Organizational Designs For Multinational Companies

Chapter 7
Organizational Designs for

Multinational Companies
Copyright© 2004 Thomson Learning All rights reserved

Learning Objectives
•• Understand
Understand the
the components
components ofof organizational
organizational design
design
•• Know
Know the
the basic
basic building
building blocks
blocks ofof organization
organization
structure
structure
•• Understand
Understand the
the structural
structural options
options for
for multinational
multinational
companies
companies
•• Know
Know the
the choices
choices multinationals
multinationals have
have inin the
the use
use ofof
subsidiaries
subsidiaries
Copyright© 2005 South-Western/Thomson Learning All rights reserved

Learning Objectives
•• See
See the
the links
links between
between multinational
multinational strategies
strategies and
and
structures
structures
•• Understand
Understand thethe basic
basic mechanisms
mechanisms ofof organizational
organizational
coordination
coordination and
and control
control
•• Know
Know how
how coordination
coordination and
and control
control mechanisms
mechanisms areare
used
used by
by multinational
multinational companies
companies

Organizational Design
•• How
How organizations
organizations structure
structure subunits
subunits and
and coordination
coordination
and
and control
control mechanisms
mechanisms toto achieve
achieve strategic
strategic goals
goals
•• Basic
Basic questions:
questions:
•• How
How toto divide
divide work
work among
among the
the organization’s
organization’s
subunits?
subunits?
•• How
How toto coordinate
coordinate and
and control
control the
the efforts
efforts ofof the
the units
units
created?
created?

Nature of Organization Design
•• InIn small
small organizations,
organizations, there
there isis little
little reason
reason toto divide
divide
work
work
•• Everyone
Everyone does
does the
the same
same thing
thing and and everything
everything
•• As
As organizations
organizations grow,
grow, there
there isis aa need
need toto divide
divide work
work
and
and the
the organization
organization
•• There
There isis no
no one
one best
best organizational
organizational design design

The Basic Functional
Structure
•• Departments
Departments perform
perform separate
separate business
business functions
functions
such
such as
as marketing
marketing oror manufacturing
manufacturing
•• Simplest
Simplest ofof organizations
organizations
•• Most
Most smaller
smaller organizations
organizations have
have functional
functional structures
structures

Exhibit 7.1: A Basic Functional
Structure

The Basic Functional
Structure
•• Works
Works best
best when
when organization
organization has:
has:
•• Few
Few products
products
•• Few
Few locations
locations
•• Few
Few types
types ofof customers
customers
•• AA stable
stable environment
environment
•• Routine
Routine technology
technology

The Basic Product and
Geographic Structures
•• Product
Product structure:
structure: departments
departments or
or subunits
subunits based
based on
on
different
different product
product groups
groups
•• Geographic
Geographic structure:
structure: departments
departments or
or subunits
subunits based
based
on
on geographic
geographic regions
regions

Geographic Structures (cont.)
•• Usually
Usually less
less efficient
efficient than
than the
the functional
functional organization
organization
•• Allows
Allows aa company
company toto serve
serve customer
customer needs
needs that
that vary
vary
by
by region
region or
or product
product

Exhibit 7.2: Product Structure

Exhibit 7.3: A Basic
Geographic Structure

Geographic Structures
•• Managers
Managers choose
choose product
product structures
structures when:
when:
•• Product
Product or
or an
an area
area sufficiently
sufficiently unique
unique toto require
require
focused
focused functional
functional efforts
efforts on
on one
one type
type ofof product
product or
or
service
service
•• Hybrid
Hybrid structure:
structure: mixes
mixes functional,
functional, geographic,
geographic, andand
product
product units
units

Organizational Structures to
Implement Multinational
Strategies
•• When
When company
company firstfirst goes
goes international,
international, itit seldom
seldom
changes
changes structure.
structure.
•• Passive
Passive exporter
exporter
•• Licensing
Licensing has
has little
little impact
impact onon domestic
domestic structures.
structures.
•• However,
However, when
when international
international sales
sales become
become more more
central,
central, structures
structures needneed toto be
be changed.
changed.

Export Department
•• Coordinates
Coordinates and and controls
controls aa company’s
company’s export
export
operations
operations
•• Export
Export department
department
•• IsIs created
created when
when exports
exports become
become significant
significant
•• Deals
Deals with
with international
international sales
sales ofof all
all products
products

Exhibit 7.4: A Functional
Structure with an Export
Department

Foreign Subsidiaries
•• Subunit
Subunit ofof the
the multinational
multinational company
company that
that isis located
located inin
another
another country
country
•• Types
Types ofof foreign
foreign subsidiaries
subsidiaries
•• Minireplica
Minireplica subsidiary:
subsidiary: smaller
smaller version
version ofof the
the parent
parent
company
company
•• Uses
Uses the
the same
same technology
technology and
and producing
producing the the
same
same products
products as
as the
the parent
parent company
company
•• Transnational
Transnational subsidiary:
subsidiary: has
has no
no companywide
companywide form form
or
or function
function
•• Each
Each subsidiary
subsidiary contributes
contributes what
what itit does
does best
best
•• Many
Many subsidiaries
subsidiaries are
are neither
neither minireplicas
minireplicas nor
nor
transnationals
transnationals
•• May
May take
take different
different forms
forms or
or functions
functions

•• Multinationals
Multinationals choose
choose the
the mix mix ofof functions
functions based
based on:
on:
•• The
The firm’s
firm’s multinational
multinational strategy
strategy or or strategies
strategies
•• The
The subsidiaries’
subsidiaries’ capabilities
capabilities and and resources
resources
•• The
The economic
economic andand political
political risk
risk ofof building
building and
and
managing
managing aa subunit
subunit inin another
another country
country
•• How
How the
the subsidiaries
subsidiaries fitfit into
into the
the overall
overall multinational
multinational
organizational
organizational structure
structure

International Division
•• Responsible
Responsible for for managing
managing exports,
exports, international
international sales,
sales,
and
and foreign
foreign subsidiaries
subsidiaries
•• Usual
Usual step
step after
after export
export department
department
•• Deals
Deals with
with all
all products
products
•• Manages
Manages overseas
overseas sales
sales force
force and
and manufacturing
manufacturing
sites
sites

Exhibit 7.5: An International
Division

Organizational Structures to
Implement Multinational
Strategies
•• Reasons
Reasons toto abandon
abandon thethe international
international division
division
•• Diverse
Diverse products
products overwhelm
overwhelm capacities
capacities ofof
multinational
multinational
•• Not
Not close
close enough
enough toto local
local markets
markets
•• Cannot
Cannot take
take advantage
advantage ofof global
global economies
economies ofof
scale
scale or
or global
global sources
sources ofof knowledge
knowledge
•• Several
Several options
options available
available toto deal
deal with
with these
these
shortcomings
shortcomings
Worldwide Geographic
Structure
•• Has
Has geographical
geographical units
units representing
representing regions
regions ofof the
the
world
world
•• Prime
Prime reason
reason isis toto implement
implement aa multidomestic
multidomestic or or
regional
regional strategy
strategy
•• Organizational
Organizational design
design with with maximum
maximum geographic
geographic
flexibility
flexibility
•• Separate
Separate divisions
divisions for for large
large market
market countries
countries

Exhibit 7.6: Royal Vopak
Geographic Structure

Worldwide Product Structure
•• Worldwide
Worldwide product
product structure
structure
•• Gives
Gives product
product divisions
divisions responsibility
responsibility toto produce
produce
and
and sell
sell their
their products
products oror services
services throughout
throughout the
the
world
world
•• Implements
Implements strategies
strategies that
that emphasize
emphasize global
global
products
products
•• Provides
Provides an an efficient
efficient way
way toto organize
organize and
and centralize
centralize
the
the production
production and and sales
sales ofof similar
similar products
products
Exhibit 7.7: Worldwide
Product Structure

Hybrids
•• Both
Both worldwide
worldwide product
product structure
structure and
and worldwide
worldwide
geographic
geographic structure
structure have
have advantages
advantages and and
disadvantages
disadvantages
•• Product
Product structure:
structure: supports
supports global
global products
products
•• Geographic
Geographic structure:
structure: emphasizes
emphasizes locallocal adaptation
adaptation
•• Multinationals
Multinationals often
often want
want both
both abilities
abilities
•• Use
Use hybrids
hybrids

Front-back Hybrid Structure
•• The
The front
front side
side has
has units
units based
based onon geography
geography toto
provide
provide aa multidomestic
multidomestic oror regional
regional focus
focus
•• The
The backside
backside has
has units
units based
based on on product
product groups
groups toto
capture
capture global
global economies
economies ofof scale
scale inin R&D
R&D and
and
production
production

Exhibit 7.8: Tetra Pak’s Front-
Back Hybrid Structure

Worldwide Matrix Structures
•• Symmetrical
Symmetrical organization
organization with
with equal
equal emphasis
emphasis on
on
•• Worldwide
Worldwide product
product groups
groups and
and
•• Regional
Regional geographical
geographical divisions
divisions

Worldwide Matrix Structures
•• Balances
Balances the the benefits
benefits produced
produced by by area
area and
and product
product
structures
structures
•• Creates
Creates equal
equal lines
lines ofof authority
authority for
for products
products and
and areas
areas
•• Works
Works best
best with
with near
near equal
equal demands
demands fromfrom both
both
sides
sides
•• Requires
Requires extensive
extensive resources
resources forfor communication
communication and and
coordination
coordination
•• Requires
Requires middle
middle and
and upper
upper level
level managers
managers with
with good
good
human
human relations
relations skills
skills
Exhibit 7.9: Worldwide Matrix
Organization

Matrix Structures
•• Problems
Problems emerging
emerging with
with worldwide
worldwide matrix
matrix structures
structures
•• Slow
Slow decision
decision making
making process
process
•• Too
Too bureaucratic
bureaucratic
•• Too
Too many
many meetings
meetings and
and too
too much
much conflict
conflict

Matrix Structures (cont.)
•• Result
Result
•• Companies
Companies havehave redesigned
redesigned their
their matrix
matrix structures
structures
toto be
be more
more flexible
flexible with
with speedier
speedier decision
decision making
making
•• Other
Other companies
companies havehave abandoned
abandoned their
their matrices
matrices
and
and returned
returned toto product
product structures
structures

The Transnational-Network
Structure
•• Newest
Newest solution
solution toto the
the complex
complex demand
demand ofof being
being
locally
locally responsive
responsive andand taking
taking advantage
advantage ofof global
global
economies
economies ofof scale
scale
•• Combines
Combines functional,
functional, product,
product, and
and geographic
geographic subunits
subunits
•• Dispersed
Dispersed subunits
subunits
•• Specialized
Specialized operations
operations
•• Interdependent
Interdependent relationships
relationships

The Transnational-Network
Structures
•• Has
Has no
no symmetry
symmetry or or balance
balance inin its
its structural
structural form
form
•• Resources,
Resources, people,
people, and and ideas
ideas flow
flow inin all
all directions
directions
•• Nodes
Nodes or
or centers
centers inin the
the network
network coordinate
coordinate product,
product,
functional,
functional, and
and geographic
geographic information
information

Exhibit 7.10: Geographic Links
in the Philips Transnational
Structure

Exhibit 7.11: Product Links in
the Same Organization

Components of the
Transnational-Network
Structure
•• Dispersed
Dispersed subunits:
subunits: subsidiaries
subsidiaries located
located anywhere
anywhere
where
where they
they can
can most
most benefit
benefit the
the company
company
•• Specialized
Specialized operations:
operations: subunits
subunits specializing
specializing inin
particular
particular product,
product, research
research areas,
areas, oror marketing
marketing areas
areas
•• Interdependent
Interdependent relationships:
relationships: continuous
continuous sharing
sharing ofof
information
information and
and resources
resources by
by dispersed
dispersed and
and
specialized
specialized subunits
subunits

Metanational Structure
•• Large
Large entrepreneurial
entrepreneurial multinational
multinational
•• Can
Can tap
tap into
into pockets
pockets ofof innovation,
innovation, technology,
technology, and
and
markets
markets located
located around
around the the world
world
•• Develops
Develops extensive
extensive systems
systems toto encourage
encourage
organizational
organizational learning
learning and
and entrepreneurial
entrepreneurial activities
activities

Metanational Characteristics
•• Nonstandard
Nonstandard business
business formulas
formulas for
for any
any local
local activity
activity
•• Looking
Looking toto emerging
emerging markets
markets asas sources
sources ofof knowledge
knowledge
and
and ideas
ideas
•• Creating
Creating aa culture
culture supporting
supporting global
global learning
learning
•• Extensive
Extensive use
use ofof strategic
strategic alliances
alliances toto gain
gain knowledge
knowledge
for
for varied
varied sources
sources

Characteristics of
Metanationals
•• High
High levels
levels ofof trust
trust between
between partners
partners toto encourage
encourage
knowledge
knowledge sharing
sharing
•• Centerless
Centerless organization
organization that that moves
moves strategic
strategic functions
functions
away
away from
from headquarters
headquarters toto majormajor markets
markets
•• Decentralization
Decentralization ofof decision
decision making
making toto managers
managers who
who
serve
serve key
key customers
customers and and strategic
strategic partners
partners

Multinational Strategy and
Structure: An Overview
•• Most
Most companies
companies support
support early
early internationalization
internationalization
efforts
efforts with
with export
export department
department
•• Depending
Depending on on globalization
globalization strategy,
strategy, they
they evolve
evolve into
into
product
product oror geographic
geographic structure
structure
•• Pressure
Pressure forfor local
local adaptation
adaptation and and global
global efficiencies
efficiencies
result
result into
into matrix
matrix or or transnational-network
transnational-network
•• No
No company
company reaches
reaches any any pure
pure form—use
form—use hybrids
hybrids

Exhibit 7.12: Multinational
Strategy, Structure, and
Evolution

Control Systems
•• Control
Control system:
system: helps
helps link
link the
the organization
organization vertically,
vertically,
up
up andand down
down the
the organizational
organizational hierarchy
hierarchy
•• Basic
Basic functions
functions ofof control
control system
system
•• Measure
Measure or or monitor
monitor thethe performances
performances ofof subunits
subunits
•• Provide
Provide feedback
feedback toto subunit
subunit managers
managers regarding
regarding
the
the effectiveness
effectiveness ofof their
their units
units

Coordination Systems
•• Coordination
Coordination system:
system: horizontal
horizontal organizational
organizational links
links
•• Provide
Provide information
information flows
flows among
among subsidiaries
subsidiaries

Options for Control Systems
•• Four
Four types
types ofof control
control systems
systems
•• Output
Output control
control system
system
•• Bureaucratic
Bureaucratic control
control system
system
•• Decision-making
Decision-making control
control
•• Cultural
Cultural control
control system
system

Output Control Systems
•• Assesses
Assesses the the performance
performance ofof aa unit
unit based
based on on results,
results,
not
not on
on the
the processes
processes used
used toto achieve
achieve these
these results
results
•• Profit
Profit center:
center: unit
unit controlled
controlled by
by its
its profit
profit or
or loss
loss
performance
performance

Bureaucratic control system
•• Focuses
Focuses on on managing
managing behaviors
behaviors within
within the
the
organization
organization
•• Budgets:
Budgets: financial
financial targets
targets for
for expenditures
expenditures
•• Statistical
Statistical reports:
reports: information
information toto top
top management
management
about
about nonfinancial
nonfinancial outcomes
outcomes
•• Standard
Standard operating
operating procedures:
procedures: rules
rules and
and
regulations
regulations ofof appropriate
appropriate behavior
behavior

Control and Coordination
Systems
•• Decision-making
Decision-making control:
control: level
level inin the
the organizational
organizational
hierarchy
hierarchy where
where managers
managers havehave the the authority
authority toto make
make
decisions
decisions
•• Cultural
Cultural control
control system:
system: uses
uses organizational
organizational culture
culture toto
control
control behaviors
behaviors and
and attitudes
attitudes ofof employees
employees

Exhibit 7.13: Use of Control
Mechanisms in Multinational
Organizational Structures

Design Options for
•• Textual
Textual communication:
communication: e-mail,e-mail, memos,
memos, and and reports
reports
•• Direct
Direct contact:
contact: face-to-face
face-to-face interaction
interaction ofof employees
employees
•• Liaison
Liaison roles:
roles: part
part ofof aa person’s
person’s job
job inin one
one department
department
toto communicate
communicate with
with people
people inin another
another department
department

Design Options for
•• Task
Task forces:
forces: temporary
temporary teams
teams created
created toto solve
solve aa
particular
particular organizational
organizational problem
problem
•• Full-time
Full-time integrators:
integrators: cross-unit
cross-unit coordination
coordination isis the
the
main
main job
job responsibility
responsibility
•• Teams:
Teams: permanent
permanent unit
unit ofof the
the organization
organization

Organizational Designs For Multinational Companies

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Chapter 7

Organizational Designs for

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Copyright© 2005 South-Western/Thomson Learning All rights reserved

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