This is one chapter of International business book of Charles Hill. Content + Case study.

1. Organizations of
International Business

2. Objectives
Understand what is meant by or
organization architecture.
Be familiar with the different
organizational choices that can be
made in an international business.
Explain how organization can be
matched to strategy to improve the
performance of an international
business.
Be able to discuss what an
international business requires to
change its organization to better match
its strategy.

3. Content
I. Organizational Architecture
II. Organizational Structure
1. Vertical Differentiation
2. Horizontal Differentiation
III. Control Systems and Incentives
IV. Processes
V. Organizational Culture
VI. Synthesis: Strategy and Architecture
VII. Organization Change
VIII. Case Study and Questions

4. Organizational Architecture
Organizational
Structure
•The formal
divisions into
subunits
•The location of
decision-
making
responsibilities
•The
establishment
of integrating
mechanisms
Control systems
and Incentives
•Measure the
performance
of subunits
•Used to
reward
appropriate
managerial
behavior
Processes
•Processes for
formulating
strategy,
•for deciding
how to
allocate
resources
within a firm
• for evaluating
the
performance
of managers
and giving
feedback.
Organizational
Culture
•The norms and
value systems
that
employees of
an
organization
share
People
•Employees of
an
organization
•The strategy
used to
recruit,
compensate,
and retain
people

5. Organizational Architecture
People
Structure
Incentives
and
Controls
Culture
Processes

6. Objectives
Understand what is meant by or
organization architecture.
Be familiar with the different
organizational choices that can be
made in an international business.
Explain how organization can be
matched to strategy to improve the
performance of an international
business.
Be able to discuss what an
international business requires to
change its organization to better match
its strategy.

7. Content
I. Organizational Architecture
II. Organizational Structure
1. Vertical Differentiation
2. Horizontal Differentiation
III. Control Systems and Incentives
IV. Processes
V. Organizational Culture
VI. Synthesis: Strategy and Architecture
VII. Organization Change
VIII. Case Study and Questions

8. Organizational Architecture
People
Structure
Incentives
and
Controls
Culture
Processes

9. I. ORGANIZATIONAL STRUCTURE
• The formal division of the organization into subunits
• The location of decision-making responsibilities
within structure
• The establishment of integrating mechanisms to
coordinate the activities of subunits

10. 1. Vertical differentation:
• Determines where decision- making power is
concentrated
• 2 kinds of decision: centralized and decentralized
decision

11. Centralized decision
• Facilitates coordination
• Ensures decision are consistent with organization’s
objectives
• Give managers the means to bring about
organizational change
• Avoids duplication of activities

12. Decentralized decision
• Relieves the burden of centralized decision
• To motivate individuals
• Permits greater flexibility
• Can result in better decisions
• Can increase control

13. 2. Horizontal differentiation
• Refers to how the firm divides into subunits
• Based on function, type of business, geographicial
area

14. • The organization is split into functions reflecting the
firm’s value creation activities
• The functions are typically coordinated and
controlled by top management
• Decision-making is centralized
• Product line diversification requires futher
horizontal differentiation.

15. A typical funtional structure

16. A typical product divisional structure

17. • When firms expand internationally, they often group
all of their international activities into an international
division

18. • Many firms that continue to expand will abandon
their international division structure and move to
Worldwide product divisional structure
Worldwide area structure

19. Worldwide product divisional structure
• Tends to be adopted by diversified firms that have
domestic product division
• Helps realize location and experience curve
economies
• Facilitates the transfer of core competencies
• Does not allow for local responsiveness

20. Worldwide product divisional structure

21. Worldwide area structure

22. Worldwide area structure
• Tends to be adopted by undiversified firms whose
domestic structures are based on funtions
• Divides the world into autonomous geographic areas
• Decentralizes operational authority
• Facilitates local responsiveness
• Can result in a fragmentation of the organization
• In consistent with a localization strategy

23. • The global matrix structure is an attempt to
minimize the limitation of the worldwide area
structure and the worldwide product divisional
structure
• Allows for differentation along two dimensions-
product division and geographic area
• Has dual decision-making: product division and
geographic area have equal responsibility for
operating decisions

25. INTEGRATING MECHANISMS
1
• Strategy and Coordination in the International
Business
2
• Impediments to Coordination
3
• Formal Integrating Mechanisms
4
• Informal Integrating Mechanisms: Knowledge
Networks

26. Strategy and Coordination in
the International Business
Transnational
Strategy
Global Strategy
International Strategy
Localization Strategy

27. Impediments to Coordination
Different Orientations, Tasks
Production
managers Marketing
managers

28. Impediments to Coordination
Different Goals

29. Formal Integrating Mechanisms
The formal mechanisms used to integrate subunits vary in complexity
from simple direct contact and liaison roles, to teams, to a matrix
structure .

30. Formal Integrating Mechanisms
• This is the simplest integrating mechanisms. Managers of
the various subunits just contact each other wherever
they have a concern.
Direct
contact
• this is a bit more complex than direct contact. As the need
for coordination between subunits incease, integration
can be improved by assigning a person in each subunit to
coordinate with another subunit.
Liaison
roles
• When the need for coordination is greater still, firms use
temporary or permanent teams composed of individuals
from the subunits that need to achieve coordination.
Teams
• When the need for integration is very high, firms may
institute a matrix struture, in which all roles are viewed as
integrating roles.
Matrix
Structure

31. Informal Integrating Mechanisms:
Knowledge Networks
• A Knowledge Networks: is a network for transmitting
information within an organization that is based not on
formal organization structure, but on informal contacts
between managers within an enterprise and on
distributed information systems.
• A Knowledge Networks: is a non bureaucractic conduit
for knowledge flows.
• To be successful, a knowledge network embrace as
many managers as possible and managers must adhere
to common set of norms and values that override
differing subunit orientations.

32. 0403
01 02
OUTPUT
CONTROLS
CULTURAL
CONTROLS
BUREAUCRATIC
CONTROLS
PERSONAL
CONTROLS
TYPES OFCONTROL SYSTEMS

33. 01
02
03
04
BUREAUCRATIC CONTROLS
A system of rules and produces that
directs the actions of subunits.
Budget and capital spending rules.
PERSONAL CONTROLS
Personal contact with subordinates.
Most widely used in small firms.
CULTURAL CONTROLS
Exist when employees “buy into” the
norms and value systems of the firm.
Strong culture implies less need for
other forms of control.
OUTPUT CONTROLS
Setting goals for subunits to achive
and expressing those goals in terms
of objective performance metrics.
Compare actual performance against
targets and intervene selectively to
take corrective action.

34. WHAT ARE INCENTIVE SYSTEMS
Should reflect
national
differences in
situations and
culture.
Should vary
depending on
the employee
and the nature of
the work being
performed.
Should promote
cooperation
between
managers in
different
subunits.
Can have
unintended
consequences.
Usually
closely tied to
performance
metrics used
for output
controls.
1
2
3
4
5

35. PERFORMANCE AMBIGUITY
Is common
when subunit’s
performance is
dependent on
the
performance
of other
subunits.
Is lowest in
firms with a
localization
strategy.
Is higher in
international
firms.
Is still higher in
firms with a
global
standardization
strategy.
Is highest in
transnation
al firms.

36. Interdependence, Performance Ambigiuty, and the Costs of Control for the
Four International Business Strategies

37. PROCESSES

38. PROCESSES
Definition: Processes are the manner in which
decisions are made and work is performed within
the organization.
Processes have many different levels like:
processes for formulating strategy, processes for
allocating resources, processes for improving
product quality, processes for evaluating
employee performance,…

39. PROCESSES
lower the costs of
value creation
add additional
value to a product
Effective processes
Processes
The core competencies
The valuable skills

40. Two basic remarks about
managing processes
• Many processes cut not only across headquater,
among different subunits, but also across
national boundaries.
• It is particularly important for a multinational
enterprise to recognize new valuable processes
which might lead to a competitive advantage
and can be developed anywhere within the
organization’s global network of operations.

41. Organizational Culture

42. ORGANIZATION CULTURE
Culture
Values: abstract ideas about what a
group believes to be good, right, and
desirable.
Norms: mean the social rules and
guidelines that prescribe appropriate
behavior in particular situations.

43. Creating and maintaining
Organizational culture
Creating organization culture
• Wide agreement between founders and
important leaders.
• The broader social culture of the nation where
the firm was founded.
• The history of the enterprise.

44. Creating and maintaining
organizational culture
Maintaining organization
culture
• Hiring and promotional
practices of the organization.
• Reward strategies.
• Socialization processes.
• Communication strategy.

45. Organizational culture and performance
in the international business
• Strong culture share a relatively consistent
set of values and norms that have a clear
impact on the way work is performed.
• Adaptive culture care deeply about and value
customers, stockholders, and employees.
• Common culture have the same across a
multinational global network of subsidiaries
probably varies with the strategy of the firm.

49. Summary
• One of the oldest multinational corporation in the
world.
• Annual revenue in excess of USD $50 billion (2008)
• Unilever was organized on a decentralized basis. In
the early 1990s, in Western Europe, the company
had 17 subsidiaries, each focused on a different
national market.
• Each subsidiary
– profit center
– accountable for own performance

50. Summary
• By the mid-1990s, the decentralized structure was
increasingly out of step with competitors in a rapidly
changing environment.
– Lots of duplication, particularly in manufacturing
– Lack of scale economies
– High cost structure
– Slow to introduce new product lines.

51. Summary
• It introduced a new structure based on business
groups, each focusing on a specific category of
products. For example, Lever Europe consolidated
the production of detergents.
– 17 companies relinquished autonomy
– Cut European plants manufacturing soap from 10
to 2
– Product sizing and packaging was harmonized

52. Summary• As a result of that:
− It saved as much as $400 million
− Speeded up new product introduction
• By 2000, Unilever realized that their present strategy
were still lagging behind their competitors; so they
decided to reorganize.
• So that, they introduced a new structure based on
regional business groups.

53. Summary
• Each business group included a number of divisions,
each focusing on a specific category of products.
• These groups and divisions coordinated the
activities of national subsidiaries within their region
to drive down operating costs and speed up the
process of developing and introducing new products.

55. 1. Why did Unilever’s decentralized organizational
structure make sense from the 1950s through the
1970s? Why did this structure start to create
problems for the company in the 1980s?
2. What was Unilever trying to do when it introduced a
new structure based on business groups in the
mid1990s? Why do you think that this structure failed
to cure Unilever’s ills?
3. In the 2000s Unilever has switched to a structure
based on global product divisions. What do you think
is the underlying logic for this shift? Does the
structure make sense given the nature of competition
in the detergents and food business?

56. Question 1: Why did Unilever’s
decentralized organizational
structure make sense from the
1950s through the 1970s? Why
did this structure start to create
problems for the company in
the 1980s.

57. • Decentralized make sense from the 1950s through the
1970s because at first it drive to the localization which
means this structure allowed the local manager to
match product offerings and marketing strategy to
local taste and preferences. It also alter sales and
distribution strategies to fit the prevailing retail
system.
• This structure start to create problems for the
company in the 1980s because there are existence of
a lot of duplication in manufacturing, a lack of scale
economies and need high cost structure. It also
resulting Unilever falling behind its rivals in term of
bring new product to the market.

58. Question 2: What was Unilever
trying to do when it introduced
a new structure based on
business groups in the
mid1990s? Why do you think
that this structure failed to cure
Unilever’s ills?

59. • Unilever introduced structure based on business
groups actually are to cut down operating and
purchasing costs and tp speed up the introduction of
new product.
• Based on my opinions, this structure failed to cure
Unilever’s ills because the manager are no longer
allowed to match product offerings and marketing
strategy to local tastes and preferences.

60. Question 3: In the 2000s Unilever
has switched to a structure based on
global product divisions. What do you
think is the underlying logic for this
shift? Does the structure make sense
given the nature of competition in the
detergents and food business?

61. • Unilever tried to improve its product availability and
flexibility for its local responsiveness, and at the same
time wanted to reduce operation costs while creating
global brands.
Since both the food and detergent industry are very
competitive, it requires great local responsiveness.
• Moving from a de-centralized localization strategy to a
more centralized transnational strategy made sense
because of the reduction of operation costs as well as
better communication and efficiency. By cutting back
the brands from 1600 to 400 they were able to focus
more on their global and regional brands as well as
raising its local responsiveness standards.