Structure of International firms

1. Chapter 13
The Structure of
the International
Firm

2. Learning Objectives
• After studying this chapter, you should be
able to explain:
– The variety of structures a firm can employ
and their benefits and drawbacks
– How to pick the structure that is right for your
organization
– Issues surrounding restructuring firms,
including firm turnaround and reengineering

3. Different Organizational
Structures
• Organizational structure is the manner in
which the various parts of a business are
to report and coordinate with each other,
and at what levels decisions are made.
• The need for different types of
organizational structure is consistent with
a firm’s growth and evolution.

4. Different Organizational
Structures
• As an enterprise becomes more complex,
it is essential to introduce a greater
administrative component.
• Administrative component - Is the ratio
of support staff to line staff directly
engaged in the production and distribution
of an organization’s products and services.

5. Different Organizational
Structures
• Increasing the administrative component
results in better planning, training, and
coordination.
• However, it also increases time taken for
decision making, impedes communication
among departments, and reduces
commitment to the organization.

6. Structure
Type
Description Advantages Limitations
Simple •This structure is
associated with family-
owned business.
•CEO is the centre of
business and
everything is
coordinated through
that founder.
•CEO can monitor all
the actions and ensure
that the business
achieves its goals.
•Employees feel they
are part of a team.
•Organizational
growth is hindered.
•CEO cannot focus on
all the key elements
as the business
grows.
Functional •Adapted by
organizations requiring
greater coordination.
•The firm is organized
around the
organization’s major
functions.
•Duplicating of activities
is avoided.
•Firm can benefit from
scale of economies.
•Employees focus
more on their
functional area and
are less engaged with
the firm as a whole.
Different Organizational
Structures

7. Structure
Type
Description Advantages Limitations
Multidivisional or M-
Division
•Closely associated
with Alfred Sloan.
•The firm is divided
into different divisions
each having its internal
set of functional area.
•Allows each division to
operate more efficiently
in the specific business
area.
•Helps develop expertise
specific to its technology
and market.
•Decision making is
decentralized, allowing
those closer to the
customers more decision
power.
•Duplicates functional
skills.
•Lack of coordination
between divisions.
•Problems sharing
resources and
capabilities.
Different Organizational
Structures

9. Different Organizational
Structures
• Strategic Business Unit (SBU)
– A business division within a larger firm that is
charged with managing a particular category
of product or service.
– Allows for greater ease and speed in decision
making.
– Prompt responsiveness to customers.

10. Different Organizational
Structures
• Strategic Business Unit (SBU) (cont.):
– Better management of the organization’s time
and focus.
– Allows each SBU to develop the special skills
necessary for its businesses.

12. Different Organizational
Structures
• Matrix
– Is a hybrid structure, combining different
organizational forms.
– Allows fast decision making by tying different
aspects of the business together.
– Leads to conflict as employees have two
mangers.
– One of the most difficult to manage.

14. How to Decide Which Structure is
Right
• Size - As an organization grows, new
management layers are introduced to
effectively control various entities.
• Stakeholders - The organizational
structure should satisfy stakeholders’
interests.

15. How to Decide Which Structure is
Right
• Degree of diversification
– A large organization with activities that are
strongly related to each other can have a
functional structure or a divisional structure.
– If a firm utilizes unrelated diversification, a
divisional structure might be adopted.
– If a firm is large and using related
diversification, an SBU form of organization
could be adopted.

16. How to Decide Which Structure is
Right
• Technology
– Business domains focused on low-technology
areas tend to function in a stand-alone
capacity.
– High-technology business is closely
connected and better integrated as the
products developed are created with inputs
from across the firm.

17. How to Decide Which Structure is
Right
• Degree of internationalization
– A firm with a multidomestic strategy may have
a divisional structure, organized around the
business in the countries in which it operates.
– A firm with a global strategy will organize
around product divisions that cut across
national borders.

18. How to Decide Which Structure is
Right
• Geographic scope
– If a firm is involved in a set of countries that
can be subdivided into distinct cultures, then a
divisional structure can be adopted to address
each one.
– If a firm’s international operations are among
close nations (in both distance and culture) a
functional structure may work best.

19. • Task
– Mechanistic structures are focused on
stability and hierarchical decision making.
– This structure is appropriate in low-technology
domains and business with a low-cost
strategy.
– Mechanistic structures are highly inflexible
and static.
How to Decide Which Structure is
Right

20. How to Decide Which Structure is
Right
• Task (cont.):
– An organic structure is more flexible,
innovative, and able to adapt to its
environment.
– It is suitable for environments where change
is rapid.
– Organic structures need highly skilled and
motivated employees, which leads to a
particular type of organic structure called the
learning organization.

21. How to Decide Which Structure is
Right
• Task (cont.):
– The learning organization concept is closely
associated with Peter Senge.
– An organization must embrace the following
five disciplines to become a learning
organization:
• Build shared vision to achieve a common
commitment to long-term results and achievement.
• Foster the understanding and examination of
people’s mental models as important to strategic
planning and change.

22. How to Decide Which Structure is
Right
• Task (cont.):
– An organization must embrace the following
five disciplines to become a learning
organization (cont.):
• Team learning is needed so that the learning is
passed on from the individuals to teams.
• Personal mastery is the individual’s motivation to
learn and become better.
• Systems thinking allows individuals to see a
holistic, systemic view of the organization as a
function of its environment.

23. Implementing Change in an
Organizational Structure
• Fundamental rules to implement change in
an organizational structure:
– Employees should be told why change is
necessary.
– It must be ensured that employees are
supportive of a change; one way to ensure
this is to connect the compensation system to
changes in structure.

24. Implementing Change in an
Organizational Structure
• Fundamental rules to implement change in
an organizational structure (cont.):
– Top management and the affected units
should support the structure change.
– The plan, regarding how and when the
change is to occur, should form the backbone
of the effort to ensure that those plans are
followed.

25. Informal Organizations
• Are the unofficial connections that exist
among individuals in a business.
• These networks of connected individuals
and departments within and across firms
reveal important patterns of connectivity
outside formal structures.
• These informal structures can be stronger
than the formal structures and should be
understood.