AJAGEB.

15
Organization and Control in International Operations
 Organization design (structure) is the overall pattern
of structural components and configurations used to manage
an organization as a whole.

It is the basic vehicle through which strategy is ultimately

implemented and the objectives of the organization
accomplished.
For Example:

Firm uses its structure to:

Allocate resources; hire, assign and fire employees; set
rules, procedures, and expectations about job performances;
reward or punish employees; manage input and output
decisions; collect and transmit information for problem
solving and decision making.
 There is no one best way to design an organization.
Managers must carefully assess the situation and
context and then adopt an appropriate design.

 Certain key elements determine the appropriate

design for a given organization.
These include:
 Size
 Strategy
 Technology
 Environment
 Culture
 Evolution of a Global Organization:
Typically, a MNC evolves from a local firm, to a regional
firm, to a national firm, and finally a global firm.
 In country after country, entrepreneurs typically start new
firms in response to some perceived need in the local
market.
As a domestic firm expands it begins international
operations frequently through passive then active
exporting (importing).
Then the firm evolves from a mainly domestic
oriented with international operations to a true
multinational corporation with global orientation.
 Thus the design of the firm changes to first accommodate
an export department, then an international division and
finally graduating to a global design.
 The five basic (most common) forms of global
organization design are :

PRODUCT.
 AREA (Geographic).
 FUNCTIONAL.
 CUSTOMER.
 MATRIX.
 Global Product Design
The product design is the most common form of
organization design adopted by MNCs.
 It assigns worldwide responsibility for specific products
or product groups to separate operating divisions within
a firm. Works best when firm
has diverse product lines or when its product lines are
sold in diverse markets.
The need for coordination between
product lines is relatively unimportant.

 Example: Daimler-Benz; Philip Morris,

See Exhibit.
 Advantages:
– The focus on a product or product group permits
division managers to gain expertise in all aspects of
a product.
– Extensive product knowledge permits managers to
incorporate new technologies into their product and
respond quickly to changes.
– Mangers able to better coordinate production at
their various facilitates worldwide.
– facilitates efficiencies in production
– facilitates global marketing
– facilitates geocentric corporate philosophy
 Disadvantages:
– May result in expensive duplications within the
firm
– Makes coordination and corporate learning across
product lines more difficult.
 Global Area Design
 The global area (geographic) design organizes the
firm’s activities around specific areas or regions of
the world.
Useful for firms with a polycentric corporate
philosophy, and firms whose products are not
readily transferable across regions because of
differences in languages, cultures, standards...
 Examples: Bertelsmann AG, one of the world’s
largest media firm (publishes newspapers and
magazines, and records music and video
materials); Cadbury Schweppes PLC, a soft
drink and candy firm.
 Advantages:
The firm is able to develop expertise about the
local market and managers can quickly adapt the
firms products to meet local needs.
 Disadvantages:
– By focusing on an area, the firm may sacrifice cost
efficiencies of global production.
– Diffusion of technology within the firm may be
impaired.
– May result in duplication of resources as each area
division retains its own functional specialists,
product experts and production facilities.
– Makes coordination across areas difficult.
 Global Functional Design
 In a global functional design, firm creates divisions
that have worldwide responsibility for the common
organizational functions - Finance, Operations,
Marketing, R&D, and Human Resources
Management.

 Used by MNCs that have relatively narrow or similar

product lines.

 Example: The British Airways.

 Advantages:
– Ease of transfer of expertise within each functional
area.
– Managers able to maintain highly centralized
control over functional operations.
 Disadvantages:
– It is practical only when firm has relatively few
products or customers.
– Coordination may be a problem between divisions.
 Global Customer Design
 The global customer design is used when a firm
serves different customers each with specific needs
calling for special expertise or attention.
 Example(s): NEC, Japan’s largest manufacturer and
supplier of telecommunications equipment uses the
global customer design for its marketing operations;
Bridgestone Corporation Manufacturer of tires, has
one division each for automobile manufacturers,
individual customers, and agricultural users.
(See Exhibit )
 The global customer design may result in significant
duplication of resources.
 Global Matrix Design
 The global matrix design is the most complex
form of international organization design matrix
organization integrates the various standard
designs discussed.
A manager in a matrix design may have functional,
product, and resource managers reporting to him.
It is based on team building and multiple commands.
 Examples: Dow Chemical, Eastman Kodak.
See Exhibit
 Advantages:
– Helps to bring together functional, area and product
expertise of the firm into teams that develop new
products or respond to new challenges.
– Promotes organizational flexibility, coordination,
cooperation, and communication.
 Disadvantages
– Often put employees in the position of being
accountable to multiple managers- caught between
competing sets of demands and pressures.
– Tends to promote compromises or decisions based on
the relative political clout of the managers involved.
 In some cases mixed or hybrid organization designs are
adopted.
 Control
 Control focuses on the means to verify and correct
actions that differ from established norms.

 Compliance needs to be secured from

subordinates through different means of
coordinating specialized and interdependent parts
of the organization.

 Control serves as an integrating mechanism -

designed to reduce uncertainty and increase
predictability.
 Types of Controls.
In the design of the control systems, two major objects
are typically identified - OUTPUT & BEHAVIOR.
 Output controls consist of balance sheets, sales data,
production data, product-line growth, or performance
review of personnel.
Measures of output are collected at regular intervals and
forwarded to the HQ, where they are evaluated and
critiqued based on comparisons with the plan or budget.
 Behavior controls require exertion of influence over
behavior after or before it leads to action.
This can be achieved through preparation of manuals on
such topics as sales techniques, dress code or code of
conduct, use of company property,
 Instruments of Control:
Two general alternatives are:

 Bureaucratic/Formalized Control: Consists of a

limited and explicit set of regulations and rules that
outline the desired levels of performance.

 Cultural Controls: Are much less formal and are the

results of shared beliefs and expectations among
members of an organization.
 Elements of bureaucratic control systems are :
Budget and planning systems, functional reporting
systems, policy manuals or handbooks.
While plans typically carry more than one-
year horizon, the budgetary period is typically one
year.

 The budget system is used for:

 allocation of funds among subsidiaries
 planning and coordination of global production
and supplies
 evaluation of subsidiary performance
 communication and information exchange
Functional reports are another control instrument for
managing subsidiary relations:

Elements of functional reports include:

Balance sheet; profit and loss statements;
production output; market share; cash and credit
statements; inventory levels; sales per product;
performance review of personnel; and report on
local economic and political conditions.
On behavioral front, US-based MNC, in particular,
tend to rely on manuals on major functions - e.g.
recruitment, training, motivation, & dismissal
policies.
 Cultural controls require extensive socialization
process to which informal, personal interaction is
central.

 Extensive training of personnel to share corporate

cultures - variously described as “Organization
Cohesion Training”, “Indoctrination”, etc.

 Management training programs for overseas

managers as well as time at HQ will indoctrinate
individuals as to company’s ways of doing things !