Differentiation means that the organization is composed of different units that work on different kinds of tasks.
Often, centralization versus decentralization is represented as an either-or proposition. In actuality, there are trade-offs. Where to assign authority is an ongoing negotiation between headquarters and the local subsidiary. In the least, negotiations highlight the fact that an MNE is never completely centralized or decentralized. Few organizations could function if senior executives made all decisions. Nor, for that matter, could they function if local managers made all decisions. The idea of dynamic balance, within the context of the MNE’s strategy, is the enduring characteristic of vertical differentiation.
Expanding technologies encourage greater centralization given headquarters’ improving ability to track, in real time, global conditions and local performance. Alternatively, e-mail, VoIP, teleconferencing, and social networks technologies spur a state of “globality.” The context of globality holds that “business flows in every direction. Companies have no centers. The idea of foreignness is foreign. Commerce swirls and market dominance shifts.” Organizing work for globality encourages greater decentralization.
Companies resolve horizontal differentiation so that their organization structure:
• Specifies the total set of organizational tasks
• Divides those tasks into jobs, teams, departments, subsidiaries, divisions, and SBUs
• Assigns authority and authority relationships to make sure work is done in ways that support the company’s strategy
Managers horizontally differentiate the organization’s structure on the standard of business function, type of business, geographic area, or some combination of these. The business function standard anchors the functional structure, the type-of-business standard anchors a divisional structure, and a combination anchors a matrix structure.
Functional Structures
Group specialized jobs according to traditional business functions.
Popular among companies with narrow product lines.
Divisional Structures
Group units, products, customers, or geographic regions.
Duplicate business function across divisions.
An international division
• Creates a critical mass of international expertise.
• Competes with powerful domestic divisions for resources.
Product divisions are popular among international companies with diverse products.
Geographic divisions are popular when foreign operations are large and no single country or region
dominates sales.
A matrix organization
• Institutes overlaps among functional and divisional forms.
• Gives functional, product, and geographic groups a common focus.
• Has dual-reporting relationships rather than a single line of command.
Mixed Structure:
Company combines features of the functional, area, and product structures.
A network structure anchors a small core organization that outsources value activities to those firms whose core competencies support greater innovation at lower cost.
A virtual organization is a dynamic arrangement among partners that can be easily reassembled to adapt to market change. The flexibility of virtual structures means poorly performing partners can be easily replaced.
Pitfalls:
Like hierarchies, contemporary structures also suffer limitations. First is the difficulty of coordinating something that by definition is ever changing. The dynamism of networks makes adaptive reconfiguration and responsive coordination an ongoing challenge. In the best of circumstances, managers struggle to adapt the network by adjusting supporting infrastructures. As such, coordinating a structure that some argue should require little coordinating complicates building contemporary structures. Leaders may champion decentralization yet when push comes to shove, often intrude in decision making. Frequent intervention erodes the credibility of the promised independence. Moreover, hidden hierarchies lying latent in contemporary structures endure. Workers are prone to organize around the rules, rewards, and punishments in the company, creating a subtle, unspoken hierarchy even if officially there is none. These difficulties make the idea of a contemporary organization less appealing. Hence, contemporary organizations of various sorts have given way to more traditional structures.
Coordination by standardization prescribes how managers do their jobs, thereby installing objective policies that coordinate decisions. Coordination by standardization relies on objectives and schedules to set rules and regulations.
Coordination by plan requires interdependent units to meet common deadlines and objectives.
Coordination by mutual adjustment depends on managers interacting extensively with their counterparts.
Control Systems:
Market control uses external market mechanisms to establish objective standards.
Bureaucratic control emphasizes organizational authority and relies on rules and regulations.
Clan control uses shared values and ideals to moderate employee behavior.
Reports:
Decisions on using capital, personnel, technology, etc., require frequent, accurate, and up-to-date reports. Reports also act as warning systems, alerting managers to deviations from plans. For the typical MNE, the geographic span of global operations, by discouraging frequent visits, escalates the value of reports.
Visits to Subsidiaries:
Face-to-face meetings, rigorous budget reviews, or on-site management seminars clarify control. Furthermore, they provide opportunities to socialize with local managers. Visits are invaluable, getting senior management into the field and offering local managers access to global perspectives.
Cost and Accounting Comparisons:
Companies evaluate results in comparison to budgets but often find it hard to compare countries using standard operating ratios.
Evaluative Metrics:
Headquarters evaluates subsidiaries and their managers on many measures. Financial metrics dominate evaluation, particularly when an MNE relies on coordination by plan and control by bureaucracy. Important performance metrics are “budget compared with profit” and “budget compared with sales value.” These metrics affect consolidated corporate figures, so headquarters monitors them. Many nonfinancial criteria are also important, such as market-share increase, quality control, turnover ratios, and managers’ relationship with stakeholders.
Information Systems:
Information technologies provide powerful control tools. Most MNEs use enterprise resource planning (ERP) to monitor value activities, such as product planning, parts purchasing, maintaining inventories, customer service, and order fulfillment. MNEs face constraints in acquiring information: the cost of information compared to its value, identifying redundant information, and excluding irrelevant information. Much of the information useful to a subsidiary—such as which government official clears items through customs—need not be reported to headquarters. Companies reevaluate information sources to cope with the information deluge. They anchor their expectation in their choices regarding centralization, coordination, and control.
Organization culture is the shared meaning and beliefs that shape how employees interpret information, make decisions, and implement actions.
Key features of a company’s organization culture include:
• Values and principles of management
• Work climate and atmosphere
• Patterns of “how we do things around here”
• Traditions
• Ethical standards
Others report that culture is a critical component of a company’s transition from “good” to “great” status. Technology, product development, and financial stewardship play key roles in this transition. Still, managers link the goal of becoming a great company to developing an organization culture that champions unwavering faith and passion, rigorous discipline and focus, plainly communicated values, strong work ethics, and promoting people with the preferred outlook.
Culture and values:
Successful companies develop an organization culture that instills in their employees enthusiasm beyond that justified by economic rewards. In addition, a powerful organization culture lessens the need to regulate employees’ behaviors with elaborate structures and systems. Therefore, a culture’s capacity to power high performance puts the onus on managers to build a company that commands this resource. Great companies build an organization that people do not just want to work for but also want to belong to.
Culture and the Value Chain:
Sophisticated value-chain configurations increase coordination and control demands. Improving coordination and maintaining control requires managers to consult colleagues more often. Managers often struggle to shape their organization’s culture. Typically, managers from different countries have values that differ from those endorsed by the company.
Companies promote closer contact among managers from different countries to overcome these challenges. A popular objective is fostering shared understandings of global goals and norms, along with improving the transfer of ideas and best practices from one country to another.
Culture and Strategy:
The principles and practices of organization culture vary with the requirements of the company’s strategy. For example, the company implementing a global strategy aims to develop a robust culture that helps everyone around the world unquestioningly accept common goals and practices. Standardizing value activities requires standardizing employees’ views about purposes and practices. Therefore, companies implementing this strategy tend to adopt functional or product structure along with coordinating through standardization and controlling through bureaucracy. Alternatively, companies following a multidomestic strategy encourage greater variety in the local interpretation of corporate goals.
The past few years has seen exponential growth in corporate universities. By region, corporate universities are growing by leaps and bounds in the United States, thriving in Europe, and making serious inroads in Asia. In the United States, for example, the number of corporate universities grew from around 400 in 1988 to more than 20,000 in 2007 and includes nearly half of the Fortune 500.
Some have opted to break free from the constraints of geography, opening virtual online universities where employees learn via the Internet and interactive videoconferencing. They utilize e-learning tactics like live Webcasts, online chat and discussion groups, and teleconferences. Corporate universities were originally created to teach employees practical skills and workplace systems. Now companies are thinking of training as a way of instilling corporate values in their employees.
A growing mandate for corporate universities is integrating diverse workforces. Hiring engineers in Mumbai or Sophia to help people in Redmond makes economic sense. Preempting a tower of Babel requires that companies help people learn to work in proliferating global work groups. Again, hiring people from around the world, coupled with the presumption that teams outperform individuals, leads to the inevitability of a growing number of teams composed of an expanding mix of nationalities and ethnicities.
A recent change in the corporate-university model is finding new ways to prepare future leaders. The search for global leaders drives performance and future growth. Corporate universities design executive programs that engage high potential executives on topics that influence the company and industry.
The unfolding global economic crisis boosts the role of corporate universities—but for less charitable reasons. Analysts and educators debate whether the way business students have been taught within traditional university settings may have contributed to the depth and despair of the global economic crisis. A common criticism holds that orthodox MBA programs grew too scientific, too detached from real-world issues, and too isolated from the moral implications of choice and action. Others contend that traditional MBA programs give students a limited and distorted view of the ethical and social considerations of business leadership.
