MNCs and Organizational
Structure
From:
Amit : 02
Dhruv :45
Mohit : 46
Ankur : 52
Deepankar : 54
Defining Organizational Structure

organizational structure the formal framework by
which job tasks are
divided,
grouped and coordinated.

organizational structural
designing - process of
developing or changing an
organization’s structure.
There is no permanent organization chart
for the world. . . . It is of supreme
importance to be ready at all times to take
advantage of new opportunities.
- Robert C. Goizueta, (Former) Chairman
and Ceo, Coca-Cola Company
Evolution and Change in MNC

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.

Structural Evolution occurs when managers redesign
the organizational structure to optimize the strategy’s
changes to work, making changes in the firm’s tasks and
relationships and designating authority, responsibility,
lines of communication, geographic dispersal of units and
so forth
Six key elements :

Work Specialization
– the degree to which tasks in an organization are
divided into separate jobs
• individuals specialize in doing part of an
activity rather than the entire activity
– too much specialization has created human
diseconomies
– an important organizing mechanism, though not
source of ever-increasing productivity

Departmentalization
– the basis by which jobs are grouped together
• functional - groups jobs by functions
performed
• product - groups jobs by product line
• geographical - groups jobs on the basis of
territory or geography
• process - groups jobs on the basis of product or
customer flow
• customer - groups jobs on the basis of
common customers

Span of Control
– number of employees that a manager can efficiently and
effectively manage
– determines the number of levels and managers in an
organization
– the wider the span, the more efficient the organization
– appropriate span influenced by:
• the skills and abilities of employees
• the complexity of tasks performed
• availability of standardized procedures
• sophistication of organization’s information system

Centralization
– the degree to which decision making is
concentrated at a single point in the organization
• top-level managers make decisions with little
input from subordinates in a centralized
organization

Decentralization
– the degree to which decisions are made by
lower level employees
– distinct trend toward decentralized decision
making

Formalization
– the
degree to which jobs within the organization are
standardized
• standardization - removes the need for employees to
consider alternatives
– extent to which employee behavior is guided by rules
and procedures
• employee allowed minimal discretion in highly
formalized jobs
– explicit job descriptions
– clearly defined procedures
ORGANISATIONAL
STRUCTURES
International Division Structure
Chief Executive Officer
Production
Domestic
Division
Paint
Marketing
Domestic
Division
Tools
Personnel
Finance
International
Division
Domestic
Division
Furniture
Japan
Australia
Italy
Office
Operations
Marketing
Government
Relations
Domestic
Division
Hardware
11
Matrix Organisational Structure
PRESIDENT
Director of
Product Design
Product
Manager A
Product
Manager B
Product
Manager C
Product
Manager D
Manufacturing
VP
Marketing
VP
Controller
Procurement
Manager
FUNCTIONAL STRUCTURE
PRESIDENT
VICE
PRESIDENT
MARKETING
MARKETING
RESEARCH
VICE
PRESIDENT
ENGG.
SALES
VICE
PRESIDENT
FINANCE
RECORDS
VICE
PRESIDENT
MANUF.
SHIPPING &
RECIEVING
PLANT1
RESEARCH
GROUPS
SALES
FORCE
VICE
PRESIDENT
PERSONNEL
PRODUCTION
PLANT2
VICE
PRESIDENT
LEGAL AFF
QUALTIY
ASSURANCE
PLANT3
RECORD
CLERKS
13
Strategic Business Unit
 The idea was developed by Mckinsey & Co. (Consulting Firm)
& General Electric in 1971.
 Separate operating entities within an organization.
 After defining mission, a company establishes SBU’s which
is self contained division, product line or product department
within an organization.
 To be identified an SBU, an entity should,
 Be a separate identifiable business
 Have a distinct mission
 Have its own competitors
 Have its own executive group with profit responsibility
 General Electric & its SBU’s are electrical motors, Major appliances,
Jet Engines Lighting Equipments and Commercial Credit and
Broadcasting.
14
Classification of Organizations
Sumantra Ghoshal
&
Christopher A. Bartlett
The Study….

3 countries
 3 industries
 9 companies with worldwide interests
 Mode : Both personal interviews and survey
questionnaires of key personnel.
 Aim : To develop a typology of organizations
operating in the international business
environment.
16

Based on their results, these scholars identified
four forms of organizations used to manage
international businesses.
 They labeled these
 the multinational,
 global,
 international,
 & transnational corporations.
17
The story so far……….
Multinational
Enterprise
Strategic
competency
Structures
Responsiveness
Loose federations of
enterprises;
National subsidiaries
solve all operative
tasks and some
strategical.
Decentralized
federation
Global Enterprise
International
Enterprise
Efficiency
Transfer of learning
National Subsidiaries
primarily seen as
distribution centers;
all strategic and
Many operative
Decisions centralized
Tightly centralized
hub;
Somewhere in
between multinational
and global enterprises;
some strategic areas
centralized, some
Decentralized
Coordinated federation
18
….and the problem

Multinational enterprise :
Differentiation as primary way to enhance performance.

Global enterprise :
Scale and resulting cost leadership are the key sources of
competitive advantage.

International enterprises :
Innovation, Crated at HQ to reduce cost or increases revenue
or both.
Each approach is partially true and has its own merits but none
represents whole truth, the ideal-type thus created, they dubbed
the transnational enterprise.

19
Attributes of Transnational
Enterprise.





Selective decision,
complex configuration of assets and capabilities
that are distributed, yet specialized.
Seeks efficiency not for its own but…,
It acknowledges the importance of local
responsiveness but…,
Innovations are regarded as an outcome of a larger
process of organization learning that encompasses
every member of the company.
20
This thesis is thus consistent with the view that a
new, stateless corporate identity with a network of
systems and activities in different parts of the
world, deriving value from whichever location
provides it at the lowest cost, is emerging. (cf. Hedlund
|1986~; Perlmutter and Trist |1986~; Prahalad and Doz |1987~).
21
CASE STUDIES

TATA GROUP (INDIAN CASE)
 CATERPILLAR (FOREIGN CASE)
22
INDIAN BUSINESS HOUSES
TATA GROUP
Group Overview

Metals
 Automobiles
 India’s largest business house
 Energy
 More than 85 companies
 Engineering
 39 listed
 Chemicals
 8% of India’s market capitalization
 Pharmaceuticals
 2.6 Million shareholders
 IT and Communication
 2,70,000 employees
 Exports
 Turnover Rs 343 billion (1996-1997)  Finance
INDIAN BUSINESS HOUSES
TATA GROUP
Tata Heritage
 Jamsetji Tata
– Started textile mill in 1877
– Inspired steel and power industry
– Technical education and philanthropy

JRD Tata
– Pioneered civil aviation
– Funded Hom Bhabha’s nuclear programme
– Guided the Tata group for over half a century

Ratan Tata
– Present Chairman since 1991
HOLDING COMPANIES

Tata Sons
– Founded by Jamsetji Tata
– Promoted many of the present Tata companies
– 63% held by Tata philanthropic trusts

Tata Industries
– 100% subsidiary of Tata Sons founded in 1945
– Managing agency till 1970
– Promoted new Tata companies in technology based businesses

Cross holdings among other Tata companies
INDIAN BUSINESS HOUSES
TATA GROUP
Restructuring
• Prompted by post 1991 changing environment
• Need to identify and focus on core businesses
• Resistance from satraps
– Russi Mody, Darbari Seth, Ajit Kerkar
•
Shrink number of companies
– From over 85 to about 30
•
Shrink number of core businesses
– From about 25 to around 10 or 12
•
Mergers and divestments
• McKinsey hired as a consultants
RESTRUCTURING STRATEGIES

Keep and grow
– Power, watches, metals, chemicals, telecom, hospitality, financial
services, infotech, emerging services, infrastructure, automobiles

Forge strategic tie ups
– Tea and beverages, retailing

Remain only as strategic investors
– Luxury cars, infotech, printing, cosmetics

Sell
– Refrigeration, paints, textiles, trading, electronics, oil drilling,
petrochemicals, pharma, specialty chemicals
AUTOMOTIVE CHALLENGES

Accelerating product introductions

Rapidly implementing changes

Improving time-to-market

Tightening Regulatory requirements

Efficiently transferring processes and best practices

More innovations
STRATEGIES ADOPTED

To meet these challenges, the TATA adjust their product development as
follows:
– Reducing the period of development
– Optimizing the in-house capabilities
– Modularizing the product
– Increasing the number of products/ variants
– Improving product performance i.e. Durability, NVH, Safety, and Ride
quality

Some of the steps connected to these strategies are
– Introduction of new working methods
(Simultaneous Engineering, Concurrent Engineering, use of NPI process)
– Usage of highly sophisticated functions of CAD systems
(Parametric, Feature based Design, Digital Mock Up)
– Early concept evaluation
(Computation and Simulation)
30
CATERPILLAR

Peoria, Illinois
 Highly Centralized before 1970
 Blessings from Home!!
 Japanese and European Rivals – Hands-on
Decisions
Traditional Structure
Engineering
Manufacturing
Finance
Marketing
Accounting
Change in Stance
 Huge
Loses in International Market Share
 1985s
Marketing Division
International Division
 1/3(1970)
1/5(1988)
 Market
Gap
 Market Growth (By 1990)
32
nd
2
Change in Stance
 1990
- 1995 - 2000
Caterpillar Financial Services, Tennessee
Capital Asset Underwriting of Global Business
 Organization Redefined
(….2000)
Functional Divisions
Essential
Administrative
Centers
for
Accounting, Legal and Regulatory Affairs and
various Executive Support Systems
33
CATERPILLAR
Functional Divisions
13 Profit Centers
1997
16 Integrated Profit Centers
4 Service Centers
1997
5 Global Service Centers
Wheel Loaders and Excavators Division(WLED)
• Tractor Dept + Heavy Equipment
• Further branched acc. to customer
groups such as mining(full P n L responsibility)
34
Gains
 Focus on Design, Manu., Procurement, Distribution, Service
 Strengthened Foreign Subsidiaries and Dealerships
 Customers contacts under local control
 Do away with International Division
NEW WAY
OLD WAY
Customer
Cross Border
Customer
Alliance Office/Dealership
Places order to Illinois
Shipping
Financing Available (through
Company’s Subsidiary)
Financing through US
Institutions
35
 Each division – CFT
 Also part of Global Network
 PROPRIETERY Caterpillar Parts or Free to
OUTSOURCE
 Profits more, up by 20%, 1996
 24% growth in net income,1997
 Heavy investments for repositioning International Division
with restructured subsidiaries, Foreign Sales improved
considerably
 R&D across border to supplement Illinois R&D center
“ BORDERLESS ORGANIZATION”
36
THANKS
37