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Chapter 13

GMS 724 Chapter Notes - Chapter 13: Cost Leadership, Organizational Culture, Information System


Department
Global Management Studies
Course Code
GMS 724
Professor
Lori Anne Heckbert
Chapter
13

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CHAPTER 13: THE ORGANIZATION OF INTERNATIONAL
BUSINESS
Introduction
Artfully engineering an organization that adeptly runs global activities
is a frontier of international business operations
MNEs create value by standardizing activities to maximize global
eciency while simultaneously adapting activities to optimize local
eectiveness
Changing Situations, Changing Organizations
Environmental dierences, technology trends, executive practices, and
labour markets challenge organizing the MNE
Succeeding generations of managers re%ned these designs, evaluating
the changing scale and scope of their operations, continually engaging
the issues of who did what job, who worked in which unit, who reported
to whom, who could make which decisions, and who told whom what to
do
The output—codi%ed in the MNE’s formal structure—instituted a
system of constraints and contracts that spurred the compliance of
workers worldwide
Expansion of international business
oThe growth and diusion of global business has changed MNE’s
opportunity set and eciency frontier
The internet as a design standard
oThe invention of the telephone and telegraph, by improving
global communication, reset the standards of organizing
activities
oThe internet as an organization metaphor pushes managers to
rethink their assumptions of how they arrange work, roles, and
responsibilities
Managerial standards
oThe evolving nature of work changes the conduct and context of
employees’ jobs, whether done at the biggest headquarters or
the smallest subsidiary
oChange in the nature of work changes the nature of
management
Social contract
oCompetitive changes and performance expectations alter the
social contract between high potential executives and MNEs
oSocial contracts increasingly rely on compatibility of values and
outlooks
oMNEs develop organization cultures that people do not want to
merely work for, but want to belong to
These trends push MNEs to rethink the best mix of structure, systems,
and values in building a “magical” organization
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oDoing so helps employees perform creatively, responsibly, and
entrepreneurially
Organization: the speci%cation of the framework for work,
development, of the systems that coordinate and control what work is
done, and the cultivation of common workplace culture among
employees
Organizational Structure
Organizational Structure: the formal arrangement of roles,
responsibilities, and relationships within an organization
It con%gures the elements of the company, identifying the lines of
authority and communication, assigning rights and duties, stipulating
/ows between and among units, and indicating how the company aims
to utilize its resources
Step one in building an organization is determining the best structure
for arranging individuals and units to implement the %rm’s strategy
Vertical Dierentiation: the speci%cation of the degrees of
centralization and decentralization of decision-making in an
organization
oNo matter the particular mix of markets, types of products, or
executive ambitions, MNEs face competing calls for global
integration and local responsiveness
oThey reconcile with these pressures by specifying who has the
authority to make what decisions
oCentralization: the degree to which high-level managers, usually
above the country level, make strategic decisions and delegate
them to lower levels for implementation
oDecentralization: the degree to which lower-level managers,
usually at or below the country level, make and implement
strategic decisions
oGlobality: the state of aairs where one competes with
everyone, from everywhere, for everything
oThe centralization-versus-decentralization choice is often
represented as an either-or proposition, but in reality, an MNE is
never entirely one or the other
Horizontal Dierentiation: the process of specifying, dividing, and
assigning organizational tasks
oAn MNE horizontally dierentiates its structure to:
1. Specify the set of tasks that must be done
2. Divide those tasks among SBUs, divisions, subsidiaries,
departments, committees, teams, jobs, and individuals
3. Stipulate superior and subordinate relationships
oFunctional Structure: an organization that is structured
according to functional areas of business
Ideal when global integration trumps local
responsiveness, industry structure encourages cost
leadership, and companies have anchored their value
chains in the global or international strategy
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