Chapter-14-The-Organization-of-International-Business.ppt

International Business 9e By Charles W.L.HillMcGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies,Inc.All rights reserved.Chapter 14The Organization of International Business14-3What Is Organizational Architecture?Organizational architecture is the totality of a firms organization including 1.Organizational structurethe formal division of the organization into subunitsthe location of decision-making responsibilities within that structurecentralized versus decentralized the establishment of integrating mechanisms to coordinate the activities of subunits including cross-functional teams or pan-regional committees14-4What Is Organizational Architecture?2.Control systems and incentives control systems-the metrics used to measure performance of subunitsincentives-the devices used to reward managerial behavior14-5What Is Organizational Architecture?3.Processes,organizational culture,and peopleprocesses-how decisions are made and work is performed within the organizationorganizational culture-norms and values that are shared among the employees of an organizationpeople-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 orientation14-6What Is Organizational Architecture?To be the most profitablethe elements of the organizational architecture must be internally consistentthe organizational architecture must fit the strategythe strategy and architecture must be consistent with each other,and consistent with competitive conditions14-7What Is Organizational Architecture?Organizational Architecture14-8What Are The Dimensions Of Organizational Structure?Organizational structure has three dimensions 1.Vertical differentiation-the location of decision-making responsibilities within a structure 2.Horizontal differentiation-the formal division of the organization into sub-units 3.Integrating mechanisms-the mechanisms for coordinating sub-units14-9Why Is Vertical Differentiation Important?Vertical differentiation determines where decision-making power is concentratedCentralized decision-makingfacilitates coordinationensures decisions are consistent with the organizations objectivesgives managers the means to bring about organizational changeavoids duplication of activities14-10Why Is Vertical Differentiation Important?Decentralized decision-makingrelieves the burden of centralized decision-makinghas been shown to motivate individualspermits greater flexibilitycan result in better decisionscan increase control14-11Why Is Horizontal Differentiation Important?Horizontal differentiation refers to how the firm divides into sub-unitsusually based on function,type of business,or geographical areaMost firms begin with no formal structure,but as they grow,split into functions reflecting the firms value creation activities-functional structure functions are coordinated and controlled by top managementdecision-making is centralized product line diversification requires further horizontal differentiation14-12What Is A Functional Structure?A Typical Functional Structure14-13Why Is Horizontal Differentiation Important?Firms may switch to a product divisional structure each division is responsible for a distinct product lineheadquarters retains control for the overall strategic direction of the firm and for the financial control of each division14-14What Is A Product Divisional Structure?A Typical Product Divisional Structure14-15What Happens When Firms Expand Globally?When firms expand internationally,they often group all of their international activities into an international divisionOver time,manufacturing may shift to foreign marketsfirms with a functional structure at home would replicate the functional structure in the foreign marketfirms with a divisional structure would replicate the divisional structure in the foreign marketIn either case,there is the potential for conflict and coordination problems between domestic and foreign operations 14-16What Is An International Divisional Structure?One Companys International Divisional Structure14-17What Happens Next?Firms that continue to expand will move to either a 1.Worldwide product divisional structure-adopted by firms that are reasonably diversifiedallows for worldwide coordination of value creation activities of each product division helps realize location and experience curve economiesfacilitates the transfer of core competenciesdoes not allow for local responsiveness 14-18What Is A Worldwide Product Division Structure?A Worldwide Product Divisional Structure14-19What Happens Next?2.Worldwide area structure -favored by firms with low degree of diversification and a domestic structure based on functiondivides the world into autonomous geographic areasdecentralizes operational authorityfacilitates local responsiveness can result in a fragmentation of the organization is consistent with a localization strategy14-20What Is A Worldwide Area Structure?A Worldwide Area Structure 14-21How Does Organizational Structure Change Over Time?The International Structural Stages Model14-22What Is The Global Matrix Structure?The global matrix structure tries to minimize the limitations of the worldwide area structure and the worldwide product divisional structureallows for differentiation along two dimensions-product division and geographic areahas dual decisionmaking-product division and geographic area have equal responsibility for operating decisionscan be bureaucratic and slowcan result in conflict between areas and product divisionscan result in finger-pointing between divisions when something goes wrong14-23What Is The Global Matrix Structure?A Global Matrix Structure14-24How Can Subunits Be Integrated?Regardless of the type of structure,firms need a mechanism to integrate subunitsneed for coordination is lowest in firms with a localization strategy and highest in transnational firmscoordination can be complicated by differences in subunit orientation and goalssimplest formal integrating mechanism is direct contact between subunit managers,followed by liaisonstemporary or permanent teams composed of individuals from each subunit is the next level of formal integrationthe matrix structure allows for all roles to be integrating roles 14-25How Can Subunits Be Integrated?Formal Integrating Mechanisms14-26How Can Subunits Be Integrated?Many firms use informal integrating mechanismsA knowledge network-network for transmitting information within an organization that is based not on informal contacts between managers and on distributed information systemsa non-bureaucratic conduit for knowledge flows must embrace as many managers as possible and managers must adhere to a common set of norms and values that override differing subunit orientations 14-27How Can Subunits Be Integrated?A Simple Management Network14-28What Are The Different Types Of Control Systems?1.Personal controls personal contact with subordinatesmost widely used in small firms2.Bureaucratic controls a system of rules and procedures that directs the actions of subunitsbudgets and capital spending rules14-29What 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 metricscompare 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 firmstrong culture implies less need for other forms of control14-30What Are Incentive Systems?Incentives-devices used to reward behaviorusually closely tied to performance metrics used for output controlsshould vary depending on the employee and the nature of the work being performedshould promote cooperation between managers in sub-unitsshould reflect national differences in institutions and culture can have unintended consequences 14-31What Is Performance Ambiguity?Performance ambiguity exists when the causes of a subunits poor performance are not clearis common when a subunits performance is dependent on the performance of other subunits is lowest in firms with a localization strategyis higher in international firmsis still higher in firms with a global standardization strategyis highest in transnational firms14-32What Is The Link Between Control,Incentives,And Strategy?Interdependence,Performance Ambiguity,and the Costs of Control for the Four International Business Strategies14-33What Are Processes?Processes refer to the manner in which decisions are made and work is performedmany processes cut across national boundaries as well as organizational boundariesprocesses can be developed anywhere within a firms global operations networkformal and informal integrating mechanisms can help firms leverage processes 14-34What Is Organizational Culture?Organizational culture-the values and norms that employees are encouraged to followEvolves fromfounders and important leadersnational social culturethe history of the enterprisedecisions that resulted in high performance14-35What Is Organizational Culture?Organizational culture can be maintained through hiring and promotional practicesreward strategiessocialization processescommunication strategiesOrganizational culture tends to change very slowly14-36What Is Organizational Culture?Managers 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 performedA“strong”cultureis not always goodmay not lead to high performancecould be beneficial at one point,but not at anotherCompanies with adaptive cultures have the highest performance14-37What Is The Link Between Strategy And Architecture?A Synthesis of Strategy,Structure,and Control Systems14-38What Is The Link Between Strategy And Architecture?1.Firms pursuing a localization strategy focus on local responsivenessthey do not have a high need for integrating mechanismsperformance ambiguity and the cost of control tend to be low the worldwide area structure is common14-39What Is The Link Between Strategy And Architecture?2.Firms pursuing an international strategy create value by transferring core competencies from home to foreign subsidiariesthe need for control is moderatethe need for integrating mechanisms is moderateperformance ambiguity is relatively low and so is the cost of control the worldwide product division structure is common14-40What Is The Link Between Strategy And Architecture?3.Firms pursuing a global standardization strategy focus on the realization of location and experience curve economiesheadquarters maintains control over most decisionsthe need for integrating mechanisms is highstrong organizational cultures are encouragedthe worldwide product division is common14-41What 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 learningsome decisions are centralized and others are decentralizedthe need for coordination and cost of control is highan array of formal and informal integrating mechanism are useda strong culture is encouragedmatrix structures are common 14-42How Are The Environment,Strategy,Architecture And Performance Related?For a firm to succeed1.The firms strategy must be consistent with the environment in which the firm operates2.The firms organization architecture must be consistent with its strategyfirms need to change their architecture to reflect changes in the environment in which they are operating and the strategy they are pursuing14-43How Can Firms Implement Organizational Change?To implement organization change1.Unfreeze the organization through shock therapyrequires taking bold actions like plant closures or dramatic structural reorganizations2.Move the organization to a new state through proactive change in architecturerequires a substantial and quick change in organizational architecture so that it matches the desired new strategic posture3.Refreeze the organization in its new staterequires that employees be socialized into the new way of doing things 14-44How Can Firms Implement Organizational Change?Organizations can be difficult to change because of the existing distribution of power and influencethe current culturemanagers preconceptions about the appropriate business model or paradigminstitutional constraints