Profile the evolving process of organizing a company for international business
Describe the features of classical structures
Describe the features of neoclassical structures
Discuss the systems used to coordinate and control international activities
Profile the role and characteristics of organization culture
Chapter 15: The Organization of International Business
The Learning Objectives for this chapter are
Profile the evolving process of organizing a company for international business
Describe the features of classical structures
Describe the features of neoclassical structures
Discuss the systems used to coordinate and control international activities
Profile the role and characteristics of organization culture
Learning Objective 1: Profile the evolving process of organizing a company for international business.
Once a firm has developed a strategy, it needs to establish a structure that will allow it to be implemented. Organizing is the process of creating the structure, systems, and culture needed to implement the company’s strategy.
This Figure shows the different factors that can affect organizational operations. Note that the firm must specify the structure, install the systems to get it moving, and then promote a culture that will sustain it.
In the early 20th century, companies, responding to the environment around them, established hierarchical structures. Today, the growth and diffusion of international business is demanding more sophisticated organizations.
The Internet in particular has challenged managers to rethink traditional patterns of organization.
Knowledge gaps are also disappearing prompting companies to develop new coordination and control systems.
Similarly, changing social contracts are encouraging managers to reassess how they manage organizational culture.
Companies now try to build magical organizations with the best mix of structure, systems, and values.
Learning Objective 2: Describe the features of classical structures.
Organizing involves building the structure, systems, and culture necessary to implement a strategy. Managers must consider vertical differentiation issues, or the balance between the centralization and decentralization of authority as well as horizontal differentiation which involves determining which people do which jobs in which units.
The question of where strategic decisions are made depends on the level of centralization in a firm. A company that is highly centralized concentrates decision making authority at the top of the organization while a decentralized structure allows decision making at the department and division levels.
Keep in mind that the centralization versus decentralization decision is not an either/or issue. Instead, it’s something that should be rebalanced as the situation in which the firm operates changes.
Vertical differentiation deals with the chain of command in a firm. Horizontal differentiation is concerned with how firms divide themselves into discrete units responsible for certain tasks. Common ways to achieve this are the functional structure, the area or divisional structure, and the matrix and mixed structures.
The functional structure works well when global integration is more important than local responsiveness, industry structure encourages cost leadership, and companies have anchored their value chains in global or international strategies. Keep in mind though, that the structure may encourage a company to neglect local opportunities.
This Figure shows the functional structure.
The divisional structure assigns divisions responsibility for a different set of products or markets.
This Figure shows the international division structure. It creates a critical mass of international expertise which competes with domestic divisions for resources.
This Figure shows the product division structure.
This Figure shows the geographic division structure. It’s popular when a firm has significant foreign operations and when no single country or region dominates.
The matrix structure is often established in response to simultaneous pressures for both local responsiveness and global integration.
This Figure shows the matrix structure. Notice the dual lines of control.
Some firms combine elements of each of the classical structures to build a mixed structure.
Learning Objective 3: Describe the features of neoclassical structures.
Unlike classical structures that focus on command and control, neoclassical structures emphasize coordination and cultivation. Vertical, horizontal, and external boundaries hindering the flow of information and formation of relationships are eliminated.
Keep in mind that neoclassical structures can be challenging because by definition they are fluid structures that are constantly changing.
This Figure shows a simplified network structure.
Learning Objective 4: Discuss the systems used to coordinate and control international activities.
Coordination helps ensure that a company uses its resources efficiently and makes decisions effectively. Coordination can be by standardization, by plan, and by mutual adjustment.
Companies can use several different types of control systems including bureaucratic control which emphasizes organizational authority and relies on rules and regulations, market control which uses external market mechanisms to establish objective standards, and clan control which uses shared values and ideals to moderate employee behavior.
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Companies can use a variety of tools to support their control systems including reports, subsidiary visits, evaluative metrics, and information systems. The choice will depend on the company’s strategy.
Learning Objective 5: Profile the role and characteristics of organization culture.
Successful companies establish an organization culture that defines company goals and values. Keep in mind that good organization culture doesn’t just happen – it’s carefully developed.
A company’s organization culture must go hand-in-hand with its strategy.
This Figure provides a summary of the different strategies and organizational culture in international business. Notice the need for “fit” between the different elements in the chart.
Many companies today including McDonald’s, Walt Disney, and J.P. Morgan Chase are using corporate universities to develop organizational culture.