, marketing, and finance are the three primary functions that must be carried out for the enterprise to survive

Mixed structure A hybrid organization design that combines structural arrangements in a way that best meets the needs of the enterprise. The Mixed Structure is most common in the Multinational Enterprise. It uses localization in product development, marketing, sales, and service. At the same time functions that benefit from scale advantages, like purchasing, are centralized

Global Matrix Structure

The Global Matrix Structure An organizational arrangement that blends two organizational responsibilities such as functional and product structures or regional and product structures. The Global Matrix Structure contains simultaneous, intersecting differentiation bases, with employees reporting to a functional and a product manager simultaneously

The Global Matrix Structure Organization chart of the Dow Chemical Company

The Global Matrix Structure Is often used to alleviate the disadvantages associated with both geographic area and global product division structures. Is intended to support the goals of the transnational strategy—in practice, it is often difficult to deliver. Problems May add layers of management, slow down decision speed, and increase costs while not showing significant performance improvement.

Knowledgecast Summary • Demonstrate a sound appreciation of current strategic management concepts • Communicate an in-depth understanding of the complexity of the environment and its applications on decision-making process • Integrate and apply strategic approaches to practical situations in various types of organisations • Assess current developments in the organisational environment and alternative responses related to strategy MAXIMUM THREE LEARNING OUTCOMES TO REVIEW: ONE REVIEW SUB BULLET PER LEARNING OUTCOME

Seminar End of Module Assessment – Evaluating internationalization Strategy (Management Brief) (Unit 10) Preparation – Preparing the Final Draft This session will provide you with the opportunity to discuss your final draft with your module tutor and ensure all your questions are answered as you finalize your submission. Although this is an independent piece of work giving and receiving feedback from your peers is an essential skill, which will be of great value in the workplace. Be prepared to provide constructive feedback on other’s work and receive feedback which can inform your progress.

Group Activity Module Review In this session you will be required to give feedback on the module via the usual course evaluation mechanisms. This may include a consideration of the following questions. 1. Which of the units of the module have been most interesting to you? 2. How will your study of international business strategy affect your future business practice? 3. What do you consider to be the challenges for those involved in international business strategy?