G L O B A L
ORGANIZATION
D E S I G N
Enbe Chen, Luis Chan, Lee Min Quan, Cherylnn Tan (Group3)
AGENDA
 Motivations for Global Expansion
 Stages of International Development
 International Strategic Alliance
 Global Organization Design
 Challenges
 Transnational Model
 Case Study: ABB
World’s Largest Auto Market:
CHINA
Users
united states
china
0
200
400
600
800
Global Expansion
United States
Japan
China
France
Germany
Britain
Switzerland
South Korea
Netherlands
Canada
Italy
Spain
India
Taiwan
Australia
Brasil
Russia
Mexico
Sweden
Singapore
Number of Companies on the Global 500 List
2006
2008
2011
170
153
133
70
64
68
20
29
61
38
39
35
35
37
34
38
34
30
12
14
15
12
15
14
14
13
12
14
14
11
10
10
10
9
11
9
6
7
8
3
6
8
8
8
8
4
5
7
5
5
7
5
5
3
6
6
3
1
1
2
Source: Based on data from "Global 500," Fortune magazine's annual ranking of the world's largest corporations for 2006, 2008, and 2011.
Motivations
Economies of Scale
Economies of Scope
Lost Cost Production Factors
Economies of Scale
Through large-volume production, companies are able
to achieve the lowest possible cost per unit of
production.
Economies of Scope
The number and variety of products and services a company
offers as well as the number and variety of regions, countries, and
markets it serves.
Low Cost Production Factors
The opportunity to get raw materials, labor, and other
resources at the lowest possible cost.
Low Cost Production Factors
 Lower cost of capital
 Sources of cheap energy
Reduced Government Restrictions
Stages of International Development
I.
Domestic
III.
Multinational
IV.
Global
The company
each
Strategicdeals withDomestically
Export-oriented,
Multinational
country individually. oriented
Orientation
multidomestic
Global
Stage of
Development
II.
International
Initial foreign
involvement
Competitive
position
Explosion
Global
Domestic
structure plus
Structure
Specialist
are hired to handle
export
sales, service, and
department
warehousing abroad
Domestic
structure plus
international
division
Worldwide
geographic
product
structure
Matrix,
transnational
structure
Very large,
multinational
Whole world
Market Potential
Moderate,
Large,
mostly domestic multidomestic
International Strategic Alliance
Joint Venture
Consortia
Joint Venture
Separate entity created with two or more active firms
sponsors. This is a popular approach to sharing
development and production costs and penetrating
new markets.
Consortia
Groups of independent companies that join together to
share skills, resources, costs and access to one another’s
market.
Global
Integration
Globalization Strategy
National
Responsiveness
Multidomestic Strategy
International Division
Weakness:
Structure can be too complicated when broaden into
more countries.
Global Product Structure
Weaknesses:
Strengths:
•Eliminates economies of scale
•Decentralizes
decision
makinglines
•Poor coordination
across product
•In-depth
technical
•Competitions
betweenspecialization
products
Global Geographic Structure
Weaknesses:
Strengths:
•Difficult
•Leads totohigher
plan on
customer
a global
satisfaction
scale
•Poor
•Decentralizes
coordination
decision
across
making
different regions
Global Matrix Structure
Strengths:
Weaknesses:
•Meet dual demands
•Dual authority
•Time-consuming
•Flexible sharing of resources
•Needs more training for interpersonal skills •Power balance
•Opportunities for talent development
Global Organization Design Challenge
Complexity and Differentiation
Need for Coordination
Transfer of Knowledge and Innovation
Increased Complexity and
Differentiation
Companies have to create a structure to operate in numerous
countries that differ in economic development, language, political
systems and government regulations, cultural norms & values. And
infrastructure such as transportation and communication facilities.
Need for Coordination
All organizations working globally face the challenge of getting all the
pieces working together in the right way at the right time and in the
right place.
Transfer of Knowledge and Innovation
Past
From developed
countries to less
developed
countries.
Now
Trickle-up
Innovation or
Reverse Innovation
Challenges Faced
 Language Barriers
 Manager protect the interest of their own division
 Knowledge and innovation as power
 “Not-invented-here” syndrome
 Knowledge is in the mind of employees
Global Coordination Mechanisms
Global Teams
Headquarters Planning
Expanded Coordination Roles
Global Teams
Intercultural
Teams
Members from different
countries and meet face-toface.
Virtual Global
Teams
Members reamin in separate
locations and conduct their
work electronically.
Challenges of Global Team
 Cultural and language differences
 “Us-Against-Them” mentality
Headquarters Planning
 Headquarters to take an active role in planning, scheduling.
Delegating responsibility and decision making authority in
some areas while maintaining strong control through centralised
systems.
 Plans, schedules and formal rules & procedures to ensure
greater commnication.
Expanded Coordination Roles
Functional
Managers
Responsibility includes
coordinating across
countries, identifying
and linking
organization’s expertise
and resources worldwide
Country
Managers/
Business
Integrators
Coordinate across
functions within a
country.
Coordination on a
regional basis.
Network
Coordinators
Coordinate
information and
activities related to
key customer
accounts.
Benefits of Coordination
Cost Savings
Better Decision Making
Greater Revenues
Increased Innovation
Cultural Differences
Power Distance
People’s acceptance of
inequality in power among
institutions, organizations and
people
Uncertainty Avoidance
People’s tolerance with
uncertainty and ambiguity.
Centralized
Approach
USAJapan:
: Coordination
and
Control through
• Leverage on knowledge and resources at the corporate centre
Formalization
•Attain
global efficiencies
• Delegated
responsibility
to international
•Coordinate
across units
(avoid turf divisions,
battles) yet overall
control of enterprise through sophiscated management control
system and development of specialist headquarters staff.
Europe: Decentralized Approach
• High level of independence and decision
making Traditional
autonomy.
China:
Approach
• each international
unit focuses
its business
local
• Traditional
familyon
like
markets
•Distinct
hierarchy of authority
•Strong centralization
Transnational Model
Global Efficiency
Local Responsiveness
Global Learning
Transnational Model
Assets and resources are dispersed worldwide into highly specialized
operations that are linked together through interdependent
relationships
Structure are flexible, and ever changing
Subsidiary mangers intiate strategy and innovations that become
strategy for the corporation as a while
Unification and coordination are achieved primarily through
corportate culture, shared cision and values, and management
style rather than through formal structures and systems.
CASE STUDY:
ASEA BROWN BOVERI
AGENDA
 Background Information
 Company Structure – 4 Management Levels
 Implications
Background Information
ABB started with 2 separate companies – Allmanna Svenska
Elektriska Aktiebolaget (ASEA) & Brown, Boveri and Cie (BBC)
ASEA
• US$6.8 billion revenue,
employed 71,000
BBC
• SEK58 billion revenue,
employed 97,000
ASEA + BBC = ABB
•
•
•
•
•
Merged in 1988
Percy Barnevik
HQ in Zurich
US$17 billion revenue
Employed 160,000
ABB in the Present
 Operations in about 100 countries
145,000 employees *
 $40 billion revenue for 2011
 #186 in Forbes Glocal 2000
*as of June 2012
“ Global and local, big
and small, radically
decentralized but with
central control…”
Percy Barnevik, CEO (1988 – 1996)
ABB’s Matrix Structure
Top Management
Group Executive Management
• CEO
• Deputy CEO
• Executive Vice Presidents (EVPs)
Scope
•
•
Devise global strategies
Review performance
Middle Management
Business Area Managers
• Formulate strategy for allocated business area
• Ensure quality and cost standards
• Focus on R&D
Country Managers
• Implement ABB’s global strategy
• Formulate HR policies
Lower Management
Front Line Operating Companies (FLOCs)
•
•
•
•
Segregated according to business areas
Distinct legal entities
Minimal top management involvement
Heads report to 2 managers
Profit Center Level
Operations of FLOCs split into profit centers
• Achieve tasks allocated by FLOCs
• Closest link to customers
Implications
Economies of Scope
 Selling ABB products from other regions
Quick Response to Market Changes
 Due to decentralized structure
*as of June 2012
Implications
Too much to handle at the top
 Difficulty in monitoring all companies
Conflicting interests of middle management
 Delayed decision making
The End
Questions?