Organizational Structure 2v303j

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 Deg the Proper Organizational Structure The Key Question Is 1. To what degree are tasks subdivided into separate jobs? 2. On what basis will jobs be grouped together?

The Answer Is Provided By Work Specialization 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

Economies and Diseconomies of Work Specialization

Productivity

Im pa c of t fr sp om ec e ia co liz no at m io ie n s

(High)

(Low)

(Low)

Work Specialization

hu m Im a n pa di ct se fro co m no m ie s

(High)

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 Assuming span of 4

Organizational Level

(Highest) 1

Assuming span of 8

1

1

2

4

8

3

16

64

4

64

512

5

256

4,096

6

1,024

7

4,096 Span of 4: Operatives = 4,096 Managers (Levels 1-6) = 1,365

Span of 8: Operatives = 4,096 Managers (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 Degree that jobs within the organization are standardized High levels Low levels Minimum amount of Unprogrammed behaviors discretion over what, Exercise discretion when, and how Great deal of freedom Consistent output Less standardization Explicit job descriptions Consider alternatives Organizational rules Clearly defined procedures

The Simple Structure Description Low degree of departmentalization Wide spans of control Little formalization Small business with owner manager Centralized control

Strengths

Simplicity Fast and flexible Inexpensive to maintain Clear ability

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

The Bureaucracy Description Standardization Formalized rules and regulations Functional departments Centralized authority Narrow span of control Chain of command

Strengths Efficient performance Economies of scale Minimum duplication Centralized decision making

Weaknesses Sub-unit conflicts Concern with rules No room for modification Efficient only for experienced decisions More levels Slower decision making

The Matrix Structure Description Combines two forms of departmentalization • functional • product Breaks unit of command Dual chain of command

Strengths (cont.) More flexibility Efficient allocation of specialists Economies of scale

Weaknesses

Strengths Facilitates coordination Complex and independent activities Better communication

Confusion created Stress placed on workers Increased ambiguity Unclear reporting relationships Power struggles Role conflicts Unclear expectations

Matrix Structure for a Construction Company Functional Project Project 1 Project 2 Project 3

HRM

Engineering Finance

Sales

INTERNATIONAL DIVISIONS STRUCTURE P C

E

R

E

S

I D

E

N

T

o r p o r a t e S t a f f

l e c t r o n i cM s a D c ih v i . n e E T n o g o i nl s e D i I v n i st e i o r n a t i o n a l D o m e s t Di c i v . D o m eD s o t im c e s t i c D i v i s i o n S

u b s i d S i a u r by s i d S i a u r by s i d i a r y B r a z i l A u s t r a Gl i a e r m a n y

GEOGRAPHIC REGIONS STRUCTURE P C

N

R

E

S

I D

E

N

T

o r p o r a t e S t a f f

o r t h A m L e a r ti ic n a nA m e E r i uc ra o n p e aM n i d d l e D i v i s i o n D i v i s i o n D i v i s i o nA f r i c a n

E

a F s at e r r En / a s t e D i v D i s i i v o i ns i o n

WORLDWIDE PRODUCT DIVISIONS STRUCTURE P C

o S

R

E

r p o r a t a f f

t e

S

I D

E

W o r l d w i d e W o r l d w l e c t r o n i c s M D a i cv hi s i ni o e n T

E

N

T

i d e W o r l d w i d e o o l Es n D g i vi n i se i so n D i v

WORLDWIDE FUNCTIONAL DIVISIONS STRUCTURE P W F

o r l d w i d eW i n a n c e O

R

E

S

I D

o r l d w i d eW o r l d w p e r a t i o Hn su m a n R

E

N

T

i d eW o r l d w i d eW o r l d w i d e e s o M u ar c r ek se t i n g E n g i n e e r i n g

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 Wisdom Stanardize products Rationlize operations Centralized coordination and control

The 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 Environment • Global coordination, integration •scale advantages •competitive strategy • National responsiveness, differentiation • consumer preferences, market differences •government policy

GLOBAL AND NATIONAL FORCES: Industry Effect Cross- Market Coordination, Consumer Integration Electronics Telecom Switching

Cement

Branded Packaged Products

National Responsiveness, Differentiation

ISTRATIVE 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 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 FEDERATIONS

• MULTINATIONAL STRATEGY MODEL - COMPETE BY BEING NATIONALLY RESPONSIVE

POST-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

• INTERNATIONAL STRATEGY MODEL - COMPETE THROUGH KNOWLWDGE TRANSFER

MODERN 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

• GLOBAL STRATEGY MODEL - COMPETE THROUGH GLOBAL EFFICIENCY

THE BASIC STRATEGIC POSTURES Forces for CrossMarket Global Strategy Integration

Treats the world as a single integrated strategic unit

International Strategy

Treats the world as a portfolio of national opportunities

Treats overseas units as offshoots of domestic strategy

Multinational Strategy

Forces for National Responsiveness

STRATEGIC POSITIONS: CONSUMER ELECTRONICS INDUSTRY Forces for Cross-Market Integration

Matsushita

General Electric

Philips Forces for national Responsiveness

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 Ericsson’s success NEC’s adjustment ITT’s withdrawal

switching

ISTRATIVE HERTIGATE Meet Industry Characteristics NEC

Matsushita GE Philips

Consumer

Ericsson

Electronics

ITT

Telecom Switching

Kao Branded Packaged Goods

P&G

Unilever

NEW REQUIREMENTS FOR THE 21st Century Multidimensional Strategic Capabilities

Need for Global Efficiency

Need for National Responsiveness

Need for Worldwide Innovation, Learning

Strategic Capability of the Transnational The New Game for the 21stst 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 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 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

Decentralized Foundation

Centralized Hub

The Integrated Network

Coordinated Federation

Organizational Characteristics of the Transnational: Characteristics

Multinational

Global

International

Transnational

Configuration of assets and capabilities

Decentralized and nationally self-sufficient

Centralized and globally scaled

Core competencies centralized, others decentralized

Dispersed, interdependent and specialized

Role of overseas operation

Sensing and exploiting local opportunities

Implementing parent company strategy

Adapting and leveraging parent company competencies

Differentiated contributions by national units to integrated worldwide operations

Development and diffusion of knowledge

Knowledge developed and retained within each unit

Knowledge developed and retained at the center

Knowledge developed at the center and transferred to overseas units

Knowledge developed tly and shared worldwide