Organization arquitecture
The totality of a
firm's organization
, including formal organization structure, control systems and incentives, processes, organizational culture, and people.
Three conditions to superior enterprise profitability
- The different
elements
of a firm's organizational architecture must be
internally consistent.
- Strategy and architecture must be consistent
- They also must make sense given the competitive conditions prevailing in the firm's markets-
strategy, archite
Organizational architecture comprises (3)
- The
formal division
of the organization
into subunits
such as product divisions, national operations, and functions
- The
location of decision-making
responsibilities within that structure.
- The
establishment of integrating mechanisms to coordinate the
Control systems
the
metrics used to measure the performance
of subunits and
make judgments
about how well managers are running those subunits.
Incentives
are
very closely tied
to performance metrics
Processes
the
manner in which decisions are made
and
work is performed
within the organization.
Organizational culture
the
norms and value systems
that are
shared
among the employees of an organization.
Organizations
societies of individuals
who come together to
perform collective tasks
. They have their own distinctive patterns of culture and subculture.
Vertical diferentiation determines
where in the hierarchy the decision-making power is concentrated.
Arguments for centralization
- It can
facilitate coordination.
- It can help
ensure that decisions are consistent
with organizational
objectives
.
- By concentrating power and authority in one individual or a management team, centralization can
give top-level managers the means
to br
Arguments for decentralization
- It gives top management time to
focus on critical issues
by
delegating more routine
issues to lower-level managers.
- Behavioral scientists have long argued that
people are willing to give more
to their jobs when they have a
greater degree of individual
Strategy and centralization in an international business
Frequently it makes sense to
centralize some decisions and to decentralize others
, depending on the type of decision and the firm's
strategy
.
Firms with global standardization strategy...
They must
decide how to disperse the various value creation activities
around the globe so location and experience economies can be realized.
Operating decisions are centralized
Firms with localization strategy...
The emphasis on local responsiveness in firms pursuing a localization strategy creates
strong pressures for decentralizing
operating decisions to foreign subsidiaries.
Firms with international strategy...
Firms pursuing an international strategy also tend to
maintain centralized control over their core competency
and to decentralize other decisions to foreign subsidiaries.
Firms with transnational strategy...
Firms pursuing a transnational strategy, some operating decisions are relatively centralized, while others are relatively decentralized.
Horizontal differentiation is concerned with
how the firm
decides to divide
itself into subunits. The decision is normally made on the basis of
function, type of business, or geographical area.
The strcuture of domestic firms
the organization is
split into functions
reflecting the firm's
value creation activities
(e.g., production, marketing, R&D, sales). These functions are typically
coordinated and controlled by top management
. Decision making in this functional structure t
When does the firm switch to a
product divisional structure
?
When the firm significantly
diversifies its product offering
, which takes the firm into
different business areas.
In such circumstances, a functional structure can be too clumsy . To solve the
problems of coordination and control
, at this stage most fir
When firms initially expand abroad...
they often
group all their international activities
into an
international division.
For firms with a functional/divisional structure at home,
this might mean replicating the functional/divisional structure in every country
in which the firm does business.
Problems created by the dual structure
- The
heads of foreign subsidiaries are not given as much voice in the organization
as the heads of domestic functions or divisions. Rather, the head of the international division is presumed to be able to represent the interests of all countries to headq
Worldwide area structure
The world is divided into geographic areas.
An area may be a country or a group of countries
. Each area tends to be a
self-contained, largely autonomous entity with its own set of value creation activities.
A worldwide area structure tends to be favored
Advantage of worldwide area structure
It facilitates local responsiveness.
Disadvantage of worldwide area structure
It
encourages fragmentation
of the organization
into highly autonomous entities
. This can make it
difficult to transfer core competencies and skills
between areas and to realize
location and experience curve economies
.
Worldwide area structure is appropiate when
the firm is pursuing a localization strategy
Worldwide product divisional structure
Each division is a self contained, largely autonomous entity with
full responsibility for its own value creation activities.
The
headquarters retains responsibility for the overall strategic development and financial control
of the firm.
Advantage worldwide product divisional structure
It provides an organizational context that
enhances the consolidation of value creation activities at key locations
necessary for realizing location and experience curve economies.
It also
facilitates the transfer of core competencies
within a division's
Problem with worldwide product divisional structure
the
limited voice it gives to area or country managers
, since they are seen as subservient to product division managers.
Worldwide product divisional structure is appropiate
the limited voice it gives to area or country managers, since they are seen as subservient to product division managers.
Global matrix structure
Horizontal differentiation proceeds along
two dimensions: product division and geographic area.
The philosophy is that
responsibility for operating decisions
pertaining to a particular product
should be shared by the product division and the various areas
Problem with global matriz structure
It is
clumsy and bureaucratic.
It can lead to
conflict and perpetual power struggles
between the areas and the product divisions, catching many managers in the middle.
It can prove
difficult to ascertain accountability
in this structure.
Strategy and Coordination in the International Business
The need for coordination is
lowest in firms pursuing a localization strategy
, is
higher in international companies
,
higher still in global companies
, and
highest of all in transnational companies
. The need for coordination is
also great in firms tryi
Impedimients to coordination
Managers
of the various subunits
have different orientations
, partly because they have different tasks. These differences can
inhibit communication
between the managers.
Differences in subunits' orientations
also arise from their differing goals. These d
Formal integrating mechanisms
-
Direct contact between subunit managers
is the simplest integrating mechanism. Direct contact may not be effective if the managers have differing orientations that act to impede coordination.
- Liaison roles are a bit more complex. When the volume of co
Informal integrating mechanism
Knoledge network.
Appropiate for companies with a high need of integration.
Knowledge network
network for transmitting information
within an organization that is
based on informal contacts
between managers within an enterprise and on distributed information systems.
For a knowledge network to work effectively, it is necessary...
to
embrace as many managers as possible
. Also, managers must
share a strong commitment to the same goals.
Techniques to establish networks
information systems and management development policies
Types of control systems
Personal
Bureaucratic
Output
Cultural
Personal controls
It is control by
personal contact with subordinates.
It tends to be most
widely used in small firms
, where it is seen in the direct supervision of subordinates' actions. However, it also
structures the relationships between managers
at different levels i
Bureaucratic controls
control through a
system of rules and procedures that directs the actions of subunits.
The most important bureaucratic controls in subunits within multinational firms are
budgets and capital spending rules.
Budgets
control through a
system of rules and procedures that directs the actions of subunits.
The most important bureaucratic controls in subunits within multinational firms are
budgets and capital spending rules.
Capital spending rules
require headquarters management to approve any capital expenditure by a subunit that exceeds a certain amount.
Output controls
Involve
setting goals for subunits to achieve.
If goals are met or exceeded, subunit managers will be rewarded. If goals are not met, top management will normally intervene to find out why and take appropriate corrective action.
Cultural controls
It exist when
employees "buy into" the norms and value systems of the firm.
When this occurs,
employees tend to control their own behavior
, which reduces the need for direct supervision.
Incentive systems
Incentives refer to the
devices used to reward appropriate employee behavior.
Many employees receive incentives in the form of annual bonus pay. Incentives are
usually closely tied to the performance metrics used for output controls.
In incentive systems, it is important...
- The incentives used must be matched to the type of work being performed.
- The successful execution of strategy in the multinational firm often requires significant
cooperation between managers in different subunits
. One way of encouraging the managers
Performance ambiguity
exists
when the causes of a subunit's poor performance are not clear
. This is
common when a subunit's performance is partly dependent on the performance of other subunits.
For this reason, to find the problem is need to expend a lot of money, so performa
Strategy, interdependece and ambiguity
- In firms pursuing a
localization strategy
, each national operation is a stand-alone entity and can be judged on its own merits. The level of
performance ambiguity is low
.
- In an international firm, the
level of interdependence is somewhat higher
. In
Cost of control
the
amount of time
top management must devote to
monitoring and evaluating subunits' performance.
This is greater when the amount of performance ambiguity is greater.
Efficient and effective processes
They
Flow chart
...
it is particularly important for a multinational enterprise to recognize
...
Values
abstract ideas
about what a group believes to be good, right, and desirable.
Norms
the
social rules and guidelines
that prescribe
appropriate behavior
in particular situations.
Sources of an organization's culture
-
Founders or important leaders
can have a profound impact on an organization's culture, often imprinting their own values on the culture.
- The
broader social culture of the nation
where the firm was founded.
- The
history
of the enterprise
-
Decisions
t
Mechanisms to maintain culture
-
Hiring and promotional practices of the organization
: The goal is to
recruit people whose values are consistent
with those of the company.
-
Reward
strategies
-
Socialization processes
: Formal or informal
-
Communication strategy:
Many companies with
Strong culture
almost all
managers share a relatively consistent set of values and norms
that have a clear impact on the way work is performed. New employees adopt these values very quickly, and employees that do not fit in with the core values tend to leave. In such a
About a strong culture...
- Strong does not necessarily mean good. A culture can be strong but bad. Ex: Nazi.
- Nor does it follow that a strong culture leads to high performance. A strong culture might be beneficial at one point, leading to high performance, but inappropriate at
Solutions to stablish culture in foreign subsidiaries
- To establish
new subsidiaries,
- To
devote a lot of time and attention
to transmitting the firm's organizational culture to its foreign operations.
- To recognize that
it may be necessary to change some aspects
of a firm's culture so that it better fits
As a conclusion, for a firm to succeed ...
- The firm's strategy must be
consistent with the environment
in which the firm operates.
- The firm's
organization architecture must be consistent with its strategy.
Sources of inertia forces
- Most substantive changes in an organization require a
change in structure
and, by extension, a
change in the distribution of power and influence within the organization.
- The
existing culture
, as expressed in norms and value systems.
- Senior
managers
Implementing organizational change
Unfreeze the organization
Moving to a new state
Refreeze the organization
Unfreeze the organization
Through shock therapy. It is important to realize that change will not occur unless senior managers are committed to it.
Moving to a new statate
through proactive
change in the architecture.
For movement to be successful,
it must be done with sufficient speed.
Refreeze the organization
in its new state. Refreezing the organization takes longer.