gbm unit-08 (organizational structure in international business)
TRANSCRIPT
07/06/10 2
“A student pursuing management education from IILM-
Graduate School of Management, for example may find
himself or herself placed in a firm located in a totally
different country. Knowledge about international
business keeps the youngster mentally prepared to
accept assignment in an alien environment. Forewarning
is definitely forearming, for the fresh management
graduate”.
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Importance of this course
Global Business Management
07/06/10 3
Course: Global Business Management
1. Globalization
2. Global Trade & Theory
3. Global Technological Environment
4. Global Economic Environment
5. Global Political-Legal Environment
6. Foreign Direct Investments
7. Regional Economic Integration
8. Strategy and Structure of International Business
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Global Business Management
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Contents• Nature of International Organization Design
• Factors influencing Organization structure
• Basic Organization Structure
– International Division
– Worldwide Functional
– Geographic Area
– Global Product Division
– Mixed ,Matrix, Networked structure
• Discussion on: Advantages & Disadvantages of Structures
• Presentation on: Issues in global organization design
• Case-Study: Organizational Change at Unilever
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Al-Qaeda “ Al-Qaeda is a fundamentalist group established in the early 1980s and
headed by Osama bin Laden. It is reported that its overall aim is to restore all Islamic lands to what they consider a pure form of Islam. In the early 2000s bin Laden operated from Afghanistan, sheltered by the Taliban regime then in power.
The events of 11 September 2001, when aircraft piloted by members linked to al-Qaeda were flown into the World Trade Center in New York, jolted the USA and other Western governments into further action against al-Qaeda.
The USA declared war on Taliban regime in Afghanistan, which had been harboring bin Laden & succeed in overthrowing it. Some of his followers escaped, probably to the tribal lands on the Pakistan-Afghanistan border”.
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Al-Qaeda
“ It was thought that bin Laden was now isolated and powerless, and furthermore that al-Qaeda was broken because its leadership had been fragmented, its structure fractured, and much of its financial resources neutralized. US army applied war strategy ‘going for the head of the snake’. This strategy, it was believed, would result in killing enemy leaders, isolating them from their troops and affiliates.
In 2003, 2004, however, there were further terrorist attacks in Turkey, Spain, Saudi Arabia ,Iraq and several Western countries were put on high alert from the perceived threat of attack”.
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Al-Qaeda – Organization Structure
“ To believe that the actions of the US and its allies in Afghanistan had defeated al-Qaeda was to misunderstand the nature of its organizational structure and design. It was assumed that al-Qaeda must be organized like any other organization operating in many countries, with a well-defined hierarchy that was able to coordinate and control the actions of its operatives in the field. However, it was more amoeba-like-a loose association of like-minded groups with the same overall vision”.
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Motorola
“ Motorola’s share in the worldwide cellular market has been, of late, declining. The company has decided to expand operations in Asia, notably in China, Korea, Philippines and Taiwan. Simultaneously, Motorola has been restructuring its overall worldwide operations in order to increase efficiency and cut down costs. The company has recently merged half dozen separate businesses into two huge divisions, one focusing on consumers and the other on infrastructure equipment. Motorola hopes that this new organizational arrangement will help it better adapt to the global market which is becoming more competitive”.
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Hindalco
“ Nearer at home, several companies are restructuring themselves in a big way. Hindalco, the flagship of the AV Birla group took over Indo Gulf recently in order to restructure itself and build a global non-ferrous metals company. With the augmented balance sheet, Hindalco has plans to bid for National Aluminium Company (NALCO). Grasim and Indian Rayon, in the same group, have also undergone restructuring”.
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Strategy Vs Structure
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Relationship between Strategy & Structure
• Two-way relationship (reciprocal) .• Normally, MNC establishes strategy, then create an
appropriate organization structure to implement/achieve strategy.
• Structure cannot be changed quickly or too frequently. Once in place, it sometimes influences future strategies.
Organization structure (often called organization design) is a basic vehicle through which strategy
is implemented.
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Nature of International Organization Design
A firm cannot function unless its various structural components are
appropriately assembled. Through its design, the firm shall:
– Allocate organizational resources
– Assign tasks to its employees
– Instruct employees about the firm’s rules, procedures and expectations relating to their jobs
– Collect and transmit information necessary for problem solving and decision making
The last task is particularly important for a large MNC, which needs to share vast amounts of information between corporate
headquarters and subsidiaries worldwide.
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Factors influencing Organization structure
OrganizationalStructureEnvironment Technology
Internal External
Managementorientation
Org.size
Employeestrength
UncertaintyDifferentiation& Integration
GlobalizationVs local
responsivenessRoutine
Non-Routine
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Factors influencing Organization structureInternal Environment
• Management Orientation– Ethnocentric management orientation is characterized by strong control
by the parent company. Its structure reflects strong centralization in decision making, and most of the managers are parent country nationals.
– Polycentric management allows decentralization of authority and decision making.
– In geocentric management, the organization design is cosmopolitan, with little concentration of decision making or personnel with any particular nationality.
• As organizations grow, they tend to add more departments and levels, making their structure more complex and they tend to become more decentralized.
• When the number of employees increase, the company is likely to resort to more formalized ways of doing things. Its becomes necessary to introduce policies, procedures, and systems, because one can no longer expect people to relate informally on a face-to-face basis in the efficient execution of tasks.
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Factors influencing Organization structureExternal Environment
• The environment of a firm can be uncertain or may fit into a stable pattern.
• A firm that operates in a highly unstable and uncertain environment tends to have organic characteristics such as decentralized decision-making, fewer rules and regulations, and both hierarchical and lateral communication channels. More emphasis is on horizontal coordination.
• In contrast, a firm operating in a stable environment tends to have relatively mechanistic characteristics such as highly centralized decision-making, many rules and regulations and mainly hierarchical communication channels. More emphasis is on vertical coordination.
Environmental Uncertainty
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Factors influencing Organization structureEnvironmental Uncertainty
Environmental Uncertainty HighLow
Strong Hierarchy Weak Hierarchy
High Standardization Low Standardization
High specialization Low specialization
High centralization Low centralization
Simple structure Complex structure
Mechanist structure Organic structure
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Factors influencing Organization structureDifferentiation and Integration
• Differentiation means that within an organization, there are departments....Where there is insufficient co-operation among departments, integration becomes necessary.
• Where environments are unstable there is a greater differentiation among departments. Greater the differentiation, greater the need for integration.
• General Motors, for example, was formed with 25 different companies. Each company operated in its own way, made its own decisions and made its own range of cars. A high level of differentiation. When Alfred Sloan took over as president of GM, the first thing he did was to bring about integration, a strategy which proved to be successful.
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Factors influencing Organization structurePressure for Global Integration or Local Responsiveness
Multi-domesticStrategy-
worldwide area structure.
GlobalStrategy-
worldwide product division structure.
InternationalStrategy
International division structure
TransnationalStrategy-
matrix type structures
Pressure for Global IntegrationP
ress
ure
of L
ocal
Res
pons
iven
ess High
Low
Low High
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Factors influencing Organization structure
OrganizationalStructureEnvironment Technology
Internal External
Managementorientation
Org.size
Employeestrength
UncertaintyDifferentiation& Integration
GlobalizationVs local
responsivenessRoutine
Non-Routine
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Factors influencing Organization structure
Technology
• Within an org, technology exists at three levels: individual, departmental and organizational.– At individual level, technology is the personal skills and knowledge
employees posses.– At departmental/functional level, the procedures and techniques that
groups use to perform their work and create value constitute technology.
– At organizational level, technology refers to the efforts and machinery used to convert inputs to outputs.
• An international business takes inputs from the environment and creates value from the inputs by converting them into output through a conversion process. Generally, technology is perceived to exist only at the conversion stage. This is not true. It is present in all organizational activities: input, conversion, and output.
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Factors influencing Organization structure
Conversionprocess
Inputprocess
Outputprocess
Work enters
Work leaves
Input Conversion and Output ProcessAt conversion stage, a combination of machines, techniques, & work procedures- transforms input into outputs.
At output stage, technology allows an org to effectively dispose of finished goods and services to customers. To be effective, a firm must possess techniques for testing the quality of the end products, for marketing it, and for rendering post-sale service.
At input stage, technology- skills, procedures & techniques-allows each dept. to handle relationship with outside stakeholders so that the firm can manage its specific environment. The finance dept has techniques for obtaining funds at lower costs. HR dept has techniques such as
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Factors influencing Organization structure
Dimension of Technology
RoutineNon-
Routine
• Routine– When tech. is routine, employees perform
clearly defined tasks according to set rules and procedures. The work process is programmed in advance and highly standardized.
– Decision-making is centralized…. kind of mechanistic structure
• Non-Routine– Here tasks become less routine and more
complex.
– Hence firms need to develop a structure (mostly organic) that allows employees to quickly respond to and manage .
– Decision-making is decentralized.
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Organizational Structure
Till now we have examined the impact of environment and technology on organization design. Do the same factors influence the org. design of an international business?
The answer is ‘YES’. MNCs, in general, tend to organize their international operations in the same way as they do
for domestic functions.
In fact, the major challenge for international managers in the years to come is to bring synergy between the
organization structure of an overseas subsidiary with local customs and cultures.
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Organizational Structure
There is no permanent organization chart for the world. . . . It is of supreme importance to be ready at all times to take advantage
of new opportunities.
—Robert C. Goizueta, (Former) Chairman and CEO, Coca-Cola Company
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Basic Organization Structure
Basic Organization Structures:
1. International Division Structure
2. Worldwide Functional Structure
3. Geographic Area Structure
4. Global Product Division Structure
5. Mixed structure
6. Matrix structure
7. Networked structure
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Basic Organization Structure
International Division structure
Automotivedivision
Industrialdivision
CEO
Internationaldivision
Aerospacedivision
DieselCompany(France)
BrakeCompany(Mexico)
ElectronicsCompany(France)
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Basic Organization Structure International Division structure• Each division is responsible for certain product and has its own
resources such as finance, marketing, warehouse, maintnenace,etc.
• Accordingly, this structures is a decentralized structure and thus allows for flexibility and quick response to environmental changes.
• It also enhances innovation and differentioan strategies.
• On the other hand, this struture results in duplication of resources becasue, for example, we need to have warehouse for each division.
• Obviuosly, it does not support the exchange of knowledge between people working in the same profession because part of them are working in one division and the others are working in other divisions.
“For example, an automobile company with a divisional structure might have one division for SUVs, another division for subcompact cars, and another division for sedans. Each division would have its own sales, engineering and marketing departments”.
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Basic Organization Structure
Worldwide Functional structure
MarketingManufacturing
Headquarters
OtherFunctions
Finance
Plant-AGermany
Plant-BBrazil US Africa Europe
Locations Locations
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Basic Organization Structure Worldwide Functional structure• In this, the division of labor in an organization is grouped by the
functions that need to be performed within the organization—sales, marketing, human resources, and so on.
• Each functional group within the organization is vertically integrated from the bottom to the top of the organization. For example, a Vice President of Marketing would lead all the marketing people, grouped into the marketing department.
• Employees within the functional divisions of an organization tend to perform a specialized set of tasks, for instance the engineering department would be staffed only with engineers. This leads to operational efficiencies.
• As a whole, a functional organization is best suited as a producer of standardized goods and services at large volume and low cost. This structure saves us money because of the economies of scale.
• This structure makes the coordination between different department more difficult than other structures. Also lead to a lack of communication between the functional groups within an organization, making the organization slow and inflexible.
• It also does not allow for flexibility becasue of the centralization.
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Basic Organization Structure Geographic Area Structure
Europe andLatin America
Division
Headquarters
US Japan Canada
N.America andPacific Division
UK Venezuela Italy
ManufacturingMarketing
Finance
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Basic Organization Structure Geographic Area Structure• In this structure, divisions are created to cover geographic regions.
Each regional manager is then responsible for the operations and performance of the countries within a given region. In this way, country and regional needs and relative market knowledge take precedence over product expertise.
• Local managers are familiar with the cultural environment, government regulations, and business transactions. In addition, their language skills and local contacts facilitate daily transactions and responsiveness to the market and the customer.
• While this is a good structure for consolidating regional expertise, problems of coordination across regions may arise.
• With the geographic structure, the focus is on marketing, since products can be adapted to local requirements.
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Basic Organization Structure Global Product Division
ProductDivision
A
Headquarters
ProductDivision
B
ProductDivision
C
S. America Africa Europe Australia Far East
UK Germany Spain Portugal France
Manufacturing
Marketing
Finance
Manufacturing
MarketingFinance
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Basic Organization Structure Global Product Division
ElectronicGroup
CEO
ChemicalProducts
Group
FinancialServices
Group
Machinery &Heavy
EquipmentGroup
Other SmallBusinesses
Catering Services
Hotels & Resorts
Professional Sports
Hospital & Medical Center
Samsung Group is the largest businessin Korea. The group is organized into fivemajor divisions. Each of these groups isIndependent and has little in commonWith others.
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Basic Organization Structure Global Product Division• A product structure is a divisional structure in which products are
grouped into separate divisions, according to their similarities or differences.
• A product divisional structure will divide the company into product A, B, C etc and each division will have its own hierarchy.
ProductDivision -C
S. America Africa Europe Australia Far East
UK Germany Spain Portugal France
Manufacturing
MarketingManufacturing
Marketing
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Basic Organization Structure Mixed structure
AreaPresidentN.America
Headquarters
PresidentProduct, AWorldwide
Except N.America
PresidentProduct, AWorldwide
Except N.America
SubsidiaryHead 1
SubsidiaryHead 2
SubsidiaryHead 1
SubsidiaryHead 2
SubsidiaryHead 1
SubsidiaryHead 2
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Basic Organization Structure
Mixed Structure• Most firms follow a hybrid design which best suits their purpose as dictated
by size, strategy, technology, environment, and culture. Most MNCs are known to follow hybrid structures. Philips, Sanyo and Unilever etc.
• Unilever, the consumer products giant, uses a classical regional structure with local managers in three areas of the world: Africa/Middle East, Latin America, and East Asia /Pacific. But in Europe and North America, where consumer preferences are identical, the structure is different. The president of Lever Brothers in New York, for example, reports to the Unilever worldwide detergents products coordinator in London.
• But, problems emerge with communication flows, chains of command, and groups going their own way.
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Basic Organization Structure Matrix structure
CEO
Vice PresidentGlobalEngineering
Vice PresidentGlobalFinance
Vice PresidentGlobalPurchasing
Vice PresidentSales and Marketing
Vice President Research and Development
Product AManager
Product BManager
Product CManager
Product DManager
Product Team
Two-boss employee
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Basic Organization Structure
Matrix Structure• A Matrix structure, combines both function and product structures.
For example, we can have a functional structure and then assign a manager for each product.
• Some employees will have two managers: functional manager and product manager. This type of structure tries to get the benefits of functional structure and also of product divisional structure; however, it is not easy to implement becasue of the dual authority.
• Matrix structure is the most complex of the different organizational structures
• This struture is vey useful for multinational companies.• This structure can combine the best of both separate structures.
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Basic Organization Structure Matrix StructureMatrix structure is the most complex of the different organizational structures.• Weak/Functional Matrix: A project manager with only limited authority is
assigned to oversee the cross- functional aspects of the project. The functional managers maintain control over their resources and project areas.
• Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is shared equally between the project manager and the functional managers. It brings the best aspects of functional and projectized organizations. However, this is the most difficult system to maintain as the sharing power is delicate proposition.
• Strong/Project Matrix: A project manager is primarily responsible for the project. Functional managers provide technical expertise and assign resources as needed.
Among these matrixes, there is no best format; implementation success
always depends on organisation's purpose and function.
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Basic Organization Structure Networked structure
• The networked structure is a form of organization in which many functions of an MNC are contracted out to the other independent firms and coordinated through the use of information technology networks to operate as if they were within a single corporation.
• In essence, managers in network structures spend most of their time coordinating and controlling external relations, usually by electronic means.
• H&M's is outsourcing its clothing to a network of 700 suppliers, more than two-thirds of which are based in low-cost Asian countries. Not owning any factories, H&M can be more flexible than many other retailers in lowering its costs, which aligns with its low-cost strategy.
• Benetton is a well-known example, using a networked structure.
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Basic Organization Structure
Networked Structure
• Multinational structural arrangement that combines elements of function, product, and geographic designs, while relying on a network arrangement to link worldwide subsidiaries
– Dispersed subunits» Subsidiaries that are located anywhere in the world where
they can benefit the organization– Specialized operations
» Activities carried out by subunits that focus on a particular product line, research area, or market area
» Designed to tap specialized expertise or other resources in the company’s worldwide subsidiaries
– Interdependent relationships» Share information and resources throughout the dispersed
and specialized subunits
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Basic Organization Structure
Conclusion
“Whatever structure you have, the results are the most important. The results are not your perception that you are the best. Measure yourself compared with similar companies. Do you need one week to take a decision that they make in one hour? Are your employees motivated more than those in other companies? Are you devloping new products and services faster than other companies? Are you achieving your main strategy?”
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Basic Organization Structure
Conclusion “Management should take necessary actions to decrease the
disadvantages of the chosen structure and to enhance its the positive effects. For example, if we think the divisional structure is the best type for our condition then we should have tools to exchange knowledge between engineers working in different divisions. These tools can include forums on the LAN and conferences to exchange knowledge. Conversely, if we adopt functional struture, we can form teams from different functions to solve problems and develop our products”.
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Issues in global organization design Centralization
Vsdecentralization
Role ofSubsidiary directors
Integratingmechanisms
GlobalOrganization
design
Non-traditionalOrg. Arrangements
Impact of IT
Managingchange
Corporateculture
Controlsystems
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