Week 8 Organisation of International Business PDF

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Lecture 8: Organisation of International Business and MNEs Organisational Structures...

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Week 8: Organisation of International Business Organisational Architecture Organizational architecture: is the totality of a firm’s organization

Organisational Structure The internal system for: ● The location of decision making responsibilities within the organization (e.g. centralization vs decentralization) ● The division of the organization into subunits (e.g. divisions, departments, business units) ● The coordination of different subunits The appropriate organizational structure may make a difference with competitors

2.1.) Vertical differentiation: Centralization and decentralization It determines where in its organization (hierarchy) the decision-making power is concentrated

Centralization

Decentralization

● It can facilitate coordination

● It avoids that top managers are overloaded.

● It can help ensure that decisions are

● It is usually good for motivation

consistent with objectives ● It is useful for quick changes

● It offers flexibility (decisions close to needs) ● It allocates more responsibility to subunits

● It avoids duplicates

1. It makes sense to centralize some decisions (e.g. major financial expenditures, objectives, corporate strategy), and decentralize others (e.g. human resource management, promotion). 2. It depends on the strategy: (e.g. global strategy vs multi-domestic)

2.2.) Horizontal differentiation: The design of structure Horizontal differentiation: It determines how the firm decides to divide itself into subunits

a) The structure of domestic firms The organization is split into functions

a) The structure of domestic firms If the firm diversifies its offer, the organization is also split into business units

b) The international division When firms initially expand abroad, they often group all of their international activities into an international division E.g. BBC One, BBC News, BBC World Service, BBC Parliament

Problems:

1. Conflicts between domestic and international operations (heads of foreign subsidiaries has less influence that functional managers); 2. The lack of coordination c) The worldwide area structure Appropriate when: international expansion increases, but low degree of diversification. It also needs multi-domestic strategy

Implications: 1. Each region tends to be largely autonomous. 2. It is good for local responsiveness, but generates problems of fragmentation

d) The worldwide product divisional structure Appropriate when: international expansion increases and high degree of diversification. It also suggests a global strategy

Implications: 1. It reinforces internal coordination in the business units. 2. It offers limited voice to area or country managers e) The global matrix structure

Appropriate when: international expansion increases, diversification, and importance of costs and differentiation.. It also suggests a transnational strategy

Implications: 1. Each manager thus belong to two hierarchies (and have two bosses). In practice, it is clumsy and bureaucratic. 2. It needs informal integrating mechanisms

2.3.) Integrating mechanisms ● The coordination between subunits is always very important. ● The centralization may not be enough/appropriate ● That’s why coordination is specially important in international business (and difficult) and some formal and informal alternatives to integrate

a) The importance and impediments of coordination in international business The needs for coordination changes with the international strategy of the firm.

The difficulties for coordination are:

1. Managers of the various subunits have differing goals (and priorities) 2. Managers of the various subunits have differing tasks (and expertise)

b) Formal integrating mechanisms 1. Direct contact (managers of subunits contact each other) 2. Liaison role (a person in each subunit has to coordinate with other subunits) 3. Temporary or permanent teams (individuals from different subunits) 4. Matrix structure (usually combining areas and products) The complexity and mechanism need decreases along the numbers

c) Informal integrating mechanisms 1. Knowledge networks: systems to develop informal transmission of information between units. They work better if the organizational values include teamwork and cross-unit cooperation

Techniques to develop networks: 1.Information systems (e.g. intranets, internal memos) 2. Informal networks of managers (e.g. socials, rotation)

Control Systems and Incentives 3. CONTROL SYSTEMS AND INCENTIVES Control systems, incentives, and strategy in the international business. The international businesses often face “performance ambiguity” (i.e. the causes of a subunit poor performance are not clear)

The paradox: The complex international strategies give the firms more ways to profit from international expansion, but they need more costs of control. ** The cultural control and the incentives linked to a higher level in the hierarchy can help

Processes Definition: the manner in which decisions are made and work is performed within organization Examples: processes for evaluating new products, handling customer inquiries and complaints, evaluating employee performance, etc. Representation: the organization process can be summarized by “flow charts” illustrating steps and decision points Most Law Group: Dealing with a new “Employment complaint flowchart” (steps and decision points)

Considerations in international businesses: 1. The effective processes need international coordination across national boundaries (organizational culture promoting cooperation, and also incentives and informal mechanisms, are important). 2. The valuable new processes can be developed anywhere within the organizations (e.g. host countries) Organisational Culture

Culture: “a system of values and norms that are shared among employees” (e.g. new employees are automatically encouraged to follow them by other employees). E.g. Google “Strong culture” means that managers clearly share norms and values, employees quickly and clearly accept them … “a certain style of doing things” “Strong but adaptive culture” (it values people and processes that create useful change): needs time and efforts...