IDENTIFICATION
making responsibilities within a
TRUE OF FALSE
Chapter 14: The Organization of International
Business
This chapter is concerned with identifying the
organization architecture that international
businesses use to manage and direct their
global operations.
Organizational Architecture refers to the
totality of a firm's organization, including formal
organizational structure, control systems and
incentives, organizational culture, processes,
and people.
CONTROL SYSTEMS are the metrics used to
measure the performance of subunits and make
judgments about how well managers are
running those subunits.
INCENTIVES are the devices used to reward
appropriate managerial behaviour. Incentives
are very closely tied to performance
metrics.
PROCESSES are the manner in which decisions
are made and work is performed within
the organization.
Organizational culture refers to the norms and
value systems that are shared among
the employees of an organization.
PEOPLE - not just the employees of the
organization, but also the strategy used to
recruit, compensate, and retain those
individuals and the type of people that they are
in terms of their skills, values, and orientation
3 DIMENSIONS OF ORGANIZATIONAL
STRUCTURE
( 1) VERTICAL DIFFERENTIATION
 refers to the location of decision-
structure
 determines where in its hierarchy the
decision-making power is concentrated
Arguments of centralization:
 facilitate coordination
 ensures that decisions are consistent
with organizational objectives.
 give top-level managers the means to
bring about needed major
organizational changes.
 centralization can avoid the duplication
of activities that occurs when similar
activities are carried on by various
subunits within the organization.
Arguments for decentralization:
 gives top management time to focus on
critical issues by delegating more
routine issues to lower-level managers
 people are willing to give more to their
jobs when they have a greater degree
of individual freedom and control over
their work.
 decentralization permits greater
flexibility
 better decisions (there are things lower
level employees know more about that
HRs do not know
 increase control
(2) HORIZONTAL DIFFERENTIATION refers to
the formal division of the organization into
subunits;
 concerned with how the firm decides to
divide itself into subunits
 The decision is normally made on the
basis of function, type of business, or
geographical area.
When firms initially expand abroad, they often
group all their international activities into an
international division
WORLDWIDE AREA STRUCTURE tends to be multinational firms are budgets and capital
favored by firms with a low degree of spending rules.
diversification
 the world is divided into geographic Budgets are essentially a set of rules for
areas. allocating a firm's financial resources.
 An area may be a country
Output controls involve setting goals for
WORLDWIDE PRODUCT DIVISION STRUCTURE subunits to achieve and expressing those goals
tends to be adopted by firms that are in terms of relatively objective performance
reasonably diversified and, accordingly, metrics such as profitability, productivity,
originally had domestic structures based on growth, market share, and quality.
product divisions.
Cultural controls exist when employees "buy
CLASSIC GLOBAL MATRIX STRUCTURE into" the norms and value systems of the firm.
 The philosophy is that responsibility for
operating decisions pertaining to a Performance ambiguity exists when the causes
particular product should be shared by of a subunit's poor performance are not clear.
the product division and the various
areas of the firm.
 Does not work well, clumsy and
bureaucratic as it requires heavy
simultaneous work from different
countries. Also requires several
meetings to finish a particular job

(3) INTEGRATING MECHANISMS - mechanisms

for coordinating subunits.

KNOWLEDGE NETWORK is a network for

transmitting information within an organization
that is based not on formal organization
structure, but on informal contacts between
managers within an enterprise and on
distributed information systems

TYPES OF CONTROL SYSTEMS

Personal control is control by personal contact

with subordinates. This type of control tends to
be most widely used in small firms, where it is
seen in the direct supervision of subordinates'
actions.

Bureaucratic control is control through a system

of rules and procedures that directs the actions
of subunits. The most important bureaucratic
controls in subunits within