2. 11-2
Learning Objectives
• LO1 Explain why the design of organizational structure is
important to international companies.
• LO2 Discuss the organizational dimensions that must be
considered when selecting organizational structures.
• LO3 Discuss the various organizational forms available for
structuring international companies.
• LO4 Explain why decisions are made when they are among
parent and subsidiary units of an international company.
• LO5 Discuss how an international company can maintain
control of a joint company in which the IC owns less than 50
percent of the voting stock.
• LO6 List the types of information an international company
needs to have reported to it by its units around the world.
• LO1 Explain why the design of organizational structure is
important to international companies.
• LO2 Discuss the organizational dimensions that must be
considered when selecting organizational structures.
• LO3 Discuss the various organizational forms available for
structuring international companies.
• LO4 Explain why decisions are made when they are among
parent and subsidiary units of an international company.
• LO5 Discuss how an international company can maintain
control of a joint company in which the IC owns less than 50
percent of the voting stock.
• LO6 List the types of information an international company
needs to have reported to it by its units around the world.
3. 11-3
What is Organizational Design, and Why is
it Important for International Companies?
• How an IC is
organized to ensure
efficient and effective
integration of global
business activities
• How an IC is
organized to ensure
efficient and effective
integration of global
business activities
• Org. Design must:
– Evolve
– Respond to change
– Reconfigure so
competencies &
resources are
integrated in and
across business units
• Org. Design must:
– Evolve
– Respond to change
– Reconfigure so
competencies &
resources are
integrated in and
across business units
5. 11-5
Organizational Design Concerns
1. Find the most effective
way to departmentalize
to take advantage of
efficiencies gained from
specialization of labor
2. Coordinate the
activities of those
departments to enable
the firm to meet its
overall objectives
1. Find the most effective
way to departmentalize
to take advantage of
efficiencies gained from
specialization of labor
2. Coordinate the
activities of those
departments to enable
the firm to meet its
overall objectives
1. Product and technical
expertise regarding the IC’s
businesses
2. Geographic expertise about
countries and regions where the
IC operates
3. Customer expertise regarding
the client groups, industries,
market segments, or population
groups across national borders
4. Functional expertise
regarding the IC’s value chain
activities
1. Product and technical
expertise regarding the IC’s
businesses
2. Geographic expertise about
countries and regions where the
IC operates
3. Customer expertise regarding
the client groups, industries,
market segments, or population
groups across national borders
4. Functional expertise
regarding the IC’s value chain
activities
6. 11-6
Evolution of the International Company
StagesStages
1. Exporting
2. Overseas sales
companies
3. Foreign manufacturing
facilities
4. International Division
– “same level as domestic
division but responsible for
all non-home-country
activities”
1. Exporting
2. Overseas sales
companies
3. Foreign manufacturing
facilities
4. International Division
– “same level as domestic
division but responsible for
all non-home-country
activities”
Shift from International Division
top Worldwide Organization
Shift from International Division
top Worldwide Organization
• Worldwide organization
based on:
– Product
– Region
– Function
– Customer classes
• At lower levels:
– Process
– National subsidiary
– International or domestic
• Worldwide organization
based on:
– Product
– Region
– Function
– Customer classes
• At lower levels:
– Process
– National subsidiary
– International or domestic
9. 11-9
Reasons for Additional
Structural Changes
1. Need more capability to develop competitive
strategies to confront global competition
2. Lower production costs with global product
standardization and manufacturing
rationalization
3. Enhance technology transfer and resource
allocation
1. Need more capability to develop competitive
strategies to confront global competition
2. Lower production costs with global product
standardization and manufacturing
rationalization
3. Enhance technology transfer and resource
allocation
10. 11-10
Global Corporate Forms
ProductProduct
• Product divisions
responsible for
– Global line & staff operations
– Marketing
– Production
• Issues:
– Regional experts avoid
duplication of product
experts
– Duplication of area experts
• Product divisions
responsible for
– Global line & staff operations
– Marketing
– Production
• Issues:
– Regional experts avoid
duplication of product
experts
– Duplication of area experts
Geographic RegionsGeographic Regions
• Regional managers report
directly to CEO
• Found in both multinational
(multidomestic) and global
firms
• Works well for products with
low/stable technology but
needing strong marketing
• Hard to coordinate
production across regions
• Managers have no line
authority but give input to
decisions
• Regional managers report
directly to CEO
• Found in both multinational
(multidomestic) and global
firms
• Works well for products with
low/stable technology but
needing strong marketing
• Hard to coordinate
production across regions
• Managers have no line
authority but give input to
decisions
13. 11-13
Global Corporate Forms
FunctionFunction
• Very few firms
organized by function at
top levels
• Senior executives
reporting to CEO have
specific functional
responsibility
• Firm typically has a
narrow & highly
integrated product mix
• Very few firms
organized by function at
top levels
• Senior executives
reporting to CEO have
specific functional
responsibility
• Firm typically has a
narrow & highly
integrated product mix
HybridHybrid
• Hybrid
– “Structure organized by more
than on dimension at top
level”
– May not be hybrid at lower
levels
• Used when:
– Regional firm introduces line
best handled by worldwide
product division
– An acquired firm has distinct
products & functional marketing
network in place
– Firm sells to large, homogenous
customer group
• Hybrid
– “Structure organized by more
than on dimension at top
level”
– May not be hybrid at lower
levels
• Used when:
– Regional firm introduces line
best handled by worldwide
product division
– An acquired firm has distinct
products & functional marketing
network in place
– Firm sells to large, homogenous
customer group
16. 11-16
Matrix Organizations
Matrix OrganizationMatrix Organization
• “ one or more superimposed
organizational structures in
an attempt to mesh product,
regional, functional, and
other expertise”
• Country managers
responsible for both area and
product-line managers
• “ one or more superimposed
organizational structures in
an attempt to mesh product,
regional, functional, and
other expertise”
• Country managers
responsible for both area and
product-line managers
Problems with the MatrixProblems with the Matrix
• 2 or 3 managers must
agree on decisions
• Less-than-optimum
compromises
• Delayed responses
• Attention paid to process
not problem
• Unresolved problems go to
management
• 2 or 3 managers must
agree on decisions
• Less-than-optimum
compromises
• Delayed responses
• Attention paid to process
not problem
• Unresolved problems go to
management
18. 11-18
Solution: Matrix Overlay
Matrix OverlayMatrix Overlay
• “
BenefitsBenefits
• Requires accountability
• Avoids stress of pure
matrix structure
• Regional specialists with
staff function give input
to product decisions
• Organized into
international divisions
• Regional product
managers
• Requires accountability
• Avoids stress of pure
matrix structure
• Regional specialists with
staff function give input
to product decisions
• Organized into
international divisions
• Regional product
managers
• “ top level organizations
are required to heed
input from staff
composed of experts of
another organizational
dimension in an attempt
to avoid the double-
reporting difficulty of a
matrix organization but
still mesh two or more
dimensions”
• “ top level organizations
are required to heed
input from staff
composed of experts of
another organizational
dimension in an attempt
to avoid the double-
reporting difficulty of a
matrix organization but
still mesh two or more
dimensions”
19. 11-19
Strategic Business Units
SBUsSBUs
• business entity with a clearly defined market,
specific competitors, the ability to carry out
specific business mission, and size appropriate for
control by single manager
• Typically based on product lines
• Also called Product Business Units (PBUs) and
Strategic Performance Units (SPUs)
• business entity with a clearly defined market,
specific competitors, the ability to carry out
specific business mission, and size appropriate for
control by single manager
• Typically based on product lines
• Also called Product Business Units (PBUs) and
Strategic Performance Units (SPUs)
20. 11-20
Changes in Organizational Forms
Business Environment
changes create
pressures:
• act more quickly
• reduce costs
• improve quality
• maintain alignment
Business Environment
changes create
pressures:
• act more quickly
• reduce costs
• improve quality
• maintain alignment
ReengineeringReengineering
• redesigning organizational
structure, hierarchy, business
systems, and processes to
improve organizational efficiency
• Reengineering :
– reduces levels of middle management
– restructures work processes
– reduces fragmenting across
departments
– improves speed and quality of
strategy execution
– empowers employees
– communicates instantly
– transmits information swiftly
• redesigning organizational
structure, hierarchy, business
systems, and processes to
improve organizational efficiency
• Reengineering :
– reduces levels of middle management
– restructures work processes
– reduces fragmenting across
departments
– improves speed and quality of
strategy execution
– empowers employees
– communicates instantly
– transmits information swiftly
21. 11-21
Current Organizational Trends
Virtual CorporationVirtual Corporation
– “coordinates economic
activity to deliver value to
customers using resources
outside the traditional
boundaries of the
organization”
– aka Network Corporation
– “coordinates economic
activity to deliver value to
customers using resources
outside the traditional
boundaries of the
organization”
– aka Network Corporation
Advantages/DisadvantageAdvantages/Disadvantage
• Advantages
– Changes in workforce & work
methods
– Greater flexibility
– Network of dynamic
relationships
– Takes advantage of other
organizations’ competencies
• Disadvantage
– Potential to reduce
management’s control over
the corporation’s activities
• Advantages
– Changes in workforce & work
methods
– Greater flexibility
– Network of dynamic
relationships
– Takes advantage of other
organizations’ competencies
• Disadvantage
– Potential to reduce
management’s control over
the corporation’s activities
22. 11-22
Current Organizational Trends
Horizontal CorporationHorizontal Corporation
• “form of organization
characterized by lateral
decision process,
horizontal networks, and
a strong corporate wide
business philosophy”
• “form of organization
characterized by lateral
decision process,
horizontal networks, and
a strong corporate wide
business philosophy”
IssuesIssues
• Seen as “antiorganization”
• Company teams solve problems,
bring product to market
• Globally cultivated relationships
to build & market products
• Greater innovation & new
product development
• Middle managers and skilled
professionals make decisions
• Cooperation & coordination
substituted for strict control and
supervision
• Seen as “antiorganization”
• Company teams solve problems,
bring product to market
• Globally cultivated relationships
to build & market products
• Greater innovation & new
product development
• Middle managers and skilled
professionals make decisions
• Cooperation & coordination
substituted for strict control and
supervision
23. 11-23
Corporate Survival in the 21st
Century
• Dynamic Network Structure
– Breaks down major functions into smaller
companies
– Coordinated by small-size HQ organization
– Business functions by separate organizations
– Core business focus for optimal vertical integration
– Non-essential business functions outsourced
• Dynamic Network Structure
– Breaks down major functions into smaller
companies
– Coordinated by small-size HQ organization
– Business functions by separate organizations
– Core business focus for optimal vertical integration
– Non-essential business functions outsourced
24. 11-24
Control
• Puts plans into effect
• Evaluates plan effectiveness
• Makes desirable corrections
• Evaluates & rewards executive performance
• Puts plans into effect
• Evaluates plan effectiveness
• Makes desirable corrections
• Evaluates & rewards executive performance
25. 11-25
Where to Make Decisions in
Wholly-Owned Subsidiaries?
Decision LocationsDecision Locations
• IC Headquarters
• Subsidiary Level
• Cooperatively
• IC Headquarters
• Subsidiary Level
• Cooperatively
Decision VariablesDecision Variables
• Product & equipment
• Subsidiary management
competence & HQ
reliance on them
• IC size and duration
• Subsidiary detriment for
enterprise benefit
• Subsidiary frustration
• Product & equipment
• Subsidiary management
competence & HQ
reliance on them
• IC size and duration
• Subsidiary detriment for
enterprise benefit
• Subsidiary frustration
26. 11-26
Product and EquipmentProduct and Equipment
• Standardized by HQ if
no global policy exists
• If subsidiary shows
greater profit from
tailored product
subsidiary moves
forward.
• Standardized by HQ if
no global policy exists
• If subsidiary shows
greater profit from
tailored product
subsidiary moves
forward.
Competence of Subsidiary
Management
Competence of Subsidiary
Management
• Based on:
– Execs knowing each other
well
– How well execs know
company policies
– How well execs understand
host country conditions
– Distance between home and
host country
– How big and old parent
company is
• Based on:
– Execs knowing each other
well
– How well execs know
company policies
– How well execs understand
host country conditions
– Distance between home and
host country
– How big and old parent
company is
27. 11-27
Moving Executives
Around
Moving Executives
Around
• Promising managers often
moved to gain experience
– Among subsidiaries
– To HQ
• Learn HQ policies and
problems implementing at
subsidiary level
• Builds network of intra-IC
personal relationships
• Communications easier and
with less error
• Promising managers often
moved to gain experience
– Among subsidiaries
– To HQ
• Learn HQ policies and
problems implementing at
subsidiary level
• Builds network of intra-IC
personal relationships
• Communications easier and
with less error
Understanding Host
Country Conditions
Understanding Host
Country Conditions
• HQ will rely more on
subsidiary managers if
less familiar with host
country conditions or
they are very different
• HQ will rely more on
subsidiary managers if
less familiar with host
country conditions or
they are very different
How Far Away Is Host
Country?
How Far Away Is Host
Country?
• The greater the
distance, the greater the
perceived differences
• The greater the
distance, the greater the
perceived differences
28. 11-28
Size & Age of the ICSize & Age of the IC
• Large companies hire
more specialists,
experts, and experienced
executives than do
smaller companies.
• Older companies have
more experienced top
management than do
younger ones.
• Large companies hire
more specialists,
experts, and experienced
executives than do
smaller companies.
• Older companies have
more experienced top
management than do
younger ones.
Benefitting Enterprise
to Subsidiary Detriment
Benefitting Enterprise
to Subsidiary Detriment
• Subsidiary Detriment
– “situation in which a
small loss for a subsidiary
results in gain for the
total IC”
• Subsidiary Detriment
– “situation in which a
small loss for a subsidiary
results in gain for the
total IC”
Moving Production
Factors
Moving Production
Factors
– HQ may decide to move
production to take advantage
of better conditions in another
host country
– Subsidiary not enthusiastic
– HQ may decide to move
production to take advantage
of better conditions in another
host country
– Subsidiary not enthusiastic
29. 11-29
Which Subsidiary Gets
the Order?
Which Subsidiary Gets
the Order?
• Based on
– Transportation
– Production costs
– Tariffs
– Currency restrictions
– Order backlogs
– Governmental pressure
– Taxes
• HQ decision avoids price
competition
• Based on
– Transportation
– Production costs
– Tariffs
– Currency restrictions
– Order backlogs
– Governmental pressure
– Taxes
• HQ decision avoids price
competition
Multicountry
Production
Multicountry
Production
• Consolidating
standardized production
in several small markets
for attaining overall
manufacturing
economies of scale
• Requires high degree of
HQ coordination and
control
• Consolidating
standardized production
in several small markets
for attaining overall
manufacturing
economies of scale
• Requires high degree of
HQ coordination and
control
30. 11-30
Which Subsidiary
Books the Profit?
Which Subsidiary
Books the Profit?
• HQ decision based on:
– Tax considerations
– Currency controls
– Labor relations
– Political climate
– Social unrest
• Transfer Pricing
– “Pricing that is
established or
transactions between
members of the enterprise”
• HQ decision based on:
– Tax considerations
– Currency controls
– Labor relations
– Political climate
– Social unrest
• Transfer Pricing
– “Pricing that is
established or
transactions between
members of the enterprise”
ExampleExample
31. 11-31
Subsidiary FrustrationSubsidiary Frustration
• HQ must give motivated management and loyalty
to its subsidiaries.
• If subsidiary managers lose incentive, prestige or
face with employees and community, they become
hostile and disloyal.
• Authority and responsibility need to be delegated
to subsidiary managers.
• They need to be kept thoroughly informed and
consulted about serious issues.
• If not, frustration and resignations will result.
• HQ must give motivated management and loyalty
to its subsidiaries.
• If subsidiary managers lose incentive, prestige or
face with employees and community, they become
hostile and disloyal.
• Authority and responsibility need to be delegated
to subsidiary managers.
• They need to be kept thoroughly informed and
consulted about serious issues.
• If not, frustration and resignations will result.
32. 11-32
Joint Ventures and Subsidiaries
Less Than 100% Owned
Loss of Freedom and
Flexibility
Loss of Freedom and
Flexibility
• Outside shareholders
can control the affiliate
and bock HQ initiatives
by voting their shares or
applying political and
legal pressure
• Outside shareholders
can control the affiliate
and bock HQ initiatives
by voting their shares or
applying political and
legal pressure
Control Can Be HadControl Can Be Had
• IICs with<50% to “0”
voting stock till can
control with:
– Management contract
– Control of finances
– Control of technology
– Putting people from the IC in
important positions
• IICs with<50% to “0”
voting stock till can
control with:
– Management contract
– Control of finances
– Control of technology
– Putting people from the IC in
important positions
33. 11-33
Reporting
FinancialFinancial
• Use of Surplus Funds:
– Retained for investment
or contingencies
– To parent for dividends
– Loan to or investment in
another subsidiary
• Use of Surplus Funds:
– Retained for investment
or contingencies
– To parent for dividends
– Loan to or investment in
another subsidiary
TechnologicalTechnological
• New technology needs to
be reported to HQ
• HQ can acquire of
license for own corporate
competitive advantage
• New technology needs to
be reported to HQ
• HQ can acquire of
license for own corporate
competitive advantage
34. 11-34
Reporting
Market OpportunitiesMarket Opportunities
• Spot new or growing
market opportunities
• Sell in new market
• Assemble or license if
large enough to support
• Monitor and report
competitor activities
• Changes in subsidiary’s
market share
• Spot new or growing
market opportunities
• Sell in new market
• Assemble or license if
large enough to support
• Monitor and report
competitor activities
• Changes in subsidiary’s
market share
Political and EconomicPolitical and Economic
• All economic and
political changes should
be reported because they
have direct impact on
subsidiary and parent
performance and
profitability
• All economic and
political changes should
be reported because they
have direct impact on
subsidiary and parent
performance and
profitability
35. 11-35
Managing in a World out of Control
The Internet as
Working Anarchy
The Internet as
Working Anarchy
• Nobody owns it
• Nobody runs it
• Dint of online etiquette
• No rules
• No regulations
• Rampant expansion and
evolution
• Highly adaptable
• Less susceptible to
network crash
• Nobody owns it
• Nobody runs it
• Dint of online etiquette
• No rules
• No regulations
• Rampant expansion and
evolution
• Highly adaptable
• Less susceptible to
network crash
MIT System of
Distributed Control
MIT System of
Distributed Control
1. Do simple things first
2. Learn to do them
flawlessly
3. Add new layers of activity
after the results of the
simple task
4. Don’t change the simple
things
5. Make the new layer work
as flawlessly as the simple
one
6. Repeat ad infinitum
1. Do simple things first
2. Learn to do them
flawlessly
3. Add new layers of activity
after the results of the
simple task
4. Don’t change the simple
things
5. Make the new layer work
as flawlessly as the simple
one
6. Repeat ad infinitum
36. 11-36
Managing in a World out of Control
Control: Yes and NoControl: Yes and No
• IC control is critical for the success of the IC family
• The trend is toward centralized decision making
• Functional control is becoming more technology-
driven, decentralizing and de-jobbing the firm
• Workers do evolving tasks with changing teams
• Hierarchies dissolve
• Leaders give up control
• Workers are trained for change and rewarded for
coping well
• no rules no reuations
• IC control is critical for the success of the IC family
• The trend is toward centralized decision making
• Functional control is becoming more technology-
driven, decentralizing and de-jobbing the firm
• Workers do evolving tasks with changing teams
• Hierarchies dissolve
• Leaders give up control
• Workers are trained for change and rewarded for
coping well
• no rules no reuations
37. 11-37
GLOBAL gauntlet
• Life in a Virtual
Organization
• Life in a Virtual
Organization
• What is your impression
of working in a virtual
organization?
• How will they evolve?
• Will they replace
traditional
organizations?
• What are their greatest
strengths and
weaknesses?
• Would you like to work
in one?
• What is your impression
of working in a virtual
organization?
• How will they evolve?
• Will they replace
traditional
organizations?
• What are their greatest
strengths and
weaknesses?
• Would you like to work
in one?
