Chapter 8
Organization Structure and
Control Systems
PowerPoint by
Kristopher Blanchard
North Central University
© 2006 Prentice Hall
Organizational Structure
Structure needs to “fit” strategy
Most international managers find it easier to
determine what to do (strategy) than to
decide how to develop the organizational
capabilities (structure) to do it.
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Evolution and Change in MNC
Internationalization is the process by which a firm
gradually changes in response to international
competition, domestic market saturation, and the
desire for expansion, new markets, and
Structural Evolution (Stages Model) occurs when
managers redesign the organizational structure to
optimize the strategy’s changes to work, making
changes in the firm’s tasks and relationships and
designating authority, responsibility, lines of
communication, geographic dispersal of units and
so forth
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Typical ways that firms organize
international activities
Domestic structure plus export department
Domestic structure plus foreign subsidiary
International division
Global functional structure
Global product structure
Global Geographic Structure
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Integrated Global Structures
The global functional structure is designed on the
basis of the company’s functions – production,
marketing, finance, and so forth. Foreign
operations are integrated into the activities and
responsibilities of each department to gain
functional specialization and economies of scale.
Matrix Structure is a hybrid organization of
overlapping responsibilities – it is used by some
firms but has generally fallen into disfavor
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Organizing for Globalization
Two opposing forces in structural decisions
– The need for differentiation (focusing on and
specializing in specific markets)
– The need for integration (coordinating those
same markets)
Globalization – a specific strategy that treats the
world as one market by using a standardized
approach to products and markets
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Organizing for Globalization
Organizing to facilitate a globalization strategy
typically involves rationalization and the
development of strategic alliances
Organizing for global product standardization
necessitates close coordination among the various
countries involved
The problem facing companies in the future is that
the structurally sophisticated global networks
leave the organization exposed to the risk of
environmental volatility from all corners of the
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Comparative Management Focus:
Chinese Global Network
The Chinese commonwealth is a form of
global network that has become the envy of
Western multinationals
– Network of entrepreneurial relationships in
Asia primarily
– Includes mainland China, 1.3 billion citizens,
and more than 55 million Chinese in Taiwan,
Indonesia, Hong Kong, and Thailand
– Estimated to control $2 Trillion in liquid assets
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Comparative Management Focus:
Chinese Global Network
Most observers believe that this China-based
informal economy is the world leader in economic
growth, industrial expansion, and exports
Comprises most mid-sized, family-run firms
linked by transnational network channels
Channels move information, finance, goods, and
Network alliances bind together and draw from
the substantial pool of financial capital and
resources available in the region
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Keiretsu and Chaebol
Keiretsu: Set of Japanese companies with interlocking
business relationships and shareholdings
Chaebol: South Korean business conglomerates
– Chaebol are still largely controlled by their founding families, while
keiretsu are controlled by groups of professional managers.
– Chaebol are centralized in ownership, while keiretsu are more
decentralized and connected by cross-shareholdings.
– Chaebol are prohibited from owning private banks, partly in order to
increase the government's leverage over the banks in areas such as
credit allocation. Keiretsu have historically worked with an affiliated
bank, giving the affiliated companies almost unlimited access to
credit, although this is no longer a universal feature of keiretsu.
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Emergent Structural Forms
Inter-organizational networks
The global e-corporation network structure
The transnational corporation (TNC)
network structure
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Choice of Organizational Form
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Organizational Change and Design
When does a company need to make a
change in organizational structure?
Makes a change in goals or strategy
Makes a change in scope of operations
Indications of organizational inefficiency
Conflicts among divisions and subsidiaries
Overlapping responsibilities
Complaints regarding customer service
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Locus of Decision Making
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Monitoring Systems
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Direct Coordinating Mechanisms
Design of appropriate structures
Use of effective staffing practices
Visits by head-office personnel
Regular meetings
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In-Direct Coordinating Mechanisms
Sales quotas
Other financial tools
Feedback reports
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Appropriateness of Monitoring and
Reporting Systems
Factors likely to affect the appropriateness
of monitoring systems include:
– Management practices
– Local constraints
– Expectations regarding: Authority, Time, and
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Managing Effective Monitoring
In deciding on appropriate monitoring and
reporting systems, additional factors to be
considered include:
• The role of information systems (adequacy of
management information systems in foreign
affiliates, non-comparability of performance data
across countries)
• Evaluation variables across countries
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Looking Ahead
Chapter 9 – Staffing, Training, and
Compensation for Global Operations
Staffing philosophies for global operations
Global selection
Training and development
Compensating expatriates
Compensating HCNs
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Domestic Plus Foreign Subsidiary
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Global Product Division
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Global Geographic Structure
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Inter-organizational networks
Views the various companies, subsidiaries,
suppliers, or individuals as a relational
Allows the different network partners to
adopt unique structures that are adapted to
the local context
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Global E-Corporation Network
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Transnational Corporation
Involves linking foreign operations to each other and to
headquarters in a flexible way
– Leverages local and central capabilities
Not a matter of boxes on an organizational chart; it is a
network of company units and a system of horizontal
Requires the dispersal of responsibility and decision
making to local subsidiaries
Effectiveness is dependant on the ability and willingness to
share current and new learning and technology across the
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Chapter 8 Organization Structure and Control Systems