From:Amit : 02Dhruv :45Mohit : 46Ankur : 52Deepankar : 54

MNCs and Organizational MNCs and Organizational StructureStructure

Defining Organizational StructureDefining Organizational Structure

organizational structure - the formal framework by which job tasks are divided,

grouped and coordinated.

organizational structural designing - process of developing or changing an organization’s 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

Internationalization is the process by which a firm gradually changes in response to international competition, domestic market saturation, and the desire for expansion, new markets, and diversification.

Structural Evolution occurs when managers redesign the organizational structure to optimize the strategy’s changes to work, making changes in the firm’s tasks and relationships and designating authority, responsibility, lines of communication, geographic dispersal of units and so forth

Evolution and Change in MNC

Six key elements : Six key elements :

Work Specialization – the degree to which tasks in an organization are divided into separate jobs • individuals specialize in doing part of an activity rather than the entire activity – too much specialization has created human diseconomies – an important organizing mechanism, though not

source of ever-increasing productivity

Departmentalization – the basis by which jobs are grouped together • functional - groups jobs by functions performed • product - groups jobs by product line • geographical - groups jobs on the basis of territory or geography • process - groups jobs on the basis of product or customer flow • customer - groups jobs on the basis of

common customers

Span of Control

– number of employees that a manager can efficiently and effectively manage – determines the number of levels and managers in an organization – the wider the span, the more efficient the organization – appropriate span influenced by: • the skills and abilities of employees • the complexity of tasks performed • availability of standardized procedures • sophistication of organization’s information system

Centralization – the degree to which decision making is concentrated at a single point in the organization • top-level managers make decisions with little input from subordinates in a centralized organizationDecentralization – the degree to which decisions are made by

lower level employees – distinct trend toward decentralized decision making

Formalization

– the degree to which jobs within the organization are standardized • standardization - removes the need for employees to consider alternatives

– extent to which employee behavior is guided by rules and procedures

• employee allowed minimal discretion in highly formalized jobs

– explicit job descriptions

– clearly defined procedures

ORGANISATIONALORGANISATIONALSTRUCTURESSTRUCTURES

International Division StructureInternational Division Structure

Personnel Production Marketing Finance

Chief Executive Officer

Paint

DomesticDivision

DomesticDivision

Tools

InternationalDivision

DomesticDivisionFurniture

DomesticDivision

Hardware

Japan Australia Italy

OfficeOperations

Marketing GovernmentRelations

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Matrix Organisational StructureMatrix Organisational Structure

Controller Manufacturing VP

Marketing VP

PRESIDENT

Director of Product Design

Procurement Manager

Product Manager A

Product Manager B

Product Manager C

Product Manager D

FUNCTIONAL STRUCTUREFUNCTIONAL STRUCTURE

PRESIDENT

VICE PRESIDENTMARKETING

VICEPRESIDENT

ENGG.

VICEPRESIDENT

FINANCE

VICEPRESIDENT

MANUF.

VICEPRESIDENTPERSONNEL

VICEPRESIDENTLEGAL AFF

MARKETINGRESEARCH

SALES RECORDS SHIPPING & RECIEVING

PRODUCTION QUALTIYASSURANCE

PLANT1 PLANT2 PLANT3

SALESFORCE

RECORDCLERKS

RESEARCH GROUPS

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Strategic Business UnitStrategic Business Unit The idea was developed by Mckinsey & Co. (Consulting Firm) & General Electric in 1971. Separate operating entities within an organization. After defining mission, a company establishes SBU’s which is self contained division, product line or product department within an organization.

To be identified an SBU, an entity should, Be a separate identifiable business Have a distinct mission Have its own competitors Have its own executive group with profit responsibility

General Electric & its SBU’s are electrical motors, Major appliances, Jet Engines Lighting Equipments and Commercial Credit and

Broadcasting.14

Classification of OrganizationsClassification of Organizations

Sumantra Ghoshal&

Christopher A. Bartlett

The Study….The Study….3 countries3 industries9 companies with worldwide interestsMode : Both personal interviews and survey

questionnaires of key personnel.Aim : To develop a typology of organizations

operating in the international business environment.

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Based on their results, these scholars identified four forms of organizations used to manage international businesses.

They labeled these the multinational, global, international, & transnational corporations.

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Multinational Enterprise Global Enterprise International

Enterprise

Strategiccompetency Responsiveness Efficiency Transfer of learning

Structures

Loose federations ofenterprises; National subsidiariessolve all operativetasks and somestrategical.Decentralizedfederation

National Subsidiariesprimarily seen asdistribution centers;all strategic andMany operativeDecisions centralizedTightly centralized hub;

Somewhere inbetween multinationaland global enterprises;some strategic areascentralized, some DecentralizedCoordinated federation

The story so far……….

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…….and the problem.and the problem Multinational enterprise :

Differentiation as primary way to enhance performance.

Global enterprise :Scale and resulting cost leadership are the key sources of competitive advantage.

International enterprises :Innovation, Crated at HQ to reduce cost or increases revenue or both.

Each approach is partially true and has its own merits but none represents whole truth, the ideal-type thus created, they dubbed the transnational enterprisetransnational enterprise.

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Attributes of Transnational Attributes of Transnational Enterprise.Enterprise.

Selective decision, complex configuration of assets and capabilities that

are distributed, yet specialized. Seeks efficiency not for its own but…, It acknowledges the importance of local

responsiveness but…, Innovations are regarded as an outcome of a larger

process of organization learning that encompasses every member of the company.

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This thesis is thus consistent with the view that a

new, stateless corporate identity with a network of

systems and activities in different parts of the

world, deriving value from whichever location

provides it at the lowest cost, is emerging. (cf. Hedlund

|1986~; Perlmutter and Trist |1986~; Prahalad and Doz |1987~).

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CASE STUDIESCASE STUDIES

TATA GROUP (INDIAN CASE)CATERPILLAR (FOREIGN CASE)

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INDIAN BUSINESS HOUSES INDIAN BUSINESS HOUSES TATA GROUPTATA GROUP

Group Overview

India’s largest business house More than 85 companies 39 listed 8% of India’s market capitalization 2.6 Million shareholders 2,70,000 employees Turnover Rs 343 billion (1996-1997)

Metals Automobiles Energy Engineering Chemicals Pharmaceuticals IT and Communication Exports Finance

INDIAN BUSINESS HOUSES INDIAN BUSINESS HOUSES TATA GROUPTATA GROUP

Tata Heritage Jamsetji Tata

– Started textile mill in 1877– Inspired steel and power industry– Technical education and philanthropy

JRD Tata– Pioneered civil aviation– Funded Hom Bhabha’s nuclear programme– Guided the Tata group for over half a century

Ratan Tata– Present Chairman since 1991

HOLDING COMPANIESHOLDING COMPANIES

Tata Sons– Founded by Jamsetji Tata– Promoted many of the present Tata companies– 63% held by Tata philanthropic trusts

Tata Industries– 100% subsidiary of Tata Sons founded in 1945 – Managing agency till 1970– Promoted new Tata companies in technology based businesses

Cross holdings among other Tata companies

INDIAN BUSINESS HOUSES INDIAN BUSINESS HOUSES TATA GROUPTATA GROUP

Restructuring• Prompted by post 1991 changing environment• Need to identify and focus on core businesses• Resistance from satraps

– Russi Mody, Darbari Seth, Ajit Kerkar• Shrink number of companies

– From over 85 to about 30• Shrink number of core businesses

– From about 25 to around 10 or 12• Mergers and divestments• McKinsey hired as a consultants

RESTRUCTURING STRATEGIESRESTRUCTURING STRATEGIES

Keep and grow– Power, watches, metals, chemicals, telecom, hospitality, financial

services, infotech, emerging services, infrastructure, automobiles Forge strategic tie ups

– Tea and beverages, retailing Remain only as strategic investors

– Luxury cars, infotech, printing, cosmetics Sell

– Refrigeration, paints, textiles, trading, electronics, oil drilling, petrochemicals, pharma, specialty chemicals

Accelerating product introductions

Rapidly implementing changes

Improving time-to-market

Tightening Regulatory requirements

Efficiently transferring processes and best practices

More innovations

AUTOMOTIVE CHALLENGESAUTOMOTIVE CHALLENGES

To meet these challenges, the TATA adjust their product development as follows:– Reducing the period of development– Optimizing the in-house capabilities– Modularizing the product– Increasing the number of products/ variants– Improving product performance i.e. Durability, NVH, Safety, and Ride

quality

Some of the steps connected to these strategies are– Introduction of new working methods

(Simultaneous Engineering, Concurrent Engineering, use of NPI process)– Usage of highly sophisticated functions of CAD systems (Parametric, Feature based Design, Digital Mock Up)– Early concept evaluation

(Computation and Simulation)

STRATEGIES ADOPTEDSTRATEGIES ADOPTED

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CATERPILLAR Peoria, Illinois Highly Centralized before 1970 Blessings from Home!! Japanese and European Rivals – Hands-on Decisions

Traditional Structure

Engineering Manufacturing Finance Marketing Accounting

Huge Loses in International Market Share1985s

1/3(1970) 1/5(1988)Market GapMarket Growth (By 1990)

Change in Stance

International Division

Marketing Division

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1990 - 1995 - 2000 Caterpillar Financial Services, Tennessee

Capital Asset Underwriting of Global Business

Organization Redefined (….2000)

2nd Change in Stance

Functional Divisions

Essential Administrative Centers for Accounting, Legal and Regulatory Affairs and various Executive Support Systems

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13 Profit Centers 4 Service Centers

16 Integrated Profit Centers 5 Global Service Centers

1997 1997

Wheel Loaders and Excavators Division(WLED)• Tractor Dept + Heavy Equipment • Further branched acc. to customer groups such as mining(full P n L responsibility)

Functional Divisions

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CATERPILLAR

Gains Focus on Design, Manu., Procurement, Distribution, Service Strengthened Foreign Subsidiaries and Dealerships Customers contacts under local control Do away with International Division

Customer

Alliance Office/Dealership

Financing Available (through

Company’s Subsidiary)

Cross Border Customer

Places order to Illinois

Shipping

Financing through US Institutions

NEW WAY OLD WAY

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Each division – CFT Also part of Global Network PROPRIETERY Caterpillar Parts or Free to OUTSOURCE

Profits more, up by 20%, 1996 24% growth in net income,1997 Heavy investments for repositioning International Division with restructured subsidiaries, Foreign Sales improved considerably R&D across border to supplement Illinois R&D center

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“ BORDERLESS ORGANIZATION”

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