Upload
others
View
7
Download
0
Embed Size (px)
Citation preview
International Business 9e
By Charles W.L. Hill
McGrawHill/Irwin Copyright © 2013 by The McGrawHill Companies, Inc. All rights reserved.
143
What Is Organizational Architecture? Ø Organizational architecture is the totality of a firm’s organization including
1. Organizational structure Ø the formal division of the organization into subunits Ø the location of decisionmaking responsibilities within that structure Ø centralized versus decentralized
Ø the establishment of integrating mechanisms to coordinate the activities of subunits including cross functional teams or panregional committees
144
What Is Organizational Architecture?
2. Control systems and incentives Ø control systems the metrics used to
measure performance of subunits Ø incentives the devices used to reward
managerial behavior
145
What Is Organizational Architecture?
3. Processes, organizational culture, and people Ø processes how decisions are made and
work is performed within the organization Ø organizational culture norms and values
that are shared among the employees of an organization
Ø people the employees and the strategy used to recruit, compensate, and retain those individuals and the type of people they are in terms of their skills, values, and orientation
146
What Is Organizational Architecture? Ø To be the most profitable Ø the elements of the organizational
architecture must be internally consistent Ø the organizational architecture must fit the
strategy Ø the strategy and architecture must be
consistent with each other, and consistent with competitive conditions
148
What Are The Dimensions Of Organizational Structure?
Ø Organizational structure has three dimensions
1. Vertical differentiation the location of decisionmaking responsibilities within a structure
2. Horizontal differentiation the formal division of the organization into subunits
3. Integrating mechanisms the mechanisms for coordinating subunits
149
Why Is Vertical Differentiation Important?
ØVertical differentiation determines where decisionmaking power is concentrated ØCentralized decisionmaking Øfacilitates coordination Øensures decisions are consistent with the organization’s objectives Øgives managers the means to bring about organizational change Øavoids duplication of activities
1410
Why Is Vertical Differentiation Important?
ØDecentralized decisionmaking Ørelieves the burden of centralized decision making Øhas been shown to motivate individuals Øpermits greater flexibility Øcan result in better decisions Øcan increase control
1411
Why Is Horizontal Differentiation Important?
ØHorizontal differentiation refers to how the firm divides into subunits Øusually based on function, type of business, or geographical area
ØMost firms begin with no formal structure, but as they grow, split into functions reflecting the firm’s value creation activities functional structure Ø functions are coordinated and controlled by top management Ødecisionmaking is centralized Øproduct line diversification requires further horizontal differentiation
1413
Why Is Horizontal Differentiation Important?
ØFirms may switch to a product divisional structure Øeach division is responsible for a distinct product line Øheadquarters retains control for the overall strategic direction of the firm and for the financial control of each division
1415
What Happens When Firms Expand Globally?
ØWhen firms expand internationally, they often group all of their international activities into an international division ØOver time, manufacturing may shift to foreign markets Ø firms with a functional structure at home would replicate the functional structure in the foreign market Ø firms with a divisional structure would replicate the divisional structure in the foreign market
Ø In either case, there is the potential for conflict and coordination problems between domestic and foreign operations
1416
What Is An International Divisional Structure?
One Company’s International Divisional Structure
1417
What Happens Next? Ø Firms that continue to expand will move to
either a 1. Worldwide product divisional structure
adopted by firms that are reasonably diversified Ø allows for worldwide coordination of value creation
activities of each product division Ø helps realize location and experience curve
economies Ø facilitates the transfer of core competencies Ø does not allow for local responsiveness
1419
What Happens Next? 2. Worldwide area structure favored by firms
with low degree of diversification and a domestic structure based on function Ø divides the world into autonomous geographic
areas Ø decentralizes operational authority Ø facilitates local responsiveness Ø can result in a fragmentation of the organization Ø is consistent with a localization strategy
1422
What Is The Global Matrix Structure?
ØThe global matrix structure – tries to minimize the limitations of the worldwide area structure and the worldwide product divisional structure Øallows for differentiation along two dimensions product division and geographic area Øhas dual decision–making product division and geographic area have equal responsibility for operating decisions Øcan be bureaucratic and slow Øcan result in conflict between areas and product divisions Øcan result in fingerpointing between divisions when something goes wrong
1424
How Can Subunits Be Integrated?
ØRegardless of the type of structure, firms need a mechanism to integrate subunits Øneed for coordination is lowest in firms with a localization strategy and highest in transnational firms Øcoordination can be complicated by differences in subunit orientation and goals Øsimplest formal integrating mechanism is direct contact between subunit managers, followed by liaisons Ø temporary or permanent teams composed of individuals from each subunit is the next level of formal integration Ø the matrix structure allows for all roles to be integrating roles
1426
How Can Subunits Be Integrated?
ØMany firms use informal integrating mechanisms ØA knowledge network network for transmitting information within an organization that is based not on informal contacts between managers and on distributed information systems Øa nonbureaucratic conduit for knowledge flows Ømust embrace as many managers as possible and managers must adhere to a common set of norms and values that override differing subunit orientations
1428
What Are The Different Types Of Control Systems?
1. Personal controls –personal contact with subordinates Ø most widely used in small firms
2. Bureaucratic controls –a system of rules and procedures that directs the actions of subunits Ø budgets and capital spending rules
1429
What Are The Different Types Of Control Systems?
3. Output controls – setting goals for subunits to achieve and expressing those goals in terms of objective performance metrics Ø compare actual performance against targets and
intervene selectively to take corrective action 4. Cultural controls – exist when employees “buy
into” the norms and value systems of the firm Ø strong culture implies less need for other forms of
control
1430
What Are Incentive Systems? Ø Incentives devices used to reward behavior Øusually closely tied to performance metrics used for output controls Øshould vary depending on the employee and the nature of the work being performed Øshould promote cooperation between managers in subunits Øshould reflect national differences in institutions and culture Øcan have unintended consequences
1431
What Is Performance Ambiguity?
ØPerformance ambiguity exists when the causes of a subunit’s poor performance are not clear Ø is common when a subunit’s performance is dependent on the performance of other subunits Ø is lowest in firms with a localization strategy Ø is higher in international firms Ø is still higher in firms with a global standardization strategy Ø is highest in transnational firms
1432
What Is The Link Between Control, Incentives, And Strategy?
Interdependence, Performance Ambiguity, and the Costs of Control for the Four International Business Strategies
1433
What Are Processes? ØProcesses refer to the manner in which decisions are made and work is performed Ømany processes cut across national boundaries as well as organizational boundaries Øprocesses can be developed anywhere within a firm’s global operations network Øformal and informal integrating mechanisms can help firms leverage processes
1434
What Is Organizational Culture?
ØOrganizational culture the values and norms that employees are encouraged to follow ØEvolves from Øfounders and important leaders Ønational social culture Øthe history of the enterprise Ødecisions that resulted in high performance
1435
What Is Organizational Culture?
ØOrganizational culture can be maintained through Øhiring and promotional practices Øreward strategies Øsocialization processes Øcommunication strategies
ØOrganizational culture tends to change very slowly
1436
What Is Organizational Culture?
ØManagers in companies with a “strong” culture share a relatively consistent set of values and norms that have a clear impact on the way work is performed ØA “strong” culture Ø is not always good Ømay not lead to high performance Øcould be beneficial at one point, but not at another
ØCompanies with adaptive cultures have the highest performance
1437
What Is The Link Between Strategy And Architecture?
A Synthesis of Strategy, Structure, and Control Systems
1438
What Is The Link Between Strategy And Architecture?
1. Firms pursuing a localization strategy focus on local responsiveness Ø they do not have a high need for integrating
mechanisms Ø performance ambiguity and the cost of
control tend to be low Ø the worldwide area structure is common
1439
What Is The Link Between Strategy And Architecture?
2. Firms pursuing an international strategy create value by transferring core competencies from home to foreign subsidiaries Ø the need for control is moderate Ø the need for integrating mechanisms is moderate Ø performance ambiguity is relatively low and so is the
cost of control Ø the worldwide product division structure is common
1440
What Is The Link Between Strategy And Architecture?
3. Firms pursuing a global standardization strategy focus on the realization of location and experience curve economies Ø headquarters maintains control over most
decisions Ø the need for integrating mechanisms is high Ø strong organizational cultures are
encouraged Ø the worldwide product division is common
1441
What Is The Link Between Strategy And Architecture?
4. Firms pursuing a transnational strategy focus on simultaneously attaining location and experience curve economies, local responsiveness, and global learning Ø some decisions are centralized and others are
decentralized Ø the need for coordination and cost of control is high Ø an array of formal and informal integrating
mechanism are used Ø a strong culture is encouraged Ø matrix structures are common
1442
How Are The Environment, Strategy, Architecture And Performance Related? Ø For a firm to succeed 1. The firm’s strategy must be consistent with the
environment in which the firm operates 2. The firm’s organization architecture must be
consistent with its strategy Ø firms need to change their architecture to reflect
changes in the environment in which they are operating and the strategy they are pursuing
1443
How Can Firms Implement Organizational Change?
Ø To implement organization change 1. Unfreeze the organization through shock therapy Ø requires taking bold actions like plant closures or dramatic structural reorganizations
2. Move the organization to a new state through proactive change in architecture Ø requires a substantial and quick change in organizational architecture so that it matches the desired new strategic posture
3. Refreeze the organization in its new state Ø requires that employees be socialized into the new way of doing things