Chapter 13: The Organization of

International BusinessInternational Business

October 15, 2007

Park, Du-jung Liu, Jia

Naran, Zorigt Ganaa

Content

Organizational Structure

Organizational Architecture Park, Du-jung

Liu, Jia

Control systems and Incentives & Process

Naran, Zorigt

Organizational Culture & Change Ganaa

Organizational Architecture(1)

Structure

ProcessesIncentives

AndControls

People

Culture

Organizational Architecture(2)

Maximizing its profitability

=>Internal consistency

=>Consistency between architecture and strategy

=>Consistency to competitive condition

Organizational Structure Vertical differentiation

Horizontal differentiation

Integrating mechanisms

Vertical differentiation Arguments for Centralization

Arguments for Decentralization

Strategy and Centralization in an International Business

Global Matrix(“Grid”)

InternationalDivision

Alternate Pathsof Development

AreaDivision

WorldwideProductDivision

Foreign Sales as a Percentage of Total Sales

ForeignProductDiversity

International Structural Stages Model

Horizontal differentiation

Integrating Mechanisms(1)

Strategy and Coordination in the International Business

Need of coordinationLaw High

Localizationfirms

Internationalfirms

Globalfirms

Transnationalfirms

Integrating Mechanisms(2)

Impediments to Coordination- Different orientations- Different goals

Formal Integrating Mechanisms- Direct contact

- Liaison roles

- Teams - Matrix structure Informal Integrating Mechanism

=> Knowledge Networks : network for transmitting information

Types of control system. Personal control is control by personal contact

with subordinates Bureaucratic Controls is control through a system

of rules and procedures that directs the actions of subunits

Output controls involves setting for subunits to achieve and expressing those goals in term of relatively objective performance metrics such as profitability, productivity, growth, market share, and quality.

Cultural Controls exist when employee “buy into” the norms and value system of the firm. When this occurs, the employee tend to control their own behavior, which reduces the need of other controlling systems.

Incentive refers to the devices used to reward appropriate employee behavior.

Important points to consider when using incentive system.The type of incentive used often varies depending

on the employees and their tasks. Most firms use a formula for incentives that links a

portion of incentive pay to the performance of subunit in which a manager or employee works and portion to the performance of the entire firm, or some level other higher level organization unit.

The incentive system used within a multinational enterprise often have to be adjusted to account for national differences in institutions and culture.

Unintended consequences

Performance ambiguity is a function of the interdependence of subunits in an organization. Cost control can be defines as the amount of

time top management must devote to monitoring and evaluating subunits’ performance.

Strategy Interdependence

Performance Ambiguity

Costs of control

localization Low Low Low

International Moderate Moderate Moderate

Global High High High

Transnational

Very high Very high Very high

Process is defined as manners in which decisions are made and work is performed within the organization.

Organizational Culture: -Creating and Maintaining

Organizational Culture

-Organizational Culture and Performance in the international Business

Synthesis: Strategy and Architecture -Localization Strategy -International Strategy

- Global Standardization Strategy - Transnational Strategy - Environment, strategy, Architecture

and Performance Organizational Change: - Organizational Inertia - Implementing Organizational Change

Organizational CultureCreating and Maintaining Organizational

CultureInfluences on Organizational Culture

1.Important leaders can have a profound impact on an organizations culture.

Example: Japanese from Matsushita: - Natural Service through Industry - Fairness - Harmony and cooperation - Struggle for betterment - Courtesy and humility - Adjustment and assimilation - Gratitude

2.Broader social culture of the nation where the firm was founded

3.History of the enterprise, which over time may come to shape the values of the organization.

Culture is maintained by a variety of mechanisms.

1. Hiring and promotional practices of the organization

2. reward strategies

3. Socialization Process

4. Communication Strategy

Organizational Culture & Performance in the International Business

firms with strong Strong Culture A culture can be culture are normally + - strong but badseen by outsiders Example:1980Generalas having a certain Motors had a strong culturestyle or way of doing things

Adaptive Culture Most Managers care deeply about and value costumers, stock-holders, and e

mployees

Environment, Strategy, Architecture and Performance

A firm to succeed, two conditions must be fulfilled.

1. The firm’s strategy must be consistent with the environment in which the firm operates.

2. The firm’s organization architecture must be consistent with its strategy.

Organizational Change Organizational Inertia Inertia forces come from a number of sources.

1. Existing distribution of power and influence with on organization

2. Existing culture, as expressed in norm and value system

3. Senior managers’ preconceptions about the appropriate business model or paradigm.

4. Institutional constrains might also act as a source of inertia

Implementing Organizational Change

The Basic Principles for successful Organizational damage

Unfreezing the organization Moving to the new State Refreezing the Organization

Whose power is threatenedby change can too easilyresist incremental change

Movement requires a substantial change in theform of a multinational’sorganization architecture

so that it matches the desired new strategic

postures

Refreezing requires thatemployees be

socialized into the newway of doing things