THE ORGANIZATIONAL CONTEXT Dony Eko Prasetyo, S.IP.

Organizational Structure Consists of three key elements: 1.Designates formal reporting relationships – number of levels in the hierarchy – span of control 2.Groupings of: – individuals into departments – departments into the total organization 3.Design of systems for – effective communication – coordination – integration across departments

A Sample Organization Chart

The Relationship of Organization Design to Efficiency vs. Learning Outcomes Horizontal Organization Designed for Learning Vertical Organization Designed for Efficiency Dominant Structural Approach Horizontal structure is dominant Shared tasks, empowerment Relaxed hierarchy, few rules Horizontal, face-to-face communication Many teams and task forces Decentralized decision making Vertical structure is dominant Specialized tasks Strict hierarchy, many rules Vertical communication and reporting systems Few teams, task forces or integrators Centralized decision making

Ladder of Mechanisms for Horizontal Linkage and Coordination HIGHLOW Information Systems Direct Contact Task Forces Full-time Integrators Teams Amount of Horizontal Coordination Required Cost of Coordination in Time and Human Resources H IGH

Structural Design Options for Grouping Employees into Departments EngineeringMarketingManufacturing CEO Functional Grouping Divisional Grouping

Strengths and Weaknesses of Functional Organization Structure STRENGTHS: – Allows economies of scale within functional departments – Enables in-depth knowledge and skill development – Enables organization to accomplish functional goals – Is best with only one or a few products WEAKNESSES: – Slow response time to environmental changes – May cause decisions to pile on top, hierarchy overload – Leads to poor horizontal coordination among departments – Results in less innovation – Involves restricted view of organizational goals

Strengths and Weaknesses of Divisional Organization Structure STRENGTHS: – Suited to fast change in unstable environment – Leads to client satisfaction because product responsibility and contact points are clear – Involves high coordination across functions – Allows units to adapt to differences in products, regions, clients – Best in large organizations with several products – Decentralizes decision-making WEAKNESSES: – Eliminates economies of scale in functional departments – Leads to poor coordination across product lines – Eliminates in-depth competence and technical specialization – Makes integration and standardization across product lines difficult

Product Manager A Product Manager B Product Manager C Product Manager D Director of Product Operations Design Vice President Mfg Vice President Marketing Vice President Controller Procure- ment Manager President Dual-Authority Structure in a Matrix Organization

STRENGTHS: – Achieves coordination necessary to meet dual demands from customers – Flexible sharing of human resources across products – Suited to complex decisions and frequent changes in unstable environment – Provides opportunity for both functional and product skill development – Best in medium-sized organizations with multiple products WEAKNESSES: – Causes participants to experience dual authority, which can be frustrating and confusing – Means participants need good interpersonal skills and extensive training – Is time consuming; involves frequent meetings and conflict resolution sessions – Will not work unless participants understand it and adopt collegial rather than vertical-type relationships – Requires great effort to maintain power balance Strengths and Weaknesses of Matrix Organization Structure

The path to global status Causes structural responses, due to: – Strain imposed by growth and geographical spread – Need for improved coordination and control across business units – The constraints imposed by host-government regulations on ownership and equity Evolution path common but not normative

Stages of internationalization

Stages of internationalization: Exporting Typically the initial stage of international operations – Usually handled by an intermediary (foreign agent or distributor) – Role of HR department unclear at this stage

Export department

Sales subsidiary Replacing foreign agents/distributors with own through sales or branch offices/subsidiaries May be prompted by: – Problems with foreign agents – More confidence in international activities – Desire for greater control – Give greater support to exporting activities PCNs may be selected, leading to some HR involvement

Sales subsidiary

International division Creation of a separate division in which all international activities are grouped Resembles ‘miniature replica’ of domestic organization Subsidiary managers report to head of international division Objectives regarding foreign activities may determine approach to staffing of key positions – Expatriate management role of corporate HR

International division

Global product/area division Strain of sheer size may prompt structural change to either of these global approaches Choice typically influenced by: – The extent to which key decisions are to be made at the parent country headquarters or at the subsidiary units (centralization versus decentralization) – Type or form of control exerted by parent over subsidiary

Global product divisionGlobal area division

The matrix An attempt to integrate operations across more than one dimension Violates Fayol’s principle of unity of command Considered to bring into the management system a philosophy of matching the structure to the decision-making process

The matrix

Problems with the Matrix Bartlett and Ghoshal Dual reporting Proliferation of communication channels Overlapping responsibilities Barriers of distance, language, time and culture  Leads to conflict and confusion  Creates informational logjams  Produce turf battles and loss of accountability  Make it virtually impossible to resolve conflicts and clarify confusion

Beyond the matrix Less hierarchical structural forms – Heterarchy – Transnational – Networked firm

The networked organization

US, European and Japanese structural changes

Control mechanisms “Globalization brings considerable challenges which are often under-estimated…. Every morning when I wake I think about the challenges of coordinating our operations in many different countries” Quote by Accor CEO

Control mechanisms

Mode of operation and HRM Not just subsidiary operations Firms may also adopt contractual modes – Licensing – Franchising – Management contracts – Projects And/or cooperative modes (such as joint ventures)

Linking operation mode and HRM

Interfirm linkages Alliance (strategic alliance, cooperative venture, collaborative venture or corporate linkage) A form of business relationship that: – Involves some measure on interfirm integration – Stops short of a full merger or acquisition

HR factors HR issues and activities that affect the successful functioning of international joint ventures include: – Assigning mangers to the joint venture – Evaluating their performance – Handling aspects pertaining to career path – Compensation benefits

Summary The organizational context in which IHRM activities take place. Different structural arrangements have been identified as the firm moves along the path to multinational status – from export department through to more complex varieties such as the matrix, heterarchy, transnational and networked. Control and coordination aspects. Formal and informal mechanisms were outlined, with emphasis on control through personal networks and relationships, and control through corporate culture, drawing out HRM implications. The various modes – such as wholly owned, franchising, management contracts and international joint ventures – used by multinationals for foreign market entry and expansion. Again, we attempted to demonstrate the IHRM implications of these various modes, although noting that most of the literature focuses on wholly owned subsidiaries and international joint ventures.

Cont’d How international growth affects the firm’s approach to HRM. Firms vary from one another as they go through the stages of international development, and react in different ways to the circumstances they encounter in the various foreign markets. There is a wide variety of matches between IHRM approaches, organizational structure and stage of internationalization. For example, almost half the US firms surveyed by Dowling55 reported that the operations of the HR function were unrelated to the nature of the firm’s international operations. A study of nine subsidiaries of multinationals operating in Ireland by Monks56 found that the majority adopted a local approach to the HR function, with headquarters involvement often limited to monitoring the financial implications of HR decisions.

Cont’d Stages of development, organizational forms and mode of operation should not be taken as normative. Research does suggest a pattern and a process of internationalization but firms do vary in how they adapt to international operations – we use nationality of the parent firm to demonstrate this. In order to perform this role better, it would seem important that HR managers understand the various international structural options – along with the control and coordination demands imposed by international growth – and the HR implications that accompany the range of operation modes.