© 2006 Prentice Hall8-1 Chapter 8 Organization Structure and Control Systems PowerPoint by Kristopher Blanchard North Central University

© 2006 Prentice Hall8-2 Organizational Structure Structure needs to “fit” strategy Most international managers find it easier to determine what to do (strategy) than to decide how to develop the organizational capabilities (structure) to do it.

© 2006 Prentice Hall8-3 Evolution and Change in MNC 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. Structural Evolution (Stages Model) occurs when managers redesign the organizational structure to optimize the strategy’s changes to work, making changes in the firm’s tasks and relationships and designating authority, responsibility, lines of communication, geographic dispersal of units and so forth

© 2006 Prentice Hall8-4 Typical ways that firms organize international activities Domestic structure plus export department Domestic structure plus foreign subsidiary International division Global functional structure Global product structure Global Geographic Structure

© 2006 Prentice Hall8-5 Integrated Global Structures 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. Matrix Structure is a hybrid organization of overlapping responsibilities – it is used by some firms but has generally fallen into disfavor recently

© 2006 Prentice Hall8-6 Organizing for Globalization Two opposing forces in structural decisions –The need for differentiation (focusing on and specializing in specific markets) –The need for integration (coordinating those same markets) Globalization – a specific strategy that treats the world as one market by using a standardized approach to products and markets

© 2006 Prentice Hall8-7 Organizing for Globalization Organizing to facilitate a globalization strategy typically involves rationalization and the development of strategic alliances Organizing for global product standardization necessitates close coordination among the various countries involved The problem facing companies in the future is that the structurally sophisticated global networks leave the organization exposed to the risk of environmental volatility from all corners of the world

© 2006 Prentice Hall8-8 Comparative Management Focus: Chinese Global Network The Chinese commonwealth is a form of global network that has become the envy of Western multinationals –Network of entrepreneurial relationships in Asia primarily –Includes mainland China, 1.3 billion citizens, and more than 55 million Chinese in Taiwan, Indonesia, Hong Kong, and Thailand –Estimated to control $2 Trillion in liquid assets

© 2006 Prentice Hall8-9 Comparative Management Focus: Chinese Global Network Most observers believe that this China-based informal economy is the world leader in economic growth, industrial expansion, and exports Comprises most mid-sized, family-run firms linked by transnational network channels Channels move information, finance, goods, and capital Network alliances bind together and draw from the substantial pool of financial capital and resources available in the region

© 2006 Prentice Hall8-10 Keiretsu and Chaebol Keiretsu: Set of Japanese companies with interlocking business relationships and shareholdings Chaebol: South Korean business conglomerates Differences –Chaebol are still largely controlled by their founding families, while keiretsu are controlled by groups of professional managers. –Chaebol are centralized in ownership, while keiretsu are more decentralized and connected by cross-shareholdings. –Chaebol are prohibited from owning private banks, partly in order to increase the government's leverage over the banks in areas such as credit allocation. Keiretsu have historically worked with an affiliated bank, giving the affiliated companies almost unlimited access to credit, although this is no longer a universal feature of keiretsu.

© 2006 Prentice Hall8-11 Emergent Structural Forms Inter-organizational networks The global e-corporation network structure The transnational corporation (TNC) network structure

© 2006 Prentice Hall8-12 Choice of Organizational Form

© 2006 Prentice Hall8-13 Organizational Change and Design When does a company need to make a change in organizational structure? –Makes a change in goals or strategy –Makes a change in scope of operations –Indications of organizational inefficiency –Conflicts among divisions and subsidiaries –Overlapping responsibilities –Complaints regarding customer service

© 2006 Prentice Hall8-14 Locus of Decision Making

© 2006 Prentice Hall8-15 Monitoring Systems

© 2006 Prentice Hall8-16 Direct Coordinating Mechanisms  Design of appropriate structures  Use of effective staffing practices  Visits by head-office personnel  Regular meetings

© 2006 Prentice Hall8-17 In-Direct Coordinating Mechanisms  Sales quotas  Budgets  Other financial tools  Feedback reports

© 2006 Prentice Hall8-18 Appropriateness of Monitoring and Reporting Systems Factors likely to affect the appropriateness of monitoring systems include: –Management practices –Local constraints –Expectations regarding: Authority, Time, and Communication

© 2006 Prentice Hall8-19 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, non-comparability of performance data across countries) Evaluation variables across countries

© 2006 Prentice Hall8-20 Looking Ahead Chapter 9 – Staffing, Training, and Compensation for Global Operations –Staffing philosophies for global operations –Global selection –Training and development –Compensating expatriates –Compensating HCNs

© 2006 Prentice Hall8-21 Domestic Plus Foreign Subsidiary Return

© 2006 Prentice Hall8-22 Global Product Division Return

© 2006 Prentice Hall8-23 Global Geographic Structure Return

© 2006 Prentice Hall8-24 Inter-organizational networks Views the various companies, subsidiaries, suppliers, or individuals as a relational networks Allows the different network partners to adopt unique structures that are adapted to the local context Return

© 2006 Prentice Hall8-25 Global E-Corporation Network Return

© 2006 Prentice Hall8-26 Transnational Corporation Involves linking foreign operations to each other and to headquarters in a flexible way –Leverages local and central capabilities Not a matter of boxes on an organizational chart; it is a network of company units and a system of horizontal communication Requires the dispersal of responsibility and decision making to local subsidiaries Effectiveness is dependant on the ability and willingness to share current and new learning and technology across the network Return