International Management International Ninth Edition Management Ninth Edition Chapter 11 Management Decision and Control Luthans | Doh Fred Luthans Jonathan P. Doh International Management Ninth Edition Luthans | Doh Management Decision and Control • The specific objectives of this chapter are to 1. PROVIDE comparative examples of decision- making in different countries. 2. PRESENT some of the major factors affecting the degree of decision-making authority given to overseas units. 3. COMPARE and CONTRAST direct controls with indirect controls. 4. DESCRIBE some of the major differences in the ways that MNCs control operations. 5. DISCUSS some of the specific performance measures that are used to control international operations. International Management Ninth Edition Luthans | Doh Decision-Making Processes and Challenges • Managerial decision-making process – Involves choosing a course of action among alternatives • Process is often linear. • Looping back is common. • Managerial involvement in procedure depends on structure of subsidiaries and locus of decision making. – Centralized: decisions made at the top – Decentralized: decisions delegated International Management Ninth Edition Luthans | Doh Factors Affecting Decision-Making Authority • A number of factors will influence international managers' conclusions about retaining or delegating decision-making to a subsidiary. • A major concerns for organizations: How efficient are the processes which are put in place? • The protection of goods and services is also important to an MNC. • The right degree of centralized or decentralized decision making can be critical to the success of the MNC. International Management Ninth Edition Decision-Making Process Luthans | Doh International Management Ninth Edition Factors That Influence Centralization or Decentralization of Decision Making in Subsidiary Operations Luthans | Doh International Management Ninth Edition Luthans | Doh Cultural Differences and Comparative Examples of Decision Making • Decision-making philosophies and practices from country to country: Do international operations use similar decision-making norms? – French and Danish managers used different approaches to decision-making; each more adept at different stages of the process. – French do not value time as much as counterparts. – Germans focus more on productivity and quality of goods/services than on managing subordinates • Co-determination: a legal system that requires workers and their managers to discuss major decisions International Management Ninth Edition Luthans | Doh Cultural Differences and Comparative Examples of Decision Making • Japanese terms related to decision making: – Ringisei: decision-making by consensus – Tatemae: doing the right thing according to norm – Honne: what one really wants to do • Other cultural differences: – How managers view time in the decision-making process – Level of team orientation International Management Ninth Edition Luthans | Doh Total Quality Management Decisions • Total quality management (TQM) – An organizational strategy and the accompanying techniques that result in the delivery of high-quality products or services to customers • TQM is critical to achieve world-class competitiveness – Manufacturing is primary area. • Concurrent engineering/interfunctional teams – Designers, engineers, production specialists, and customers work together to develop new products. • Empowerment – Give individuals and teams resources, information, and authority needed to develop ideas and implement them. – Rewards and recognition: merit pay, discretionary bonuses, pay-forskills and knowledge plans, plaques, and public recognition International Management Ninth Edition Luthans | Doh Total Quality Management Decisions • ISO 9000 Certification – Indirectly related to TQM – International Standards Organization (ISO) to ensure quality products and services – Areas examined include design, process control, purchasing, service, inspection and testing, and training. • Ongoing Training – Wide variety of forms such as statistical quality control and team meetings―designed to generate ideas – Objective is to apply kaizen • Japanese term for continuous improvement. International Management Ninth Edition Luthans | Doh The Emergence of New Beliefs Regarding Quality International Management Ninth Edition Luthans | Doh Decision and Control Linkages • Decision making and controlling are interlinked functions – The process of evaluating results in relation to plans or objectives and deciding what, if any, action to take. • MNCs use different methods to control overseas operations – Most combine direct and indirect controls – Some prefer heavily quantifiable methods; some prefer qualitative approaches – Some prefer decentralized approaches; others greater centralization International Management Ninth Edition Luthans | Doh The Controlling Process • MNCs may experience control problems – The objectives of the overseas operation and the MNC may conflict. – The objectives of joint venture partners and corporate management are not in accord. – The degree of experience and competence in planning varies widely among managers running overseas units. – Basic philosophic disagreements about objectives and polices of international operations exists, largely because of cultural differences. International Management Ninth Edition Models of PC Manufacturing Traditional Model Luthans | Doh International Management Ninth Edition Models of PC Manufacturing Direct Sales Model Luthans | Doh International Management Ninth Edition Models of PC Manufacturing Hybrid Model Luthans | Doh International Management Ninth Edition Luthans | Doh Types of Control • Two common complementary types: 1. Internal or external control in devising overall strategy 2. Looking at ways organization uses direct and indirect controls International Management Ninth Edition Luthans | Doh Types of Control External and Internal Control • Internal and external control – One is often given more attention than the other. • An external control focus is needed to find out what customers want and to be prepared to respond appropriately – Management wants to ensure market for goods and services exist International Management Ninth Edition Luthans | Doh The Impact of Internal- and ExternalOriented Cultures on the Control Process International Management Ninth Edition Luthans | Doh Types of Control Direct Controls • Direct control – Involves the use of face-to-face personal meetings for purpose of monitoring operations. • Examples – CEO runs meetings to discuss problems, set goals, evaluate, decide on actions – Top executives visit overseas affiliates to learn of problems and challenges – Staffing practices: Who will manage, etc.? – Design structure that makes unit highly responsive to home-office requests and communications International Management Ninth Edition Luthans | Doh Types of Control Indirect Controls • Indirect controls – Involve the use of reports and other written forms of communication to control operations at subsidiaries. • Financial statements – Examples: monthly operating reports; supplements to the operating report, include financial statements, such as balance sheets, income statements, cash budgets, and financial ratios – Usually required from subsidiaries: • Financial statement prepared to meet national accounting standards prescribed by host country • Statements prepared to comply with accounting principles and standards required by home country • Statements prepared to meet financial consolidation requirements of home country International Management Ninth Edition Luthans | Doh The Controlling Process Approaches to Control • Some major differences across countries • Great Britain – Financial records are sophisticated and heavily emphasized. – Top management tends to focus on major problem areas, and are not involved in specific matters of control. – Control used for general guidance more than surveillance. – Operating units have large amount of marketing autonomy. International Management Ninth Edition Luthans | Doh The Controlling Process Approaches to Control • Germany – Managers employed very detailed control and focused attention on all variances; they placed heavy control on production and stressed efficiency. • France – Managers employ control systems closer to that of German than British. – Control is used more for surveillance than guidance. – Process is centrally administered. – Less systematic and sophisticated than in German companies International Management Ninth Edition Luthans | Doh The Controlling Process Approaches to Control • U.S. vs. Europeans – U.S. firms rely much more on reports and other performance-related data. – Americans make greater use of output control, while Europeans rely more heavily on behavioral control. – Control in U.S. MNCs focuses more on quantifiable, objective aspects of foreign subsidiary, while control in European MNCs measures more qualitative aspects. – Control in European MNCs requires more decentralization of decision making than in U.S. International Management Ninth Edition Luthans | Doh Performance Evaluation as a Mechanism of Control • Three common performance measures 1. Financial performance • Typically measured by profit and loss and return on investment. 2. Quality performance • Often controlled through quality circles. 3. Personnel performance • Typically judged through performance evaluation techniques. International Management Ninth Edition Luthans | Doh Performance Evaluation as a Mechanism of Control Financial Performance • Financial performance – The most important part of ROI calculation is profit which is often manipulated by management. • The amount of profit is directly related to how well or poorly a unit is judged to perform. • Bottom line performance of subsidiaries can be affected by currency fluctuations. – If a country devalues its currency, subsidiary export sales will increase. • Price of goods will be lower for foreign buyers with currencies that have greater purchasing power. – If a country revalues its currency, export sales will decline. • Price of goods for foreign buyers rises since currencies now have less purchasing power in subsidiary’s country. International Management Ninth Edition Luthans | Doh Performance Evaluation as a Mechanism of Control Quality Performance • Quality performance • Why are Japanese goods of higher quality than goods of many other countries? – – – – Quality control circle (QCC) Japanese firms train people carefully Staying on technological cutting edge Focus on developing and bringing to market competitively priced goods – Design, engineer, and supply people to ensure product produced at prices customers can bear – “Training overkill” – Fostering continuous cost-reduction efforts (kaizen) International Management Ninth Edition Luthans | Doh Performance of Suppliers When Serving U.S.- and Japanese-Owned Auto Plants International Management Ninth Edition Luthans | Doh Performance Evaluation as a Mechanism of Control Personnel Performance • Personnel performance • Periodic appraisal of work performance – Differences in performance appraisals across countries • Rewards and employee monitoring – Japanese use a more social or group orientation. – Americans use a more individualistic approach. • Assessment centers International Management Luthans | Doh Ninth Edition World’s Most Reputable Companies, 2012 continues International Management Ninth Edition World’s Most Reputable Companies, 2012 Luthans | Doh International Management Ninth Edition Luthans | Doh Personnel Performance World’s Most Admired Firms • Common Themes – Top managers at the most-admired companies take their mission statements seriously and expect everyone else to do the same. – Success attracts the best people—and the best people sustain success. – The top companies know precisely what they are looking for. – These firms see career development as an investment, not a chore. – Whenever possible, these companies promote from within. – Performance is rewarded. – The firms are genuinely interested in what their employees think, and they measure work satisfaction often and thoroughly. International Management Ninth Edition Luthans | Doh Review and Discuss 1. A British computer firm is acquiring a smaller competitor located in Frankfurt. What are two likely differences in the way these two firms carry out the decision-making process? How could these differences create a problem for the acquiring firm? Give an example in each case. 2. Which cultures are more likely to focus on external controls? Which cultures would consider direct controls more important than indirect controls? International Management Ninth Edition Luthans | Doh Review and Discuss 3. How would you explain a company’s decision to use centralized decision-making processes and decentralized control processes, considering the two are so interconnected? Provide an industry example of where this may occur. 4. How are U.S. multinationals trying to introduce total quality management into their operations? Give two examples. Would a U.S. MNC doing business in Germany find it easier to introduce TQM concepts into German operations, or would there be more receptivity to them back in the United States? Why? What if the U.S. multinational were introducing these ideas into a Japanese subsidiary? International Management Ninth Edition Luthans | Doh Review and Discuss 5. In what ways could an accelerated decision-making process harm a company? Using Figure 11–1, which stage(s) do you think would be most in danger of being overlooked? 6. A company practices personnel performance evaluation through reviewing financial decisions management has made, specifically focusing on ROI. How is this approach beneficial to the company? Which aspects could the company be neglecting? Which cultures are most likely to employ this method? Which cultures would avoid this tactic?