Organizational Structure

1
Organizational Structure

• Organizational structure refers the way that an
  organization formally
• arranges its domestic and international units and
  activities
• sets relationships among the organizations
  various elements

LO1
2
Organization Design for ICs

• Organizational design refers to how an IC should
  be organized in order to ensure it can
  efficiently and effectively integrate its
  worldwide business activities
• structures and systems must be consistent with
  each other and with the environmental context
• size and complexity of business activities must
  be considered for organization design
• Structure must be able to evolve over time in
  order to
• respond to change
• reconfigure to integrate competencies and
  resources

LO1
3
Relationship Among Environment, Strategy, and
Structure
LO1
4
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

LO1
5
Design Dimensions

• Product and technical expertise regarding the
  ICs businesses
• Geographic expertise about countries and regions
  where the IC operates
• Customer expertise regarding the client groups,
  industries, market segments, or population groups
  across national borders
• Functional expertise regarding the ICs value
  chain activities

LO2
6
Evolution of the International Company

• International division typically an ICs early
  organizational choice
• Responsible for all non-home country activities
• At the same level as the domestic division
• Once international business relative importance
  to the company increases worldwide organizations
  are established

LO3
7
Evolution of the International Companys
Organization
The Structural Stages Model
LO3
Based on Stopford, J. M. and L. T. Wells,
Strategy and Structure of the Multinational
Enterprise, 1970, New York Basic Books
8
Global Corporate Form Product Division
Organization
LO3
9
Global Corporate Form Geographic Division
LO3
10
Global Corporate Form Functional Division
LO3
11
Global Corporate FormHybrid Organization
LO3
12
Global Corporate FormMatrix Organization

• One or more superimposed organizational
  structures that attempt to mesh product,
  regional, functional, and other expertise

LO3
13
Global Corporate Form

• Strategic Business Unit business entity
• Clearly defined market
• Specific competitors
• Ability to carry out business mission
• Size appropriate for control by single manager

LO3
14
Changes in Organizational Form

• Changes in organizational form are a result of
  pressures to act more quickly and 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

LO3
15
Virtual Corporation

• A virtual corporation coordinates economic
  activity to deliver value to customers using
  resources outside the traditional boundaries of
  the organization
• Advantages
• Greater flexibility
• A network of dynamic relationships
• Takes advantage of other organizations
  competencies
• Disadvantage
• Potential to reduce managements control over the
  corporations activities

LO4
16
Horizontal Corporation

• A horizontal corporation is characterized by
• lateral decision processes
• horizontal networks
• strong corporate-wide business philosophy
• Creates, builds, and markets products through
  cultivated interrelationships

17
Where are IC Decisions Made?

• All at the headquarters
• All at subsidiary level
• Subsidiary or affiliate company controlled by
  the IC through voting stock control
• Mostly overseas for ICs
• Some at HQ and some at subsidiary level

LO5
18
Location of Decision Making

• The location of decision making depends on
• product and equipment
• the competence of subsidiary management which can
  be independent because it enjoys the confidence
  of HQ
• the size of the IC and its history in the
  international arena
• the detriment of a subsidiary for the benefit of
  the enterprise
• the level of subsidiary frustration

LO6
19
Control

• Reliance of HQ on subsidiary managers depends on
• how well executives know one another
• By moving executives from country to country,
  managers meet each other and get to know local
  conditions in many countries
• geographic distance
• how well executives know company policies
• whether headquarters management feels it
  understands host country conditions and the
  differences between the home and host country

LO6
20
Benefiting Enterprise to the Detriment of
Subsidiary

• Subsidiary detriment
• Situation in which a small loss for a subsidiary
  results for 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

LO6
21
Subsidiary Frustration

• Subsidiaries managers must be motivated and
  loyal
• If all decisions are made at HQ managers
• can lose incentive, prestige, face with their
  employees and the community
• may become hostile and disloyal

LO6
22
International Joint Venture

• An international joint venture refers to a
  corporate entity between an IC and host country
  owners
• A corporate entity between two or more companies
  that are both foreign to the country where the
  joint venture is located

LO6
23
Joint Venture Disadvantages

• The disadvantages of joint ventures include
• a loss of freedom and flexibility
• JV partners can block HQ efforts to
• move production factors
• fill an order from another of the ICs
  subsidiaries
• Shareholders may bring
• legal pressures
• political pressures

LO6
24
Joint Venture Control

• Management contract
• Control of finances
• Control of technology
• People from IC in important executive positions
  at the JV
• IC controls majority of shares and has majority
  on board of directors

LO6
25
Effective Reporting

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

LO7