Organization Structure and Control Systems
Chapter 8
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Chapter 8 - Overview
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Organization structure
Evolution and change in MNC organizational structures
Organizing for globalization
Emergent structural forms
Choice of organizational form
Control systems for global operations
Managing effective monitoring systems
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Internationalization
 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.
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Structuring International Activities
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Domestic structure plus export department
Domestic structure plus foreign subsidiary
International division
Global functional structure
Global product structure
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Domestic Structure Plus Foreign Subsidiary
(Exhibit 8-1)
Chief Executive Officer
HQ Departments Finance Production
Marketing
HRM
VP Int’l Operations
Overseas
Subsidiaries
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Japan
Germany
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Mexico
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Global Functional Structure
 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.
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Global Product (Divisional) Structure
 In the global product (divisional) structure, a
single product (or product line) is represented by
a separate division. Each division is headed by
its own general manager, and each is responsible
for its own production and sales functions.
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Global Product (Divisional) Structure
(Exhibit 8-2)
CEO
Corporate
Functional Staff
Product 1
Division
Area Specialists:
North America
Latin America
Europe
Far East
Product 2
Division
Country A
Finance
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Product 3
Division
Country B
Production
Marketing
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Global Geographic (Area) Structure
 In the global geographic (area) structure – the
most common form of organizing foreign
operations – divisions are created to cover
geographic regions. Each regional manager is
then responsible for the operations and
performance of the countries within a given
region.
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Global Geographic Structure
(Exhibit 8-3)
Board of Directors
Chair
CEO
VP
Finance
Group VP
VP
Plastics
VP
N. America
VP
S. America
VP
Agriculture
VP
VP
Europe Pacific
France
Finance Production
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UK
Marketing
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Opposing Forces in Structural Choices
 The need for differentiation (focusing on and
specializing in specific markets)
 The need for integration (coordinating those
same markets)
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Emergent Structural Forms
 Interorganizational networks
 The global e-corporation network structure
 The transnational corporation (TNC) network
structure
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Information Technology’s Impact on
Organizational Forms
 “Competitive companies in the future will be
elaborate networks of people and information,
each exerting an influence on the other. [These
networks will comprise] a small hub of staff
connected to each other by their physical
proximity, which is electronically connected to
global associates who help control assets and
negotiate agreements to extend the company’s
business influence.”
Kilmann
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The Global E-Corporation Network
Structure
(Exhibit 8-6)
Suppliers
Manufacturers
Supplier
exchanges
Wholesale
distributors
Supply Chain Network
Logistics
providers
Logistics
exchanges
Customers
Customer
exchanges
Virtual
manufacturers
Contract
manufacturers
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Logistics
providers
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Information flow
Goods flow
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Choice of Organizational Form
 Two major variables in choosing the structure
and design of an organization are the
opportunities and need for
• globalization and
• localization
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Organizational Alternatives and
Development for Global Competition
(Exhibit 8-7)
TNC
Global
product
structure
Global
company
Horizontal
organization, alliances
and networks
Transnational
structure
MNC
Matrix structure
International
company
Domestic
functional
with int’l division
Geographic
area
structure
Opportunities and Need for Localization
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Locus of Decision Making in an
International Organization
(Exhibit 8-10
Headquarters
authority
Subsidiary/local
unit authority
Area of control
at local level
HQ management
makes decision
and informs
local managers
HQ management
makes decision
and “sells” to
subsidiary
managers
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HQ management
makes decision
and recommends
to local
managers
Local managers
present problem
and solution to
HQ for decision
HQ and local
managers
consult on
decisions
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Local
managers
make decision
and inform
HQ
Local managers
make decision
and “sell” to
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When is Change Needed?
(Exhibit 8-9)
 A change in the size of the corporation – due to growth,
consolidation, or reduction
 A change in key individuals – which may alter management
objectives, interests, and abilities
 A failure to meet goals, capitalize on opportunities, or be innovative
 An inability to get things done on time
 A consistently overworked top management that spends excessive
hours on the job
 A belief that costs are extravagant or that budgets are not being met
 Morale problems
 Lengthy hierarchies that inhibit the exercise of strategic control
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When is Change Needed?
(contd.)
 Planning that has become increasingly staff-driven and is thus
divorced from line management
 Innovation that is stifled by too much administration and monitoring
of details
 Uniform solutions that are applied to nonuniform situations. The
extreme opposite of this condition – when things that should or could
function in a routine manner do not – should also be heeded as a
warning. In other words, management by exception has replaced
standard operating procedures
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When is Change Needed?
(contd.)
 The following are a few specific indicators of
international organizational malaise:
 A shift in the operational scope – perhaps from directing export
activities to controlling overseas manufacturing and marketing units,
a change in the size of operations on a country, regional, or
worldwide basis, or failure of foreign operations to grow in
accordance with plans and expectations
 Clashes among divisions, subsidiaries, or individuals over territories
or customers in the field
 Divisive conflicts between overseas units and domestic division staff
or corporate staff
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When is Change Needed?
(contd.)
 Instances wherein centralization leads to a flood of detailed data that
is neither fully understood nor properly used by headquarters
 Duplication of administrative personnel and services
 Underutilization of overseas manufacturing or distribution facilities
 Duplication of sales offices and specialized sales account executives
 Proliferation of relatively small legal entities or operating units
within a country or geographic area
 An increase in overseas customer service complaints
 Breakdowns in communications within and between organizations
 Unclear lines of reporting and dotted-line relationships, and illdefined executive responsibilities
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Coordinating Mechanisms
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Direct coordinating mechanisms
Examples
Design of appropriate structures
Use of effective staffing practices
Visits by head-office personnel
Regular meetings
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Coordinating Mechanisms
(contd.)
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Indirect coordinating mechanisms
Examples
Sales quotas
Budgets
Other financial tools
Feedback reports
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Managing Effective Monitoring Systems
Factors likely to affect the appropriateness of
monitoring systems include:
 Management practices
 Local constraints
 Expectations regarding
• Authority
• Time
• Communication
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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,
noncomparability of performance data across countries)
• Evaluation variables across countries
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