Post on 19-Nov-2014
Organizational Structure of Multinational Corporations
EMERGENCE OF THE TRANSNATIONAL
Basics of Structure
"You will appear to be a visionary planner if you decentralize everything which is centralized and centralize everything which is decentralized."
Dogbert’s Big Book of Business
Six Dimensions of Organizational Structure
Specialization
Departmentalization
Chain of command
Span of control
Centralization
Formalization
Six Key Questions That Managers Need to Answer in Designing the Proper Organizational Structure
The Key Question Is The Answer Is Provided By
1. To what degree are tasks subdivided into separate jobs?
Work Specialization
2. On what basis will jobs be grouped together?
Departmentalization
3. To whom do individuals and groups report? Chain of Command
4. How many individuals can a manager efficiently and effectively direct?
Span of Control
5. Where does decision-making authority lie? Centralization and Decentralization
6. To what degree will there be rules and regulations to direct employees and managers?
Formalization
The Key Question Is The Answer Is Provided By
1. To what degree are tasks subdivided into separate jobs?
Work Specialization
2. On what basis will jobs be grouped together?
Departmentalization
3. To whom do individuals and groups report? Chain of Command
4. How many individuals can a manager efficiently and effectively direct?
Span of Control
5. Where does decision-making authority lie? Centralization and Decentralization
6. To what degree will there be rules and regulations to direct employees and managers?
Formalization
Work Specialization
The entire job is broken down into steps, each step completed by a separate individual
Individual workers specialize in doing part of an activity
Involves repetitive performance of a few skills
Can be viewed as a means to make the most efficient use of employees’ skills
Some tasks require highly developed skills
Others can be performed by the untrained
Work SpecializationWork Specialization
Pro
du
ctiv
ity
Pro
du
ctiv
ity
(High)
(High)(Low)
(Low)
Impa
ct fr
om e
cono
mie
s
of s
peci
aliz
atio
n
Impact from
human diseconom
ies
Economies and Diseconomies of Work Specialization
Departmentalization
Basis upon which jobs are grouped
Functions Performed
Type of Product
Basis of Geography or Territory
Particular Type of Customer
Chain of Command
Unbroken line of authority that extends from the top of the organization to the lowest, and clarifies who reports to whom
Authority: Rights inherent in a position to give orders and expect orders to be obeyed
Unity of Command Principle: Concept of an unbroken line of authority
Span of Control
Determines the number of levels and managers an organization has.
Contrasting Spans of Control
Assumingspan of 4
11
44
1616
6464
256256
1,0241,024
4,0964,096
Assumingspan of 8
11
88
6464
512512
4,0964,096
1
2
3
4
5
6
7
Org
aniz
atio
nal
Lev
el
(Highest)
Span of 4:Operatives = 4,096Managers (Levels 1-6) = 1,365
Span of 8:Operatives = 4,096Managers (Levels 1-4) = 585
Centralization and Decentralization
Centralization: Decision making and authority are concentrated at a single point in the organization
Little or no input from lower-level personnel
Decentralization: Decision making and authority are pushed down to those closest to “the action”
Lower-level personnel provide input or are given the discretion to make decisions
Action can be taken quickly to solve problems
More people provide input into decisions
Employees feel less alienated
Provides more flexibility
Formalization
High levels
Minimum amount of discretion over what, when, and how
Consistent output
Explicit job descriptions
Organizational rules
Clearly defined procedures
Low levels
Unprogrammed behaviors
Exercise discretion
Great deal of freedom
Less standardization
Consider alternatives
Degree that jobs within the organization are standardized
The Simple StructureDescription
Low degree of departmentalization
Wide spans of control
Little formalization
Small business with owner manager
Centralized control
Major Weakness with Growth
Difficult to maintain
Creates information overload at top
Decision making becomes slower or a standstill
Lose momentum
Eventually fail
Dependency on one person
StrengthsSimplicityFast and flexibleInexpensive to maintainClear accountability
The BureaucracyDescription
Standardization
Formalized rules and regulations
Functional departments
Centralized authority
Narrow span of control
Chain of command
WeaknessesSub-unit conflicts
Concern with rules
No room for modification
Efficient only for experienced decisions
More levels
Slower decision makingStrengthsEfficient performance
Economies of scale
Minimum duplication
Centralized decision making
The Matrix StructureDescription
Combines two forms of departmentalization
• functional• product
Breaks unit of commandDual chain of command
WeaknessesConfusion created
Stress placed on workers
Increased ambiguity
Unclear reporting relationships
Power struggles
Role conflicts
Unclear expectations
StrengthsFacilitates coordinationComplex and independent activitiesBetter communication
Strengths (cont.)More flexibility Efficient allocation of specialistsEconomies of scale
Functional
Project HRM Engineering Finance Sales
Project 1
Project 2
Project 3
Matrix Structure for a Construction Company
GEOGRAPHIC REGIONS STRUCTURE
C orporateS taff
N orth Am ericanD iv is ion
Latin A m ericanD iv is ion
E uropeanD iv is ion
M iddle Eastern/A frican Division
F ar E as ternD iv is ion
P R E S ID E N T
INTERNATIONAL DIVISIONS STRUCTURE
C orporateS taff
E lec tronics Div.D om estic
M achine ToolsD iv . D om estic
E ngine Div is ionD om estic
S ubsidiaryB razil
S ubsidiaryA us tra lia
S ubsidiaryG erm any
InternationalD iv is ion
P R E S ID E N T
WORLDWIDE PRODUCT DIVISIONS STRUCTURE
C orporateS taff
W orldw ideE lec tron ics D iv is ion
W orldw ideMachine Tools Div is ion
W orldw ideE ngines D iv is ion
P R E S ID E N T
WORLDWIDE FUNCTIONAL DIVISIONS STRUCTURE
W orldw ideF inance
W orldw ideO perations
W orldw ideH um an Resources
W orldw ideM arketing
W orldw ideE ngineering
P R E S ID E N T
THE NEW GLOBAL FORMULA:A Universal Prescription?
It’s a bit like the end of an empire, a colonial era coming to a close. Companies in the United States and Western Europe are reining in far- flung foreign subsidiaries.
Executives are streamlining their divisions, trying to produce standardized “global” products, and pulling decision-making power back to home offices. It’s a formula that, not coincidentally, many Japanese companies have used for years.
“Rebuilding Corporate Empires: A New Global
Formula” Newsweek, April 14, 1986
Globalization: The Conventional WisdomGlobalization: The Conventional Wisdom
Stanardize products
Rationlize operations
Centralized coordination and control
The Major Risk:Globalization GlaucomaThe Major Risk:Globalization Glaucoma
Blindness to everything but global forces
Short-sightedness to localizing forces
INTERNATIONAL ENVIROMENTAL FORCES:Diverse Industry Impact
Forces for Cross-Market Coordination, Integration:
Forces for National Responsiveness, Differentiation:
Forces in the International EnvironmentForces in the International Environment
• Global coordination, integration
•scale advantages
•competitive strategy
• National responsiveness, differentiation
• consumer preferences, market differences
•government policy
Cross- Market Coordination, Integration
National Responsiveness, Differentiation
Consumer Electronics
Telecom Switching
BrandedPackaged ProductsCement
GLOBAL AND NATIONAL FORCES:Industry Effect
ADMINISTRATIVE HERTIAGE:Strategic Asset and Organizational Anchor
• “Where to” is influenced by “where from”
• Competitive advantage shaped by country of origin, time of expansion, and nature of leadership
• The challenge is to build new capabilities while protecting existing strengths
PRE-WAR EUROPEAN EMPIRES:NATIONALLY RESPONSIVE STRATEGIESPRE-WAR EUROPEAN EMPIRES:NATIONALLY RESPONSIVE STRATEGIES
• EXPANDED ABROAD IN A PERIOD OF HIGH INTERNATIONAL BARRIERS
- PREFERENTIAL ACCESS TO FOREIGN EMPIRE MARKETS
• ORGANIZATION DEVLOPED AS A PORTFOLIO OF NATIONAL COMPANIES
- HERITAGE OF FAMILY MANAGEMENT, PERSONAL CONTROL
• STRATEGY BASED ON UNDERTSANDING AND RESPONDING TO NATIONAL MARKETS.
PRE-WAR EUROPEAN EMPIRES:DECENTRALISED FEDERATIONSPRE-WAR EUROPEAN EMPIRES:DECENTRALISED FEDERATIONS
• MULTINATIONAL STRATEGY MODEL
- COMPETE BY BEING NATIONALLY RESPONSIVE
POST-WAR AMERICAN HEGEMONY:STRATEGY OF KNOWLEDGE TRANSFERPOST-WAR AMERICAN HEGEMONY:STRATEGY OF KNOWLEDGE TRANSFER
• EXPANDED ABROAD IN A TIME OF ECONOMIC RECONSTRUCTION
- LARGE, ADVANCED HOME MARKET AS KNOWLEDGE SOURCE
• ORGANIZATION BUILT ON STRONG LINKS TO THE PARENT COMPANY BASED ON TRANSFER OF EXPERTISE
- HERITAGE OF PROFESSIONAL MANAGEMENT, SYSTEMS CONTROL
• STRATEGY BASED ON TRANSFERING PARENT COMPANY’S LEADERSHIP IN TECHNOLGY, MARKETING, AND OTHER SKILLS
POST-WAR AMERICAN HEGEMONY:
COORDINATED FEDERATIONS
POST-WAR AMERICAN HEGEMONY:
COORDINATED FEDERATIONS
• INTERNATIONAL STRATEGY MODEL
- COMPETE THROUGH KNOWLWDGE TRANSFER
MODERN DAY JAPANESE CHALLENGE:COMPETING THROUGH GLOBAL EFFICIENCYMODERN DAY JAPANESE CHALLENGE:COMPETING THROUGH GLOBAL EFFICIENCY
• EXPANDED ABROAD IN A PERIOD OF FALLING TRADE BARRIERS
- NEWLY ADDED CAPACITY AND GOVERNMENT INDUSTRIAL POLICY AS ASSETS
• ORGANIZATION GREW AS DEPENDENT FOREIGN UNITS TIGHTLY CONTROLLED FROM THE CENTER
- HERITAGE OF CULTURALLY DEPENDENT MANAGEMENT PRACTICES DOMINATED BY GROUP PROCESSES
• STRATEGY BASED ON CAPTURING GLOBAL SCALE ECONOMIES
MODERN DAY JAPANESE CHALLENGE:CENTRALIZED HUBS
MODERN DAY JAPANESE CHALLENGE:CENTRALIZED HUBS
• GLOBAL STRATEGY MODEL
- COMPETE THROUGH GLOBAL EFFICIENCY
Global Strategy
InternationalStrategy
Multinational Strategy
Treats the world as a single integrated strategic unit
Treats overseas units as offshoots of domestic strategy
Treats the world as a portfolio of national opportunities
Forces for Cross-Market Integration
Forces for National Responsiveness
THE BASIC STRATEGIC POSTURES
STRATEGIC POSITIONS:CONSUMER ELECTRONICS INDUSTRY
Matsushita
General Electric
Philips
Forces for national Responsiveness
Forces for Cross-Market Integration
Matsushita Electric Industrial Co., Ltd. is one of the world's leading producers of electronic and electric products. Matsushita offers a comprehensive range of products, systems and components for consumer, business and industrial use based on sophisticated electronics and precision technology. Most of the Company's products are marketed under several trademarks including "Panasonic," "National," "Technics," "Quasar," "Victor" and "JVC". Matsushita's traditional and primary business area consists of video, audio and household equipment, and home appliances; and industrial products, which include information, communications and industrial equipment. Matsushita also produces semiconductors, general electronic components, display devices, electric motors, compressors and batteries, for its own and other manufacturers' use.
WORLDWIDE COMPETITVE SHAKEOUTS:Winners, Losers, and Survivors
• Consumer Electronics
Matsushita's ascendancy
Philips's struggle
GE’s exit
• Branded packaged goods
Unilever’s dominance
P&G’s progress
Kao’s failure
• Telecommunications switching
Ericsson’s success
NEC’s adjustment
ITT’s withdrawal
ADMINISTRATIVE HERTIGATEMeet Industry Characteristics
Consumer
Electronics
Telecom Switching
Branded Packaged Goods
Matsushita
GE Philips
NEC
Ericsson
ITT
Kao
P&G
Unilever
NEW REQUIREMENTS FOR THE 21st CenturyMultidimensional Strategic Capabilities
Need for Global Efficiency
Need for National Responsiveness
Need for WorldwideInnovation, Learning
Strategic Capability of the Transnational The New Game for the 21st CenturyStrategic Capability of the Transnational The New Game for the 21st Century
• Sensitivity, flexibility, and responsiveness to local needs
• Global scale efficiency and competitive response capability
• Worlwide innovation skills and learning capabilities
New Challenge for Winners, Losers, and SurvivorsNew Challenge for Winners, Losers, and Survivors
- Centralised Hubs
Search for flexibility, responsiveness and global learning
- Decentralized Federations
Search for efficiency, competitive response, and worldwide innovations
- Coordinated Federations
Search for global efficiency and local responsiveness
Initial Response: Emulation and FailureInitial Response: Emulation and Failure
- Matsushita's search for local responsiveness:
Giving is different form developing the desire to take
- Unilever’s search for efficiency:
The legacy of self-fulfilling prophecies
- GE’s search of competitiveness:
The futile dream of analytical fit
THE TRANSNATIONAL ORGANIZATION MODEL:The Integrated Network
Centralized Hub Decentralized Foundation
The Integrated Network
Coordinated Federation
Organizational Characteristics of the Transnational:
Characteristics
Configuration ofassets andcapabilities
Multinational
Decentralizedand nationallyself-sufficient
Global
Centralized andglobally scaled
International
Corecompetenciescentralized,othersdecentralized
Transnational
Dispersed,interdependentand specialized
Role of overseasoperation
Sensing andexploiting localopportunities
Implementingparentcompanystrategy
Adapting andleveragingparentcompanycompetencies
Differentiatedcontributions bynational units tointegratedworldwideoperations
Developmentand diffusion ofknowledge
Knowledgedeveloped andretained withineach unit
Knowledgedeveloped andretained at thecenter
Knowledgedeveloped atthe center andtransferred tooverseas units
Knowledgedevelopedjointly andsharedworldwide