Chapter 8
Organization Structure and
Control Systems
PowerPoint by
Kristopher Blanchard
North Central University
© 2006 Prentice Hall
8-1
Organizational Structure
Structure needs to “fit” strategy
Most international managers find it easier to
determine what to do (strategy) than to
decide how to develop the organizational
capabilities (structure) to do it.
© 2006 Prentice Hall
8-2
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 (Stages Model) 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
© 2006 Prentice Hall
8-3
Typical ways that firms organize
international activities
Domestic structure plus export department
Domestic structure plus foreign subsidiary
International division
Global functional structure
Global product structure
Global Geographic Structure
© 2006 Prentice Hall
8-4
Integrated Global Structures
The global functional structure is designed on the
basis of the company’s 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.
Matrix Structure is a hybrid organization of
overlapping responsibilities – it is used by some
firms but has generally fallen into disfavor
recently
© 2006 Prentice Hall
8-5
Organizing for Globalization
Two opposing forces in structural decisions
– The need for differentiation (focusing on and
specializing in specific markets)
– The need for integration (coordinating those
same markets)
Globalization – a specific strategy that treats the
world as one market by using a standardized
approach to products and markets
© 2006 Prentice Hall
8-6
Organizing for Globalization
Organizing to facilitate a globalization strategy
typically involves rationalization and the
development of strategic alliances
Organizing for global product standardization
necessitates close coordination among the various
countries involved
The problem facing companies in the future is that
the structurally sophisticated global networks
leave the organization exposed to the risk of
environmental volatility from all corners of the
world
© 2006 Prentice Hall
8-7
Comparative Management Focus:
Chinese Global Network
The Chinese commonwealth is a form of
global network that has become the envy of
Western multinationals
– Network of entrepreneurial relationships in
Asia primarily
– Includes mainland China, 1.3 billion citizens,
and more than 55 million Chinese in Taiwan,
Indonesia, Hong Kong, and Thailand
– Estimated to control $2 Trillion in liquid assets
© 2006 Prentice Hall
8-8
Comparative Management Focus:
Chinese Global Network
Most observers believe that this China-based
informal economy is the world leader in economic
growth, industrial expansion, and exports
Comprises most mid-sized, family-run firms
linked by transnational network channels
Channels move information, finance, goods, and
capital
Network alliances bind together and draw from
the substantial pool of financial capital and
resources available in the region
© 2006 Prentice Hall
8-9
Keiretsu and Chaebol
Keiretsu: Set of Japanese companies with interlocking
business relationships and shareholdings
http://en.wikipedia.org/wiki/Keiretsu
Chaebol: South Korean business conglomerates
http://en.wikipedia.org/wiki/Chaebol
Differences
– Chaebol are still largely controlled by their founding families, while
keiretsu are controlled by groups of professional managers.
– Chaebol are centralized in ownership, while keiretsu are more
decentralized and connected by cross-shareholdings.
– Chaebol are prohibited from owning private banks, partly in order to
increase the government's leverage over the banks in areas such as
credit allocation. Keiretsu have historically worked with an affiliated
bank, giving the affiliated companies almost unlimited access to
credit, although this is no longer a universal feature of keiretsu.
© 2006 Prentice Hall
8-10
Emergent Structural Forms
Inter-organizational networks
The global e-corporation network structure
The transnational corporation (TNC)
network structure
© 2006 Prentice Hall
8-11
Choice of Organizational Form
© 2006 Prentice Hall
8-12
Organizational Change and Design
When does a company need to make a
change in organizational structure?
–
–
–
–
–
–
Makes a change in goals or strategy
Makes a change in scope of operations
Indications of organizational inefficiency
Conflicts among divisions and subsidiaries
Overlapping responsibilities
Complaints regarding customer service
© 2006 Prentice Hall
8-13
Locus of Decision Making
© 2006 Prentice Hall
8-14
Monitoring Systems
© 2006 Prentice Hall
8-15
Direct Coordinating Mechanisms




Design of appropriate structures
Use of effective staffing practices
Visits by head-office personnel
Regular meetings
© 2006 Prentice Hall
8-16
In-Direct Coordinating Mechanisms




Sales quotas
Budgets
Other financial tools
Feedback reports
© 2006 Prentice Hall
8-17
Appropriateness of Monitoring and
Reporting Systems
Factors likely to affect the appropriateness
of monitoring systems include:
– Management practices
– Local constraints
– Expectations regarding: Authority, Time, and
Communication
© 2006 Prentice Hall
8-18
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, non-comparability of performance data
across countries)
• Evaluation variables across countries
© 2006 Prentice Hall
8-19
Looking Ahead
Chapter 9 – Staffing, Training, and
Compensation for Global Operations
–
–
–
–
–
Staffing philosophies for global operations
Global selection
Training and development
Compensating expatriates
Compensating HCNs
© 2006 Prentice Hall
8-20
Domestic Plus Foreign Subsidiary
Return
© 2006 Prentice Hall
8-21
Global Product Division
Return
© 2006 Prentice Hall
8-22
Global Geographic Structure
Return
© 2006 Prentice Hall
8-23
Inter-organizational networks
Views the various companies, subsidiaries,
suppliers, or individuals as a relational
networks
Allows the different network partners to
adopt unique structures that are adapted to
the local context
Return
© 2006 Prentice Hall
8-24
Global E-Corporation Network
Return
© 2006 Prentice Hall
8-25
Transnational Corporation
Involves linking foreign operations to each other and to
headquarters in a flexible way
– Leverages local and central capabilities
Not a matter of boxes on an organizational chart; it is a
network of company units and a system of horizontal
communication
Requires the dispersal of responsibility and decision
making to local subsidiaries
Effectiveness is dependant on the ability and willingness to
share current and new learning and technology across the
network
Return
© 2006 Prentice Hall
8-26