International Business Management (BUSI 1346) Organizational Issues in International Business Week 26 Dr Ajit Prasad, pa82@gre.ac.uk

Purposes of structure Division of labor Mechanism for coordination Organizational boundaries Extra constitutional centers of power Comparison with informal structure Political structure Legitimate basis of authority Above all Distribution of decision rights

TYPES OF STRUCTURES linear non-linear chain of command is easily established Hierarchy based structures M Form, SBU, Divisionalized, Functional non-linear chain of command nebulous Matrix form Core competency based Cluster form, Mintzberg musings

Vertical Differentiation Concerned with where decisions are made Where is decision making power concentrated? Two Approaches Centralization Facilitate coordination Consistency of decisions Easier to make changes Avoids duplication Decentralization Top freed from detail Increased motivation Greater flexibility Increased accountability Better on-the-spot

Horizontal Differentiation How a firm divides itself into sub-units Based on value creation activities Reconcile conflicting demands to organize the firm around different products and different national markets Typically Function Product, or Geography

Divisional Structure Centralizes all international operations Advantages Raise the status of overseas operations Concentrated know-how and skills Disadvantages Rivalries between domestic and international divisions Difficult to think and act globally

Functional Structure Builds around the basic tasks of the firm Advantages Allows tight and centralized control Little duplication of facilities Disadvantages Difficult to coordinate production and marketing Little diffusion of operating authority

Product Structure Groups similar products together Advantages Consolidation of value creation activities More appropriate marketing strategy Strong concept of global market performance Disadvantages Duplication of facilities and staff personnel Managers may not know global markets Lack of coordination and cooperation

Area Structure Organizes operations into areas Advantages More locally responsive Eliminate costly transportation Disadvantages Shift of product emphasis to area orientation Costly duplication of facilities Difficult to coordinate into overall strategy

Matrix Structure Blends two organizational responsibilities Advantages Bring together expertise of the firm Flexible Promote coordination and communication Disadvantages Complexity and power struggles Too many meetings, no decision or action Scapegoat for failure

Examples from MNCs Type Imperative Example Divisional Security Apple Functional Process Efficiency Coke Product Customer segmentation National-Panasonic Area Geographical concentration ABB Matrix Creativity 3M

Structural Variables Relative importance of international operations now and in the future Firm’s past history and experience in the international arena Firm’s business and product strategy Management’s philosophy of operating Firm’s ability to adjust to organizational changes

Control Systems Controlling is the process of determining that everything goes according to plan Establish standards Compare against performance Take action Personal Personal contact Bureaucratic Rules and procedures Output Goal-setting Cultural Establishment of value system

Strategy, Structure and Control Structure & control Strategy Multidomestic International Global Transnational Vertical differentiation Decentralized Core competency; rest decentralized Some centralized Mixed; centralized & decentralized Worldwide area structure Worldwide product division Worldwide product Informal matrix Need for coordination Low Moderate High Very high Integrating mechanisms None Few Many Very many Performance ambiguity Need for cultural control

Drucker’s check list Clarity Economy Direction of vision Understanding as opposed to simplicity Economy In control Direction of vision Of product rather than process Understanding Of individual’s role Decision making At the lowest levels Stability Not rigidity Perpetuation and self renewal Structure must be open to new ideas

Comparison and Evaluation criterion Funct’nl divisional SBU Matrix network Resources excellent Poor Good, sr Poor, lr Moderate Good Time poor Excellent Responsiveness Adaptability Accountability moderate Environment Composite Stable, Hetero, Hetero Complex Volatile Generic Strategy Cost l’drship Pdt diff’tion Focus Pdt Diff.

Summary Describe various organizational structures and understand their respective advantages and disadvantages Analyze key structural variables that influence international organization designs Review the role of the control systems in ensuring that the structure is both effective and efficient

Seminar Question for Next Term Post Easter meeting In groups of 4, Identify one MNC operating in two continents Explore the organization structure, examining differences if any.. Identify the adaptation that the MNC has made to local conditions Come prepared with the presentation, (on acetates)