Chapter 13

The Organization of
International Business
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Hello!
Faryah Saeed
👉 Control Systems and Incentives
👉 Processes
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Control Systems and

Incentives
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A key responsibility of a company's leadership is to

guarantee that the different subunits of the
company, whether defined by function, product
division, or geographic region, are acting in
accordance with the company's overall strategic
and financial goals. Firms do this through a variety
of control and incentive systems.
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TYPES OF CONTROL SYSTEMS

👉 Personal Controls
👉 Bureaucratic Controls
👉 Output Controls
👉 Cultural Controls
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Personal Controls
Personal contact with subordinates
 most widely used in small firms
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Example
Jack Welch, the longtime CEO of General Electric
who retired in 2001, had regular one-on-one meetings
with the heads of all GE's major businesses
 Probe the managers about the strategy,
structure, and financial performance
of their operations.
 Exercised personal control over
these managers
 Undoubtedly, over the strategies
that they favored.
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Bureaucratic Controls
A system of rules and procedures that directs the
actions of subunits
 budgets and capital spending rules
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Example
The R&D budget normally specifies how much cash
the R&D unit may spend on product development.
 R&D managers know that if they spend too
much on one project, they will have less to
spend on other projects.
 They modify their behavior to stay
within the budget.
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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
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Example
 If goals are met or exceeded, subunit managers will
be rewarded.
 If goals are not met, top management will normally
intervene to find out why and take appropriate
corrective action.
 Control is achieved by comparing actual
performance against targets and intervening
selectively to take corrective action.
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Cultural Controls
Exist when employees “buy into” the norms and value
systems of the firm
 strong culture implies less need for other forms of
control
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Example
 McDonald's actively promotes organizational
norms and values, referring to its franchisees and
suppliers as partners and emphasizing its long-term
commitment to them.
 It is backed by actions, including a willingness to
help suppliers and franchisees improve their
operations.
 McDonald's franchisees and suppliers are
integrated into the firm's culture.
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Incentive Systems
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Incentive Systems

Incentives - devices used to reward

What are incentives
behavior
Usually closely tied to performance metrics
DISCOVERY
used for output controls
Should vary depending on the employee and
EVALUATION
the nature of the work being performed
Should promote cooperation between managers
INTENT
in sub-units
Should reflect national differences in
PURCHASE
institutions and culture
LOYALTY Can have unintended consequences
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CONTROL SYSTEMS,
INCENTIVES, AND
STRATEGY IN
THE INTERNATIONAL
BUSINESS
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The key to understanding the relationship between international

strategy, control systems, and incentive systems is the concept of
performance ambiguity

Strategy,
Performance Interdepende
Ambiguity nc, and
Ambiguity
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CONTROL SYSTEMS, INCENTIVES, AND STRATEGY IN

THE INTERNATIONAL BUSINESS

Performance
Ambiguity
exists when the
causes of a
subunit's poor
performance are
not clear.
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Performance Ambiguity

Performance ambiguity exists when the causes of a

subunit’s poor performance are not clear
 Is common when a subunit’s performance is dependent
on the performance of other subunits
 Is lowest in firms with a localization strategy
 Is higher in international firms
 Is still higher in firms with a global standardization
strategy
 Is highest in transnational firms
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CONTROL SYSTEMS, INCENTIVES, AND STRATEGY IN

THE INTERNATIONAL BUSINESS

Strategy,
Interdepend
ence, and
In firms pursuing a
Ambiguity
localization strategy,
each national
operation is a stand-
alone
entity and can be
judged on its own
merits
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Implications for Control and Incentives

Interdependence, Performance Ambiguity, and the Costs of Control for the Four
International Business Strategies
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Processes
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What Are Processes?

 Processes refer to the manner in which decisions

are made and work is performed.
 many processes cut across national boundaries as
well as organizational boundaries.
 processes can be developed anywhere within a
firm’s global operations network.
 formal and informal integrating mechanisms can
help firms leverage processes.
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Thanks!
Any questions?