chapter fourteen

Organizational Design and Control

McGraw-Hill/Irwin International Business, 11/e

Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives Explain why the design of organizational structure

is important to international companies

Discuss the organizational dimensions that must

be considered when selecting organizational structures
for structuring international companies

Discuss the various organizational forms available Explain the concept of the virtual corporation
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Learning Objectives Explain why decisions are made where they are
among parent and subsidiary units of an international company

Discuss how an IC can maintain control of a joint

List the types of information an IC needs to have
reported to it by its units around the world

venture or of a company in which the IC owns less than 50 percent of the voting stock

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Organizational Structure

Organizational structure
The way that an organization formally arranges its domestic and international units and activities, and the relationships among these various organizational components

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Organization Design
Organization design for international
how an international business is organized in order to ensure worldwide business activities are able to be integrated efficiently and effectively Structures and systems must be consistent with each other and with the environmental context Size and complexity of the organization must be considered Structure must be able to evolve over time in order to respond to change

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The relationship among International Environment, Competitive Strategy, and Organizational Structure

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Design Concerns
Find the most effective way to departmentalize to take advantage of efficiencies gained from specialization of labor Coordinate the activities of those departments to enable the firm to meet its overall objectives

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Design Dimensions
Product and technical expertise regarding the businesses Geographic expertise regarding the countries and regions Customer expertise regarding the client groups, industries, market segments, or population groups Functional expertise regarding the value chain activities
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Evolution of the International Company

International Division
A division in the organization that is at the same level as the domestic division and is responsible for all non-home country activities

Worldwide organizations were established, as a result of growth

Product Function Region Customer classes
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Evolution of the International Company

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Global Corporate Form

Product

Geographic

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Global Corporate Form

Function

Hybrid Forms

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Global Corporate Form

Matrix Organizations

Matrix overlay An organization in which top-level divisions are required to heed input from a staff composed of experts of another organizational dimension in an attempt to avoid the double reporting difficulty of a matrix organization but still mesh two or more dimensions
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Global Corporate Form

Strategic Business Unit

Business entity with a clearly defined market, specific competitors, the ability to carry out business mission, and a size appropriate for control by single manager

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Changes in Organizational Form

Result from pressure to act more quickly, reduce costs and improve quality Reengineering to
reduce levels of middle management restructure work processes reduce fragmenting across departments Improve speed and quality of strategy execution Empower employees Communicate instantly Transmit information swiftly
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Current Organizational Trends

Virtual Corporation
An organization that coordinates economic activity to deliver value to customers using resources outside the traditional boundaries of the organization

Advantages
Permits greater flexibility Forms a network of dynamic relationships taking advantage of the competencies of other organizations

Disadvantage
Potential to reduce managements control over the corporations activities 14-17

Current Organizational Trends

Horizontal Corporation
A form of organization characterized by lateral decision processes, horizontal networks, and a strong corporate wide business philosophy
Employees worldwide create, build, and market products through cultivated system of interrelationships

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Control
Where Are Decisions Made?
All at IC headquarters

All at subsidiary level

Combination

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Control
Variables determining the location of decision making
Product and Equipment Competence of subsidiary management Size of international company and duration Detriment of a subsidiary for the benefit of the enterprise Level of subsidiary frustration

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Control
Subsidiaries
Companies controlled by other companies through ownership of enough voting stock to elect board-of-directors majorities

Affiliates
A term sometimes used interchangeably with subsidiaries, but more forms exist than just stock ownership

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Control
Product and Equipment
Existence of global product policy Degree standardized or localized

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Control
Competence of Subsidiary Management depends on
How well executives know one another How well executives know company policies Whether headquarters management feels it understands Host country conditions Distances between home and host countries Size and age of parent company
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Benefiting Enterprise Detriment of Subsidiary

Subsidiary detriment
Situation in which a small loss for a subsidiary results in a greater gain for the total IC

Moving Production Factors

Cost, labor, taxes, market, currency, political stability

Which Subsidiary Gets the Order?

Transportation, production, tariffs, currency, backlogs

Multicountry Production
Economies of scale

Which Subsidiary Books the Profits?

Taxes, currency controls, labor relations, political climate, social unrest
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Subsidiary Frustration
Subsidiary Frustration
Management of subsidiaries must be motivated and loyal If all decisions made at HQ they can lose incentive and prestige or face with their employees and the community They may become hostile and disloyal

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Joint Ventures and Subsidiaries Less than 100 Percent Owned A joint venture may be
A corporate entity between IC and local owners
A corporate entity between two or more companies that are both foreign to the area where the joint venture is located

One company working on a project of limited duration in cooperation with one or more companies

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Joint Ventures and Subsidiaries Less than 100 Percent Owned

Loss of freedom and flexibility
shareholders can block HQ efforts to Move production factors Fill an order from another affiliate or subsidiary

Shareholders may bring

Legal pressures Political pressures
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Joint Ventures and Subsidiaries Less than 100 Percent Owned Control Can Be Had
Management contract Control of finances Control of technology People from IC in important executive positions

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Effective Reporting
Operating units must provide headquarters with timely, accurate and complete reports
Financial Technological Market Opportunities Political and Economic

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De-Jobbing

Replacing fixed jobs with tasks performed by evolving teams

Hierarchy not maintained

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Traits of De-jobbed Workers

They make operating decisions that used to be reserved for managers They have the information they need to make such decisions They have training so that they understand the business and financial issues that used to concern owners and executives They have a stake in the fruits of their labor, share of profits
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