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Chapter 13

Final Exam Study Notes - Chapter 13-The Organization of International Business

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University of Toronto Mississauga

MGT491 FINAL EXAM NOTES Chapter 13: %K0 7J,3L],9L4341,39O:8L3088 N Organizational architecture 949,OL941,1L72847J,3L],9L43L3.O:L3J1472,O47J,3L],9L43897:.9:70.43974O systems and incentives, processes, organizational culture, and people N Core argument superior enterprise profitability requires 3 conditions to be fulfilled: o L11070390O02039841,1L72847J,3L],9L43,O,7.KL90.9:702:89-0L39073,OO.438L89039 Ex. the control and incentive systems must be consistent with the structure o Organizational architecture must match or fit the strategy of the firm strategy and architecture must be consistent If a firm is pursuing a global standardization strategy but has the wrong kind of organization architecture in place, it is unlikely to be able to effectively execute that kind of strategy o Strategy and architecture of the firm must not only be consistent with each other but also with .42509L9L;0.43L9L438570;,LOL3JL39K01L7282,7N098 strategy, architecture and competitive environment must be consistent Ex. if a firm pursuing a localization strategy has the right kind of organizational architecture but is competing in markets where cost pressures are intense and demands for local responsiveness are low, will still have inferior performance because global standardization strategy is more appropriate in this environment Organizational Architecture N Organizational architecture 701078949K0949,OL941,1L72847J,3L],9L43L3.O:L3J1472,O47J,3L],9L43,O897:.9:70 control systems and incentives, organizational culture, processes and people N Organizational structure refers to 3 things: o Formal division of the organization into subunits such as product divisions, national operations, and functions (most organizational charts display this aspect of structure) o Location of decision-making responsibilities within that structure (centralized or decentralized) o Establishment of integrating mechanisms to coordinate the activities of subunits including cross- functional teams andor pan-regional committees N Control systems the metrics used to measure the performance of subunits and make judgments about how well managers are running those subunits o Ex. profitability N Incentives devices used to reward appropriate managerial behavior, very closely tied to performance metrics o Ex. the incentives of a manager in charge of a national operating subsidiary might be linked to the performance of that company N Processes the manner in which decisions are made and work is performed within the organization o Ex. processes for formulating strategy, deciding how to allocate resources within a firm, evaluating the performance of managers and giving feedback o Conceptually distinct from the location of decision-making responsibilities within an organization o CEO might have ultimate responsibility for deciding the strategy of the firm (centralized), process they use might include the solicitation of ideas and criticism from lower level managers N Organizational culture norms and value systems that the employees of an organization share o Societies of individuals who come together to perform collective tasks o Have their own distinctive patterns of culture and subculture o Organizational culture can have a profound impact on how the firm performs N People not just the employees of the organization but also the strategy used to recruit, compensate and retain those individuals and the type of people they are in terms of their skills, values and orientation N Firms can choose proactive strategy hiring individuals whose internal values are consistent with those that the firm wants to emphasize, so the people component of architecture can be used to reinforce the prevailing culture or change it N To maximize profitability, firm must pay close attention to achieving internal consistency between the various components of its architecture Organizational Structure N 3 dimensions: o Vertical differentiation refers to the location of decision-making responsibilities within a structure o Horizontal differentiation refers to the formal division of the organization into subunits o Integrating mechanisms mechanisms for coordinating subunits Vertical Differentiation: Centralization and Decentralization N Vertical differentiation determines where in its hierarchy the decision-making power is concentrated www.notesolution.comN Arguments for Centralization: o Can facilitate coordination o Can help ensure that decisions are consistent with organizational objectives o Can give top-level managers the means to bring about needed major organizational changes o Can avoid the duplication of activities that occurs when various subunits within the organization carry on similar activities N Arguments for Decentralization: o Top management can become overburdened when decision-making authority is centralized, can result in poor decisions N Decentralization gives top managers time to focus on critical issues by delegating more routine issues to lower-level people o Motivational research favors decentralization N Behavioral scientists argue that people are willing to give more to their jobs when they have greater degree of individual freedom and control over their work o Permits greater flexibility more rapid response to environmental changes because decisions do not have to be referred up the hierarchy unless they are very significant o Can result in better decisions decisions are made closer to the spot by individuals who have better information than managers several levels up in a hierarchy o Can increase control can be used to establish relatively autonomous, self-contained subunits within an organization, and subunit managers can be held accountable for subunit performance N The more responsibility subunit managers have for decisions that impact performance, the fewer excuses they have for poor performance N Strategy and Centralization in an International Business o Often makes sense to centralize some decisions and decentralize others, depending on the type of 0.L8L43,39K01L728897,90J N Decisions regarding overall strategy, major financial expenditures, financial objectives and legal issues are typically centralized at headquarters N Operating decisions such as those relating to production, marketing, R&D, and HR may or 2,349-0.0397,OL]00503L3J439K01L728897,90J o Firms pursuing a global standardization strategy must decide how to disperse various value creation activities around the globe so location and experience economies can be realized, head office must make decisions about where to locate, must coordinate the globally dispersed web of value creation activities and this creates pressure for centralizing some operating decisions o Sometimes, local responsiveness is key strong pressures for decentralizing operating decisions to foreign subsidiaries o Firms pursuing an international strategy also tend to maintain centralized control over their core competency and to decentralize other decisions to foreign subsidiaries o Firms pursuing a transnational strategy is more complex need to realize location and experience curve economies requires some degree of centralization, however the need for local responsiveness dictates the decentralization of many operating decisions, particularly for marketing N In these firms, some decisions are centralized while others are decentralized N High degree of decentralization is required if subsidiaries are to have the freedom to learn from foreign markets and develop their own skills and competencies Horizontal Differentiation: The Design of Structure N Horizontal differentiation is concerned with how the firm decides to divide itself into subunits N The decision is normally made on the basis of function, type of business, or geographical area N In some simpler cases, one of these areas is the dominant form of organizing the company N In the case of multinational firms, where conflicting demands to organize the company around different products and different national markets must be reconciled, more complex solutions are adopted N The Structure of Domestic Firms; o Most begin with no formal structure and are run by a single entrepreneur or small team o As they grow, demands of management become too great for this small group, organization is split into 1:3.9L438701O0.9L3J9K01L728;,O:0.70,9L43,.9L;L9L08 0[ 574:.9L432,7N09L3J# 8,O0809. o Top management usually coordinates and controls these functions, decision making tends to be centralized o Further horizontal differentiation may be required if the firm significantly diversifies its product offering, which takes the firm into different business areas Ex. Phillips started out as light bulbs, then consumer electronics, industrial electronics, medical systems In this case, functional structure can be too clumsy, problems of coordination and control arise, so most firms will switch to a product divisional structure www.notesolution.com
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