International Business Strategy301REN

Global Structure & Design

Unit: 10 Knowledgecast: 2

Module Learning Outcomes• Demonstrate a sound appreciation of current strategic

management concepts

• Communicate an in-depth understanding of the complexity of the environment and its applications on decision-making process

• Integrate and apply strategic approaches to practical situations in various types of organisations

• Assess current developments in the organisational environment and alternative responses related to strategy

• 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.

International Strategy and Organisation 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.

International Strategy and Organization Design

Organizational Architecture

The totality of a firm’s organization, including

the structure, control systems and incentives,

processes, culture and people

Organizational Architecture3 Conditions Required for Superior Enterprise Performance

• Different elements of the organizational architecture are internally consistent

• Organizational architecture matches or fits the strategy of the firm

• Strategy and architecture of the firm are consistent with each other, and consistent with competitive conditions

Organizational Structure

• Formal division of the organization into subunits

• Location of decision-making responsibilities within that structure (centralized versus decentralized)

• Establishment of integrating mechanisms to coordinate the activities of subunits including cross-functional teams or pan-regional committees

Organizational Structure

Three Dimensions

• Vertical Differentiation– Location of decision-making responsibilities within a

firm

• Horizontal Differentiation– Formal division of the organization into subunits

• Integrating Mechanisms– Mechanisms for coordination between subunits

Vertical Differentiation

Centralization And Decentralization

• Vertical differentiation determines where in the firm’s hierarchy is the decision-making power concentrated

• Facilitates coordination

• Helps ensure that decisions are consistent with the organization’s objectives

• Gives top-level managers the means to bring about organizational change

• Avoids duplication of activities across subunits

Vertical Differentiation

• Arguments for Decentralization • Relieves the burden of centralized decision-

making• Individuals with freedom and control are

motivated• Permits greater flexibility to environmental

changes• Results in better decisions made closer to

the situation• Increases control by creating subunit

accountability

Vertical Differentiation

Strategy and Centralization

• The choice between centralization and decentralization is not absolute and depends on the:

– type of decision being made

– firm’s strategy

Horizontal Differentiation: The Design of Structure

• Concerned with how the firm decides to divide itself into sub-units

• The decision is usually based on:– organizational function– type of business– geographical area

Organizational challenges of international expansion

• Configuration• Compatibility• Coordination• Modularity• Complexity• Structure of interfaces

An export department structure

Use of subsidiaries during the early stages of internationalization

International Divisional Structure

Some supportservices

DomesticMarketing

Operations Supportservices

International Division

CEO

Area 1 Area 4Area 2 Area 3

International Divisional Structure, with domestic business and all international operations shifted to a “specialist” international division

The international division

• The international division structure centralizes all the international operations

Advantages:• It reduces the CEO’s burden of direct

operation of overseas subsidiaries and domestic operations

• It raises the status of overseas operations to that of the domestic divisions

International Division Structure

Chief Executive Officer

Human ResourcesFinanceMarketingProduction

Domestic Division:Plant

Domestic Division:Tools

Domestic Division:Hardware

Domestic Division:Furniture

International Division:

Government RelationsMarketingOffice

Operations

Home-office departments

Operating divisions

(Partial Organization Chart)

Japan ItalyAustralia

Global organizational structures

• As MNEs generate more and more revenues from their overseas operations, their strategies and the structures used to implement these strategies become more global in focus.

The Global Product Structure locates manufacturing and value creation activities in appropriate global locations to increase efficiency, quality, or innovation.

Global divisions are responsible for Global Product Design and operate in divisional, cluster, or holding company formats.

Global organizational structures cont’

Global Product Structure For Product-diversified Firms

Global HO

Product Group B

Columbia Argentina Brazil Venezuela

Global functions

Group support functionsProduct Group C Product Group DProduct Group A

Marketing Operations Support services

• Distribution• Sales• After sales

• Production• Procurement

• Personnel• Office services• IT• Legal services

ColumbiaArgentina

USA

The Global Product Structure

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.

Global area structure

• Primary operational responsibility is delegated to area managers, each of whom is responsible for a specific geographic region

• 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.”

Global area structure cont’s

• Builds around the basic tasks of the organization. For example, in manufacturing firms, production, marketing, and finance are the three primary functions that must be carried out for the enterprise to survive

Global function structure

Mixed structure

• A hybrid organization design that combines structural arrangements in a way that best meets the needs of the enterprise. The Mixed Structure is most common in the Multinational Enterprise. It uses localization in product development, marketing, sales, and service. At the same time functions that benefit from scale advantages, like purchasing, are centralized

Global Matrix Structure

An organizational arrangement that blends two organizational responsibilities such as functional and product structures or regional and product structures.

The Global Matrix Structure contains simultaneous, intersecting differentiation bases, with employees reporting to a functional and a product manager simultaneously

The Global Matrix Structure

The Global Matrix StructureOrganization chart of the Dow Chemical Company

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.

Knowledgecast Summary• Demonstrate a sound appreciation of current strategic

management concepts

• Communicate an in-depth understanding of the complexity of the environment and its applications on decision-making process

• Integrate and apply strategic approaches to practical situations in various types of organisations

• Assess current developments in the organisational environment and alternative responses related to strategy

End of Module Assessment – Evaluating internationalization

Strategy (Management Brief) (Unit 10)

Preparation – Preparing the Final Draft

This session will provide you with the opportunity to discuss your final draft with your module tutor and ensure all your questions are

answered as you finalize your submission.

Although this is an independent piece of work giving and receivingfeedback from your peers is an essential skill, which will be of greatvalue in the workplace.

Be prepared to provide constructive feedback on other’s work andreceive feedback which can inform your progress.

Seminar

Module ReviewIn this session you will be required to give feedback on the

module via the usual course evaluation mechanisms. This may include aconsideration of the following questions.

1. Which of the units of the module have been most interesting to you?

2. How will your study of international business strategy affect your future business practice?

3. What do you consider to be the challenges for those involved in international business strategy?

Group Activity