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Structuring and Controlling Global Operations
IB 3680 International Business Strategy
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LEARNING OUTCOMES After this lecture you should be able to:
Explain the contingency factors that determine the structure of multinational corporations List and explain the different ways in which a multinational corporation can be structured Explain the strengths and weaknesses of each structure in the light of the strategy being adopted List and discuss the three control mechanisms used by multinationals
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International Strategy and Organisation Design
The objective of organisational design and structure (OD&S) is to provide, maintain, and develop organisational structures that work toward the achievement of corporate goals. OD&S helps create a workable structure of tasks and positions that create the physical organization and jobs.
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Structure follows strategy OR Strategy follows structure
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International Strategy and Organization Design
Organisational structure is ultimately driven by strategy; in the near term however, strategy is shaped by organisational structure, because structure provides a constraint to action. Structure is relatively immobile in the short run; in the longer term, it can (and does) change.
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Stopford-Wells Structure Model
High Product Divisions Mixed / Matrix / Network Product Diversity Intl. Division Geographic Divisions Low 0% 100% Foreign Sales as % of Total Sales
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Global integration vs National Responsiveness and Structures
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Strategy and Structure of Multinationals
International Divisional Structure Functional Structure Area or Geography Divisions Structures Product Divisions Structure Matrix Structure
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Exhibit 10.3 International Divisional Structure
CEO Domestic Marketing Operations Support Services International Division Some support services Area 1 Area 2 Area 3 Area 4
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International Division Structure
(Partial Organization Chart) Chief Executive Officer Home-office departments Human Resources Finance Marketing Production Operating divisions Domestic Division: Plant Tools Hardware Furniture International Division: Japan Italy Australia Government Relations Marketing Office Operations
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International Division
Typically set up when firms initially expand abroad, often when engaging in a home replication strategy. Problems: Foreign subsidiary managers in the international division are not given sufficient voice relative to the heads of domestic divisions. The “silo” effect: International division activities are not coordinated with the rest of the firm, which focuses on domestic activities Firms often phase out this structure after their initial overseas expansion
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Exhibit 10.2 Functional Structures
Global HO Global functions Marketing Operations Services Marketing N America Marketing Europe Germany France Italy Production unit A Supply partner B Production unit C Production unit D Products fed through to marketing subsidiaries Germany France Italy
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Exhibit 10.4 Geographical Structure
Global HO Global functions North American Group South American Group North Europe Group support functions Columbia Argentina Brazil Venezuela Within each country there will be a domestic structure
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Multidomestic Germany U.S. Mexico Malaysia
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Geographic Area Structure
Organizes the MNE according to different geographic areas (countries and regions). Is the most appropriate for a multidomestic strategy. Its ability to facilitate local responsiveness is both a strength and a weakness. Problems: While being locally responsive can be a virtue, it may also encourage the fragmentation of the MNE into highly autonomous, hard-to-control “fiefdoms.”
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Multinational Enterprise Organisational Structure
Nestle’s organization chart
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Exhibit 10.5 Global Product Structure For Product-diversified Firms
Global HO Global functions Product Group A Product Group B Product Group C Product Group D Group support functions Columbia Columbia Argentina Brazil Venezuela USA Argentina Marketing Operations Support services Distribution Sales After sales Production Procurement Personnel Office services IT Legal services
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Global Product Division
Chief Executive Officer (Partial Organization Chart) Home-office departments Human Resources Finance Marketing Production Operating divisions Product Division A Product Division B Product Division C Product Division D Product Division E Africa Europe S. America Australia Far East Great Britain France Germany Italy Netherlands Finance Marketing Production Human Resources
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The Global Product Structure
Supports a global strategy in treating each product division as a stand-alone entity with full worldwide— as opposed to domestic—responsibilities for its activities. Facilitates attention to pressures for cost efficiencies in allowing for consolidation on a worldwide (or regional) basis and reduction of inefficient duplication in multiple countries. Problems: It is the opposite of the geographic area structure: Little local responsiveness.
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Pure Global Germany U.S. Mexico Malaysia
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Competencies and their link to Strategic Business Units (SBUs)
Products/services 1 2 3 4 5 6 7 8 9 SBUs SBU 1 SBU 2 SBU 3 SBU 4 Competence 1 Competence 2 Competence N
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Transnational (1) Germany U.S. Mexico Malaysia
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Exhibit 10.6 Matrix Structure
Product A Services Operations Product B Marketing Product C Region 1 Region 2
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Matrix Structure (A)
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Matrix Structure (B)
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The Global Matrix Structure
Organization chart of the Dow Chemical Company
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The Global Matrix Structure
Is often used to alleviate the disadvantages associated with both geographic area and global product division structures. Is intended to support the goals of the transnational strategy—in practice, it is often difficult to deliver. Problems May add layers of management, slow down decision speed, and increase costs while not showing significant performance improvement.
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A Distributed Strategic Network
Main Strategic Center Firm Distributed Strategic Center Firms International Cooperative Strategies often require more complex networks Many large multinational firms form distributed strategic networks with multiple regional strategic centers to manage their array of cooperative arrangements with partner firms Breaking large networks into multiple manageably-sized networks helps to manage the complexity of maintaining many relationships 107
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Integrating Global Operations: Control
Control is the intervention in operations to maintain quality through feed-forward, concurrent, or feedback oriented information. Multinational Enterprises use output, bureaucratic, cultural, and many other mechanisms to provide information that helps the firm maintain progress toward its goals while realizing desired outcomes.
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CONTROL Output control Bureaucratic control Culture control
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Control Mechanisms Adapted from Table 9-2: Control Mechanisms Used in Select Multinational Organization Structures
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Innovation & Learning Perspective
The traditional balanced scorecard model translates an organisation’s vision and strategy into a set of measures built around four perspectives: financial, customer, internal business processes, and innovation & learning. The balanced scorecard is one of several tools for performance measurement and management. The Kaplan and Norton model provides a more holistic approach by supplementing the traditional financial measures with three additional perspectives: customer, internal business process, innovation and learning: Financial Perspective - Is the company creating value for its shareholders? Customer Perspective - How is the company performing from the perspective of those who purchase the company’s products or services? Internal Business Process - How is the company managing its internal business processes to meet its client’s expectations? Is throughput improving? Other processes include fulfillment, customer retention, and financial planning. Innovation & Learning Perspective - Is the company improving its ability to innovate, improve, and learn? It incorporates both leading and lagging indicators. The emphasis is on balance across multiple dimensions of performance; ensuring that good performance in one area is not offset by poor performance elsewhere. The strategy drives the choice of performance measures. A failure to meet targets could be because the strategy is wrong Financial Perspective How do we look to shareholders? Customer Perspective How do customers see us? Internal Business Process Perspective What must we excel at? Vision and Strategy Innovation & Learning Perspective Can we continue to improve our employees’ skills and create value for our clients? Robert S. Kaplan and David P. Norton have developed what is considered to be the standard Balanced Scorecard template Source: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review (January-February 1996)
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Develop key business objectives that will help you to attain your strategy.
1. Drive rapid revenue growth 2. Manage operating costs and profitability 3. Achieve profitability 4. Effectively utilize assets 5. Manage risk 6. Improved Shareholder Value Financial Perspective 1. Rapidly penetrate market segments 2 Sustain significant customer growth 3. Retain customers 4. Achieve high customer satisfaction 5. Provide extremely positive customer on-line experience 6. Achieve customer satisfaction Customer Perspective Internal Business Process Perspective 1. Develop provocative offers 2. Build brand awareness 3. Expand distribution 4. Drive incremental revenues 5. Offer leading high-speed Internet service 6. Provide compelling internet experience 7. Maintain technological leadership Vision and Strategy 1. Sustain employee satisfaction 2. Maintain employee productivity 3. Retain employees 4. Innovate operationally 5. Measure training quantities 6. Measure training effectiveness 7. Measure and evaluate innovations Innovation & Learning Perspective The diagram illustrates an example of a client’s organisational objectives. In the balanced scorecard development process, the organisational objectives should provide a balance across the four dimensions of performance.
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LINKING SCORECARD COMPONENTS
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Means of Performance Metrics Emphasis by MNC Nationality
Means of Performance Metrics Emphasis by MNC Nationality MNC Nationality Performance Metrics Financial Customer Internal Business Innovation & Learning USA 46 27 13 UK 50 25 14 12 Japan 36 32 20 Germany 39 16 Total 44 28 15
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Measures Importance to the business, Electronically reportable,
Routinely reported, Accurate, Critical to objectives.
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3 Principles of the Strategy Focused Organization: LINK AND ALIGN THE ORGANISATION AROUND ITS STRATEGY #3. Each Support Unit develops a plan and BSC for “best practice” sharing to create synergies across Subordinate Commands. #1. A Corporate Scorecard defines overall strategic priorities on a Balanced Scorecard (BSC). CORPORATE AMEDD CORPORATE SCORECARD (Shared Strategic Agenda) Major Subordinate Commands SUPPORT UNITS EXTERNAL PARTNERS Themes Measures SBU A SBU B SBU C SBU D 1. Financial Growth 2. Delight the Consumer 3. Win-Win Relationships 4. Safe & Reliable 5. Competitive Supplier 6. Good Neighbor 7. Motivated & Prepared 8. Quality xxx xx xx xx xx Finance Marketing Distribution Procurement Purchasing Safety Human Resources Information Technology Customer Scorecards Distributor Scorecard Joint Venture Scorecard Vendor Scorecard New Venture Scorecard Outsourcer Scorecard #2. Each Division develops a BSC consistent with corporate strategic BSC. Strategies Are Executed Through Business Units. The Strategies of the Business Units Must Be Integrated If Organization Purpose and Synergies Are to Be Achieved.
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Basic Scorecard Terminology (Southwest Airlines Example)
Strategy Map Strategic Theme: Operating Efficiency Objectives: What the strategy is trying to achieve Measures: How success or failure (performance) against objectives is monitored Targets: The level of performance or rate of improvement needed Initiatives: Key action programs required to achieve targets Profits and RONA Financial Grow Revenues Fewer planes Attract & Retain More Customers Customer On-time Service Lowest prices Objectives Fast ground turnaround Measures Targets Initiatives Internal Fast ground turnaround On Ground Time On-Time Departure 30 Minutes 90% Cycle time optimization Learning Ground crew alignment 17
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A Complete Scorecard is a Program for Action
Strategy Map Strategic Theme: Operations Excellence Objectives Measures Targets Initiatives Strategic Theme: Operating Efficiency Profits and RONA Financial Profitability Grow Revenues Fewer planes 30% CAGR* 20% CAGR 5% CAGR Grow Revenues Fewer planes Attract & Retain More Customers More Customers Flight is on -time Lowest prices # Customers FAA On Time Arrival Rating Market Survey 12% growth Ranked #1 Customer loyalty program Quality management Customer On-time Service Lowest prices Internal Fast ground turnaround On Ground Time On-Time Departure 30 Minutes 90% Cycle time optimization Fast ground turnaround Ground crew alignment % Ground crew trained % Ground crew stockholders yr % yr % yr % Ground crew training ESOP Learning Ground crew alignment *CAGR= compound annual growth rate 17
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