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© 2006 Prentice Hall 8-1
Chapter 8 Organization Structure and
Control Systems
PowerPoint byKristopher Blanchard
North Central University
© 2006 Prentice Hall 8-2
Organizational Structure
Structure needs to “fit” strategy
Most international managers find it easier to determine what to do (strategy) than to decide how to develop the organizational capabilities (structure) to do it.
© 2006 Prentice Hall 8-3
Evolution and Change in MNCInternationalization is the process by which a firm gradually changes in response to international competition, domestic market saturation, and the desire for expansion, new markets, and diversification.Structural Evolution (Stages Model) occurs when managers redesign the organizational structure to optimize the strategy’s changes to work, making changes in the firm’s tasks and relationships and designating authority, responsibility, lines of communication, geographic dispersal of units and so forth
© 2006 Prentice Hall 8-4
Typical ways that firms organize international activities
Domestic structure plus export department
Domestic structure plus foreign subsidiary
International division
Global functional structure
Global product structure
Global Geographic Structure
© 2006 Prentice Hall 8-5
Integrated Global Structures
The global functional structure is designed on the basis of the company’s functions – production, marketing, finance, and so forth. Foreign operations are integrated into the activities and responsibilities of each department to gain functional specialization and economies of scale.Matrix Structure is a hybrid organization of overlapping responsibilities – it is used by some firms but has generally fallen into disfavor recently
© 2006 Prentice Hall 8-6
Organizing for Globalization
Two opposing forces in structural decisions– The need for differentiation (focusing on and
specializing in specific markets) – The need for integration (coordinating those
same markets)
Globalization – a specific strategy that treats the world as one market by using a standardized approach to products and markets
© 2006 Prentice Hall 8-7
Organizing for Globalization
Organizing to facilitate a globalization strategy typically involves rationalization and the development of strategic alliancesOrganizing for global product standardization necessitates close coordination among the various countries involvedThe problem facing companies in the future is that the structurally sophisticated global networks leave the organization exposed to the risk of environmental volatility from all corners of the world
© 2006 Prentice Hall 8-8
Comparative Management Focus: Chinese Global Network
The Chinese commonwealth is a form of global network that has become the envy of Western multinationals– Network of entrepreneurial relationships in
Asia primarily– Includes mainland China, 1.3 billion citizens,
and more than 55 million Chinese in Taiwan, Indonesia, Hong Kong, and Thailand
– Estimated to control $2 Trillion in liquid assets
© 2006 Prentice Hall 8-9
Comparative Management Focus: Chinese Global Network
Most observers believe that this China-based informal economy is the world leader in economic growth, industrial expansion, and exportsComprises most mid-sized, family-run firms linked by transnational network channelsChannels move information, finance, goods, and capital Network alliances bind together and draw from the substantial pool of financial capital and resources available in the region
© 2006 Prentice Hall 8-10
Keiretsu and ChaebolKeiretsu: Set of Japanese companies with interlocking business relationships and shareholdings http://en.wikipedia.org/wiki/Keiretsu Chaebol: South Korean business conglomerates http://en.wikipedia.org/wiki/Chaebol Differences – Chaebol are still largely controlled by their founding families, while
keiretsu are controlled by groups of professional managers. – Chaebol are centralized in ownership, while keiretsu are more
decentralized and connected by cross-shareholdings. – Chaebol are prohibited from owning private banks, partly in order to
increase the government's leverage over the banks in areas such as credit allocation. Keiretsu have historically worked with an affiliated bank, giving the affiliated companies almost unlimited access to credit, although this is no longer a universal feature of keiretsu.
© 2006 Prentice Hall 8-11
Emergent Structural Forms
Inter-organizational networks
The global e-corporation network structure
The transnational corporation (TNC) network structure
© 2006 Prentice Hall 8-12
Choice of Organizational Form
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Organizational Change and Design
When does a company need to make a change in organizational structure?– Makes a change in goals or strategy– Makes a change in scope of operations– Indications of organizational inefficiency– Conflicts among divisions and subsidiaries– Overlapping responsibilities– Complaints regarding customer service
© 2006 Prentice Hall 8-14
Locus of Decision Making
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Monitoring Systems
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Direct Coordinating Mechanisms
Design of appropriate structures Use of effective staffing practices Visits by head-office personnel Regular meetings
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In-Direct Coordinating Mechanisms
Sales quotas Budgets Other financial tools Feedback reports
© 2006 Prentice Hall 8-18
Appropriateness of Monitoring and Reporting Systems
Factors likely to affect the appropriateness of monitoring systems include:– Management practices– Local constraints– Expectations regarding: Authority, Time, and
Communication
© 2006 Prentice Hall 8-19
Managing Effective Monitoring Systems
In deciding on appropriate monitoring and reporting systems, additional factors to be considered include:
• The role of information systems (adequacy of management information systems in foreign affiliates, non-comparability of performance data across countries)
• Evaluation variables across countries
© 2006 Prentice Hall 8-20
Looking Ahead
Chapter 9 – Staffing, Training, and Compensation for Global Operations– Staffing philosophies for global operations
– Global selection
– Training and development
– Compensating expatriates
– Compensating HCNs
© 2006 Prentice Hall 8-21
Domestic Plus Foreign Subsidiary
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Global Product Division
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Global Geographic Structure
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Inter-organizational networks
Views the various companies, subsidiaries, suppliers, or individuals as a relational networks
Allows the different network partners to adopt unique structures that are adapted to the local context
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© 2006 Prentice Hall 8-25
Global E-Corporation Network
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Transnational Corporation
Involves linking foreign operations to each other and to headquarters in a flexible way– Leverages local and central capabilities
Not a matter of boxes on an organizational chart; it is a network of company units and a system of horizontal communicationRequires the dispersal of responsibility and decision making to local subsidiariesEffectiveness is dependant on the ability and willingness to share current and new learning and technology across the network
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