IB 150 Lecture Notes - Lecture 20: Management Development, Human Resource Management, Ethnocentrism

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IB 150 – Lecture 20
The Organization of International Business
Organizational Architecture
Organizational architecture is the totality of a firm’s organization, including
Organizational structure
The formal division of the organization into subunits
The location of decision making responsibilities within that strcutre
Centralize (things are decided at headquarters) vs decentralized (things are decided
at the specific regions) – some companies need both, ex: toyota
the establishment of integrating mechanisms to coordinate the activities of subunits
including cross-functional teams or pan-regional committees
Control systems and incentives
control systems - the metrics used to measure performance of subunits
incentives - the devices used to reward managerial behavior
Structure and control systems establish decision-making responsibilities and integration
mechanisms.
Processes, organizational culture, and people
processes - how decisions are made and work is performed within the organization
organizational culture - norms and values that are shared among the employees of an
organization
people - the employees and the strategy used to recruit, compensate, and retain
employees for their skills, values, and orientation
To be most profitable:
the elements of the organizational architecture must be internally consistent
the organizational architecture must fit the strategy
the strategy and architecture must be consistent with each other, and consistent with
competitive conditions
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Dimensions of Organizational Structure
Organizational structure has three dimensions
Vertical differentiation - the location of decision-making responsibilities within a structure
Horizontal differentiation - the formal division of the organization into subunits
Integrating mechanisms - the mechanisms for coordinating subunits
Why Is Vertical Differentiation Important?
Vertical differentiation determines where decision-making power is concentrated
Centralized decision making
facilitates coordination
ensures decisions are consistent with the organization’s objectives
gives managers the means to bring about organizational change
avoids duplication of activities
Decentralized decision making
relieves the burden of centralized decision making
has been shown to motivate individuals
permits greater flexibility
can result in better decisions
can increase control
Why Is Horizontal Differentiation Important?
Horizontal differentiation refers to how the firm divides into subunits
usually based on function, type of business, or geographical area
Most firms begin with no formal structure but later split into functions reflecting the firm’s
value creation activities - functional structure
functions are coordinated and controlled by top management
decision making is centralized
product-line diversification requires further horizontal differentiation
Most firms begin with no formal structure and are run by a single entrepreneur or a small
team of individuals. As they grow, the demands of management become too great for one
individual or a small team to handle.
At this point the organization is split into functions reflecting the firm’s value creation
activities (such as production, marketing, R&D, sales). These functions are typically
coordinated and controlled by top management. Decision making in this functional structure
tends to be centralized.
Firms may switch to a product divisional structure
each division is responsible for a distinct product line
headquarters retains control for the overall strategic direction of the firm and for the
financial control of each division
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Functional Structure
Product Divisional Structure
What Happens When Firms Expand Globally?
When firms expand internationally, they often group all of their international activities into an
international division
Over time, manufacturing may shift to foreign markets
firms with a functional structure at home would replicate the functional structure in the
foreign market
firms with a divisional structure would replicate the divisional structure in the foreign
market
In either case, there is the potential for conflict and coordination problems between domestic
and foreign operations
When firms initially expand abroad, they often group all their international activities into an
international division. This has tended to be the case for firms organized on the basis of
functions and for firms organized on the basis of product divisions. Regardless of the firm’s
domestic structure, its international division tends to be organized on geography.
International Division Structure
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