MGCR 382 Chapter Notes - Chapter 14: Firstline, Inventory Turnover, Organizational Architecture

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MGCR382 Chapter 14 Notes: International Organizational Design and Control
The Nature of International Organizational Design
Organization design overall pattern of structural components and configurations used to manage the total organization.
The appropriate design for any given organization may depend on the firm’s size, strategy, technology, and environment,
as well as the cultures of the countries in which the firm operates. OD is also the basic vehicle through which strategy is
ultimately implemented and through which the work of the organization is actually accomplished
1) Allocates organizational resources, 2) assigns tasks to its employees, 3) it informs those employees about the
firm’s rules, procedures, and expectations about the employees’ job performances, 4) collects and transmits
information necessary for problem solving, decision making, and effective organizational control (particularly
important for large MNCs, which must manage sharing vast amounts of information worldwide
Design is changed continually these changes often result from changes in a firm’s strategy because an
important characteristic of a successful firm is its ability to match its strategy with a compatible organizational
Corollary approach the firm delegates responsibility for processing such orders to individuals within an existing
department, such a finance or marketing. Under this approach, the firm continues to use its existing domestic OD
typical of a firm that has a small level of international activity
Export department takes responsibility for overseeing international operations, marketing products, processing
orders, working with foreign distributors, and arranging financing.
When selling to foreign customers is not fundamentally different from selling to domestic ones, the export
department may get by with knowing only a little about foreign markets. However, as international activities
increase, firms find that an export department no longer serves their needs.
Firms respond to the challenges of controlling their burgeoning international business by changing their OD
through the creation of an international division that specializes in managing foreign operations allows a firm
to concentrate resources and create specialized programs targeted on international business activity while
simultaneously keeping that activity segregated from the firm’s ongoing domestic activities
Global Organization Designs
As a firm evolves from being domestically oriented with international operations to becoming a true MNC with
global aspirations, it typically abandons the international division approach in place of the division it usually
creates a global OD to achieve synergy
Area knowledge: managers must understand the cultural, commercial, social, and economic conditions in each host
country market in which the firm does business
Product knowledge: managers must comprehend such factors as technological trends, customer needs, and competitive
forces affecting the good the firm produces and sells
Functional knowledge: managers must have access to coworkers with expertise in basic business functions such as
production, marketing, finance, accounting, human resource management, and information technology
Ethnocentric used by firms that operate internationally the same way they do domestically
Polycentric used by firms that customize their operations for each foreign market they serve
Geocentric used by firms that analyze the needs of their customers worldwide and then adopt standardized operations
for all markets they serve
Global Product Design assigns worldwide responsibility for specific products or product groups to separate operating
divisions within a firm. This design works best when the firm has diverse product lines or when its product lines are sold
in diverse markets, thereby rendering the needs for coordination between product lines relatively unimportant. If the
products are related, the organization of the firm takes on what is often called an M-form design; if the products are
unrelated, the design is an H-form. The M in M-form is for multidivisional (the various divisions of the firm are usually
self-contained operations with interrelated activities). The H in H-form stands for holding (the various unrelated
businesses function with autonomy and little interdependence)
Advantages: because a division focuses on a single product or product group, the division managers gain expertise
in all aspects of the product or products, better enabling them to compete globally. Second, the global product
design facilities efficiencies in production because managers are free to manufacture the product wherever
manufacturing costs are the lowest. It also allows managers to coordinate production at their various facilities,
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shifting output from factory to factory as global demand or cost conditions fluctuate. Further, because managers
have extensive product knowledge, they are better able to incorporate new technologies into their products and
respond quickly to technological changes. The GPD also facilitates global marketing firm gains flexibility in
introducing, promoting, and distributing the product. Finally, because the GPD forces managers to think globally,
it facilitates geocentric corporate philosophies
Disadvantages: it may encourage extensive duplication because each product group needs its own functional-area
skills such as marketing, finance, etc. and sometimes even its own physical facilities for production, distribution,
and R&D. Similarly, each product group must develop its own knowledge about the cultural, legal, and political
environments of the various regional and national markets in which it operates. Coordination and corporate
learnings across product groups becomes more difficult.
Global Area Design organizes the firm’s activities around specific areas or regions of the world. This approach is
particularly useful for firms with a polycentric or multidomestic corporate philosophy. A GAD is most likely to be used
by a firm whose products are not readily transferable across regions
Advantages: particularly useful for a firm whose strategy is marketing-driven rather than predicated on
manufacturing efficiencies or technological innovation or for a firm whose competitive strength lies in the
reputation of its brand name products. Further, the geographical focus of this design allows a firm to develop
expertise about the local market. Area managers can freely adapt the firm’s products to meet local needs and can
quickly respond to changes in the local marketplace. They also can tailor the product mix they offer within a
given area
Disadvantages: by focusing on the needs of the area market, the firm may sacrifice cost efficiencies that might be
gained through global production. Diffusion of technology is also slowed because innovations generated in one
area division may not be adopted by all the other. Thus, this design may not be suitable for product lines
undergoing rapid technological change. The GAD results in duplication of resources because each area division
must have its own functional specialists, product experts, and production facilities makes coordination across
areas expensive and discourages global product planning
Global Functional Design calls for a firm to create departments or divisions that have worldwide responsibility for the
common organizational functions. This design is used by MNCs that have relatively narrow or similar product lines. It
results in what is called a U-form organization (unity)
Advantages: the firm can easily transfer expertise within each functional area. Second, managers can maintain
highly centralized control over functional operations. Finally, the global functional design focuses attention on the
key functions of the firm
Disadvantages: inappropriate for many businesses the GFD is practical only when the firm has relatively few
products or customers. Coordination between divisions can be a major problem. There may also be duplication of
resources among managers
Limited applicability. It is used by many firms engaged in extracting and processing natural resources, because
the ability to transfer technical expertise is important
Global Customer Design used when a firm serves different customers or customer groups, each with specific needs
calling for special expertise or attention. This design is useful when the various groups targeted by a firm are so diverse as
to require totally distinct marketing approaches. The GCD allows the firm to meet the specific needs of each customer
segment and track how well the firm’s products or services are doing among those segments. On the other hand, the GCD
may lead to a significant duplication of resources if each customer group needs its own area and functional specialists.
Coordination between the different divisions is also difficult because each is concerned with a fundamentally different
Global Matrix Design result of superimposing one form of OD on top of an existing, different form. The resulting
design is usually quite fluid, with new matrix dimensions being created, downscaled, and eliminated as needed. Using a
GMD, a firm can form specific product groups comprising members from existing functional departments. These product
groups can then plan, design, develop, product, and market new products with appropriate input from each functional
area. In this way the firm can draw on both the functional and the product expertise of its employees. After a given
product development task is completed, the product group may be dissolved; its members will then move on to new
Advantages: it helps bring together the functional, area, and product expertise of the firm into teams to develop
new products or respond to new challenges in the global marketplace. Promotes organizational flexibility
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