Lecture 2

Developing a Global Transnational Organization (TNO)

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Copyright © 2012 Karol Pelc; Copyright © 2011 McGraw-Hill Irwin

Initial questions:

1. Is it possible to apply one standard organizational structure in all global transnational organizations? Why or why not?

2. What factors should be taken into account for developing a global transnational organization?

3. How can cultural differences affect global transnational organization?

2-2Copyright © 2011 Karol Pelc; Copyright © 2011 McGraw-Hill Irwin

Archetypes of Organizational Structure

• Competitive advantage is shaped by country of origin, time of expansion, and nature of leadership

• The challenge is to build new capabilities while protecting existing strengths

• Three archetypes can be identified…

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Pre-WW II European Empires: Dominance of Multinational Model

Decentralized Federation Organization...

…Strategy of National Responsiveness• Expanded abroad in a period of high international

barriers; Preferential access to foreign empire markets• Organization developed as a portfolio of national

companies; heritage of family management, personal control

• Strategy based on understanding and responding to national markets

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Post-WW II American Expansion: Dominance of International Model

…Strategy of Knowledge Transfer

Coordinated Federation Organization...

• Expanded abroad in a time of economic reconstruction: large, advanced home market as knowledge source

• Organization built on strong links to the parent company based on transfer of expertise: heritage of professional management, systems control

• Strategy based on transferring parent company’s leadership in technology, marketing, and other skills

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Late XX-th Century Japanese Challenge: Dominance of Global Model

• Expanded abroad in a period of falling trade barriers: newly added capacity and government industrial policy as assets

• Organization grew as dependent foreign units tightly controlled from the center: heritage of culturally dependent management practices dominated by group processes

• Strategy based on capturing global scale economies

Centralized Hub Organization…

…Strategy of Global Efficiency

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Administrative HeritageMeets Industry Characteristics

Telecom Switching

Matsushita

GE

Philips

NEC

Ericsson

Kao

P&G

Unilever

Forces for Global Integration

Forces for National Responsiveness

ConsumerElectronics

BrandedPackage Goods

Building and Managingthe Transnational Organization

• The transnational organization attempts to resolve the inherent limitations of the three organization archetypes

• Three key characteristics:• Builds and legitimizes multiple internal

perspectives• Dispersed and interdependent physical assets

and capabilities• Robust and flexible integrative process

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Characteristics of the Transnational OrganizationTHREE-DIMENSIONAL MODEL

GlobalEfficiency

GlobalEfficiency

NationalResponsiveness

NationalResponsiveness

Worldwide Innovation& Learning

Worldwide Innovation& Learning

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Organizational Configurations

Decentralized Federation

The Integrated Network

Centralized Hub

Coordinated Federation

ILLUSTRATION: EXAMPLE OF GM STRATEGIC RECONFIGURATION

GM (General Motors) before and after bankruptcy (2008)

Pre-bankruptcy strategy: Decentralized Federation Model (Multinational)- Multiple federated units, relatively loose control, subsidiaries collected through several acquisitions between 1925 - 1931 (Opel, Vauxhall) and 2002 (Daewoo Motors)- Estimated weights of strategic components (Bennett, 2012) National responsiveness 70% Global efficiency 15% Worldwide innovation 15%

Post-bankruptcy strategy (2009 -…): Coordinated Federation Model (Global/Internat)- Reduced number of brands (only four: Chevrolet, Cadillac, GMC and Buick); orientation to joint ventures- Reduced number of executives (by about 35%); globalization of manufacturing- Estimated weights of strategic components (balanced)

National responsiveness 35%Global efficiency 40%Worldwide innovation 25%

Bennett, M., The global strategy of General Motors, MTU Project report BA5780, Houghton 2012

The Transnational:A New Type of Organization

• A new structural anatomy• Redistributing assets and responsibilities

• A new process physiology• Redefining information flows and

relationships

• A new cultural psychology• Readjusting mentalities and beliefs

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Managing the Process of Change: Traditional Model

Change in formal structure/responsibilities

reshapes

redefines

Organizational processes/relationships

Individual attitudes/mentalities

• Classic change process driven by structural reconfiguration

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Managing the Process of Change: Emerging Model

Change in individual attitudes and mentalities

Changes in interpersonal relationships and processes

Change in formal structure and responsibilities

• Change process initiated by changes in attitudes and mentalities

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Building & Maintaining MultipleStrategic Capabilities

BusinessManagement

Area Management

FunctionalManagement

WorldwideInnovation & Learning

Global Efficiency

NationalResponsiveness

Requires Protecting the Legitimacy of Multiple Management Tasks

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Organizational CharacteristicsMultinational Global International Transnational

Configuration of assets and capabilities

Decentralized and nationally self-sufficient

Centralized and globally scaled

Core competencies centralized, others decentralized

Dispersed, interdependent and specialized

Role of overseas operation

Sensing and exploiting local opportunities

Implementing parent company strategy

Adapting and leveraging parent company competencies

Differentiated contributions by national units to integrated worldwide operations

Development and diffusion of knowledge

Knowledge developed and retained within each unit

Knowledge developed and retained at the center

Knowledge developed at the center and transferred to overseas units

Knowledge developed jointly and shared worldwide

SUMMARY

1. Historical view and three archetypes of TNO organizational structures

2. Characteristics of TNO: global efficiency, national responsiveness, worldwide innovation

3. Building multiple strategic capabilities

4. Four types of organizational configuration and strategy