Organization Structure and Control Systems

1
Organization Structure and Control Systems
Chapter 8
2
Chapter 8 - Overview

• Organization structure
• Evolution and change in MNC organizational
  structures
• Organizing for globalization
• Emergent structural forms
• Choice of organizational form
• Control systems for global operations
• Managing effective monitoring systems

3
Internationalization

• Internationalization 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.

4
Structuring International Activities

• Domestic structure plus export department
• Domestic structure plus foreign subsidiary
• International division
• Global functional structure
• Global product structure

5
Domestic Structure Plus Foreign
Subsidiary(Exhibit 8-1)
Chief Executive Officer
HQ Departments Finance Production Marketing HRM
VP Intl Operations
Overseas Japan Germany Mexico Subsidiaries
6
Global Functional Structure

• The global functional structure is designed on
  the basis of the companys 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.

7
Global Product (Divisional) Structure

• In the global product (divisional) structure, a
  single product (or product line) is represented
  by a separate division. Each division is headed
  by its own general manager, and each is
  responsible for its own production and sales
  functions.

8
Global Product (Divisional) Structure(Exhibit
8-2)
CEO
Corporate Functional Staff
Area Specialists North America Latin
America Europe Far East
Product 1 Product 2 Product 3 Division Division
Division
Country A Country B
Finance Production Marketing
9
Global Geographic (Area) Structure

• In the global geographic (area) structure the
  most common form of organizing foreign operations
  divisions are created to cover geographic
  regions. Each regional manager is then
  responsible for the operations and performance of
  the countries within a given region.

10
Global Geographic Structure(Exhibit 8-3)
Board of Directors
Chair CEO
VP Group VP VP Finance N. America
VP S. America
VP Europe
VP Pacific
VP Plastics
VP Agriculture
France UK
Finance Production Marketing
11
Opposing Forces in Structural Choices

• The need for differentiation (focusing on and
  specializing in specific markets)
• The need for integration (coordinating those same
  markets)

12
Emergent Structural Forms

• Interorganizational networks
• The global e-corporation network structure
• The transnational corporation (TNC) network
  structure

13
Information Technologys Impact on Organizational
Forms

• Competitive companies in the future will be
  elaborate networks of people and information,
  each exerting an influence on the other. These
  networks will comprise a small hub of staff
  connected to each other by their physical
  proximity, which is electronically connected to
  global associates who help control assets and
  negotiate agreements to extend the companys
  business influence.
• Kilmann

14
The Global E-Corporation Network
Structure(Exhibit 8-6)
Supply Chain Network
Suppliers
Wholesale distributors
Manufacturers
Logistics providers
Supplier exchanges
Logistics exchanges
Customers
Customer exchanges
Virtual manufacturers
Contract manufacturers
Logistics providers
Information flow
Goods flow
15
Choice of Organizational Form

• Two major variables in choosing the structure and
  design of an organization are the opportunities
  and need for
• globalization and
• localization

16
Organizational Alternatives and Development for
Global Competition(Exhibit 8-7)
TNC
Global product structure
Horizontal organization, alliances and networks
Global company
Transnational structure
Opportunities and Need for Globalization
MNC Matrix structure
International company
Geographic area structure
Domestic functional with intl division
Opportunities and Need for Localization
17
Locus of Decision Making in an International
Organization(Exhibit 8-10
Headquarters authority
Subsidiary/local unit authority
Area of control by headquarters
Centralized
Decentralized
Area of control at local level
HQ management makes decision and informs local
managers
HQ management makes decision and recommends to
local managers
Local managers present problem and solution to HQ
for decision
Local managers make decision and inform HQ
HQ management makes decision and sells
to subsidiary managers
HQ and local managers consult on decisions
Local managers make decision and sell to HQ
18
When is Change Needed?(Exhibit 8-9)

• A change in the size of the corporation due to
  growth, consolidation, or reduction
• A change in key individuals which may alter
  management objectives, interests, and abilities
• A failure to meet goals, capitalize on
  opportunities, or be innovative
• An inability to get things done on time
• A consistently overworked top management that
  spends excessive hours on the job
• A belief that costs are extravagant or that
  budgets are not being met
• Morale problems
• Lengthy hierarchies that inhibit the exercise of
  strategic control

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When is Change Needed?(contd.)

• Planning that has become increasingly
  staff-driven and is thus divorced from line
  management
• Innovation that is stifled by too much
  administration and monitoring of details
• Uniform solutions that are applied to nonuniform
  situations. The extreme opposite of this
  condition when things that should or could
  function in a routine manner do not should also
  be heeded as a warning. In other words,
  management by exception has replaced standard
  operating procedures

20
When is Change Needed?(contd.)

• The following are a few specific indicators of
  international organizational malaise
• A shift in the operational scope perhaps from
  directing export activities to controlling
  overseas manufacturing and marketing units, a
  change in the size of operations on a country,
  regional, or worldwide basis, or failure of
  foreign operations to grow in accordance with
  plans and expectations
• Clashes among divisions, subsidiaries, or
  individuals over territories or customers in the
  field
• Divisive conflicts between overseas units and
  domestic division staff or corporate staff

21
When is Change Needed?(contd.)

• Instances wherein centralization leads to a flood
  of detailed data that is neither fully understood
  nor properly used by headquarters
• Duplication of administrative personnel and
  services
• Underutilization of overseas manufacturing or
  distribution facilities
• Duplication of sales offices and specialized
  sales account executives
• Proliferation of relatively small legal entities
  or operating units within a country or geographic
  area
• An increase in overseas customer service
  complaints
• Breakdowns in communications within and between
  organizations
• Unclear lines of reporting and dotted-line
  relationships, and ill-defined executive
  responsibilities

22
Coordinating Mechanisms

• Direct coordinating mechanisms
• Examples
• Design of appropriate structures
• Use of effective staffing practices
• Visits by head-office personnel
• Regular meetings

23
Coordinating Mechanisms(contd.)

• Indirect coordinating mechanisms
• Examples
• Sales quotas
• Budgets
• Other financial tools
• Feedback reports

24
Managing Effective Monitoring Systems

• Factors likely to affect the appropriateness of
  monitoring systems include
• Management practices
• Local constraints
• Expectations regarding
• Authority
• Time
• Communication

25
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, noncomparability of performance data
  across countries)
• Evaluation variables across countries