MG213 Lecture Seven Organisation for IB PDF

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LECTURE SEVEN: ORGANISATION FOR INTERNATIONAL BUSINESS Content - Organisational Architecture - Key Concepts of Formal Organisational Structures Organisational Architecture Organisational architecture: All aspects of the overall organisation of a firm, including: a. Structure b. Processes c. Incentives and controls d. Culture The Totality of a Firm’s Organisation 1. Organisational Structure ➔ Subunits ➔ The location of decision-making responsibilities (centralised vs decentralised) ➔ Integration of mechanisms to coordinate the activities of subunits (e.g. cross-functional teams or pan-regional committees) 2. Control systems and incentives ➔ Control systems: How is performance measured? ➔ Incentives: Used to reward managerial behaviour 3. Processes, Organisational Culture and People: ➔ How are decisions made and activities undertaken? ➔ Organisational culture - the shared norms and value systems ➔ People - recruitment strategies, retention and skill base Three Conditions for Superior Firm Profitability 1. Different elements of a firm’s organisational architecture must be internally consistent 2. Organisational architecture must match or fit the strategy of the firm (strategy and architecture must be consistent) 3. Strategy and architecture of the firm must not only be consistent with each other but also make sense given the competitive conditions prevailing in the firm’s markets (strategy, architecture, and competitive environment must all be consistent) Basic Tasks of Organisation Organisational challenge: Design and structure systems that… ➔ Permit specialisation ➔ Facilitate coordination by grouping individuals ➔ Link groups with systems of communication, decision making, and control ➔ Deploy incentives to align individual and firm goals. Key Concepts of Formal Organisational Structures ★ Formal reporting relationships: Including levels in the hierarchy and span of managerial control ★ Grouping: Grouping of individuals into departments and organisations (vertical and horizontal differentiation)

★ Design of Systems: To ensure effective communication, coordination and integration between departments Vertical Differentiation: Involves the installation of a ‘chain of command’. Advantages of Centralisation: ➢ Facilitate coordination ➢ Ensure consistency between decisions and objectives ➢ Facilitate change by top management ➢ Avoid duplication of activities Advantages of Decentralisation: ➢ Overburdened and poor decision making at top ➢ Increased motivation and commitment at lower levels ➢ Greater flexibility and local sensitivity ➢ Increased accountability and control Horizontal Differentiation: The division of firms into sub-units (e.g. functions, business areas or geographical units), common approaches to Horizontal Differentiation are: A. Functional Structure B. Product Division Structure C. International division D. World-wide product division structure E. World-wide area division structure F. Global matrix structure A. Functional Structure: Organisation is split on ‘professional’ lines

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Advantage: This helps staff to feel comfortable in their professional silos. Disadvantage: These different functions will remain wholly separate and have no understanding of each other so there is no synergy within the organisation.

B. Product Division Structure: Organisation is split on product lines.

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Advantage: Each product division has autonomy and can address its market flexibly and sensitively Disadvantage: Potential duplications of functions like purchasing and marketing, and again little potential for synergy between divisions.

C. International division Structure: Organisation is split on market location lines (essentially a variant of the product structure).

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Advantage: Each product division has autonomy and can address its market flexibly and sensitively. Additionally, the international division can tailor its offer to the international markets which the organisation services. Disadvantage: There is potential duplication of functions like purchasing and marketing, and again little potential for synergy between divisions.

D. World-wide Product Division Structure: Organisation is split on worldwide product lines with subdivisions which follow functional unit lines.

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Advantages: This helps staff to feel comfortable in their professional silos. Disadvantages: These different functions will remain wholly separate and have no understanding of each other so there is no synergy within the organisation.

E. World-wide Area Division Structure: Organisation is split on worldwide area lines. Each geographic area has its own unit and may be further divided on product lines or functional lines.

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Advantage: Each area division has autonomy and can address its market flexibly and sensitively. Disadvantage: There is potential duplication of functions like purchasing and marketing, and again little potential for synergy between divisions.

F. Global Matrix structure: Organisation is split on the lines of a matrix - there are area divisions, probably based on geographic areas of the world, but also product divisions.

International Structure: Stages

Note! When looking at case studies, it is also important to look at informal organisation (S18) ➢...