Organizational Structure,

Coordination & Control

 Organization in the International Business
• The organization of international business is challenging due
to:
– the geographic and cultural distances that separate countries
– the need to operate differently among countries
– the large number of uncontrollable factors
– the high uncertainty resulting from rapid change in the international
environment
– problems in gathering reliable data in many places
• Organization in the MNE is an integrated function of its formal
structure, coordination and control systems, and the shared
values that make up its culture
• Prevailing environmental and workplace trends pressure
managers to question their customary approaches to
organizing their companies

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 Organization Structure
Structure: formal arrangement of jobs within a
company that specifies roles, responsibilities,
and relationships

Differences in organization structures are seen in

three important structural characteristics:
– Specialization (number and types of jobs)
– Centralization (decision-making authority)
– Formalization (formal rules and work procedures)
 Vertical Differentiation
• Vertical differentiation -how the company balances
centralization versus decentralization of decision
making
• Centralization is the degree to which high-level
managers, usually above the country level, make
strategic decisions and pass them to lower levels for
implementation.
• Decentralization is the degree to which lower-level
managers, usually at or below the country level, make
and implement strategic decisions.
• Decision making should occur at the level of the people
who are most directly affected and have the most
intimate knowledge about the problem.
 Horizontal Differentiation
• Horizontal differentiation describes how the
company designs its formal structure to
perform three functions:
– Specify the total set of organizational tasks
– Divide those tasks into jobs, departments,
subsidiaries, and divisions so the work gets done
– Assign authority and authority relationships to
make sure work gets done in ways that support
the company’s strategy
 Horizontal Differentiation

• Functional Structure
• Divisional Structure
– International Division
– Product Division
– Geographic Division
• Matrix Structure
– Unity of Command Principle
• Mixed Structure

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Inc. publishing as Prentice Hall
 Worldwide Geographic Area Structure:
Multidomestic Strategy

• Emphasis is on
differentiation by local
demand to fit an area or
country culture
• Corporate headquarters
coordinates financial
resources among
independent subsidiaries
• The organization is like a
decentralized federation

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 Worldwide Product Divisional Structure: Global
Strategy

• Corporate headquarters uses

many inter-coordination
devices to facilitate global
economies of scale and scope
• Corporate headquarters also
allocates financial resources in a
cooperative way
• The organization is like a
centralized federation

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 Transnational Strategy
Royal Philips Electronics– Head Quarters in
Holland
Country wise divisions and
Product wise divisions

Philips Electronics India

Consumer Electronics, Lighting and Medical
systems
 Contemporary structures
• Contemporary structures arrange work roles,
responsibilities, and relationships in ways that
eliminate the horizontal, vertical, or external
boundaries that block the development of
knowledge-generating and decision-making
relationships
 Contemporary Structures
• The basic unit of the design is the workers, not the
task.
• Boundryless Organization
• An flexible and unstructured organizational design that is
intended to break down barriers within and between the
organization and its customers and suppliers.
• Removes internal (horizontal) boundaries:
– Eliminates the chain of command
– Has limitless spans of control
– Uses empowered teams rather than departments
• Eliminates external boundaries:
– Uses virtual, network, and modular organizational structures to get
closer to stakeholders.
Removing Internal Boundaries
– Team structures
• The entire organization is made up of work groups or
self-managed teams of empowered employees.
 Removing External Boundaries
Network Organization
A small core organization that outsources its major business functions (e.g., IT
Management) in order to concentrate what it does best.
Virtual Organization
A special form of network organization -as not physically existing as such, but
enabled by software to exist. The virtual organization exists within a network of
alliances, using the Internet. This means while the core of the organization can be
small but still the company can operate globally be a market leader in its niche.
An organization that consists of a small core of full-time employees and that
temporarily hires specialists to work on opportunities that arise.
Modular Organization
A manufacturing organization that uses outside suppliers to provide product
components for its final assembly operations.
Modularity involves relatively self contained organizational subunits tied together
through technology that focuses on standardized linkages
 Coordination and Control Systems

• MNE needs to develop coordination and

control mechanisms to prevent duplication of
efforts, to ensure that headquarters managers
do not withhold the best resources from the
international operations, and to include
insights from anywhere in the organization

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 Coordination and Control Systems

• Approaches to Coordination:
– Standardization
– Plan
– Mutual Adjustment

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 Approaches to Coordination
• Coordination by standardization:
– Sets universal rules and procedures that apply to units
worldwide.
– Enforces consistency in performance of activities in
geographically dispersed units.
• Coordination by plan
-_ relies on general goals and detailed objectives
– requires interdependent units to meet common deadlines and
objectives.
• Coordination by mutual adjustment
– requires managers to interact personally with counterparts.-
– frequent interaction among related parties provides the
required adjustment
 Control Methods
1. Personal controls –personal contact with subordinates
– most widely used in small firms
2. Bureaucratic controls –a system of rules and procedures
that directs the actions of subunits
– budgets and capital spending rules
3. Output controls – setting goals for subunits to achieve
and expressing those goals in terms of objective
performance metrics
– compare actual performance against targets and intervene
selectively to take corrective action
4. Cultural controls /Clan Control – exist when employees
“buy into” the norms and value systems of the firm
– strong culture implies less need for other forms of control
 Control Tools

• Reports
• Visits to Subsidiaries
• Cost and Accounting Comparisons
• Evaluative Metrics
• Information Systems

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Inc. publishing as Prentice Hall
 Make Transnational Processes
Feasible
• Three simplifying assumptions have blocked
progress with transnational processes:
• Assumption that subsidiaries are symmetrical
(”the United Nations syndrome”)
• Assumption that HQ-subsidiary relationship is
based on pattern of dependence /
independence
• Assumption that corporate management
exercises control uniformly