International Management
Group 8
International Management
Spring 1999
Odense University, Denmark
Lecturer: Dorte Døjbak
Group 8
Alexander Birrer - 130975
Karen Jensen - 070873
Piotr Sawinski – 200276
Rasmus Bjerregaard – 010776
Susanne Busswald – 290575
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- Executive Summary Bartlett & Ghoshal (1995) tried to deal with different organisational designs, ie. the multinational,
the international, the global and the transnational organisation, in order to discuss their
adaptability towards a specific environment. We argue according to Chandler´s statement, that
structure follows strategy. Over time all the first generation models tried to match their strategy
and their structure to the specific environment they were facing. European multinational
enterprises were facing a lot of trade barriers between the two world wars and due to that they had
to decentralize to respond to different local contexts. After World War II, a new organizational
model came from the most advanced market, the United States. The US enterprises built up
competitive advantage in their homemarket. While expanding to Europe they just transfered their
successful and formalized processes to Europe. Their strategy was made centrally, but their
subsidiaries were free to adapt product and strategy to reflect market challenges. Their focus on
beeing innovative needed a well established communication structure. In the 70s and early 80s, a
global organization model re-emerged from Japan which was the basis of their worldwide
competition. The role of subsidiaries was often limited to sales and service, and the highly
centralized structure and formal management norms allowed hardly any localization. Due to that,
they were very scale efficient. Through the 80s, in order to meet a more dynamic environment,
multinational enterprises tried to combine the strength of the three first generation models in the
transnational organisation, to become the most important phenomena in the 20th century economic
world. The focus shifted from structural fit to processes and flexibility. According to the learning
aspect and the importance of informal information flows, a higly sophisticated communication
system was established. On one hand they were centralized and on the other, they tried to adapt to
local circumstances. The four organizational designs (political, legal, economic and cultural
environment) were compared according to their ability to react to changes of different
environmental factors (see table 1).
However, there is no universal model for organizational design - the choice highly depends on the
industry, organizations are acting in. There is still a need for all four types of design choices.
However, the globalization calls for a higher degree of flexibility. Although transnational
organizations focus on flexibility, they suffer under a high degree of complexity. Therefore we
conclude that the first generation models are still valid, and that they would profit from an
implementation of new dynamic theories, as experienced learning.
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- Table of Contents Frontpage
Page 1
Executive summary
Page 2
Table of Contents
Page 3
Working in a multicultural group
Page 4
Motivation of assignment
Page 5
Introduction
Page 5
Point of departure
Page 7
Environmental factors
Page 7
First generation models
Page 10
Second generation model
Page 13
Dynamics contributing to flexibility
Page 19
Conclusion
Page 22
Bibliography
Page 23
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- Working in multicultural group Working in multicultural group is exciting but very time consuming task. The most general and
trivial, but at the same time the most important conclusion must be that each of us was thinking in
different ways. It was easy to notice this fact at the beginning of our group work. It took some
time before we found the common platform and understood each other. Everybody had a different
perspective of looking at each particular problem. After just a few meetings we were able to
understand the exact meaning of the messages sent by other members of the group. More
practically: for example the structure of our term paper was discussed long time because of this
lack of common platform and in fact, until the end of work group, it was not obvious which way
of presenting our conclusion we should use.
The same kind of problem appeared during writing the body of the assignment. The Danes (Karen
and Rasmus) preferred clear structure with well distinguished logic parts. On the other hand
Susanne (Austria) and Alex (Switzerland) liked to write in more descriptive way, without this
structured framework. Peter preferred to link each paragraph by making short introductive part
which was banned by Karen and Rasmus who argued that this kind of linkages is redundant and
waste of place. The language also was the reason of some misunderstandings. Different levels of
English made the work time consuming because it took more time to explain each point of view
to other members of the group. Without saying that, the most efficient work was done in German
in a subgroup by Susanne and Alex.
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- Motivation of Assignment As International Management is concerned with the process of planning, organizing, leading and
controlling in international environments, we want to focus on different possible design choices.
Much theory describes the structure-follows-strategy-paradigm of the contingency theory (Burton
& Obel 1998). However, this is a rather static view as the main principle is to find a fit-situation
between several contingency factors, including the environment. Due to the increasing dynamics
in the international environment, resulting in a need for adaptability we want to build upon our
design background and further concentrate on the flexibility aspect of the different design choices.
However, the trend toward Globalization creates the need to integrate cultural awareness in
management. Therefore we found it very challenging to combine both aspects.
- Introduction The Multi-contingency Model of Organizational Theory claims that effective and efficient
organizations require to have a consistency between the contingency factors for organizational
structure, the properties and structural configuration of the organization. However, this theory is
primarily criticized by its too static viewpoint. Firms are exposed to a lot of changes - intrafirm
changes as well as environmental changes. If for example a firm increases its size or if a new
technology revolutionizes an industry, firms have to be able to respond to those changes to reach
again a contingency (Burton & Obel 1998).
Particularly in the 1990's, the ability to be flexible and to adapt to changes, is becoming more and
more a key competitive factor for organizations. Due to the rate of technological change, the
globalization of markets, the growth in knowledge-intensive products, product differentiation, a
higher value on product design and a change from mass production, firms are facing the most
radical restructuring time ever occurred (Drucker, 1992). Drucker argues, concerning the
increased dynamics in the economic system resulting in a crucial importance for - especially
global acting, that organizations have to develop their ability to change.
However, this increase in the frequency of changes firms have to deal with, going against the
cumbersome process of adapting structure through the fit of the contingency theory (Burton &
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Obel, 1998). Therefore, its more static view (related to the first generation models) concentrating
to reach a structural fit, is superseded by a more dynamic view (related to the second generation
model) concentrating on permanent adaptation of strategies and reconfiguration of the structure.
Especially the dynamic aspect is interesting. The aim of the assignment is to evaluate the ability
of the different multinational enterprises (MNE’s) to act flexible in an everchanging global
environment. The unit of analysis is related to Bartlett and Ghoshal's four configurations of
multinational enterprises; the global, the multinational, the international and the transnational
organization (1995). The four organizational types developed in different historical periods,
though facing different economic, legal, political and cultural conditions. They provided a fit in
their original environment disposing a certain degree of uncertainty. The first three organizational
designs mentioned above appertain to the first generation models. Their degree of flexibility is
limited by their struicture, whereas the transnational organization, representing a second generation model, primarily can be seen as a combination of all the organizational strengths pertaining
to flexibility.
The first section of the assignment deals with the first generation models and their flexibility in
order to capture environmental changes. In the second section, the assignment deals with the
transnational organization. Lastly the assignment addresses the concept of dynamics contributing
to the strengths and flexibility of the organizations.
Although, nowadays the overall tendency in environmental factors favors the most flexible and
adaptive companies, there is still a need for first generation models. the degree of flexibility
depends highly on the industry firms are acting in. In a stable industry environment it is more
efficient to build up a formalized, standardized and routine-based organization, which is able to
exploit economies of scale, rather than to focus on adaptability.
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- Point of Departure First generation organizational models clearly stresses that "structure follows strategy" (Bartlett &
Ghoshal 1995), and that there should be contingency fits between these, both structure and
strategy, and the environment (Burton & Obel 1998).
The second generation models are based on the fact, that this is too narrow a vision, emphasizing
in turn on processes, flows and flexibility in particular (Bartlett & Ghoshal, 1995).
Considering the fact that the transnational corporation, as the foremost second generation model,
is based upon the functions of three first generation models, the multinational, the international
and the global, it would be interesting to look upon the flexibility of each of these organizations,
and in turn those of the transnational corporation.
Limitations of assignment:
The environment of the corporations is very much encompassed by the industry that the particular
corporation is in. Unfortunately an analysis on industry-level will be too specific to cover the
aspects of theory. In choosing to work on a more general level, the assignment has limited itself
from addressing this industry view in greater depth.
- Environmental Factors Every organizational model evolved in a specific economic situation and therefore developed a
certain structure to match exactly this situation (see below). Therefore, they differ considerably in
their approach towards changes in their environment. To measure the specific degree of flexibility
of the different models we will use a more precise framework considering different environmental
changes multinational corportaions are confronted with. The aim will be to investigate, which
organizational design is able to cope with a specific environmental change. Therefore we will use
a framework for environmental factors for international companies suggested by Phatak (1997),
as he is concentrating in his work on the dynamic aspect in the environment faced by global
acting companies. According to Phatak, the environment consists of four dimensions: the
economic, legal, political and cultural dimension. Phatak further divides the environmental factors
for multinational corporations into different dimensions (economical, political, legal and cultural).
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This is crucial, as a "global environment" doesn't exist as such. Moreover, it is the accumulation
of influencing factors on a national, regional and international level. Only a holistic view of the
sum of all these different factors and levels generates the international environment.
However, to be able to evaluate how the different organizational designs correspond to those
different environmental factors we will integrate a more dynamic view in the "change aspect". We
will therefore consider recent changes observed within the single factors. According to changes in
the environmental factors and their recent importance we will establish a framework of which
organizational design is most favored in today's environment (see table 1).
Economic environment:
Phatak divides this dimension into national economic aspects and global economic tendencies.
National economic aspects influencing international companies are the amount of GNP, the wage
level, the availability of resources and infrastructure, the inflation rate, etc.
Current trends underlying the global business environment include: a global thrust for market
economy, a move towards privatization, an increase in the number of middle-class consumers, a
communication and information technology revolution, an emerging economic power in East
Asea, a tendency towards regional trade blocs and a liberalization of international trade.
The overall tendency of this factor points towards a harmonization and unification on a
supranational level. More than 100 nations are e.g. integrated in a system of trade regulations
(GATT), that promotes equal trading opportunities among members. Beside this global level of
trade liberalization, the various types of trade blocs try to promote free trade among members on a
more regional level.
Therefore, those changes have a competence-destroying effect on the multinational and the
international organization. As their structure favors the adaptation to local market needs, they lack
the ability to react efficiently, namely through a centralized strategy, to global changes.
Legal environment:
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This factor comprises the laws of the nation-states within which the firm operates in, the laws of
the regional trade blocs to which those states belong and the international law. Examples for
international law are treaties of friendship, commerce, and navigation (FCN), which formulate the
conditions to do business between different countries or treaties to protect intellectual property
rights. Regional laws essentially developed along with the various regional trade blocs,
particularly in the European Union. National legal systems generally reflect the social, cultural
and religious norms of people - therefore we can find considerable differences in the single
systems.
The tendency towards regional trade blocs and free trade (Micklethwait & Wooldridge, 1997)
again points towards a homogenization and harmonization on a supranational level. However,
especially the legislative power and of those institutions will continue to grow. As the
multinational organization developed in order to be able to act according to different (e.g. legal)
national environments with independent subsidiaries, they seem to loose their raison d'être.
Political environment:
Also the global political environment can be divided into the national, regional and international
dimension. International players are e.g. the United Nations and The World Bank and regional
players again include different trade blocs such as the EU or MERCOSUR.
As we found the political environment is highly related to the legal environment, the implications
for our design choices are the same as mentioned above.
Cultural environment:
Culture can be defined as "that complex whole which includes knowledge, belief, art, morals,
customs, and any other capabilities and habits acquired by man as a member of society" (Phatak,
1997).
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Cultural differences still seem to be one of the most important issues for creating conflict in
international business. Therefore it is crucial for international firms to develop a cultural
awareness and the ability to implement it in the organization. Hence, a global organization will
have difficulties by adapting to single cultural difference without loosing their core competence of
efficiency achieved through economies of scale.
However, for a tendency towards a certain approximation of different cultures, and especially
through the higher degree of information on that account the implication for international acting
companies seems to decrease.
- First Generation Models Each company is influenced by the path by which it developed – its organizational history – and
the values, norms and practices of its management – its management culture. Collectively, these
factors constitute a company’s administrative heritage. This can be said to be a company’s great
asset and source for its competitive advantage but also a disadvantage for its adaptability (Bartlett
& Ghoshal 1995). Furthermore also the organizational environment, time of expanding, economic
conditions, legal systems and so forth, are crucial influencing factors for the development of a
certain organizational design.
Every organizational model has its specific strength fitting to its original environments and
strategy. One of the main challenges during their expanding and becoming global, is when facing
another environmental structure, eg. as in the cases of Philips, Matsushita (Bartlett & Ghoshal
1992) and Proctor&Gamble (Bartlett 1995).
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Table of comparison (Table 1):
Focus
Adaptability
Economic change
- National
- International
Political change
- National
- International
Legal change
- National
- International
Cultural change
- National
Organizational type
Multinational
International
Global
Transnational
Decentralization
Central strategy
Centralized
”Be central, act decentral”,
Pure autonomy
Autonomus units
Economies of scale
formalization & socialization
In accordance to sphere of action (Phatak, 1992): National level, or international level.
National problem
Transfrerral of funds
Same effect as others
Good (Central help)
Same effect all over
Same affect as others
Good position
Very good (Centralization)
Very good
Good
Inflexible
Very good (Autonomus)
Ineffective
Good position
Good position
Good (Central control)
Very good
Posing problems
Posing problems
Very good (Autonomus)
Ineffective
Good
Good
Good (Central control)
Very adaptable
Good
Inflexible
Very adaptable
Multinational organizational model
Especially European companies that expanded between the world wars often adopted the
multinational organizational model. Its characteristics are the loose and simple control of the
subsidiaries as a response to differences between nations. Due to rising tariffs and discriminatory
legislation (trade barriers etc.), multinational enterprises were forced to build local production
facilities and to decentralize even their strategic decision making. Otherwise they would have
been unable to defend their various market positions against strong local competitors. The
headquarter’s ability to intervene in operations was limited and the flow between headquarter and
subsidiaries was mainly financial. The whole organization was focused on local responsiveness
and this resulted in scale inefficiency. Due to no consolidation of knowledge and little
coordination at the headquarter there were a lot of redundant activities within the organization and
no cross-subsidiaral learning resulted.
The main problem of such companies is to centralize certain activities and to receive more control
from the headquarter as to be seen in the case of Philips (Bartlett & Ghoshal 1992).
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Referred to table 1, the main strengths of this organizational model is due to the high degree of
decentralization, the ability to adapt to local circumstances. Whenever there are legal, economic,
political or cultural changes - with impacts on a national level - this design is the most flexible.
Possible examples of industries to which these characteristics fit could be industries producing
consumer goods, the food as well as the textile industry, as different consumer needs call for
adaptation of products on the national markets.
International organizational model
After world war two a new dominant organizational model was born. Coming from the worlds
largest, richest and most technologically advanced market, a lot of US-MNEs had a superior
strength in being innovative and using their advantage in technology. Transferring knowledge and
expertise to countries that were less advanced either in technology or market development, was
the key task for these organizations. With a well established vertical communication and often
bottom up generated proposals for key issues these organization had their main strength in being
innovative and in their learning capability. The parent company build up competitive advantage in
its homemarket and copied this successful and formalized processes for its subsidiaries. Its
foreign subsidiaries were often free to adapt product and strategies to reflect market differences,
but it was still dependent on the parent company for new products, processes and ideas. This
needed much more coordination and control by the headquarter which was beside the information
flow one of the main differences to the former model. The main challenge of for example Proctor
& Gamble was to find the optimal level of localization versus centralization and standardization
(Bartlett 1995).
As we see in table 1, this design is able to react to either global changes or national changes due
to their intense communication in both directions within the organization. This is still important
when firms are acting for example in the paper industry or in the electronic industry.
Global organizational model
This organizational model has its root in the mass production of for example Henry Ford and John
D. Rockefeller. With home-based global-scale facilities all products were standardized and
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centrally produced and afterwards worldwide exported. This model re-emerged in Japanese
companies and was the basis of their worldwide competition in the 1970s and early 1980s. In a
global configuration assets, resources and responsibilities were centralized. The role of
subsidiaries was often limited to sales and service, and their freedom of action was very limited
compared to their counterparts in multinational or international organizations. But due to this, it
was highly scale and cost efficient. This configuration was particularly compatible with the
managerial norms and processes in eg. Japanese companies.
Its structure and management norms allowed hardly any localization, and this was one of the main
problems of Matsushita (Bartlett & Ghoshal 1992) when facing trade barriers, different consumer
need and different market conditions.
However, the centralized decision-making and control allowed these companies to retain their
complex management system, requiring intensive communication and personal commitment. This
control made the organization strong in its ability to implement a chosen strategy. Especially if
global changes occur, the center chooses to react. This adaptation can therefore be carried out
very fast and effecient through the high degree of centralization and the company retains their
scale-efficiency.
Industries favoring this characteristics could be eg. the car industry, financial industry or the oil
industry. The products are mainly standardized and changes in either consumer behavior or in
technology mainly have global effects.
- The Second Generation Model As earlier mentioned, the first generation model sought to find a contingency fit between the
contingency factors of organizational structure and strategy, in accordance to be flexible in certain
areas. A further development of these organizational types, to meet a more dynamic environment,
ended up with the second generation model. This a sum of the first generation models, which
emphasized more on organizational and strategic flexibility than structural fit, in order to be
flexible in all areas.
The transnational corporation and the foreign direct investment became one of the most important
phenomena in 20th century economic world. It is seen as providing the organizational key to the
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future direction of the globalization process and its impact. By spreading the locus of their
business operations all over the world transnational corporations play a significant and growing
role in the organization of the modern world economy, affecting the social and economic wellbeing of individuals in developed and developing economies. World-wide, over the past decade,
foreign direct investment has been growing four times as fast as world output and three times
faster than world trade. According to United Nation, there are closely to 40,000 transnational
companies, three times the figure 25 years ago (Mickletwait & Wooldridge p. 228).
Transnational corporations account for between 25 percent and 30 percent of the worlds gross
national product, about the three-fifths of non-agricultural trade and around three-quarters of the
world’s stock of privately generated innovatory capacity. Transnational corporations employ
directly some 73 million people, or 10 per cent of employment in non-agricultural activities
world-wide.
Historical overview
In 1983 Theodore Levitt published an article in Harvard business review, arguing that the
emergence of globalization would lead to a standardization of products and universally appealing
brands. He argued that people around the world, have the same needs for e.g. washing their hair,
and that they would seek to use the best product on the market. The companies that ignored
regional and national differences would soon be pushed away. Since Levitt wrote his article, the
view of globalization has changed. Michael Porter from Harvard Business School in 1989 wrote
The Competitive Advantage of Nations, where he argues that different countries and regions have
different competitive strengths. Eg. the Germans at high-quality engineering, the Japanese at
miniaturization and electronics and the British at pop music and publishing. John Stopford
supports this view and argues that firms should hand across what he calls; “their world product
mandates”, to affiliates located in the right areas. Now it is clear that globalization did not
develop as Levitt forecasted, but at the same time it is not to be ignored. Instead, globalization
sprang from lowering in trade barriers, the rapid movement of ideas, people, and money around
the globe. Therefore companies of all sizes, must face both the problems and the opportunities, of
the globalization of markets. Firms operating on the global market are now facing new challenges,
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a firm that can manufacture its products globally, making use of cultural differences might act as
an arbitrager between local centers of excellence, and then combining these skills with whatever
global resources it can gain access to (Micklethwait & Wooldridge 1997).
In the mid 90s the question was how to construct such a company. Sumantra Ghoshal and
Chrisopher Bartlett came up with one of the best answers to that question, with what they call the
transnational corporation.
The development of the transnational organizations can be related to two other developments
which, can explain not only the rising volume of international transactions but also account for
the more qualitative changes in the world economy associated with globalization:
The first development concerns the emergence of new technologies associated with the collection,
transmission and processing of the information. According to Christopher Freeman (1989), this
represents a new technological paradigm which has not only given rise to a whole net group of
related industries, but has consequences for all economic activity. Indeed, on some accounts these
technologies have already reached the point where the geography is no longer an influence on the
location and organization of economic activity.
The second development concerns the dramatic collapse of communism in the Eastern Europe.
While the immediate economic prospects for many former communists countries remain
uncertain, the triumph of the market over the plan has been greeted by many observers, as closing
a chapter of systemic diversity and opening a new episode of universal convergence around a
unique model of an unregulated or weakly regulated market economy. In its more philosophical
approach it has been seen as the end of the history (Fukuyama, 1989).
At the time being the environment all over the world is dramatically changing. Consumer tastes
and preferences are converging, and customers were internationalizing, requiring companies to be
more responsive in an integrated fashion to their marketing strategies. Scales economies in
manufacturing cause companies to integrate their operations in order to lower their costs. Scale
economies, also extended to R&D as the cost of developing new products increased and product
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life-cycles decreased, forcing companies to recoup those investments across multiple markets.
And finally competitive games started to change as companies took profits in one market and
cross-subsidized losses in another. It was a game called cross-subsidization of markets by some
strategiests. All of these forces required companies to be more global integrated, to be more
coordinated across national boundaries (Dunning).
Description of the Transnational Organization
In transnational organization a local company is able to use worldwide distribution of the parent
firm, and it can also take advantage of research done in other countries. By getting scale economy,
by importing and exporting, the company reduces its costs and makes its technology ahead of
another medium-sized firm from the same region (ABB case - CD).
Transnational company cannot be dominated by one organizational group. There has to be a
balance between business and functional management. From one side the geographic managers
situated in the national units close to the market, allow the company to be sensitive and
responsive to national exigencies. On the other hand, the company has to be more than just a
portfolio of national units. In a transnational business, managers - global leader managers with
cross-market perspective, provide the overview across national markets. This broad perspective
allows the company to develop global efficiency and competitiveness, to develop the integrated
global strategies, and make the choices across markets on issues like outsourcing and product
development.
Transnational corporations have to keep the balance between flexibility and rigidity, between
control and freedom by making clear definition of responsibilities. The transnational enterprise
allocates and holds responsible individual geographic, business, and functional managers by
creating mini-matrices with teams, task forces and the local boards negotiating differences that
can be generated.
By introducing this kind of balance the transnational corporation is able to generate more scale
economies in R&D and purchasing, and therefore flourish in a centralized product or functional
organization, while sales and service need to be tailored market by market, by local company or
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area managers. The same problem appears in making product policy, which could be made more
efficiently at the center but local promotions need to be managed in a more nationally responsive
fashion (ABB case - CD).
In such a complicated management structure the information system becomes much more
complex and it has to be managed in much more sophisticated way. In order to respond to this
kind of expectansies the system has to provide the ongoing information required for oversight and
complex decision making. For example in ABB, one of the biggest transnational companies, a
transparent, centralized
information system aggregates and seperates business segments,
countries, and companies with countries in order to analyze the information flows from a different
point of view (ABB case - CD).
Weaknesses of the Transnational Corporation
In the transnational corporation interpersonal networks are important because they serve as the
glue that holds the vast geographically dispersed and internally differentiated organizations
together (Ghoshal & Noria, 1997). Interpersonal links act as interactive mechanisms because they
are conduits for information exchange. Interpersonal ties are also mechanisms for building trust
and shared values within the transnational corporations. Therefore, if only official ways of
transfers of information are present, which can happen in such a conglomerate of separate
organisms, private interpersonal links can easily disappear. In this case, a whole organization is
not homogenous and flexible because only close relationships between members of the
organization can make easier understanding of the environment. On the other hand, threat that
relationships within the organization become too informal could be the reason for the
deregularization of corporate rules within this structure, weakening whole organization. That is
why top managers need to become conscious facilitators and try to create the possibilities of
informal change of the information, but they should have the balance and know where are the
limits for this kind of the relationships, within the company. If there is no leader ready to create
the atmosphere for corporate culture, this kind of relationships can never be introduced and
maintained.
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Here appears another problem. Transnational corporations are highly dependant on particular
strong personalities who are able to manage big complicated structures. Each leader has his own
way of organizing the main tasks and he creates inimitable general interpersonal network which
can work in this configuration only with this particular leader. If, for some reasons, the leader
changes or there is no leader, the organization with its delicate interpersonal, informal structure
can easily collapse, or at best become less efficient in responding to environmental changes.
Second generation models stress organizational and strategic flexibility rather than structural fit
(Paauwe & Dewe, 1995). Their structure cannot be fixed at once and maintained through the
years. In transnational corporations, Chandler’s proposition that structure follows strategy, is no
more relevant because structure is no more a key factor. Second generation models are those that
emphasize the management process as the intervening variable and the key to successful strategy
implementation. Therefore not the whole organization has a fixed structure with established
hierarchies, and rules between the levels of these hierarchies but the managers function as the
most important factors on the organization. And the managers can make mistakes. They can be
influenced by local environmental fluctuations and if information network does not fit well, they
can make wrong decisions responding only on local factors.
In a transnational corporation there is a great deal of emphasis on disseminating information
throughout the company, sharing common goals, and viewing short-term or local interests within
the context of the entire company (Paauwe & Dewe 95). That is why an efficient, and highly
sophisticated information system is crucial for the transnational corporation. This sophistication
can become a source of problems; eg. how organize IT in a way it would not be too expensive and
at the same time efficient. Which kind of media the organization must use in order to be able to
transfer each kind of information, formal but also informal. These questions can be answered in
different ways depending on the type of transnational corporation and the environment that it act
in.
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- Dynamics contributing to flexibility The most normal way, still, to formulate strategy, and base it on the corporation, is through
structure following strategy. And that both strategy and structure, are attributed to the external
environment (Burton & Obel 1998). But within the last decade a host of theories about how to
make the corporations more aware of processes and internal flexibility, has contributed to a
somewhat different view of strategic organizing. The theories are centered around experienced
learning, such as the balanced scorecard, the learning organization, total quality management,
benchmarking; in all, theories concerning human resource management, and the fact the
employees are viewed as strategical resources, and not as value-adding machinations (Daft 1995,
Weiss 1996).
Whereas the first generation models have a rather clear strategy-oriented focus, rooted in
structure, the transnational corporation is focusing on the processes. As such the dynamic
capabilities built with experienced learning, will help the first generation models to become even
stronger, but still retain their scope. Actually the dynamics will often strengthen the use of this
focus, with dynamics working around the structure (Daft 1995). The focus of the second
generation model is not in structure, as with the first generation models. It is in flexibility and
processes. On account of that, dynamics like experienced learning, will also strengthen this focus.
But it will not provide the same strength to the second generation model as it would to the first
generation model.
The reasoning is fairly simple; the strength of the transnational corporation lies in the flexibility
that these processes provide, and adding more will, as such, not contribute anything new to the
corporation. The first generation models, which have another focus, will inevitably gain a lot
more from these processes.
Actually the many new dynamics that corporations are able to implement in their processes, are
highly contributing to steering the corporations towards becoming second generation organizations. Still the focus of most corporations around the world is, fairly simple, a structure follows
strategy fit (Burton & Obel 1998). But with the awareness of flexibility being more and more
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important, many corporations are shifting from machine build organizations, to the idea
generating environments that come with experienced learning (Johnson & Scholes, 1997).
As it is quite evident, each of the first generation models have difficulties overcoming obstacles,
that they themselves install, through their choice of structure. These difficulties can often be
helped out of the way by using dynamics such as experienced learning (Daft, 1995);
As such the multinational organization can easily suffer from a lack of a central goal-oriented
strategy, and might not have access to any of the process oriented knowledge that they would
need in order to overcome a specific problem. Meaning in turn that the expertise will have to be
developed decentrally, in each of the units (Daft, 1995). Learning organizations have been
developed worldwide to deal with exactly these kind of problems. A.P. Møller, a worldwide
Danish trades company, for instance has a very strong policy about job-rotation, meaning that
employees will have been through a plethora of job-functions, in different departments, and in
different environments all around the world, in order to exchange and spread knowledge within
the organization.
The global organization has the exact opposite problems as the multinational, namely the units of
the company are working within a tightly defined field, governed by a central strategy. The
information flows within the corporation will invariably be static, and caught up in formal flows,
meaning that the organization is more succesible to inertia and rigid thinking. The dynamics
inherited in experienced thinking can help the units forming a more informal flow of information,
strengthening both managers decision processes, and heightening efficiency through having the
employees being more aware and able at working with given problems (Daft, 1995).
The international organization is already focused on socialization and learning, but might very
well run into the same problems as both the global and the multinational organizations might.
With, for instance, a central marketing division, information will be needed concerning the units
in different marketing segments and geographical areas (Daft, 1995). The same informal
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relationships needed in the global organization, will be able to strengthen the decision making
process. Likewise the experienced learning will help the organization exchange ideas and
knowledge to overcome problems in the markets (Weiss, 1996).
The transnational corporation is the embodiment of these processes, and therefore the problems
arising in the use of second generation models, are not easily dealt with in the same way as for the
first generation models. Actually complexity and a great drawing upon resources are probably
more usual problems in a second general model, than in the first generation model. For instance
the information flow can turn into an information overflow in the transnational organization, in
turn meaning that the experienced learning dynamics will have to be used, as described by Bartlett
& Ghoshal (1995), to install some sort of centralized and formalized consensus through
socialization. In fact as a restraining factor in much the same way as structure is it in the first
generation models.
Culture of the first generation models cannot be disregarded though, meaning in fact that even
though the focus of the first generation model is in the structure, the culture, and thus the latent
values inherent, is still very much present. So as such organizations cannot be seen as static and
purely defined by their structure, which in turn means that the processes that are focused on in the
second generation model, of course is present in the first generation organizations as well (Weiss,
1997).
The dynamics that can be installed through the experienced learning, the internal organizational
development and so forth, is actually helping the flexibility and the processes becoming much
more visible in the first generation models, thus in fact moving them a great deal of the way
towards actually being second generation models.
- Conclusion In our paper we focused on the flexibility aspect of different organizational designs for
multinational enterprises. Therefore we used the framework of Bartlett & Ghoshal (1995), who
distinguished between first and second generation models. We expected to find that the different
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designs were flexible within a certain area - the transnational organization in all areas, according
to which environment in which they were developed.
What we actually found, was that the multinational organization is most able to adapt to national
changes, whereas the global organization with its centralized structure, is able to gain from
economies of scale and centralization, and therefore can adapt best to international changes. The
international organization is already a step towards the second generation model. Their main
focus is on knowledge transfer, both from the center to the subsidiaries, as well as from the
subsidiaries to the center. This structure allows a limited adaptation to national changes, but a
better adaptation towards international changes, than the global organization.
The transnational organization tries to get the best of all three models. Centralization and
efficiency with the global, formalization and responsiveness with the multinational, and
socialization and learning with the international (Bartlett & Ghoshal, 1995).
In all focusing on processes and flows to reach the same goals that the others tries to reach by
more formal kinds of structure.
However, there is no universal model for organizational design - the choice highly depends on the
industry, organizations are acting in. There is still a need for all four types of design choices.
However, the globalization calls for a higher degree of flexibility. Although transnational
organizations focus on flexibility, they suffer under a high degree of complexity. Therefore we
conclude that the first generation models are still valid, and that they would profit from an
implementation of new dynamic theories, as experienced learning.
- Bibliography Bartlett, C.A. & Ghoshal, S. (1992): The Transnational solution, Building and managing the
Transnational,
Bartlett, C.A & Ghoshal, S. (1995): Developing the Coordination and Control. The
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Organizational Challenge in Transnational management, Irwin Inc.
Bartlett, C.A. (1983): Procter & Gamble Europe in Bartlett & Ghoshal (1995), Transnational
Management, Irwin Inc.
Burton, Richard & Obel, Børge (1998): Strategic Organizationla Diagnosis and Design, Kluwer
Academic Publishers
Daft, Richard L. (1995): Organization, Theory & Design, West Publishing Company
Drucker, P.F. (1995): Managing a Time of Great Change, Butterworth-Heineman Ltd.
Fukuyama F.(1992): The End of History, New York, Free Press
Ghoshal, S. & Nohria (1997): Integration through Interpersonal Networks and Limits and
Extensions of the Differentiated Network, Jossey-Bass Publishers, San Francisco
Johnson & Scholes (1997): Exploring Corporate Strategy, Prentice Hall Europe
Micklethwait J. and Wooldridge A. (1997).:The Witchdoctor, Random House
Pauwee, J. & Dewe, P. (1995): Organizational Structure of Multinational Corporations in
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on the Choice of Entry Mode, International Joint Ventures in East Asia
Weiss, Joseph W. (1996): Organizational Behaviour & Change, West Publishing Company
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