CHAPTER THIRTEEN REVIEW MATERIALS A company’s organizational structure helps to determine where formal power and authority will be located within the organization. Organizational Structure refers to the way that an organization formally arranges its various domestic and international units and activities, and the relationships among these various organizational components. The structure of an international organization is constantly “evolving” over time, especially as the international business increases and foreign markets are added. Moreover, this structural evolution is managed by senior management. Organizational structure deals with how an international business should be organized in order to ensure that its worldwide business activities are intergrated. Organizational Design is a process that deals with how an international business should be organized in order to ensure that its worldwide business activities are able to be integrated in an efficient and effective manner. Organizational design 1. must consider the size of an organization and the complexity of its business operations, and 2. must be able to evolve over time in order to enable the organization to respond to change. There are four primary dimensions that need to be considered when designing the structure of an international company, including 1. product and technical expertise, 2. geographic expertise, 3. customer expertise, and 4. functional expertise. Indeed, most companies establish worldwide organizations based on product, region, function, or customer classes. Two major concerns that management faces in designing the organizational structure for an international company are 1. finding the most effective way to departmentalize to take advantage of the efficiencies gained from the specialization of labor and 2. coordinating the activities of those departments to enable the firm to meet its overall objectives. Note: Changes in an international company’s strategy may require changes in the organization, but the reverse is also true. For example, a new CEO joining a firm, or a new company may be acquired, and this will require change of the strategy. As firms grow they will do importing and exporting, then they might invest some in another country so they set up an International Division. This group reports to the CEO (not the domestic organization) and is responsible for all non-home country business. As companies grow even more they will go from the International Division (eliminate it) to a worldwide organization based on product, function, customer class or regional (geographic area). Eventually they will evolve to a Global Matrix. Indeed, to simplify this, a typical evolutionary path for an international company’s structure is: from international division to worldwide product division to global matrix….or….from international division to worldwide geographic regions to global matrix. Global “Product” form/organization: The product global corporate form tends to duplicate product and area specialists, so headcount sometimes grows too much. The use of a global “product” organizational structure frequently represents a return to pre-export department times, and this structure has product divisions responsible for the worldwide operations such as marketing and production of products under their control. Again, this can lead to an increased headcount situation. The “regionalized” organizational structure is normally more popular with companies that manufacture products with a rather low technological content. Note: Both multinational and GLOBAL companies use regionalized organizational structures often. The main disadvantage of a large international company being organized along “regional” lines is that each region must have its own product and functional specialists. This adds headcount. Global firms that organize along “functional” lines at the top level have functional managers that report directly to the CEO. Hybrid Organizational Structure: An organizational structure organized by more than one dimension at the top level. Note: Such organizations are often the result of a regionally organized company having introduced a new and different product from what the regionally organized form is accustomed to handling, and senior management feels it can best be handled by a worldwide product division. A “hybrid” organization may result also from the company acquiring a company with distinct products and distribution channels. Matrix organization: This style of organization has evolved from management’s attempt to mesh product and regional and functional expertise while maintaining clear lines of authority. In a typical matrix organization based on area and product dimensions, the country managers will be responsible to BOTH the area managers and the product line managers. The main problem with a matrix organization is that often two or three managers must agree on a decision. This can often be difficult. Hence, a “Matrix Overlay” organizational form has evolved so that some of the decision making process can be simplified. However, decision making can still be slowed by the complicated structure. Strategic Business Units (SBUs): A business entity with a clearly defined market, the ability to carry out business mission, and a size appropriate for control by a single manager, e.g., A SBU is an organizational form in which “product divisions” are defined as though they were independent businesses. Virtual Corporation: An organization that coordinates economic activity to deliver value to customers using resources outside the traditional boundaries of the organization. Outsourcing is an example of utilizing expertise that the company just does not have. A “Virtual” Corporation is also called a “Network” organization. Subsidiaries: Companies controlled by other companies through ownership of enough voting stock to elect Boards-of-Directors. Affiliates: A term sometimes used interchangeably with subsidiaries, but more forms exist than just stock ownership. In large international companies that have affiliates/subsidiaries decisions are made at either the IC headquarters or at the affiliate/subsidiary level. Also, some decisions are made jointly. The larger and older the international company, the more decisions that are often made at headquarters. Yet, this depends on the corporation and the corporate management culture. In larger ICs senior executives are often moved around to different affiliates/subsidiaries to gain experience and increase confidence and mutual reliance. Reengineering: Many large ICs see a need for frequent reorganization in order to cut costs and to be more efficient. Reengineering is normally a task to significantly reduce middle management personnel and to empower employees to make more decisions. Control is very important in large ICs and their affiliates/subsidiaries. The types of information that an IC needs to have reported by subsidiaries include 1. financial and technological, 2. market opportunities and 3. political and economic events. Every successful company uses CONTROLS to put its plans into effect, evaluate, correct, and reward individuals.
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