Chapter 7

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Chapter 7

  1. 1. Chapter 7Organizational Designs forMultinational Companies Copyright© 2007 Thomson Learning All rights reserved
  2. 2. Learning Objectives•• Understand the components of organizational design Understand the components of organizational design•• Know the basic building blocks of organization Know the basic building blocks of organization structure structure•• Understand the structural options for multinational Understand the structural options for multinational companies companies•• Know the choices multinationals have in the use of Know the choices multinationals have in the use of subsidiaries subsidiaries Copyright© 2007 South-Western/Thomson Learning All rights reserved
  3. 3. Learning Objectives•• See the links between multinational strategies and See the links between multinational strategies and structures structures•• Understand the basic mechanisms of organizational Understand the basic mechanisms of organizational coordination and control coordination and control•• Know how coordination and control mechanisms are Know how coordination and control mechanisms are used by multinational companies used by multinational companies•• Understand the need for knowledge management Understand the need for knowledge management systems within organizations systems within organizations Copyright© 2007 South-Western/Thomson Learning All rights reserved
  4. 4. Organizational Design•• How organizations structure subunits and coordination How organizations structure subunits and coordination and control mechanisms to achieve strategic goals and control mechanisms to achieve strategic goals•• Basic questions: Basic questions: -- How to divide work among the organization’s How to divide work among the organization’s subunits? subunits? -- How to coordinate and control the efforts of the units How to coordinate and control the efforts of the units created? created? Copyright© 2007 South-Western/Thomson Learning All rights reserved
  5. 5. Nature of Organization Design•• In small organizations, there is little reason to divide In small organizations, there is little reason to divide work work -- Everyone does the same thing and everything Everyone does the same thing and everything•• As organizations grow, there is a need to divide work As organizations grow, there is a need to divide work and the organization and the organization•• There is no one best organizational design There is no one best organizational design Copyright© 2007 South-Western/Thomson Learning All rights reserved
  6. 6. The Basic Functional Structure•• Departments perform separate business functions Departments perform separate business functions such as marketing or manufacturing such as marketing or manufacturing•• Simplest of organizations Simplest of organizations•• Most smaller organizations have functional structures Most smaller organizations have functional structures Copyright© 2007 South-Western/Thomson Learning All rights reserved
  7. 7. Exhibit 8.1: A Basic FunctionalStructure Copyright© 2007 South-Western/Thomson Learning All rights reserved
  8. 8. The Basic Functional Structure•• Works best when organization has: Works best when organization has: -- Few products Few products -- Few locations Few locations -- Few types of customers Few types of customers -- A stable environment A stable environment -- Routine technology Routine technology Copyright© 2007 South-Western/Thomson Learning All rights reserved
  9. 9. The Basic Product and Geographic Structures•• Product structure: departments or subunits based on Product structure: departments or subunits based on different product groups different product groups•• Geographic structure: departments or subunits based Geographic structure: departments or subunits based on geographic regions on geographic regions Copyright© 2007 South-Western/Thomson Learning All rights reserved
  10. 10. The Basic Product and Geographic Structures (cont.)•• Usually less efficient than the functional organization Usually less efficient than the functional organization•• Allows a company to serve customer needs that vary Allows a company to serve customer needs that vary by region or product by region or product Copyright© 2007 South-Western/Thomson Learning All rights reserved
  11. 11. Exhibit 8.2: Product Structure Copyright© 2007 South-Western/Thomson Learning All rights reserved
  12. 12. Exhibit 8.3: A BasicGeographic Structure Copyright© 2007 South-Western/Thomson Learning All rights reserved
  13. 13. The Basic Product and Geographic Structures•• Managers choose product structures when: Managers choose product structures when: •• Product or an area sufficiently unique to require Product or an area sufficiently unique to require focused functional efforts on one type of product or focused functional efforts on one type of product or service service•• Hybrid structure: mixes functional, geographic, and Hybrid structure: mixes functional, geographic, and product units product units Copyright© 2007 South-Western/Thomson Learning All rights reserved
  14. 14. Organizational Structures to Implement Multinational Strategies•• When company first goes international, it seldom When company first goes international, it seldom changes structure. changes structure. -- Passive exporter Passive exporter•• Licensing has little impact on domestic structures. Licensing has little impact on domestic structures.•• However, when international sales become more However, when international sales become more central, structures need to be changed. central, structures need to be changed. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  15. 15. Export Department•• Coordinates and controls a company’s export Coordinates and controls a company’s export operations operations•• Export department Export department -- Is created when exports become significant Is created when exports become significant -- Deals with international sales of all products Deals with international sales of all products Copyright© 2007 South-Western/Thomson Learning All rights reserved
  16. 16. Exhibit 8.4: A FunctionalStructure with an ExportDepartment Copyright© 2007 South-Western/Thomson Learning All rights reserved
  17. 17. Foreign Subsidiaries•• Subunit of the multinational company that is located in Subunit of the multinational company that is located in another country another country•• Types of foreign subsidiaries Types of foreign subsidiaries -- Minireplica subsidiary: smaller version of the parent Minireplica subsidiary: smaller version of the parent company company •• Uses the same technology and producing the Uses the same technology and producing the same products as the parent company same products as the parent company -- Transnational subsidiary: has no companywide form Transnational subsidiary: has no companywide form or function or function •• Each subsidiary contributes what it does best Each subsidiary contributes what it does best Copyright© 2007 South-Western/Thomson Learning All rights reserved
  18. 18. Foreign Subsidiaries•• Many subsidiaries are neither minireplicas nor Many subsidiaries are neither minireplicas nor transnationals transnationals•• May take different forms or functions May take different forms or functions Copyright© 2007 South-Western/Thomson Learning All rights reserved
  19. 19. Foreign Subsidiaries•• Multinationals choose the mix of functions based on: Multinationals choose the mix of functions based on: -- The firm’s multinational strategy or strategies The firm’s multinational strategy or strategies -- The subsidiaries’ capabilities and resources The subsidiaries’ capabilities and resources -- The economic and political risk of building and The economic and political risk of building and managing a subunit in another country managing a subunit in another country -- How the subsidiaries fit into the overall multinational How the subsidiaries fit into the overall multinational organizational structure organizational structure Copyright© 2007 South-Western/Thomson Learning All rights reserved
  20. 20. International Division•• Larger and has greater responsibilities compared to Larger and has greater responsibilities compared to the export department the export department•• Responsible for managing exports, international sales, Responsible for managing exports, international sales, and foreign subsidiaries and foreign subsidiaries•• Usual step after export department Usual step after export department•• Deals with all products Deals with all products•• Manages overseas sales force and manufacturing Manages overseas sales force and manufacturing sites sites Copyright© 2007 South-Western/Thomson Learning All rights reserved
  21. 21. Exhibit 8.5: An InternationalDivision Copyright© 2007 South-Western/Thomson Learning All rights reserved
  22. 22. Organizational Structures to Implement Multinational Strategies•• Reasons to abandon the international division Reasons to abandon the international division -- Diverse products overwhelm capacities of Diverse products overwhelm capacities of multinational multinational -- Not close enough to local markets Not close enough to local markets -- Cannot take advantage of global economies of scale Cannot take advantage of global economies of scale or global sources of knowledge or global sources of knowledge Copyright© 2007 South-Western/Thomson Learning All rights reserved
  23. 23. Organizational Structures to Implement Multinational Strategies•• Several options available to deal with these Several options available to deal with these shortcomings shortcomings -- Worldwide product structure Worldwide product structure -- Worldwide geographic structure Worldwide geographic structure -- Matrix structure Matrix structure -- Transnational-network structure Transnational-network structure Copyright© 2007 South-Western/Thomson Learning All rights reserved
  24. 24. Worldwide Geographic Structure•• Has geographical units representing regions of the Has geographical units representing regions of the world world -- Prime reason is to implement a multidomestic or Prime reason is to implement a multidomestic or regional strategy regional strategy -- Organizational design with maximum geographic Organizational design with maximum geographic flexibility flexibility -- Separate divisions for large market countries Separate divisions for large market countries Copyright© 2007 South-Western/Thomson Learning All rights reserved
  25. 25. Exhibit 8.6: Royal VopakGeographic Structure Copyright© 2007 South-Western/Thomson Learning All rights reserved
  26. 26. Worldwide Product Structure•• Worldwide product structure Worldwide product structure -- Gives product divisions responsibility to produce and Gives product divisions responsibility to produce and sell their products or services throughout the world sell their products or services throughout the world -- Implements strategies that emphasize global Implements strategies that emphasize global products products -- Provides an efficient way to organize and centralize Provides an efficient way to organize and centralize the production and sales of similar products the production and sales of similar products Copyright© 2007 South-Western/Thomson Learning All rights reserved
  27. 27. Exhibit 8.7: WorldwideProduct Structure Copyright© 2007 South-Western/Thomson Learning All rights reserved
  28. 28. Hybrids•• Both worldwide product structure and worldwide Both worldwide product structure and worldwide geographic structure have advantages and geographic structure have advantages and disadvantages disadvantages -- Product structure: supports global products Product structure: supports global products -- Geographic structure: emphasizes local adaptation Geographic structure: emphasizes local adaptation•• Multinationals often want both abilities Multinationals often want both abilities•• Use hybrids Use hybrids Copyright© 2007 South-Western/Thomson Learning All rights reserved
  29. 29. Front-back Hybrid Structure•• The front side has units based on geography to The front side has units based on geography to provide a multidomestic or regional focus provide a multidomestic or regional focus•• The backside has units based on product groups to The backside has units based on product groups to capture global economies of scale in R&D and capture global economies of scale in R&D and production production Copyright© 2007 South-Western/Thomson Learning All rights reserved
  30. 30. Exhibit 8.8: Tetra Pak’s Front-Back Hybrid Structure Copyright© 2007 South-Western/Thomson Learning All rights reserved
  31. 31. Worldwide Matrix Structures•• Symmetrical organization with equal emphasis on Symmetrical organization with equal emphasis on -- Worldwide product groups and Worldwide product groups and -- Regional geographical divisions Regional geographical divisions•• Geographic divisions focus on national responsiveness Geographic divisions focus on national responsiveness and product divisions focus on finding global and product divisions focus on finding global efficiencies efficiencies Copyright© 2007 South-Western/Thomson Learning All rights reserved
  32. 32. Worldwide Matrix Structures•• Balances the benefits produced by area and product Balances the benefits produced by area and product structures structures•• Creates equal lines of authority for products and areas Creates equal lines of authority for products and areas -- Works best with near equal demands from both Works best with near equal demands from both sides sides•• Requires extensive resources for communication and Requires extensive resources for communication and coordination coordination•• Requires middle and upper level managers with good Requires middle and upper level managers with good human relations skills human relations skills Copyright© 2007 South-Western/Thomson Learning All rights reserved
  33. 33. Exhibit 8.9: Worldwide MatrixOrganization Copyright© 2007 South-Western/Thomson Learning All rights reserved
  34. 34. Matrix Structures•• Problems emerging with worldwide matrix structures Problems emerging with worldwide matrix structures -- Slow decision making process Slow decision making process -- Too bureaucratic Too bureaucratic -- Too many meetings and too much conflict Too many meetings and too much conflict Copyright© 2007 South-Western/Thomson Learning All rights reserved
  35. 35. Matrix Structures (cont.)•• Result Result -- Some companies have abandoned their matrixes Some companies have abandoned their matrixes and returned to product structures and returned to product structures -- Other companies have redesigned their matrix Other companies have redesigned their matrix structures to be more flexible with speedier decision structures to be more flexible with speedier decision making making Copyright© 2007 South-Western/Thomson Learning All rights reserved
  36. 36. The Transnational-Network Structure•• Newest solution to the complex demand of being Newest solution to the complex demand of being locally responsive and taking advantage of global locally responsive and taking advantage of global economies of scale economies of scale•• Combines functional, product, and geographic Combines functional, product, and geographic subunits subunits -- Dispersed subunits Dispersed subunits -- Specialized operations Specialized operations -- Interdependent relationships Interdependent relationships Copyright© 2007 South-Western/Thomson Learning All rights reserved
  37. 37. The Transnational-Network Structures•• Has no symmetry or balance in its structural form Has no symmetry or balance in its structural form•• Resources, people, and ideas flow in all directions Resources, people, and ideas flow in all directions•• Nodes or centers in the network coordinate product, Nodes or centers in the network coordinate product, functional, and geographic information functional, and geographic information Copyright© 2007 South-Western/Thomson Learning All rights reserved
  38. 38. The Transnational-Network Structures•• Philips divides the world into three groups Philips divides the world into three groups •• Key countries: such as the Netherlands and the United Key countries: such as the Netherlands and the United States produce for local and world markets and control local States produce for local and world markets and control local sales sales •• Large countries: such as Mexico and Belgium have some Large countries: such as Mexico and Belgium have some local and worldwide production facilities and local sales local and worldwide production facilities and local sales •• Local business countries: smaller countries that are Local business countries: smaller countries that are primarily sales units and that import products from the primarily sales units and that import products from the product divisions’ worldwide production centers in other product divisions’ worldwide production centers in other countries countries Copyright© 2007 South-Western/Thomson Learning All rights reserved
  39. 39. Exhibit 8.10: Geographic Linksin the Philips TransnationalStructure Copyright© 2007 South-Western/Thomson Learning All rights reserved
  40. 40. Exhibit 8.11: Product Links inthe Same Organization Copyright© 2007 South-Western/Thomson Learning All rights reserved
  41. 41. Components of the Transnational-Network Structure1. Dispersed subunits: subsidiaries located anywhere1. Dispersed subunits: subsidiaries located anywhere where they can most benefit the company where they can most benefit the company2. Specialized operations: subunits specializing in2. Specialized operations: subunits specializing in particular product, research areas, or marketing areas particular product, research areas, or marketing areas3. Interdependent relationships: continuous sharing of3. Interdependent relationships: continuous sharing of information and resources by dispersed and information and resources by dispersed and specialized subunits specialized subunits Copyright© 2007 South-Western/Thomson Learning All rights reserved
  42. 42. Metanational Structure•• Large entrepreneurial multinational Large entrepreneurial multinational •• Can tap into pockets of innovation, technology, and Can tap into pockets of innovation, technology, and markets located around the world markets located around the world•• Develops extensive systems to encourage Develops extensive systems to encourage organizational learning and entrepreneurial activities organizational learning and entrepreneurial activities Copyright© 2007 South-Western/Thomson Learning All rights reserved
  43. 43. Metanational Characteristics•• Nonstandard business formulas for any local activity Nonstandard business formulas for any local activity•• Looking to emerging markets as sources of knowledge Looking to emerging markets as sources of knowledge and ideas and ideas•• Creating a culture supporting global learning Creating a culture supporting global learning•• Extensive use of strategic alliances to gain knowledge Extensive use of strategic alliances to gain knowledge for varied sources for varied sources Copyright© 2007 South-Western/Thomson Learning All rights reserved
  44. 44. Characteristics of Metanationals•• High levels of trust between partners to encourage High levels of trust between partners to encourage knowledge sharing knowledge sharing•• Centerless organization that moves strategic functions Centerless organization that moves strategic functions away from headquarters to major markets away from headquarters to major markets•• Decentralization of decision making to managers who Decentralization of decision making to managers who serve key customers and strategic partners serve key customers and strategic partners Copyright© 2007 South-Western/Thomson Learning All rights reserved
  45. 45. Micro-Multinational Company•• Micro-multinational companies: smaller organizations Micro-multinational companies: smaller organizations that take advantage of the Web to operate globally that take advantage of the Web to operate globally from Day One from Day One Copyright© 2007 South-Western/Thomson Learning All rights reserved
  46. 46. Micro-Multinational Company•• Characteristics Characteristics -- They operate as born-global firms from the day they They operate as born-global firms from the day they are founded, and they operate everywhere around are founded, and they operate everywhere around the world the world -- They are willing to start operations and hire workers They are willing to start operations and hire workers from around the world and from where it makes the from around the world and from where it makes the most sense to do so most sense to do so -- They are more likely to use various state-of-the-art They are more likely to use various state-of-the-art technology for communication purposes technology for communication purposes Copyright© 2007 South-Western/Thomson Learning All rights reserved
  47. 47. Multinational Strategy and Structure: An Overview•• Most companies support early internationalization Most companies support early internationalization efforts with export department efforts with export department•• Depending on globalization strategy, they evolve into Depending on globalization strategy, they evolve into product or geographic structure product or geographic structure•• Pressure for local adaptation and global efficiencies Pressure for local adaptation and global efficiencies result into matrix or transnational-network result into matrix or transnational-network•• No company reaches any pure form—use hybrids No company reaches any pure form—use hybrids Copyright© 2007 South-Western/Thomson Learning All rights reserved
  48. 48. Exhibit 8.12: MultinationalStrategy, Structure, andEvolution Copyright© 2007 South-Western/Thomson Learning All rights reserved
  49. 49. Control Systems•• Control system: helps link the organization vertically, Control system: helps link the organization vertically, up and down the organizational hierarchy up and down the organizational hierarchy•• Basic functions of control system Basic functions of control system -- Measure or monitor the performances of subunits Measure or monitor the performances of subunits -- Provide feedback to subunit managers regarding the Provide feedback to subunit managers regarding the effectiveness of their units effectiveness of their units Copyright© 2007 South-Western/Thomson Learning All rights reserved
  50. 50. Coordination Systems•• Coordination system: horizontal organizational links Coordination system: horizontal organizational links -- Provide information flows among subsidiaries Provide information flows among subsidiaries Copyright© 2007 South-Western/Thomson Learning All rights reserved
  51. 51. Design Options for Control Systems•• Four types of control systems Four types of control systems -- Output control system Output control system -- Bureaucratic control system Bureaucratic control system -- Decision-making control Decision-making control -- Cultural control system Cultural control system Copyright© 2007 South-Western/Thomson Learning All rights reserved
  52. 52. Output Control Systems•• Assesses the performance of a unit based on results, Assesses the performance of a unit based on results, not on the processes used to achieve these results not on the processes used to achieve these results -- Profit center: unit controlled by its profit or loss Profit center: unit controlled by its profit or loss performance performance Copyright© 2007 South-Western/Thomson Learning All rights reserved
  53. 53. Bureaucratic control system•• Focuses on managing behaviors within the Focuses on managing behaviors within the organization organization -- Budgets: financial targets for expenditures Budgets: financial targets for expenditures -- Statistical reports: information to top management Statistical reports: information to top management about nonfinancial outcomes about nonfinancial outcomes -- Standard operating procedures (SOPs): rules and Standard operating procedures (SOPs): rules and regulations of appropriate behavior regulations of appropriate behavior Copyright© 2007 South-Western/Thomson Learning All rights reserved
  54. 54. Control and Coordination Systems•• Decision-making control: level in the organizational Decision-making control: level in the organizational hierarchy where managers have the authority to make hierarchy where managers have the authority to make decisions decisions•• Cultural control system: uses organizational culture to Cultural control system: uses organizational culture to control behaviors and attitudes of employees control behaviors and attitudes of employees Copyright© 2007 South-Western/Thomson Learning All rights reserved
  55. 55. Exhibit 8.13: Use of ControlMechanisms in MultinationalOrganizational Structures Copyright© 2007 South-Western/Thomson Learning All rights reserved
  56. 56. Design Options for Coordination Systems•• Textual communication: e-mail, memos, and reports Textual communication: e-mail, memos, and reports•• Direct contact: face-to-face interaction of employees Direct contact: face-to-face interaction of employees•• Liaison roles: part of a person’s job in one department Liaison roles: part of a person’s job in one department to communicate with people in another department to communicate with people in another department•• Task forces: temporary teams created to solve a Task forces: temporary teams created to solve a particular organizational problem particular organizational problem•• Full-time integrators: cross-unit coordination is the Full-time integrators: cross-unit coordination is the main job responsibility main job responsibility Copyright© 2007 South-Western/Thomson Learning All rights reserved
  57. 57. Teams•• Teams: permanent unit of the organization Teams: permanent unit of the organization -- Global virtual teams: groups of people from different Global virtual teams: groups of people from different parts of the world who work together by using parts of the world who work together by using information and communication technologies such information and communication technologies such as intranets, web meetings, WIKI’s, e-mails and as intranets, web meetings, WIKI’s, e-mails and instant messaging instant messaging Copyright© 2007 South-Western/Thomson Learning All rights reserved
  58. 58. Problems with Global teams•• Team members’ native languages are different Team members’ native languages are different•• Differences in cultural background Differences in cultural background•• Global teams dominated by headquarters’ Global teams dominated by headquarters’ perspectives and experiences perspectives and experiences•• Major challenges in building team collaboration Major challenges in building team collaboration•• Challenges in meeting programmatic objectives Challenges in meeting programmatic objectives Copyright© 2007 South-Western/Thomson Learning All rights reserved
  59. 59. Steps to ensure the global teams collaborate to function effectively•• Build relationships and trust Build relationships and trust•• Devote significant attention to project planning and Devote significant attention to project planning and hold project progress meetings regularly hold project progress meetings regularly•• Cultural, language, and active-listening training Cultural, language, and active-listening training•• Be aware of team-development stage Be aware of team-development stage Copyright© 2007 South-Western/Thomson Learning All rights reserved
  60. 60. Knowledge Management•• Knowledge management: refers to the systems, Knowledge management: refers to the systems, mechanisms, and other design elements of any mechanisms, and other design elements of any organization to ensure that the right form of knowledge organization to ensure that the right form of knowledge is available to the right individual at the right time is available to the right individual at the right time Copyright© 2007 South-Western/Thomson Learning All rights reserved
  61. 61. Knowledge Management•• Types of knowledge Types of knowledge •• Explicit form:found in records or other repositories of Explicit form:found in records or other repositories of information information •• Tacit knowledge: represents the knowledge that Tacit knowledge: represents the knowledge that usually resides within employees and is dependent usually resides within employees and is dependent on the organization’s culture and context on the organization’s culture and context Copyright© 2007 South-Western/Thomson Learning All rights reserved
  62. 62. Exhibit 8.14: Knowledge ManagementBarriers Copyright© 2007 South-Western/Thomson Learning All rights reserved
  63. 63. Knowledge Management: Steps to Develop Successful System•• Identify/support knowledge activists Identify/support knowledge activists•• Make knowledge management part of the general Make knowledge management part of the general strategy strategy•• Provide financial and human resources support Provide financial and human resources support•• Emphasize importance of communication Emphasize importance of communication•• Celebrate success Celebrate success Copyright© 2007 South-Western/Thomson Learning All rights reserved
  64. 64. Conclusion•• Good strategies do not guarantee success – also need Good strategies do not guarantee success – also need good implementation good implementation•• Need the right organizational designs to carry out Need the right organizational designs to carry out strategies strategies•• Chapter reviews basic organizational structures and Chapter reviews basic organizational structures and discusses international organizational designs and discusses international organizational designs and structures structures•• Chapter also discusses knowledge management Chapter also discusses knowledge management systems systems Copyright© 2007 South-Western/Thomson Learning All rights reserved

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