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