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Chap011

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This document discusses organizational design and control for international companies. It begins by outlining learning objectives related to organizational structures, forms, decision making, and information reporting. It then discusses why organizational design is important for integrating global business activities and responding to change. The document outlines dimensions to consider in structure selection like departmentalization and coordination. It also discusses various organizational forms like product, geographic, functional, hybrid, and matrix structures. The document outlines factors involved in decision making between parent and subsidiary units as well as maintaining control of joint ventures. It concludes by discussing trends in organizational structures and factors in maintaining control.

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Chapter 11 Organizational Design and Control McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
11-2 Learning Objectives • LO1 Explain why the design of organizational structure is important to international companies. • LO2 Discuss the organizational dimensions that must be considered when selecting organizational structures. • LO3 Discuss the various organizational forms available for structuring international companies. • LO4 Explain why decisions are made when they are among parent and subsidiary units of an international company. • LO5 Discuss how an international company can maintain control of a joint company in which the IC owns less than 50 percent of the voting stock. • LO6 List the types of information an international company needs to have reported to it by its units around the world. • LO1 Explain why the design of organizational structure is important to international companies. • LO2 Discuss the organizational dimensions that must be considered when selecting organizational structures. • LO3 Discuss the various organizational forms available for structuring international companies. • LO4 Explain why decisions are made when they are among parent and subsidiary units of an international company. • LO5 Discuss how an international company can maintain control of a joint company in which the IC owns less than 50 percent of the voting stock. • LO6 List the types of information an international company needs to have reported to it by its units around the world.
11-3 What is Organizational Design, and Why is it Important for International Companies? • How an IC is organized to ensure efficient and effective integration of global business activities • How an IC is organized to ensure efficient and effective integration of global business activities • Org. Design must: – Evolve – Respond to change – Reconfigure so competencies & resources are integrated in and across business units • Org. Design must: – Evolve – Respond to change – Reconfigure so competencies & resources are integrated in and across business units
11-4
11-5 Organizational Design Concerns 1. Find the most effective way to departmentalize to take advantage of efficiencies gained from specialization of labor 2. Coordinate the activities of those departments to enable the firm to meet its overall objectives 1. Find the most effective way to departmentalize to take advantage of efficiencies gained from specialization of labor 2. Coordinate the activities of those departments to enable the firm to meet its overall objectives 1. Product and technical expertise regarding the IC’s businesses 2. Geographic expertise about countries and regions where the IC operates 3. Customer expertise regarding the client groups, industries, market segments, or population groups across national borders 4. Functional expertise regarding the IC’s value chain activities 1. Product and technical expertise regarding the IC’s businesses 2. Geographic expertise about countries and regions where the IC operates 3. Customer expertise regarding the client groups, industries, market segments, or population groups across national borders 4. Functional expertise regarding the IC’s value chain activities
11-6 Evolution of the International Company StagesStages 1. Exporting 2. Overseas sales companies 3. Foreign manufacturing facilities 4. International Division – “same level as domestic division but responsible for all non-home-country activities” 1. Exporting 2. Overseas sales companies 3. Foreign manufacturing facilities 4. International Division – “same level as domestic division but responsible for all non-home-country activities” Shift from International Division top Worldwide Organization Shift from International Division top Worldwide Organization • Worldwide organization based on: – Product – Region – Function – Customer classes • At lower levels: – Process – National subsidiary – International or domestic • Worldwide organization based on: – Product – Region – Function – Customer classes • At lower levels: – Process – National subsidiary – International or domestic
11-7
11-8
11-9 Reasons for Additional Structural Changes 1. Need more capability to develop competitive strategies to confront global competition 2. Lower production costs with global product standardization and manufacturing rationalization 3. Enhance technology transfer and resource allocation 1. Need more capability to develop competitive strategies to confront global competition 2. Lower production costs with global product standardization and manufacturing rationalization 3. Enhance technology transfer and resource allocation
11-10 Global Corporate Forms ProductProduct • Product divisions responsible for – Global line & staff operations – Marketing – Production • Issues: – Regional experts avoid duplication of product experts – Duplication of area experts • Product divisions responsible for – Global line & staff operations – Marketing – Production • Issues: – Regional experts avoid duplication of product experts – Duplication of area experts Geographic RegionsGeographic Regions • Regional managers report directly to CEO • Found in both multinational (multidomestic) and global firms • Works well for products with low/stable technology but needing strong marketing • Hard to coordinate production across regions • Managers have no line authority but give input to decisions • Regional managers report directly to CEO • Found in both multinational (multidomestic) and global firms • Works well for products with low/stable technology but needing strong marketing • Hard to coordinate production across regions • Managers have no line authority but give input to decisions
11-11
11-12
11-13 Global Corporate Forms FunctionFunction • Very few firms organized by function at top levels • Senior executives reporting to CEO have specific functional responsibility • Firm typically has a narrow & highly integrated product mix • Very few firms organized by function at top levels • Senior executives reporting to CEO have specific functional responsibility • Firm typically has a narrow & highly integrated product mix HybridHybrid • Hybrid – “Structure organized by more than on dimension at top level” – May not be hybrid at lower levels • Used when: – Regional firm introduces line best handled by worldwide product division – An acquired firm has distinct products & functional marketing network in place – Firm sells to large, homogenous customer group • Hybrid – “Structure organized by more than on dimension at top level” – May not be hybrid at lower levels • Used when: – Regional firm introduces line best handled by worldwide product division – An acquired firm has distinct products & functional marketing network in place – Firm sells to large, homogenous customer group
11-14
11-15
11-16 Matrix Organizations Matrix OrganizationMatrix Organization • “ one or more superimposed organizational structures in an attempt to mesh product, regional, functional, and other expertise” • Country managers responsible for both area and product-line managers • “ one or more superimposed organizational structures in an attempt to mesh product, regional, functional, and other expertise” • Country managers responsible for both area and product-line managers Problems with the MatrixProblems with the Matrix • 2 or 3 managers must agree on decisions • Less-than-optimum compromises • Delayed responses • Attention paid to process not problem • Unresolved problems go to management • 2 or 3 managers must agree on decisions • Less-than-optimum compromises • Delayed responses • Attention paid to process not problem • Unresolved problems go to management
11-17
11-18 Solution: Matrix Overlay Matrix OverlayMatrix Overlay • “ BenefitsBenefits • Requires accountability • Avoids stress of pure matrix structure • Regional specialists with staff function give input to product decisions • Organized into international divisions • Regional product managers • Requires accountability • Avoids stress of pure matrix structure • Regional specialists with staff function give input to product decisions • Organized into international divisions • Regional product managers • “ top level organizations are required to heed input from staff composed of experts of another organizational dimension in an attempt to avoid the double- reporting difficulty of a matrix organization but still mesh two or more dimensions” • “ top level organizations are required to heed input from staff composed of experts of another organizational dimension in an attempt to avoid the double- reporting difficulty of a matrix organization but still mesh two or more dimensions”
11-19 Strategic Business Units SBUsSBUs • business entity with a clearly defined market, specific competitors, the ability to carry out specific business mission, and size appropriate for control by single manager • Typically based on product lines • Also called Product Business Units (PBUs) and Strategic Performance Units (SPUs) • business entity with a clearly defined market, specific competitors, the ability to carry out specific business mission, and size appropriate for control by single manager • Typically based on product lines • Also called Product Business Units (PBUs) and Strategic Performance Units (SPUs)
11-20 Changes in Organizational Forms Business Environment changes create pressures: • act more quickly • reduce costs • improve quality • maintain alignment Business Environment changes create pressures: • act more quickly • reduce costs • improve quality • maintain alignment ReengineeringReengineering • redesigning organizational structure, hierarchy, business systems, and processes to improve organizational efficiency • Reengineering : – reduces levels of middle management – restructures work processes – reduces fragmenting across departments – improves speed and quality of strategy execution – empowers employees – communicates instantly – transmits information swiftly • redesigning organizational structure, hierarchy, business systems, and processes to improve organizational efficiency • Reengineering : – reduces levels of middle management – restructures work processes – reduces fragmenting across departments – improves speed and quality of strategy execution – empowers employees – communicates instantly – transmits information swiftly
11-21 Current Organizational Trends Virtual CorporationVirtual Corporation – “coordinates economic activity to deliver value to customers using resources outside the traditional boundaries of the organization” – aka Network Corporation – “coordinates economic activity to deliver value to customers using resources outside the traditional boundaries of the organization” – aka Network Corporation Advantages/DisadvantageAdvantages/Disadvantage • Advantages – Changes in workforce & work methods – Greater flexibility – Network of dynamic relationships – Takes advantage of other organizations’ competencies • Disadvantage – Potential to reduce management’s control over the corporation’s activities • Advantages – Changes in workforce & work methods – Greater flexibility – Network of dynamic relationships – Takes advantage of other organizations’ competencies • Disadvantage – Potential to reduce management’s control over the corporation’s activities
11-22 Current Organizational Trends Horizontal CorporationHorizontal Corporation • “form of organization characterized by lateral decision process, horizontal networks, and a strong corporate wide business philosophy” • “form of organization characterized by lateral decision process, horizontal networks, and a strong corporate wide business philosophy” IssuesIssues • Seen as “antiorganization” • Company teams solve problems, bring product to market • Globally cultivated relationships to build & market products • Greater innovation & new product development • Middle managers and skilled professionals make decisions • Cooperation & coordination substituted for strict control and supervision • Seen as “antiorganization” • Company teams solve problems, bring product to market • Globally cultivated relationships to build & market products • Greater innovation & new product development • Middle managers and skilled professionals make decisions • Cooperation & coordination substituted for strict control and supervision
11-23 Corporate Survival in the 21st Century • Dynamic Network Structure – Breaks down major functions into smaller companies – Coordinated by small-size HQ organization – Business functions by separate organizations – Core business focus for optimal vertical integration – Non-essential business functions outsourced • Dynamic Network Structure – Breaks down major functions into smaller companies – Coordinated by small-size HQ organization – Business functions by separate organizations – Core business focus for optimal vertical integration – Non-essential business functions outsourced
11-24 Control • Puts plans into effect • Evaluates plan effectiveness • Makes desirable corrections • Evaluates & rewards executive performance • Puts plans into effect • Evaluates plan effectiveness • Makes desirable corrections • Evaluates & rewards executive performance
11-25 Where to Make Decisions in Wholly-Owned Subsidiaries? Decision LocationsDecision Locations • IC Headquarters • Subsidiary Level • Cooperatively • IC Headquarters • Subsidiary Level • Cooperatively Decision VariablesDecision Variables • Product & equipment • Subsidiary management competence & HQ reliance on them • IC size and duration • Subsidiary detriment for enterprise benefit • Subsidiary frustration • Product & equipment • Subsidiary management competence & HQ reliance on them • IC size and duration • Subsidiary detriment for enterprise benefit • Subsidiary frustration
11-26 Product and EquipmentProduct and Equipment • Standardized by HQ if no global policy exists • If subsidiary shows greater profit from tailored product subsidiary moves forward. • Standardized by HQ if no global policy exists • If subsidiary shows greater profit from tailored product subsidiary moves forward. Competence of Subsidiary Management Competence of Subsidiary Management • Based on: – Execs knowing each other well – How well execs know company policies – How well execs understand host country conditions – Distance between home and host country – How big and old parent company is • Based on: – Execs knowing each other well – How well execs know company policies – How well execs understand host country conditions – Distance between home and host country – How big and old parent company is
11-27 Moving Executives Around Moving Executives Around • Promising managers often moved to gain experience – Among subsidiaries – To HQ • Learn HQ policies and problems implementing at subsidiary level • Builds network of intra-IC personal relationships • Communications easier and with less error • Promising managers often moved to gain experience – Among subsidiaries – To HQ • Learn HQ policies and problems implementing at subsidiary level • Builds network of intra-IC personal relationships • Communications easier and with less error Understanding Host Country Conditions Understanding Host Country Conditions • HQ will rely more on subsidiary managers if less familiar with host country conditions or they are very different • HQ will rely more on subsidiary managers if less familiar with host country conditions or they are very different How Far Away Is Host Country? How Far Away Is Host Country? • The greater the distance, the greater the perceived differences • The greater the distance, the greater the perceived differences
11-28 Size & Age of the ICSize & Age of the IC • Large companies hire more specialists, experts, and experienced executives than do smaller companies. • Older companies have more experienced top management than do younger ones. • Large companies hire more specialists, experts, and experienced executives than do smaller companies. • Older companies have more experienced top management than do younger ones. Benefitting Enterprise to Subsidiary Detriment Benefitting Enterprise to Subsidiary Detriment • Subsidiary Detriment – “situation in which a small loss for a subsidiary results in gain for the total IC” • Subsidiary Detriment – “situation in which a small loss for a subsidiary results in gain for the total IC” Moving Production Factors Moving Production Factors – HQ may decide to move production to take advantage of better conditions in another host country – Subsidiary not enthusiastic – HQ may decide to move production to take advantage of better conditions in another host country – Subsidiary not enthusiastic
11-29 Which Subsidiary Gets the Order? Which Subsidiary Gets the Order? • Based on – Transportation – Production costs – Tariffs – Currency restrictions – Order backlogs – Governmental pressure – Taxes • HQ decision avoids price competition • Based on – Transportation – Production costs – Tariffs – Currency restrictions – Order backlogs – Governmental pressure – Taxes • HQ decision avoids price competition Multicountry Production Multicountry Production • Consolidating standardized production in several small markets for attaining overall manufacturing economies of scale • Requires high degree of HQ coordination and control • Consolidating standardized production in several small markets for attaining overall manufacturing economies of scale • Requires high degree of HQ coordination and control
11-30 Which Subsidiary Books the Profit? Which Subsidiary Books the Profit? • HQ decision based on: – Tax considerations – Currency controls – Labor relations – Political climate – Social unrest • Transfer Pricing – “Pricing that is established or transactions between members of the enterprise” • HQ decision based on: – Tax considerations – Currency controls – Labor relations – Political climate – Social unrest • Transfer Pricing – “Pricing that is established or transactions between members of the enterprise” ExampleExample
11-31 Subsidiary FrustrationSubsidiary Frustration • HQ must give motivated management and loyalty to its subsidiaries. • If subsidiary managers lose incentive, prestige or face with employees and community, they become hostile and disloyal. • Authority and responsibility need to be delegated to subsidiary managers. • They need to be kept thoroughly informed and consulted about serious issues. • If not, frustration and resignations will result. • HQ must give motivated management and loyalty to its subsidiaries. • If subsidiary managers lose incentive, prestige or face with employees and community, they become hostile and disloyal. • Authority and responsibility need to be delegated to subsidiary managers. • They need to be kept thoroughly informed and consulted about serious issues. • If not, frustration and resignations will result.
11-32 Joint Ventures and Subsidiaries Less Than 100% Owned Loss of Freedom and Flexibility Loss of Freedom and Flexibility • Outside shareholders can control the affiliate and bock HQ initiatives by voting their shares or applying political and legal pressure • Outside shareholders can control the affiliate and bock HQ initiatives by voting their shares or applying political and legal pressure Control Can Be HadControl Can Be Had • IICs with<50% to “0” voting stock till can control with: – Management contract – Control of finances – Control of technology – Putting people from the IC in important positions • IICs with<50% to “0” voting stock till can control with: – Management contract – Control of finances – Control of technology – Putting people from the IC in important positions
11-33 Reporting FinancialFinancial • Use of Surplus Funds: – Retained for investment or contingencies – To parent for dividends – Loan to or investment in another subsidiary • Use of Surplus Funds: – Retained for investment or contingencies – To parent for dividends – Loan to or investment in another subsidiary TechnologicalTechnological • New technology needs to be reported to HQ • HQ can acquire of license for own corporate competitive advantage • New technology needs to be reported to HQ • HQ can acquire of license for own corporate competitive advantage
11-34 Reporting Market OpportunitiesMarket Opportunities • Spot new or growing market opportunities • Sell in new market • Assemble or license if large enough to support • Monitor and report competitor activities • Changes in subsidiary’s market share • Spot new or growing market opportunities • Sell in new market • Assemble or license if large enough to support • Monitor and report competitor activities • Changes in subsidiary’s market share Political and EconomicPolitical and Economic • All economic and political changes should be reported because they have direct impact on subsidiary and parent performance and profitability • All economic and political changes should be reported because they have direct impact on subsidiary and parent performance and profitability
11-35 Managing in a World out of Control The Internet as Working Anarchy The Internet as Working Anarchy • Nobody owns it • Nobody runs it • Dint of online etiquette • No rules • No regulations • Rampant expansion and evolution • Highly adaptable • Less susceptible to network crash • Nobody owns it • Nobody runs it • Dint of online etiquette • No rules • No regulations • Rampant expansion and evolution • Highly adaptable • Less susceptible to network crash MIT System of Distributed Control MIT System of Distributed Control 1. Do simple things first 2. Learn to do them flawlessly 3. Add new layers of activity after the results of the simple task 4. Don’t change the simple things 5. Make the new layer work as flawlessly as the simple one 6. Repeat ad infinitum 1. Do simple things first 2. Learn to do them flawlessly 3. Add new layers of activity after the results of the simple task 4. Don’t change the simple things 5. Make the new layer work as flawlessly as the simple one 6. Repeat ad infinitum
11-36 Managing in a World out of Control Control: Yes and NoControl: Yes and No • IC control is critical for the success of the IC family • The trend is toward centralized decision making • Functional control is becoming more technology- driven, decentralizing and de-jobbing the firm • Workers do evolving tasks with changing teams • Hierarchies dissolve • Leaders give up control • Workers are trained for change and rewarded for coping well • no rules no reuations • IC control is critical for the success of the IC family • The trend is toward centralized decision making • Functional control is becoming more technology- driven, decentralizing and de-jobbing the firm • Workers do evolving tasks with changing teams • Hierarchies dissolve • Leaders give up control • Workers are trained for change and rewarded for coping well • no rules no reuations
11-37 GLOBAL gauntlet • Life in a Virtual Organization • Life in a Virtual Organization • What is your impression of working in a virtual organization? • How will they evolve? • Will they replace traditional organizations? • What are their greatest strengths and weaknesses? • Would you like to work in one? • What is your impression of working in a virtual organization? • How will they evolve? • Will they replace traditional organizations? • What are their greatest strengths and weaknesses? • Would you like to work in one?

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Chap011

  • 1. Chapter 11 Organizational Design and Control McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
  • 2. 11-2 Learning Objectives • LO1 Explain why the design of organizational structure is important to international companies. • LO2 Discuss the organizational dimensions that must be considered when selecting organizational structures. • LO3 Discuss the various organizational forms available for structuring international companies. • LO4 Explain why decisions are made when they are among parent and subsidiary units of an international company. • LO5 Discuss how an international company can maintain control of a joint company in which the IC owns less than 50 percent of the voting stock. • LO6 List the types of information an international company needs to have reported to it by its units around the world. • LO1 Explain why the design of organizational structure is important to international companies. • LO2 Discuss the organizational dimensions that must be considered when selecting organizational structures. • LO3 Discuss the various organizational forms available for structuring international companies. • LO4 Explain why decisions are made when they are among parent and subsidiary units of an international company. • LO5 Discuss how an international company can maintain control of a joint company in which the IC owns less than 50 percent of the voting stock. • LO6 List the types of information an international company needs to have reported to it by its units around the world.
  • 3. 11-3 What is Organizational Design, and Why is it Important for International Companies? • How an IC is organized to ensure efficient and effective integration of global business activities • How an IC is organized to ensure efficient and effective integration of global business activities • Org. Design must: – Evolve – Respond to change – Reconfigure so competencies & resources are integrated in and across business units • Org. Design must: – Evolve – Respond to change – Reconfigure so competencies & resources are integrated in and across business units
  • 5. 11-5 Organizational Design Concerns 1. Find the most effective way to departmentalize to take advantage of efficiencies gained from specialization of labor 2. Coordinate the activities of those departments to enable the firm to meet its overall objectives 1. Find the most effective way to departmentalize to take advantage of efficiencies gained from specialization of labor 2. Coordinate the activities of those departments to enable the firm to meet its overall objectives 1. Product and technical expertise regarding the IC’s businesses 2. Geographic expertise about countries and regions where the IC operates 3. Customer expertise regarding the client groups, industries, market segments, or population groups across national borders 4. Functional expertise regarding the IC’s value chain activities 1. Product and technical expertise regarding the IC’s businesses 2. Geographic expertise about countries and regions where the IC operates 3. Customer expertise regarding the client groups, industries, market segments, or population groups across national borders 4. Functional expertise regarding the IC’s value chain activities
  • 6. 11-6 Evolution of the International Company StagesStages 1. Exporting 2. Overseas sales companies 3. Foreign manufacturing facilities 4. International Division – “same level as domestic division but responsible for all non-home-country activities” 1. Exporting 2. Overseas sales companies 3. Foreign manufacturing facilities 4. International Division – “same level as domestic division but responsible for all non-home-country activities” Shift from International Division top Worldwide Organization Shift from International Division top Worldwide Organization • Worldwide organization based on: – Product – Region – Function – Customer classes • At lower levels: – Process – National subsidiary – International or domestic • Worldwide organization based on: – Product – Region – Function – Customer classes • At lower levels: – Process – National subsidiary – International or domestic
  • 9. 11-9 Reasons for Additional Structural Changes 1. Need more capability to develop competitive strategies to confront global competition 2. Lower production costs with global product standardization and manufacturing rationalization 3. Enhance technology transfer and resource allocation 1. Need more capability to develop competitive strategies to confront global competition 2. Lower production costs with global product standardization and manufacturing rationalization 3. Enhance technology transfer and resource allocation
  • 10. 11-10 Global Corporate Forms ProductProduct • Product divisions responsible for – Global line & staff operations – Marketing – Production • Issues: – Regional experts avoid duplication of product experts – Duplication of area experts • Product divisions responsible for – Global line & staff operations – Marketing – Production • Issues: – Regional experts avoid duplication of product experts – Duplication of area experts Geographic RegionsGeographic Regions • Regional managers report directly to CEO • Found in both multinational (multidomestic) and global firms • Works well for products with low/stable technology but needing strong marketing • Hard to coordinate production across regions • Managers have no line authority but give input to decisions • Regional managers report directly to CEO • Found in both multinational (multidomestic) and global firms • Works well for products with low/stable technology but needing strong marketing • Hard to coordinate production across regions • Managers have no line authority but give input to decisions
  • 11. 11-11
  • 12. 11-12
  • 13. 11-13 Global Corporate Forms FunctionFunction • Very few firms organized by function at top levels • Senior executives reporting to CEO have specific functional responsibility • Firm typically has a narrow & highly integrated product mix • Very few firms organized by function at top levels • Senior executives reporting to CEO have specific functional responsibility • Firm typically has a narrow & highly integrated product mix HybridHybrid • Hybrid – “Structure organized by more than on dimension at top level” – May not be hybrid at lower levels • Used when: – Regional firm introduces line best handled by worldwide product division – An acquired firm has distinct products & functional marketing network in place – Firm sells to large, homogenous customer group • Hybrid – “Structure organized by more than on dimension at top level” – May not be hybrid at lower levels • Used when: – Regional firm introduces line best handled by worldwide product division – An acquired firm has distinct products & functional marketing network in place – Firm sells to large, homogenous customer group
  • 14. 11-14
  • 15. 11-15
  • 16. 11-16 Matrix Organizations Matrix OrganizationMatrix Organization • “ one or more superimposed organizational structures in an attempt to mesh product, regional, functional, and other expertise” • Country managers responsible for both area and product-line managers • “ one or more superimposed organizational structures in an attempt to mesh product, regional, functional, and other expertise” • Country managers responsible for both area and product-line managers Problems with the MatrixProblems with the Matrix • 2 or 3 managers must agree on decisions • Less-than-optimum compromises • Delayed responses • Attention paid to process not problem • Unresolved problems go to management • 2 or 3 managers must agree on decisions • Less-than-optimum compromises • Delayed responses • Attention paid to process not problem • Unresolved problems go to management
  • 17. 11-17
  • 18. 11-18 Solution: Matrix Overlay Matrix OverlayMatrix Overlay • “ BenefitsBenefits • Requires accountability • Avoids stress of pure matrix structure • Regional specialists with staff function give input to product decisions • Organized into international divisions • Regional product managers • Requires accountability • Avoids stress of pure matrix structure • Regional specialists with staff function give input to product decisions • Organized into international divisions • Regional product managers • “ top level organizations are required to heed input from staff composed of experts of another organizational dimension in an attempt to avoid the double- reporting difficulty of a matrix organization but still mesh two or more dimensions” • “ top level organizations are required to heed input from staff composed of experts of another organizational dimension in an attempt to avoid the double- reporting difficulty of a matrix organization but still mesh two or more dimensions”
  • 19. 11-19 Strategic Business Units SBUsSBUs • business entity with a clearly defined market, specific competitors, the ability to carry out specific business mission, and size appropriate for control by single manager • Typically based on product lines • Also called Product Business Units (PBUs) and Strategic Performance Units (SPUs) • business entity with a clearly defined market, specific competitors, the ability to carry out specific business mission, and size appropriate for control by single manager • Typically based on product lines • Also called Product Business Units (PBUs) and Strategic Performance Units (SPUs)
  • 20. 11-20 Changes in Organizational Forms Business Environment changes create pressures: • act more quickly • reduce costs • improve quality • maintain alignment Business Environment changes create pressures: • act more quickly • reduce costs • improve quality • maintain alignment ReengineeringReengineering • redesigning organizational structure, hierarchy, business systems, and processes to improve organizational efficiency • Reengineering : – reduces levels of middle management – restructures work processes – reduces fragmenting across departments – improves speed and quality of strategy execution – empowers employees – communicates instantly – transmits information swiftly • redesigning organizational structure, hierarchy, business systems, and processes to improve organizational efficiency • Reengineering : – reduces levels of middle management – restructures work processes – reduces fragmenting across departments – improves speed and quality of strategy execution – empowers employees – communicates instantly – transmits information swiftly
  • 21. 11-21 Current Organizational Trends Virtual CorporationVirtual Corporation – “coordinates economic activity to deliver value to customers using resources outside the traditional boundaries of the organization” – aka Network Corporation – “coordinates economic activity to deliver value to customers using resources outside the traditional boundaries of the organization” – aka Network Corporation Advantages/DisadvantageAdvantages/Disadvantage • Advantages – Changes in workforce & work methods – Greater flexibility – Network of dynamic relationships – Takes advantage of other organizations’ competencies • Disadvantage – Potential to reduce management’s control over the corporation’s activities • Advantages – Changes in workforce & work methods – Greater flexibility – Network of dynamic relationships – Takes advantage of other organizations’ competencies • Disadvantage – Potential to reduce management’s control over the corporation’s activities
  • 22. 11-22 Current Organizational Trends Horizontal CorporationHorizontal Corporation • “form of organization characterized by lateral decision process, horizontal networks, and a strong corporate wide business philosophy” • “form of organization characterized by lateral decision process, horizontal networks, and a strong corporate wide business philosophy” IssuesIssues • Seen as “antiorganization” • Company teams solve problems, bring product to market • Globally cultivated relationships to build & market products • Greater innovation & new product development • Middle managers and skilled professionals make decisions • Cooperation & coordination substituted for strict control and supervision • Seen as “antiorganization” • Company teams solve problems, bring product to market • Globally cultivated relationships to build & market products • Greater innovation & new product development • Middle managers and skilled professionals make decisions • Cooperation & coordination substituted for strict control and supervision
  • 23. 11-23 Corporate Survival in the 21st Century • Dynamic Network Structure – Breaks down major functions into smaller companies – Coordinated by small-size HQ organization – Business functions by separate organizations – Core business focus for optimal vertical integration – Non-essential business functions outsourced • Dynamic Network Structure – Breaks down major functions into smaller companies – Coordinated by small-size HQ organization – Business functions by separate organizations – Core business focus for optimal vertical integration – Non-essential business functions outsourced
  • 24. 11-24 Control • Puts plans into effect • Evaluates plan effectiveness • Makes desirable corrections • Evaluates & rewards executive performance • Puts plans into effect • Evaluates plan effectiveness • Makes desirable corrections • Evaluates & rewards executive performance
  • 25. 11-25 Where to Make Decisions in Wholly-Owned Subsidiaries? Decision LocationsDecision Locations • IC Headquarters • Subsidiary Level • Cooperatively • IC Headquarters • Subsidiary Level • Cooperatively Decision VariablesDecision Variables • Product & equipment • Subsidiary management competence & HQ reliance on them • IC size and duration • Subsidiary detriment for enterprise benefit • Subsidiary frustration • Product & equipment • Subsidiary management competence & HQ reliance on them • IC size and duration • Subsidiary detriment for enterprise benefit • Subsidiary frustration
  • 26. 11-26 Product and EquipmentProduct and Equipment • Standardized by HQ if no global policy exists • If subsidiary shows greater profit from tailored product subsidiary moves forward. • Standardized by HQ if no global policy exists • If subsidiary shows greater profit from tailored product subsidiary moves forward. Competence of Subsidiary Management Competence of Subsidiary Management • Based on: – Execs knowing each other well – How well execs know company policies – How well execs understand host country conditions – Distance between home and host country – How big and old parent company is • Based on: – Execs knowing each other well – How well execs know company policies – How well execs understand host country conditions – Distance between home and host country – How big and old parent company is
  • 27. 11-27 Moving Executives Around Moving Executives Around • Promising managers often moved to gain experience – Among subsidiaries – To HQ • Learn HQ policies and problems implementing at subsidiary level • Builds network of intra-IC personal relationships • Communications easier and with less error • Promising managers often moved to gain experience – Among subsidiaries – To HQ • Learn HQ policies and problems implementing at subsidiary level • Builds network of intra-IC personal relationships • Communications easier and with less error Understanding Host Country Conditions Understanding Host Country Conditions • HQ will rely more on subsidiary managers if less familiar with host country conditions or they are very different • HQ will rely more on subsidiary managers if less familiar with host country conditions or they are very different How Far Away Is Host Country? How Far Away Is Host Country? • The greater the distance, the greater the perceived differences • The greater the distance, the greater the perceived differences
  • 28. 11-28 Size & Age of the ICSize & Age of the IC • Large companies hire more specialists, experts, and experienced executives than do smaller companies. • Older companies have more experienced top management than do younger ones. • Large companies hire more specialists, experts, and experienced executives than do smaller companies. • Older companies have more experienced top management than do younger ones. Benefitting Enterprise to Subsidiary Detriment Benefitting Enterprise to Subsidiary Detriment • Subsidiary Detriment – “situation in which a small loss for a subsidiary results in gain for the total IC” • Subsidiary Detriment – “situation in which a small loss for a subsidiary results in gain for the total IC” Moving Production Factors Moving Production Factors – HQ may decide to move production to take advantage of better conditions in another host country – Subsidiary not enthusiastic – HQ may decide to move production to take advantage of better conditions in another host country – Subsidiary not enthusiastic
  • 29. 11-29 Which Subsidiary Gets the Order? Which Subsidiary Gets the Order? • Based on – Transportation – Production costs – Tariffs – Currency restrictions – Order backlogs – Governmental pressure – Taxes • HQ decision avoids price competition • Based on – Transportation – Production costs – Tariffs – Currency restrictions – Order backlogs – Governmental pressure – Taxes • HQ decision avoids price competition Multicountry Production Multicountry Production • Consolidating standardized production in several small markets for attaining overall manufacturing economies of scale • Requires high degree of HQ coordination and control • Consolidating standardized production in several small markets for attaining overall manufacturing economies of scale • Requires high degree of HQ coordination and control
  • 30. 11-30 Which Subsidiary Books the Profit? Which Subsidiary Books the Profit? • HQ decision based on: – Tax considerations – Currency controls – Labor relations – Political climate – Social unrest • Transfer Pricing – “Pricing that is established or transactions between members of the enterprise” • HQ decision based on: – Tax considerations – Currency controls – Labor relations – Political climate – Social unrest • Transfer Pricing – “Pricing that is established or transactions between members of the enterprise” ExampleExample
  • 31. 11-31 Subsidiary FrustrationSubsidiary Frustration • HQ must give motivated management and loyalty to its subsidiaries. • If subsidiary managers lose incentive, prestige or face with employees and community, they become hostile and disloyal. • Authority and responsibility need to be delegated to subsidiary managers. • They need to be kept thoroughly informed and consulted about serious issues. • If not, frustration and resignations will result. • HQ must give motivated management and loyalty to its subsidiaries. • If subsidiary managers lose incentive, prestige or face with employees and community, they become hostile and disloyal. • Authority and responsibility need to be delegated to subsidiary managers. • They need to be kept thoroughly informed and consulted about serious issues. • If not, frustration and resignations will result.
  • 32. 11-32 Joint Ventures and Subsidiaries Less Than 100% Owned Loss of Freedom and Flexibility Loss of Freedom and Flexibility • Outside shareholders can control the affiliate and bock HQ initiatives by voting their shares or applying political and legal pressure • Outside shareholders can control the affiliate and bock HQ initiatives by voting their shares or applying political and legal pressure Control Can Be HadControl Can Be Had • IICs with<50% to “0” voting stock till can control with: – Management contract – Control of finances – Control of technology – Putting people from the IC in important positions • IICs with<50% to “0” voting stock till can control with: – Management contract – Control of finances – Control of technology – Putting people from the IC in important positions
  • 33. 11-33 Reporting FinancialFinancial • Use of Surplus Funds: – Retained for investment or contingencies – To parent for dividends – Loan to or investment in another subsidiary • Use of Surplus Funds: – Retained for investment or contingencies – To parent for dividends – Loan to or investment in another subsidiary TechnologicalTechnological • New technology needs to be reported to HQ • HQ can acquire of license for own corporate competitive advantage • New technology needs to be reported to HQ • HQ can acquire of license for own corporate competitive advantage
  • 34. 11-34 Reporting Market OpportunitiesMarket Opportunities • Spot new or growing market opportunities • Sell in new market • Assemble or license if large enough to support • Monitor and report competitor activities • Changes in subsidiary’s market share • Spot new or growing market opportunities • Sell in new market • Assemble or license if large enough to support • Monitor and report competitor activities • Changes in subsidiary’s market share Political and EconomicPolitical and Economic • All economic and political changes should be reported because they have direct impact on subsidiary and parent performance and profitability • All economic and political changes should be reported because they have direct impact on subsidiary and parent performance and profitability
  • 35. 11-35 Managing in a World out of Control The Internet as Working Anarchy The Internet as Working Anarchy • Nobody owns it • Nobody runs it • Dint of online etiquette • No rules • No regulations • Rampant expansion and evolution • Highly adaptable • Less susceptible to network crash • Nobody owns it • Nobody runs it • Dint of online etiquette • No rules • No regulations • Rampant expansion and evolution • Highly adaptable • Less susceptible to network crash MIT System of Distributed Control MIT System of Distributed Control 1. Do simple things first 2. Learn to do them flawlessly 3. Add new layers of activity after the results of the simple task 4. Don’t change the simple things 5. Make the new layer work as flawlessly as the simple one 6. Repeat ad infinitum 1. Do simple things first 2. Learn to do them flawlessly 3. Add new layers of activity after the results of the simple task 4. Don’t change the simple things 5. Make the new layer work as flawlessly as the simple one 6. Repeat ad infinitum
  • 36. 11-36 Managing in a World out of Control Control: Yes and NoControl: Yes and No • IC control is critical for the success of the IC family • The trend is toward centralized decision making • Functional control is becoming more technology- driven, decentralizing and de-jobbing the firm • Workers do evolving tasks with changing teams • Hierarchies dissolve • Leaders give up control • Workers are trained for change and rewarded for coping well • no rules no reuations • IC control is critical for the success of the IC family • The trend is toward centralized decision making • Functional control is becoming more technology- driven, decentralizing and de-jobbing the firm • Workers do evolving tasks with changing teams • Hierarchies dissolve • Leaders give up control • Workers are trained for change and rewarded for coping well • no rules no reuations
  • 37. 11-37 GLOBAL gauntlet • Life in a Virtual Organization • Life in a Virtual Organization • What is your impression of working in a virtual organization? • How will they evolve? • Will they replace traditional organizations? • What are their greatest strengths and weaknesses? • Would you like to work in one? • What is your impression of working in a virtual organization? • How will they evolve? • Will they replace traditional organizations? • What are their greatest strengths and weaknesses? • Would you like to work in one?