Chapter 13: The Organization of International Business International Business October 15, 2007 Park, Du-jungLiu, Jia Naran, Zorigt Ganaa

Content Organizational Structure Organizational Architecture Park, Du-jung Liu, Jia Control systems and Incentives & Process Naran, Zorigt Organizational Culture & Change Ganaa

Organizational Architecture(1) Structure Processes Incentives And Controls People Culture

Organizational Architecture(2) Maximizing its profitability =>Internal consistency =>Consistency between architecture and strategy =>Consistency to competitive condition

Organizational Structure Vertical differentiation Horizontal differentiation Integrating mechanisms

Vertical differentiation Arguments for Centralization Arguments for Decentralization Strategy and Centralization in an International Business

Global Matrix (“Grid”) International Division Alternate Paths of Development Area Division Worldwide Product Division Foreign Sales as a Percentage of Total Sales Foreign Product Diversity International Structural Stages Model Horizontal differentiation

Integrating Mechanisms(1) Strategy and Coordination in the International Business Need of coordination LawHigh Localization firms International firms Global firms Transnational firms

Integrating Mechanisms(2) Impediments to Coordination - Different orientations - Different goals Formal Integrating Mechanisms - Direct contact- Liaison roles - Teams - Matrix structure Informal Integrating Mechanism => Knowledge Networks : network for transmitting information

Types of control system.  Personal control is control by personal contact with subordinates  Bureaucratic Controls is control through a system of rules and procedures that directs the actions of subunits  Output controls involves setting for subunits to achieve and expressing those goals in term of relatively objective performance metrics such as profitability, productivity, growth, market share, and quality.  Cultural Controls exist when employee “buy into” the norms and value system of the firm. When this occurs, the employee tend to control their own behavior, which reduces the need of other controlling systems.

 Incentive refers to the devices used to reward appropriate employee behavior.  Important points to consider when using incentive system.  The type of incentive used often varies depending on the employees and their tasks.  Most firms use a formula for incentives that links a portion of incentive pay to the performance of subunit in which a manager or employee works and portion to the performance of the entire firm, or some level other higher level organization unit.  The incentive system used within a multinational enterprise often have to be adjusted to account for national differences in institutions and culture.  Unintended consequences

 Performance ambiguity is a function of the interdependence of subunits in an organization. Cost control can be defines as the amount of time top management must devote to monitoring and evaluating subunits’ performance. StrategyInterdependencePerformance Ambiguity Costs of control localization Low InternationalModerate GlobalHigh Transnational Very high

 Process is defined as manners in which decisions are made and work is performed within the organization.

Organizational Culture: -Creating and Maintaining Organizational Culture -Organizational Culture and Performance in the international Business Synthesis: Strategy and Architecture -Localization Strategy -International Strategy - Global Standardization Strategy - Transnational Strategy - Environment, strategy, Architecture and Performance Organizational Change: - Organizational Inertia - Implementing Organizational Change

 Organizational Culture Creating and Maintaining Organizational Culture Influences on Organizational Culture 1.Important leaders can have a profound impact on an organizations culture. Example: Japanese from Matsushita: - Natural Service through Industry - Fairness - Harmony and cooperation - Struggle for betterment - Courtesy and humility - Adjustment and assimilation - Gratitude 2.Broader social culture of the nation where the firm was founded 3.History of the enterprise, which over time may come to shape the values of the organization.

Culture is maintained by a variety of mechanisms. 1. Hiring and promotional practices of the organization 2. reward strategies 3. Socialization Process 4. Communication Strategy

 Organizational Culture & Performance in the International Business firms with strong Strong Culture A culture can be culture are normally + - strong but bad seen by outsiders Example:1980General as having a certain Motors had a strong culture style or way of doing things Adaptive Culture Most Managers care deeply about and value costumers, stock-holders, and employees

 Environment, Strategy, Architecture and Performance A firm to succeed, two conditions must be fulfilled.  The firm’s strategy must be consistent with the environment in which the firm operates.  The firm’s organization architecture must be consistent with its strategy.

 Organizational Change Organizational Inertia Inertia forces come from a number of sources.  Existing distribution of power and influence with on organization  Existing culture, as expressed in norm and value system  Senior managers’ preconceptions about the appropriate business model or paradigm.  Institutional constrains might also act as a source of inertia

Implementing Organizational Change The Basic Principles for successful Organizational damage Unfreezing the organization Moving to the new State Refreezing the Organization Whose power is threatened by change can too easily resist incremental change Movement requires a substantial change in the form of a multinational’s organization architecture so that it matches the desired new strategic postures Refreezing requires that employees be socialized into the new way of doing things