Coordination and Control The focus is to find the appropriate structure to manage the MNC

n Organization Structure is the overall pattern of structural components and configurations used to manage the organization. n Structure allows the firm to allocate resources, assigns tasks, transmit information, and instructs on rules and procedures (Coordination and Control)

Strategy/Structure Debate n Which one comes first? n Chandler’s study of organizations suggests that structure follows strategy n Stopford’s study suggests that structure changes in different stages

Stopford’s Study three stages n Using 2 variables - Product diversity and importance of international sales n International division n Area division or Product division n Global matrix

Evolving structure in MNCs International Division Area Division Worldwide Product Division FOREIGN PRODUCT DIVERSITY FOREIGN SALES AS PERCENTAGE OF TOTAL SALES Global Matrix

Failure of the matrix n Most MNCs followed the prescription of Stopford n focus was on centralization or decentralization n the use of global matrix failed

Reasons why the Global Matrix as structure “failed” n It emphasized differences among subsidiaries n duplication of communication n not enough flexibility in practice n too much focus on structure and not on environment and strategy. n It may hinder transfer of knowledge

Factors that should determine the appropriate structure n Size, Strategy, Technology n Environment n Cultures of the different countries.

Different approaches to International Organization Design

Approaches to Organizational Design: The corollary approach n delegating responsibility for processing international requests to individuals within existing company. n Used by firms with very small international activity

Approaches to Organizational Design: The export department approach n creating a separate internal export department for overseeing international operations n Used by small to medium size firms

Approaches to Organizational Design: Decentralized Federation n Used by firms with a multinational strategy approach n national focus and little intervention by parent company n building of local production facilities, decentralized strategic decisions n more delegation to local. Typical of many European MNCs

Decentralized Federations HQ MULTINATIONAL STRATEGY MODEL - COMPETE BY BEING NATIONALLY RESPONSIVE Mainly financial flows (capital in, dividend out) Loose, simple controls (strategic decisions centralized)

Approaches to Organizational Design: Coordinated Federation n Used by firms with an international strategy approach n It allows for leveraging the capabilities of parent company overseas n formal system of controls by headquarters, subsidiaries viewed as “inferior” n Used primarily by US.. based MNCs

INTERNATIONAL STRATEGY MODEL - COMPETE THROUGH KNOWLWDGE TRANSFER Coordinated Federations HQ Mainly knowledge flows (technology products, processes, systems) Formal system controls (planning, budgeting, replicating parent company administrative system)

Approaches to Organizational Design: Centralized Hub n export based global strategy, focus on scale economies and quality control n tight control at home, and mainly flow of goods out n typical of Japanese MNC, and favored the cultural reality of Japan.

GLOBAL STRATEGY MODEL - COMPETE THROUGH GLOBAL EFFICIENCY HQ Mainly flows of goods Tight, simple controls (key strategic decisions made centrally) Centralized Hub

Approaches to Organizational Design: Transnational Organization n multiple and diverse perspectives of the environment, both host and home countries n management capabilities are distributed worldwide and interdependent n no need for centralization, subsidiary mandates to achieve global scale n flexible integrative process n management process can change by product, or country as necessary.

Organizational implications: The integrated network THE

Organizational implications: The integrated network n Don’t manage like the United Nations Differentiate roles and responsibilities Differentiate roles and responsibilities Don’t let a single perspective dominate Don’t let a single perspective dominate Legitimize business, area and functional management Legitimize business, area and functional management Don’t search for a standard coordination process: Don’t search for a standard coordination process: Develop and apply different tools to different tasks. Develop and apply different tools to different tasks.

Building and balancing multiple organizational perspectives n Build legitimacy and credibility of non- dominant groups: n Co-opt specific individuals n Provide required mandate n Provide access to information channels n Modify existing channels n Create new channels

Building and balancing multiple organizational perspective n Create influence in decision processes n Use micro-structural tools n Use both visible and invisible hands n Maintain balance over time n Manage ambiguity and flux n Develop fit and flexibility

Anatomy, Physiology, and Psychology of Transnational Organization. n Anatomy is the formal structure, assets and resources of the organization n Need to depart from simple line relationship or product Vs. structure debate n Emphasis on informal structure and communication lines

n Use of task forces or committee as supplemental DM alternatives. This allows for organizational flexibility, thus quick response to ever changing environment.

Physiology - the focus here is efficient flow of information n MNCs must look beyond traditional methods for ensuring free flow of information. n efficient flow of information is more critical in integrated network which characterizes a transnational organization n organizations should take advantage of informal relationships to further corporate objective.

Psychology n Shared corporate values and beliefs n The corporate objectives must be clearly stated, desirable corporate behavior modeled by management and policies and practices must reinforce appropriate organizational behavior. n Changing of organizational psychology is very important for anatomy and physiology to make sense.

Managing Change in the Transnational Organization n Change in individual attitudes and mentalities (psychology) n Change in interpersonal relationships and processes (physiology) n Change in formal structure and responsibilities (anatomy) n Back to Chandler’s thinking, i.e. strategy before structure