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International Business
Oded Shenkar and Yadong Luo
Chapter 11
Organizing and Structuring Global
Operations
Chapter 11: Organizing and Structuring Global Operations
Do You Know?
• About organizational design in
Multinational Enterprises? That design
is a function of both strategy and
structure?
• That power relationships, information
flow, and perceptions of strategic
importance for Multinational Enterprise
strategic business units will vary on a
country basis, and on a cultural basis?
Chapter 11: Organizing and Structuring Global Operations
Do You Know?
• The varying types of structures that are
available to Multinational Enterprises?
• That integration of international
operations is among the most important
functions of organizational design in the
Multinational Enterprise?
Chapter 11: Organizing and Structuring Global Operations
Organization and Structure: Aetna
• In 2000, Aetna announced it would
restructure into two divisions: Global
Financial Services and Global Health.
• The new structure would improve
knowledge flow globally, and was
consistent with structural changes made
by other large Multinational Enterprises.
Chapter 11: Organizing and Structuring Global Operations
International Strategy and Organization
Design
• The objective of organizational design
(OD) is to provide, maintain, and
develop organizational structures that
work toward the achievement of
corporate goals.
• OD helps create a workable structure of
tasks and positions that create the
physical organization and jobs.
Chapter 11: Organizing and Structuring Global Operations
International Strategy and Organization
Design
• Organizational structure is ultimately
driven by strategy; in the near term
however, strategy is shaped by
organizational structure, because
structure provides a constraint to action.
• Structure is relatively immobile in the
short run; in the longer term, it can (and
does) change.
Chapter 11: Organizing and Structuring Global Operations
International Strategy and Organization
Design
• What’s the purpose of structure? Global
Integration and Local Responsiveness.
• Every business seeks efficiency and
effective structures to organize tasks. In
the global environment, structures take
on differing forms in order to effectively
answer cultural demands and respond
to global environments.
Chapter 11: Organizing and Structuring Global Operations
MNE Strategy and Design
• As we indicated, the purpose of global
OD is to create structures that work well
in diverse locations, while aiding
coordination, and allowing for quick
responsiveness to market demands.
• There are three main strategies global
corporations use: The Transnational
Strategy, The Global Strategy, and
the Multi-Domestic Strategy.
Chapter 11: Organizing and Structuring Global Operations
MNE Strategy and Design: The
Transnational
• The Transnational Strategy seeks to
achieve global efficiency and local
responsiveness. It has a shared vision
under a corporate umbrella, but alters
operations for local demands.
Chapter 11: Organizing and Structuring Global Operations
MNE Strategy and Design: The Global
• The Global Strategy has relative
stability across markets in order to
facilitate strategic and operational
control.
Chapter 11: Organizing and Structuring Global Operations
MNE Strategy and Design: The MultiDomestic
• The Multi-domestic Strategy has
strategic and operational decisions
allocated to business units in each
country. It permits customization, but
interferes with economy of scale,
learning, and information coordination.
Chapter 11: Organizing and Structuring Global Operations
Subsidiary Roles and Imperatives
• Corporations commonly have
subsidiaries that operate in host
environments.
• They play a key part in balancing
integration and local responsiveness
through playing an autonomous role, a
receptive role, or an active role.
Chapter 11: Organizing and Structuring Global Operations
Subsidiary Roles and Imperatives:
Autonomous
• The Autonomous Role has a
subsidiary performing most activities of
the value chain independently of HQ,
selling output in a local market or in
markets the autonomous subsidiary can
arrange.
• Commonly used with Multi-Domestic
Strategy.
Chapter 11: Organizing and Structuring Global Operations
Subsidiary Roles and Imperatives:
Receptive
• The Receptive Role has subsidiary
functions that are integrated with HQ for
other units.
• An example is where the subsidiary
imports or exports components to other
subsidiaries for redistribution or final
assembly. Commonly used with Global
Strategy.
Chapter 11: Organizing and Structuring Global Operations
Subsidiary Roles and Imperatives: Active
Role
• The Active Role has many activities
performed locally, but coordinated with
subsidiaries.
• Commonly used with Transnational
Strategy, with mandate from HQ, and
flexibility for adaptation.
Chapter 11: Organizing and Structuring Global Operations
Multinational Enterprise Organizational
Structure
• National Subsidiary Structure, the “mother –
daughter design”
• International Divisional Structure, with domestic
business and all international operations shifted to a
“specialist” international division
• Global Functional Structure, where functions are
performed in each location in order to be adaptive to
local demands
• Global Geographic Structure, where divisions can
be based on political borders, cultural similarity,
economic similarity, business prospects, regional
integration, tax, or logistics considerations
Chapter 11: Organizing and Structuring Global Operations
Multinational Enterprise Organizational
Structure
Chapter 11: Organizing and Structuring Global Operations
Multinational Enterprise Organizational
Structure
Exhibit 11-2: Nestle’s organization chart
Chapter 11: Organizing and Structuring Global Operations
The Global Product Structure
• The Global Product Structure locates
manufacturing and value creation
activities in appropriate global locations
to increase efficiency, quality, or
innovation.
• Global divisions are responsible for
Global Product Design and operate in
divisional, cluster, or holding company
formats.
Chapter 11: Organizing and Structuring Global Operations
The Global Product Structure:
advantages
• Global vision, resource leverage,
strategic focus, simplicity, accountability,
standard product introductions,
enhanced speed and decision quality,
self-contained product development and
introduction, development of talent, low
interference from other divisions
Chapter 11: Organizing and Structuring Global Operations
The Global Product Structure:
disadvantages
• No sharing of information, little
cooperation between divisions, costly to
maintain, duplicated functions, difficult
to organize communication
Chapter 11: Organizing and Structuring Global Operations
The Global Matrix Structure
• The Global Matrix Structure contains
simultaneous, intersecting differentiation
bases, with employees reporting to a
functional and a product manager
simultaneously
Chapter 11: Organizing and Structuring Global Operations
The Global Matrix Structure
Exhibit 11-3a: Organization chart of the Dow
Chemical Company
Chapter 11: Organizing and Structuring Global Operations
The Global Matrix Structure
Exhibit 11-3a: Organization chart of the Dow
Chemical Company
Chapter 11: Organizing and Structuring Global Operations
The Mixed Structure
• The Mixed Structure is most common
in the Multinational Enterprise.
• It uses localization in product
development, marketing, sales, and
service.
• At the same time functions that benefit
from scale advantages, like purchasing,
are centralized
Chapter 11: Organizing and Structuring Global Operations
Integrating Global Operations
• Integration of global operations is
among the most important issues facing
Multinational Enterprises.
• At issue is Control, Coordination, and
maintenance of a Strategic Orientation.
Chapter 11: Organizing and Structuring Global Operations
Integrating Global Operations: Control
• Control is the intervention in operations
to maintain quality through feedforward, concurrent, or feedback
oriented information.
• Multinational Enterprises use output,
bureaucratic, cultural, and many other
mechanisms to provide information that
helps the firm maintain progress toward
its goals while realizing desired
outcomes.
Chapter 11: Organizing and Structuring Global Operations
Integrating Global Operations:
Coordination
• Coordination provides linkages between
different task units within an organization.
• Coordination helps the Multinational
Enterprise deal with breadth and diversity.
• Mechanisms include
centralization/decentralization, formalization,
planning, output control, targets, and
behavioral controls.
• Organizations also use informal mechanisms
for coordination which include informal
relationships, informal communication, and
culture.
Chapter 11: Organizing and Structuring Global Operations
Integrating Global Operations: Strategic
Orientation
• Maintaining Strategic Orientation is
“Mission Critical” to the competitive
success of the Multinational Enterprise.
• Creating a vision of shared direction
and market orientation in lieu of more
formal controls has the greater
sustained effect, costs less, and is more
acceptable to people associated with
the firm.
Chapter 11: Organizing and Structuring Global Operations
Tools for Global Integration
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Data Management
Management And Human Resources
Communication Intensity
Socialization Practice
Expatriate Dispatching
Entry Mode Selection And Sharing
Arrangements
Chapter 11: Organizing and Structuring Global Operations
The Transition Challenge
• Changing an organizational design is
never easy. It requires clear
communication, patience, and a clear
role played by Corporate Headquarters
which provides vision, leadership,
forums, and decision making.
Chapter 11: Organizing and Structuring Global Operations