8OrganizationalDesignsforMultinationalCompaniesLearningObjectives(1of2)Understandthecomponentsoforganizationaldesign.Knowthebasicbuildingblocksoforganizationstructure.Understandthestructuraloptionsformultinationalcompanies.Knowthechoicesmultinationalshaveintheuseofsubsidiaries.LearningObjectives(2of2)Seethelinksbetweenmultinationalstrategiesandstructures.Understandthebasicmechanismsoforganizationalcoordinationandcontrol.Knowhowmultinationalcompaniesusecoordinationandcontrolmechanisms.Understandtheneedforknowledgemanagementsystemswithinorganizations.OrganizationalDesignThebestmultinationalstrategiesdonotguaranteesuccess.Managersmustdesigntheirorganizationswiththebestmechanismstocarryoutdomesticandinternationalstrategies.OrganizationalDesign:HoworganizationsstructuresubunitsandusecoordinationandcontrolmechanismstoachievetheirstrategicgoalsTheNatureof

OrganizationalDesign(1of2)Twobasicquestionsinvolvedindesigninganorganization:Howshallwedividetheworkamongtheorganization’ssubunits?Howshallwecoordinateandcontroltheeffortsoftheunitswecreate?Insmallorganizations,thereislittlereasontodividework.EveryonedoesthesamethingandeverythingTheNatureof

OrganizationalDesign(2of2)Asorganizationsgrow,thereisaneedtodivideworkintospecializedjobsandtheorganizationintospecializedsubunits.Onceanorganizationhasspecializedsubunits,managersmustdevelopmeasurestocoordinateandcontroltheirefforts.Decision-makingmaybecentralizedordecentralized.Thereisnoonebestorganizationaldesign.TheBasicFunctionalStructure(1of2)InaFunctionalStructure,departmentsperformseparatebusinessfunctionssuchasmarketingormanufacturing.Thefunctionalstructureisthesimplestorganization.Mostsmallerorganizationshavefunctionalstructures.Evenlargeorganizationshavefunctionalsubunits.Organizationschooseafunctionalstructureforitsefficiency.TheBasicFunctionalStructure(2of2)Efficienciesarisefromeconomiesofscaleineachfunctionbecauseofcostsavingswhenalargenumberofpeopledothesamejobinthesamelocation.Coordinationisdifficult,asfunctionalunitsareseparatedfromeachotherandservefunctionalgoals.Thefunctionalstructureworksbestwhenthefirmhasfewproducts,locations,andtypesofcustomers.Worksbestinastableenvironment,withminimalneedforadaptation.TheBasicProductandGeographicStructures(1of2)ProductStructure:Buildingdepartmentsorsubunitsaroundaparticularproduct.GeographicStructure:Buildingdepartmentsorsubunitsbasedonaparticulargeographicregion.ProductandGeographicunitsmuststillperformallofthefunctionaltasksofabusiness.Functionaltasksareduplicatedforeachunit,leadingtolossofeconomiesofscale,andlossofefficiency.TheBasicProductandGeographicStructures(2of2)But,suchinefficienciesdisappearascustomergroupsandproductsproliferate.Andevenforsmallorganizations,aproductorgeographicunitmayoffercompetitiveadvantages:Itallowsacompanytoservecustomerneedsthatvarybyregionorproduct.Managerscanquicklyidentifycustomerneedsandadaptproducts.HybridStructuresFeworganizationsadoptpurelyorganizationalforms.Eachorganizationhasuniquetrade-offsbasedonefficiency,producttypes,andcustomers’needs.Companiesdesignorganizationswithmixturesofstructuresthatwillbestimplementtheirstrategies.Mixed-formorganizationsarecalledHybridStructures.AHybridStructuremixesfunctional,geographic,andproductunits.OrganizationalStructures

toImplement

MultinationalStrategiesWhenacompanyfirstgoesinternational(asapassiveexporter),itseldomchangesitsstructure.Eventhoughexporting,itpreferstorelyonEMCsandETCsratherthanchangeorganizationalstructure.Similarly,alicensingstrategyhaslittleimpactondomesticstructure.However,wheninternationalsalesbecomemorecentral,thestructureneedstobechanged.TheExportDepartmentTheExportDepartmentcoordinatesandcontrolsacompany’sexportoperations.TheExportdepartment:IscreatedwhenexportsbecomesignificantDealswithinternationalsalesofallproductsSalesrepresentativesinothercountriesmayreporttotheExportDepartmentmanager.ForeignSubsidiaries(1of3)ForeignSubsidiariesaresubunitsofthemultinationalcompanythatarelocatedinanothercountryTypesofforeignsubsidiaries:AMinireplicaSubsidiaryisascaleddownversionoftheparentfirm.Itusesthesametechnologyandproducesthesameproductsastheparentfirm.ATransnationalSubsidiarysupportsamultinationalfirmstrategybasedonlocationadvantages.Ithasnofirmwideformorfunction.Eachsubsidiarycontributeswhatitdoesbestormostefficientlyanywhereintheworld.ForeignSubsidiaries(2of3)Mostsubsidiariesareneitherpureminireplicasnorpuretransnationals.Foreignsubsidiariestakemanyformsandhavemanyfunctions.Foreignsubsidiariesarethestructuralbuildingblocksforrunningmultinationals.ForeignSubsidiaries(3of3)Multinationalschoosethemixoffunctionsfortheirforeignsubsidiariesbasedon:Thefirm’smultinationalstrategyorstrategies;Thesubsidiaries’capabilitiesandresources;Theeconomicandpoliticalriskofbuildingandmanagingasubunitinanothercountry;Howthesubsidiariesfitintotheoverallmultinationalorganizationalstructure.InternationalDivision(1of3)TheInternationalDivisiondiffersfromtheexportdepartmentinseveralways:Itislargerandhasgreaterresponsibilities.Ithasmoreextensivestaffwithinternationalexpertise.Itisresponsibleformanagingexports,internationalsales,negotiatingcontracts,andmanagingforeignsubsidiaries.Itistheusualstepaftertheexportdepartment.Itdealswithallproducts.Itmanagesoverseassalesforceandmanufacturingsites.InternationalDivision(2of3)TheInternationalDivisionhasdeclinedinpopularityamonglargemultinationals.Itisnotconsideredeffectiveformultiproductcompaniesoperatinginmanycountries.However,forcompaniesofmoderatesizewithlimitednumbersofproductsorcountrylocations,theInternationalDivisionremainsapopularandeffectivestructure.InternationalDivision(3of3)ThereareseveralstructuraloptionstodealwiththeshortcomingsoftheInternationalDivision:WorldwideproductstructureWorldwidegeographicstructureMatrixstructureTransnationalnetworkstructureWorldwide

GeographicStructure(1of2)IntheWorldwideGeographicStructure,regionsorlarge-marketcountriesbecomethegeographicdivisionsofthemultinationalcompany.Theprimaryreasontoadoptthisstructureistoimplementamultidomesticorregionalstrategy.Differentiationofproductsorservicesrequiresanorganizationaldesignwithmaximumgeographicflexibility.Worldwide

GeographicStructure(2of2)IntheWorldwideGeographicStructure,regionsorlarge-marketcountriesbecomethegeographicdivisionsofthemultinationalcompany.(cont’d)Thesemiautonomoussubunitsprovideflexibilitytomeetlocalneeds.Country-leveldivisionsusuallyexistonlywhenacountry’smarketsizeissufficientlylargetosupportitsownorganization.Separatedivisionsmakesenseforlargemarketcountries.WorldwideProductStructureProductdivisionsformthebasicunitsoftheWorldwideProductStructure:Eachproductdivisionisresponsibleforproducingandsellingitsproductsorservicesthroughouttheworld.Itmaybetheidealstructuretoimplementaninternationalstrategyinwhichthefirmgainseconomiesofscalebysellingworldwideproductactivitiesbasedathome.Thistypeofstructuresacrificestheregionalorlocaladaptationstrengthsderivedfromageographicalstructure.HybridsBothWorldwideProductStructureandWorldwideGeographicStructurehaveadvantagesanddisadvantages:AProductStructuresupportsglobalproducts.AGeographicStructureemphasizeslocaladaptation.Multinationalsoftenwantbothabilities.Toachievethis,mostmultinationalsuseaHybridformofstructure,whichcombinesboth.WorldwideMatrixStructures(1of3)Tobalancethebenefitsofgeographicandproductstructures,andtocoordinatetheirsubunits,somemultinationalscreateaWorldwideMatrixStructure:Unlikehybrids,itisasymmetricalorganizationwithequallinesofauthorityforworldwideproductgroupsandgeographicaldivisions.TheGeographicDivisionsfocusonnationalresponsiveness.TheProductDivisionsfocusonfindingglobalefficiencies.WorldwideMatrixStructures(2of3)AWorldwideMatrixStructure:BalancesthebenefitsproducedbyareaandproductstructuresWorksbestwithnearequaldemandsfrombothsidesRequiresextensiveresourcesforcommunicationandcoordinationRequiresmiddleandupperlevelmanagerswithgoodhumanrelationsskillsIntheory,producesqualitydecisionsWorldwideMatrixStructures(3of3)ProblemswithWorldwideMatrixStructures:SlowdecisionmakingprocessToobureaucraticToomanymeetingsandtoomuchconflictResult:Somecompanieshaveabandonedtheirmatrixesandreturnedtoproductstructures.Othershaveredesignedtheirmatrixstructurestobemoreflexiblewithspeedierdecisionmaking.TheTransnationalNetworkStructure(1of3)Unlikethesymmetricalmatrixstructure,The

TransnationalNetworkhasnobasicform,symmetryorbalancebetweengeographicandproductdivisions.Instead,The

TransnationalNetworklinksdifferentfunctional,product,andgeographicsubsidiariesdispersedworldwide.Nodes,unitsatthecenterofthenetwork,coordinateproduct,functionalandgeographicinformation.TheTransnationalNetworkStructure(2of3)Notwosubunitsarealike.Transnationalunitsevolvetotakeadvantageofresources,talentandmarketopportunitieswherevertheyexistintheworld.Resources,peopleandideasflowinalldirections.TransnationalNetworkStructures:AnExample(1of2)TheDutchmultinationalPhilipsElectronicsN.V.worksin60differentcountries,makingproductsasdiverseasdefensesystemsandlightbulbs.Philipshas8productdivisionswithmorethan60subgroupsbasedonproductsimilarity.Theproductdivisionshavesubsidiaries,whichmayfocusononlyoneproductoronanarrayofproducts.SubsidiariescanspecializeinR&D,sales,etc.Someunitsarehighlyindependent,sometightlycontrolled.TransnationalNetworkStructures:AnExample(2of2)Philipsdividestheworldintothreegroups:KeycountriessuchastheNetherlandsandtheUnitedStatesproduceforlocalandworldmarkets,andcontrollocalsalesLargecountriessuchasMexicoandBelgiumhavesomelocalandworldwideproductionfacilitiesandlocalsales.Localbusinesscountriesaresmallercountriesthatareprimarilysalesunitsandthatimportproductsfromtheproductdivisions’worldwideproductioncentersinothercountries.TheTransnationalNetworkStructure(3of3)ThebasicstructuralframeworkofTheTransnationalNetworkhas3components:Dispersedsubunitsaresubsidiarieslocatedanywhereintheworldtheymaybenefitthefirm.SpecializedOperationsaresubunitsthatspecialize,whetherinproductlines,researchormarketing.InterdependentRelationshipsmustexisttomanagethedispersedandspecializedsubunitswhichshareresourcesandinformationcontinuously.MetanationalStructureLargeentrepreneurialmultinationalCantapintopocketsofinnovation,technology,andmarketslocatedaroundtheworldAnevolutionofthetransnationalnetworkstructurethatdevelopsextensivesystemstoencourageorganizationallearningandentrepreneurialactivitiesBeyondtheTransnational:

TheMetanational?(1of2)Structureformultinationalfirmscontinuestoevolve.AnewstructureisemergingcalledTheMetanational,alarge,entrepreneurialmultinationalfirmabletotapintohiddenpocketsofinnovation,technologyandmarkets,especiallyemergingmarketsworldwide.TheMetanationalissimilartotheTransnational:Itisanetworked,butcenterlessorganizationDecision-makingresideswiththesubunits.BeyondtheTransnational:

TheMetanational?(2of2)TheMetanationalisdifferentfromtheTransnationalinthat:Ithasanoverridingobjectivetolearnfromanywhereintheworld,andtosharethatknowledgewitheveryoneinthecompany.TheMetanationalorganizationusesthelatestinvirtualconnectivitytolinkteammembersworldwide.Characteristics

ofMetanationals(1of2)ThecharacteristicsoftheMetanationalstructureare:NonstandardbusinessformulasforanylocalactivityLookingtoemergingmarketsassourcesofknowledgeandideas,notjustforlocallaborCreatingacultureandadvancedcommunicationsystemthatsupportinggloballearningExtensiveuseofstrategicalliancestogainknowledgeforvariedsourcesCharacteristics

ofMetanationals(2of2)ThecharacteristicsoftheMetanationalstructure(cont’d):HighlevelsoftrustbetweenpartnerstoencourageknowledgesharingAcenterlessstructurethatmovesstrategicfunctionsawayfromheadquartersandtomajormarketsAdecentralizationofdecisionmakingtomanagerswhoservekeycustomersandstrategicpartnersMultinationalStrategyandStructure:AnOverviewMostcompaniessupportearlyinternationalizationeffortswithexportdepartments.Dependingonglobalizationstrategy,theyevolveintoproductorgeographicstructure.Pressuresforlocaladaptationandglobalefficienciesmovetomatrixortransnationalnetworkstructures.Mostcompaniesneverquitereachapurestructure,andinstead,adoptahybridstructure.Controland

CoordinationSystems(1of2)Althoughdifferentsubunitsperformspecializedtasks,managersmustdesignorganizationalsystemstocontrolandcoordinatetheiractivities.ControlSystemshelplinktheorganizationvertically,upanddowntheorganizationalhierarchyintwoways:TheymeasureormonitorperformanceofthesubunitsTheyprovidefeedbackoneffectivenesstosubunitmanagersControland

CoordinationSystems(2of2)CoordinationSystemslinktheorganizationhorizontally.CoordinationSystemsprovideinformationflowsamongsubsidiariessothattheycancoordinatetheiractivities.Example:FordplanstouseadvancedinformationsystemssothatdesignersinEurope,theU.S.andJapancancoordinatetheirdesigneffortsfortheworldmarket.DesignOptionsfor

ControlSystemsTherearefourbroadtypesofcontrolsystems:1.Outputcontrolsystems2.Bureaucraticcontrolsystems3.Decision-makingcontrolsystems4.CulturalcontrolsystemsOutputControlSystems1.OutputControlSystems:Assessestheperformanceofaunitbasedonresults,notontheprocessusedtoachievethoseresultsResponsibilityforprofitisthemostcommonoutputcontrol.Example:aProfitCenter.BureaucraticControlSystems;

Decision-MakingControlSystems2.BureaucraticControlSystems:Focusesonmanagingbehaviors,notoutcomeExamplesincludebudgets,statisticalreports,andcentralizationofdecision-making.Budgetssetfinancialtargetsforexpenditures.Statisticalreportsprovideinformationtotopmanagementonnon-financialoutcomes.Standardoperatingprocedures(SOPs)providerulesthatidentifyapprovedwaysofbehaving.

BureaucraticControlSystems;

Decision-MakingControlSystems3.Decision-makingControlSystems:Theleveloftheorganizationwheremanagershavetheauthoritytomakedecisions.Indecentralizedorganizations,lower-levelmanagersmakemanyimportantdecisions.Incentralizedorganizations,higher-levelmanagersmakemostimportantdecisions.Transnationalstructuresdonothaveatendencyforcontrolineitherdirection.CulturalControlSystems4.CulturalControlSystems:Useorganizationalculturetocontrolemployees’behaviorsandattitudesStrongorganizationalculturesdevelopsharednorms,values,believesandtraditionsSuchculturesencouragehighlevelsofcommitmentandsupportfortheorganization.DesignOptionsforCoordinationSystemsThereare6basichorizontalcoordinationsystems:TextualCommunication:e-mail,memos,andreportsDirectContact:face-to-faceinteractionofemployeesLiaisonRoles:partofaperson’sjobinonedepartmenttocommunicatewithpeopleinanotherdepartmentTaskForces:temporaryteamscreatedtosolveaparticularorganizationalproblemFull-timeIntegrators:cross-unitcoordinationisthemainjobresponsibilityCoordinationSystems:TeamsTeams:(groupsofemployeesworkingtogether)givecompaniestheabilitytobettercoordinatetheworkandexpertiseofwidelydispersedindividualsD