Organization Structure and Control System

1 January 2017

MNC,but many firms do not follow the stages model because they start their internationalization at a higher level of involvement ,perhaps a full-blown global joint venture without ever having exported for example,even mature MNC’s must make structural changes sometimes for example the reorganization of Aluminum Company of America(Alcoa) for example split the company into smaller,more autonomous units,thereby giving more focus to growing businesses such as automotive products where the market of aluminum is strong.

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The typical ways in which firms organize their international activities are shown in the following list: -Domestic structure plus export department: Many firms especially smaller ones start their international involvement by exporting,they may reorganize into a simple domestic structure plus export department. -Domestic structure plus foreign subsidiary: Some firms take a further step toward world wide operations by reorganizing into a domestic structure plus foreign subsidiary,this structure works well for companies with one or a few subsidiaries located relatively close to headquarters. -International division:

With market expansion the firm may then decide to specialize by creating an international division,organized along functional,product,or geographic lines. -Global functional structure: To respond to increased product diversification and to maximize benefitsfrom both domestic and foreign operations ,a firm may choose to replace its international division with an integrated global structure. -Global product structure: For companies with diversified product or service lines and that are aimed at dissimilar or dispersed markets, a global product (divisional) structure may be more strategically advantageous than a functional structure.

In this structure, a single product or product line has its own separate division, headed by its own general manager, and which is responsible for its own production and sales functions. Often each division is a strategic business unit (SBU) or a self-contained business with its own functional departments and accounting systems. -Matrix structure: The structure is developed to combine geographic support for both global integration and local responsiveness,also it can be used to take advantage of personnel skills and experience shared across both functional and divisional structures.

In the matrix structure the lines of responsibility are drawn both vertically and horizontally. * Organizing For Globalization A firm’s structural choices always involve two opposing forces: the need for differentiation (focusing on and specializing in specific markets) and the need for integration (coordinating those same markets). The way a firm is organized along the differentiation-integration continuum determines how well strategies, along the localization-globalization continuum, are implemented. A globalization strategy treats the world as one market by using a standardized approach to products and markets.

IBM is an example of a company reorganizing to achieve globalization. They are moving away from a geographic structure toward the use of centralized industry expert teams. A globalization strategy usually involves rationalization and the development of strategic alliances. To achieve rationalization, managers must choose the manufacturing location for each product based on where the best combination of cost, quality, and technology can be attained. This means different parts and components are often produced in different countries and that product design and marketing are essentially the same in all markets.

As such, differentiation and specialization in local markets is minimized. Another risk associated with globalization is exposure to volatility from all corners of the globe. In their rush to get on the globalization bandwagon,many firms hsve sacrified the ability to respond to local market structures and consumer preferences. Managers are now realizing that depending on the type of products,markets,and so forth-a compromise must be made along the globalization-regionalization continuum,and they are experimenting with various structural configurations to “be global and act local”

Levi Strauss is an example of a company attempting to maximize the advantage of different structural configurations. Levi Strauss gives foreign managers freedom to adjust their tactics to meet the changing tastes of their home markets. Additionally, although the company maintains centralized control of some aspects of the business, it decentralizes control to its foreign subsidiaries. The subsidiaries are supplied by a global manufacturing network. As such, Levi Strauss achieves local coordination and the flexibility to respond to ever-changing fashion trends and fads in denim shading.

Procter & Gamble a well known global consumer products company is succeeding with its global-local four pillars structure. In January 2006, Gillette India announced merger plans with Proctor and Gamble (P&G) India. Even though it would remain a separate legal entity, Gillette intended to take P&G’s structure as a means of increasing reach, cost efficiencies, speed to market, and growth momentum. P&G’s structure is divided into three heads: GBU(Global business units), MDO(Market development organizations), GBS(Global business services).

Gillette will move form business units based on geographic regions to GBUs based on product lines. MDOs will develop market strategies to build business based on local knowledge. GBS will bring together business activities such as accounting, human resource systems, order management, and information technology. P&G is the only consumer products company with global shared services, all supported by innovative corporate functions. Companies are increasingly abandoning rigid structures in an attempt to be more flexible and responsive to the dynamic global environment.

Some of the ways they are adabting are by transitioning to formats known as: -Interorganizational Networks: MNC linkages with different companies, subsidiaries, suppliers, and individuals result in relational networks. These networks may adopt very different structures of their own because they operate in different local contexts within their own national environment. -The Global E-Corporation Network Structure: The organizational structure for global e-business ,in particular for physical products,typically involves a network of virtual e-exchanges and “bricks and mortar” services.

Such a structure combines some global and some local functions. Centralized e-exchanges for logistics,supplies,and customers could be housed anywhere,suppliers manufacturers, and distributors may be in various countries, separately or together, wherever efficiencies of scale and cost may be realized. The final distribution system and customer interaction must be tailored to the customer-location physical infrastructure and payment infrastructure, as well as local regulations and languages. The end result should be efficiency and cost effectiveness throughout the chain.

Dell is an example of a company that uses the global e-corporation network structure. -The Transnational Corporation (TNC) Network Structure: To address the globalization-localization dilemma,firms that have evolved through the multinational form and the global company seek the advantages of horizontal organization in the pursuit of transnational capability-that is the ability to manage across national boundaries,retaining flexibility while achieving global integration. This capability involves linking foreign operations to each other and to headquartes in a flexible way,thereby leveraging local and central capabilities. Choice Of Organizational Form Two major issues in choosing the structure and design of an organization are the opportunities and need for (1) globalization and (2) localization. As the company progresses through various stages from domestic to transnational the organizational structure must be adapted to accommodate changes in relative focus on globalization versus localization, choosing a global product structure, a geographic area structure, or perhaps a matrix form. Signs of organizational inefficiency or any major organizational change usually indicate the organizational structure must change as well.

However ,other,less obvious indications of organizational inefficiency also signal a need for structural changes: Conflicts between overseas units and headquarters staff,conflicts among divisions and subsdiaries over territories or customers,complaints regarding over seas customer service,and overlapping responsabilities,a change in the size of corporation,a change I key individuals,a failure to meet goals,an inability to get things done on time,a shift in the operational scope,duplication of administrative personnel and services…..

The best organizational structure is the one that facilitates the firm’s goals and is appropriate to its industry,size,technology,and competitive environment. Idelly a company tries to organize in a way that will allow it to carry out its strategic goals,the staffing is then done to mesh with those strategic goals and the way the organizational structure has been set up. In reality, though, the result is likely to be trade-off between the desired strategy and existing constraints. * Control Systems For Global Operations

To complement the organizational structure,the international managers must design efficient coordinating and reporting systems to ensure that actual performance conforms to expected organizational standards and goals. The design and application of coordinating and reporting systems for foreign subsdiaries and activities can take any form that management wishes. MNC’s usually emply a variety of direct and indirect coordinating and control mechanisms suitable for their organization structure. -Direct Coordinating Mechanisms:

Direct mechanisms that provide the basis for the overall guidance and management of foreign operations include the design of apopropriate structures and the use of effective staffing practices. They proactively set the stage for operations to meet goals, rather than troubleshooting problems after they occur. When McDonald’s first opened in Moscow in 1990, they anticipated their biggest challenge would be quality control of food products. In response to this challenge, they adopted a strategy of vertical integration for sourcing raw materials and built a large plant in Moscow to process beef, milk, buns, vegetables, sauces, and potatoes.

The company also sent Russian managers for five months of training in Canada. Other direct mechanisms are visits by head-office personnel and regular meetings to allow employees around the world to consult and troubleshoot. -Indirect Coordinating Mechanisms: Indirect coordinating mechanisms include sales quotas,budgets,and other financial tools as well as feedback reports,which give information about the sales and financial performance of the s,which give information about the sales and financial performance of the subsidiary for the last quarter of year. Managing Effective Monitoring Systems Management practices, local constraints, and expectations regarding authority, time, and communication are some of the variables likely to affect the appropriateness of monitoring (or control) systems. The degree to which headquarters’ practices and goals are transferable may depend on whether top managers are from the head office, the host country, or a third country. Information systems and evaluation variables must all be considered when deciding on appropriate systems.

Research by Ueno and Sekaran indicates that individualism may lead US managers to use more formal communication and coordination processes, whereas Japanese managers may be more likely to use informal and implicit processes. Likewise, because US managers are often evaluated on individual performance, they are more likely than their Japanese counterparts to build slack into budget calculations. Reporting systems require sophisticated information systems to enable them to work properly.

Managers must receive accurate and timely information about sales, production, and financial results to be able to compare actual performance with goals and take corrective action when necessary. Research by Neghandi and Welge indicates that US companies use far more specific functional reports than do German or Japanese MNCs. Accuracy and timeliness of informational systems are often imperfect—especially in less developed countries. Problems may stem from false information provided by governments, differences in work norms, and inadequate technology.

An additional problem is the difficulty of comparing performance data across various countries because of the variables that make that information appear different—which hinders the evaluation process. To combat some of these problems, some companies are taking advantage of the Internet to create Internet MIS systems for supply-chain management. It can be difficult to evaluate the performance of foreign affiliates because performance data is not necessarily comparable across countries. For example, factors like considerable inflation, which is beyond the manager’s ontrol, can have a downward effect on profitability. It is possible, though, that this manager may have done more to maximize opportunities for long-term profitability relative to a manager in a country with less inflation problems. One way to ensure meaningful comparison is to adjust financial statements for uncontrollable variables particular to each country where a subsidiary is located. Another way is to take nonfinancial measures into account. These include market share, productivity, sales, relations with the host country government, public image, employee morale, union relations, and community involvement.

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