Transcript Organisational Structure

MGX5181
International Business Strategy
Week 12
International Strategy Implementation
Organisational structure and control
Objectives
 By
the end of this session, students should be
able to:
 Identify a range of controls available to an
international businesses
 Demonstrate how organisational design (structure)
impacts on the control process of an international
business
 Understand how strategy impacts on structure
 Recognise how centralisation and decentralisation
of decision-making impacts on strategy and
structure
Control Options
 What
are some of the methods used by MNCs
to control their international operations:
 Human resources
 Structure
 Reports and Budgets
 Visits
 Systems
 Corporate Culture
Direct Control
 Face
to Face or personal meetings for the
purpose of monitoring operations. Problems are
discussed, goals set, and actions taken to
improve effectiveness.
 Visits by top executives.
 Staffing practices of MNC’s.
 Organisation Structure - who reports to whom.
Indirect Control
 Reports
and other written forms of
communication.

eg: operating reports such as financial statements
including balance sheets, income statements, cash
budgets and financial ratios etc..
 Indirect
controls are particularly important in
international management because of the great
cost associated with direct methods.
Factors that make control difficult:
 Distance

The geographic and cultural distances separating countries
will increase the time, expense, and possibility of error in
cross-cultural communications.
 Diversity

Difficult to set standards or evaluate performance when
market size, type of competition, product, labour cost,
currency etc vary between countries.
Factors that make control difficult
continued...
 Uncontrollables


shareholder’s demands may clash with company
objectives.
Government regulations both in host & home
countries.
 Degree

of Certainty
Political & economic conditions are subject to rapid
change in some locations. This change impedes the
setting of long-term plans.
The Control Sequence
Evaluate Communications
& modify as necessary
Establish Objectives
Select Control Methods
Reconsider Standards &
modify if needed
Set Standards
Review Methods & modify
if needed
Locate Responsibility
Reassess Objectives &
modify if needed
Establish Communications
Continuous Review of Results
Continuous Correction of
all Stages
Source: Cateora & Hess, 1979
4 Main Elements in
Control Process
 Setting
 The
of standards
development of monitoring devices or
techniques to monitor the performance of the
individual or the organisational system.
4 Main Elements in
Control Process continued..
 The
comparison of performance measures
obtained from the different monitoring devices
to the plans in order to determine if the current
state of performance is sufficiently close to the
planned state.
 Employment of effective action devices to
correct significant deviations of performance.
The 4 Major Areas of
Control
 Foreign




Exchange Risks
Monitoring
Risk Limits
Exchange rate forecasting
Hedging
 Environmental





Controls
Accounting Standards
Tax Requirements
Legal Differences
Inventory Policies
Social Overheads

eg: phone, electricity, education.
The 4 Major Areas of
Control continued..
 Risk



Assessment
Political
Economic
Legal
 Conflict



with Host Government
Activities
Employment
Social Controls

eg: Pollution
Factors that influence the type of
decision making in subsidiary operations
Encourage centralisation
Encourage decentralisation
Large size
Small size
Large capital investment
Small capital investment
Relatively high importance to
MNC
Highly competitive environment
Relatively low importance to MNC
Strong volume to unit cost
relationship
High degree of technology
Weak volume to unit cost
relationship
Moderate degree of technology
Strong importance attached to
brand name, patent rights
Low level of product
diversification
Homogeneous product lines
Little importance attached to brand
name, patent rights, etc
High level of product
diversification
Heterogeneous product lines
Small geographic distance
between home office and
subsidiary
High interdependence between
units
Fewer highly competent
managers in host country
Much experience in international
business
Large geographic distance between
home office and subsidiary
Stable environment
Low interdependence between units
More highly competent managers in
host country
Little experience in international
business
The Evolution of Structure
 Generally,
firms give little thought to structure when
first going international.
 Typically there is no formal structure until such time
that the international operations grow to a level where
it becomes critical for a formalised structure to be put
in place.
 As the organisation’s international operations develop,
so to will the need, to modify structure.
The “right” organisational form?
 There
is not one “right” way to organise.
 Generally, organisations are not “pure” but mixed.
 The greater the specialisation of the organisation’s
units, the more difficult it is to co-ordinate their
activities.
 Organisational structures are never permanent.
Home Country
Factors affecting Multinational
Structure
Company size
Foreign Factors
Age of industry
National policies
Technology
Legal constraints
Strategy
Distance
Personnel
HQ
Raw materials
Organisational
Markets
culture
Health
Domestic operation
Products
Size population
Overseas Operations
Climate
Diversity
Personal values
Finances
Language
Ownership
Religion
Centralisation
Labour skills
Structure
Level of
industrialisation
Communication
Organisational Structure and its
impact on decision making
Stage 1: Exporting and Licensing
When a firm’s first exposure to
international business comes from
export orders:
 Business focus remains domestic oriented
 Domestic structure is organised by function

Manufacturing,Finance,Marketing, etc..
 Foreign orders a novelty or means of disposing excess production
 An Export Manager may be appointed
 Export Manager has little authority in organisation as to resource
allocation
Stage 1: Exporting and Licensing
 Growth
usually haphazard
 May be supervised by executives with little interest
in these operations
 Status usually too low to take advantage of
opportunities
 As problems get out of hand a specialist dept usually
formed, often within Marketing Division
 If licensing used, staff ideally come from R & D and
employed by Marketing or Export. In practice
licensing often remains part of R & D
Two options for emerging
international organisations
(a)
Marketing
Export
Production
Research and
development
[Licensing]
Export [Licensing]
Or
(b)
Marketing
Export
[Licensing]
Production
Research and
development
[Licensing]
Stage 1: Exporting and Licensing
Problems
 Negotiating payments on conditions
unenforceable in another country
 Appointment of agents or licensees on invalid
conditions
 Poor distribution, promotion and pricing
 Failure to monitor market for opportunities
Threats
 New competition as market grows
 Increasing government regulation
Typical Organisation of International Co. primarily
engaged in exporting
(a) Company with narrow product line
Chief Executive Officer
Production
Marketing
Finance
Personnel
R&D
Export Manager
(b) Company with broad product line
Chief Executive Officer
Production
Marketing
Finance
Personnel
R&D
Export Manager
Product Division :
Dyestuffs
Product Division :
Chemicals
Product Division:
Pesticides
Product Division:
Plastics
Organisational Structure and its
impact on decision making
Stage 2: Foreign Operations
 Faced
with increased competition from
other producers and higher comparative costs resulting from
such things as freight and tariff costs, the exporting firm
feels pressed to defend its foreign market position by
establishing a production facility inside the foreign market.
 Initial operations usually decentralised
 Centralised management as importance and knowledge
grows
 Centralising control results in move to an International
Division Structure.
Typical organisation of company at
Early Foreign Production Stage
Corporate Staff
Chief Executive Officer
etc.
Production
Marketing
Finance
Personnel
Foreign Subsidiaries
UK
Germany
Brazil
Nigeria
Japan
R&D
Organisational Structure and its
impact on decision making
Stage 3: International Division Structure
As the volume of international business grows and becomes
relatively more important the firm typically establishes an
international division.
 All international activities are grouped into one separate
division and assigned to a senior executive at corporate
headquarters.
 Executive at same level as other divisional & functional
heads.
 Segregates operations into domestic and international.
The International Division
 Tends
to be highly centralized.
 Places
international operations at the same
organisational level as domestic oriented Functional or
Product divisions.
 Still
less autonomous than domestic divisions.
 Few
executives have international expertise.
The International Division
Benefits
 Special needs of foreign operations are met.
 Provides
unified position to company's
activities in different countries.
 Coordinated
financial function, investment
decisions made on a global basis.
The International Division
Problems
 Separation & isolation of domestic managers from
their international counterparts
 Problem of whether domestic managers think
strategically on a global basis.
 Conflict between domestic & international divisions
 when international division gets what it considers
inadequate technical support and second-rate staff for
overseas assignments.
 Research
oriented.
& development remains domestically
International Division Structure
Corporate Staff
Chief Executive Officer
etc.
Production
Marketing
Finance
Personnel
R&D
Line Management
Domestic Division :
Dyestuffs
Domestic Division:
Chemicals
Domestic Division:
Pesticides
Domestic Division:
Plastics
International Division
Divisions within the International
Division
International Division
(a)
By area
Europe
Asia
South
Africa
America
International Division Head
(b)
By product
Product Frozen
Foods
Product Soup
Product
Canned Foods
Product Dairy
Products
Product Fruit
Drinks
Organisational Structure
Stage 4: Global Structures
International division is not the
appropriate structure when:
 The international market is as important as the domestic
market.
 Senior officials have both foreign and domestic experience.
 International sales represent 25% to 35% of total sales.
 Technology used in domestic divisions has far outstripped
that of the international division.
Result
 Global Product Division; Global Area Division, Global
Functional Division, Matrix Structure or Variation.
GLOBAL PRODUCT
STRUCTURE
 Under
a global product structure, the product
divisions are responsible for all manufacture
and marketing worldwide.
 It is the most common structure used by MNCs.
 It is used by most consumer-product firms with
a diversity of products.
Global Product Division Structure
Chief Executive Officer
Corporate Staff
etc.
Production
Marketing
Finance
Personnel
R&D
Line Management
Product
Division B
Product
Division A
Europe
Africa
Product
Division C
Latin
Far East
America
Product
Division D
Product
Division E
Indonesia
South Korea
Singapore
etc.
Production
Marketing
Finance
GLOBAL PRODUCT
STRUCTURE

Benefits
 Improved cost efficiency through centralisation of
manufacturing facilities.
 Ability to balance the functional inputs needed for a product.
 Ability to react quickly to product-specific problems in the
marketplace.
 Suited to the development of a global strategic focus in
response to global competition.
 Allows departments to operate as autonomous profit centres
(SBUs)
 Adds flexibility to a firm’s structure
 Develops broadly trained managers
GLOBAL PRODUCT STRUCTURE
 Problems
 Upheaval as change to this structure usually accompanied by
consolidation of operations and plant closings.
 Fragments international expertise within the firm because a
central pool of international experience no longer exists
 Product managers may focus their attention only on the larger
markets, or only on the domestic, and fail to take the long-term
view.
 Co-ordination of activities among various product groups
operating in the same markets is crucial.
 Leads to decreased communication between functional
specialists
 Contributes to a lack of clarity of functional area responsibilities
and a duplication of services
STRATEGIC BUSINESS UNITS
 Commonly defined as business entity with a clearly defined
market, specific competitors, the ability to carry out its business
mission, and a size appropriate for control by a single manager.
 Most SBUs are based on product structure lines and if a product
must be modified to suit different markets, a worldwide product
SBU may be divided into a few product/market SBUs serving
various countries or groups of countries.
 SBUs do not determine how a company as a whole will organise
its internal operations.
 Companies with numerous SBUs frequently group them together
into another unit called sector or operating unit. Other firms use
other names.
GLOBAL AREA STRUCTURE
 Under
a global area structure geographic divisions are
responsible for all manufacture and marketing in their
respective areas.
 Used by:
 Companies that have relatively narrow product lines with
similar end uses and end users.
•
However, expertise is needed in adapting the product and its marketing to
local market conditions.
 Popular with companies that manufacture products with a low,
or at least stable technological content that require strong
marketing ability.
 Producers of consumer products such as prepared foods,
pharmaceuticals and household products employ this type of
organisation.
Global Geographic (Area) Division
Structure
Corporate Staff
Chief Executive Officer
etc.
Production
Marketing
Finance
Personnel
R&D
Line Management
North
America
Europe
Latin
Middle
America
East
United Kingdom
France
Germany
Italy
Asia
GLOBAL AREA STRUCTURE
 Benefits
 Organisations can cope with markets that vary widely in respect to
product acceptance and operating conditions as authority to make
decisions pushed down to regional headquarters.
 Allows business units to adapt to local circumstances
 Takes advantage of local legal, political and cultural differences
 Provides territories as a training ground for general managers
GLOBAL AREA STRUCTURE
 Problems






Hard to coordinate production across regions.
Requires a large number of general managers
Leads to a possible duplication of staff services
Presents problems for top management control over local operations
Difficult to co-ordinate global product planning.
Essential information and experience may not be transferred from one
regional area to another.
•
To help alleviate these problems management often place specialised product
managers on the headquarters staff.
GLOBAL FUNCTIONAL
STRUCTURE
 Under
a global functional structure, functional areas such as
production, marketing, finance and HRM are responsible
for the worldwide operations of their own functional area.
 Used
by:
 Organisations where both the products and customers are
relatively few and similar in nature e.g. aircraft
manufacture; oil refining
Global Functional Structure
Chief Executive Officer
Production
Production Domestic
Personnel
Production Foreign
Finance
R&D
Marketing Domestic
Marketing
Marketing Foreign
Product A
Product A
Region A
Region A
Product B
Product B
Region B
Region B
Product C
Product C
Region C
Region C
Product D
Product D
Region D
Region D
Global Functional
Process Structure
Chief Executive Officer
Exploration
Production
Refining
Transportation
South China Sea
South China Sea
Taiwan
Bay of Bengal
Bay of Bengal
India
Persian Gulf
Persian Gulf
Kuwait
Saudi Arabia
Saudi Arabia
Saudi Arabia
Marketing
North
America
Europe and
Middle East
Far East and
Australia
GLOBAL FUNCTIONAL
STRUCTURE
 Problems
 Co-ordination between manufacturing and marketing in an area is
typically a key problem.
 Multiple product lines are difficult to manage because of the
separation of production and marketing into departments with
parallel lines of authority to the top, and only the CEO can be held
responsible for the profits.
•

To overcome this, staff functions are created to interact between the
functional areas, otherwise the company’s marketing and regional expertise
may not be exploited to the fullest extent possible.
Functional structures are not common and can breakdown easily if
poor co-operation between functions.
MATRIX ORGANISATIONS
 Superimposes
an organisation based on another
dimension.
 Both the area and product managers will be at the same
level, and their responsibilities will be at the same level
and overlap.
 Ciba-Geigy, the Swiss chemical and pharmaceutical
MNC, has an organisational structure based on a
matrix of 3 dimensions:
• product
• function
• geographic region
Matrix Structure
Corporate Staff
Chief Executive Officer
Marketing
Production
Finance
Personnel
R&D
Line Management
Europe
Tractors
General manager
of tractors,
Europe
Asia
General manager
of tractors, Asia
Other area and
product divisions
MATRIX ORGANISATIONS
Problems:
 2-3 managers must agree on a decision.
 This can lead to less-than-optimum compromises,
delayed responses and power politics.
 When agreement cannot be reached, the problem goes
higher and takes management away from its duties.
Solution:
 Matrix overlay.
Matrix Overlay Structure
 Attempts to address the problems of the matrix
structure by requiring accountability of all functions
without the stresses.
 If organised by product, may have regionalist
specialist in a staff function required to have input
to product decisions. May be organised in an
international division.
 A regional organisation may have product managers
on its staff who provide input to regional decisions.
Hybrid Forms
 A mixture of organisational forms is used at the top
level and may or may not be present at the lower levels.
 Are the result of a regionally organised company
having introduced a new and different product line that
management believes can be best handled by a
worldwide product division.
 An acquired company with distinct products may be
incorporated as a product division even though the rest
of the company is regionalised, until management
becomes familiar with the operation.
Hybrid Organisational Form
CEO
Domestic
Division A
Domestic
Division B
International Division
Corporate Staff
Serves Products A & B
in locations other than
the Pacific
Pacific Division Products
A&B
Worldwide Product
Division C
Original Equipment
Products A & B
HORIZONTAL ORGANISATIONS
 Sometimes
 Teams
called corporate networking.
can be drawn from different departments
to solve a problem or deliver a product, i.e. this
occurs in industries such as aerospace, or
vehicles.
HORIZONTAL ORGANISATIONS
 In
a networked firm, employees worldwide create,
build and market the company’s products through a
carefully cultivated system of inter-relationships.
 E.g. Marketers in UK speak directly to production in Brazil
without going through head office in Germany. Greater
decision making is at middle management level. The idea is
to instigate cooperation and coordination instead of strict
control and supervision.
 Firms that have adopted the horizontal organisation have a
strong corporate wide business philosophy that binds
employees. IBM and Dow Chemicals are two examples.
Transnational
 Focus
not on structure but on management processes & culture.
 It recognises that a global organisation has 4 types of managerial
roles:
 Global business managers

focus on global activity and strategy
 Country managers
Act as sensors of local opportunities and threats
 build national resources and
 contribute to global competitive development

 Functional managers

Specialists
 Corporate Managers

Overall leaders and talent developers
Transnational
 Key
is develop matrix of the mind “Think global act local”.
 Seven key features:
 Business units are part of a network

reciprocal dependent
 Non-dominant dimension

All important (e.g area, function, global)
 Clear defined operating systems

Transparent and multidimensional
 Good interpersonal relationships
 Inter-unit decision forums

Active participation b/w global and functional managers in SBU boards
 Strong corporate values
 Culture of sharing and willingness to collaborate