Managing Integration, Responsiveness, and Flexibility
Beyond structural fit
The choice of org structure will have powerful influence on the management process in an MNE.
? ‘Stage Model’– John Stopford’s research on 187 largest US MNEs
1) International divisions; 2) Area structure; 3) Worldwide product
division structure 4) Global matrix
? Failure of Matrix
? In theory, the matrix should have worked:
Enabled companies to maintain a balance among centralized efficiency, local responsiveness, and worldwide knowledge transfer.
The multiple channels of communication and control promised the ability to nurture diverse management perspectives, and more flexibility.
? In reality,
The matrix amplified the differences in perspectives and interests and even a minor difference could become the subject of the heated disagreement and debate.
Dual reporting led to conflict and confusion on many levels: e.g. Dow Chemical – pioneer of the global matrix structure, eventually returned to a more conventional structure with clear lines of responsibility;
e.g. Citibank, discarded this mode after a few yrs of highly publicized experimentation.
e.g. Philips’ PD & NO Matrix structure made it slow to response to the market change, which is mainly due to the complexity and ambiguous relationship that lies in the matrix structure.
Building org capability
The basic prob for companies search for a structural fit was that it focused on only one org variable – formal structure, unequal to the job of capturing the complexity of the strategic tasks facing most MNEs.
? Forces managers to ignore the multidimensionality of the
environmental forces when they made choices between products-versus geographically based structures.
? Structure defined a static set of roles, responsibilities and
relationships in a task environment that was dynamic and rapidly evolving;
? Restructuring efforts often proved harmful, as org were bludgeoned
into a major realignment of roles, responsibilities and relationships by overnight changes in structure.
? Managers are recognizing that formal structure is a powerful but blunt
instrument of strategic changes. Structural fit is becoming both less
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relevant and harder to achieve.
Administrative heritage – org history and management culture which have influence on the org
Administrative heritage can be one of the company’s greatest assets – the underlying source of its core competencies – and a significant liability, because it resists change and thereby prevents realignment.
? Decentralized federation – multinational strategy, European company
Rising tariffs and discriminatory legislation, forced to build local production facilities to meet widely differing local mkt needs and to compete effectively with local competitors; Transportation and communication barriers, increasing independence of subsidiary, limiting headquarters’ ability to intervene. An internal culture that emphasized personal relationships rather than formal structures, financial controls more than coordination of technical or operation detail, which reinforce companies’ willingness to delegate more operating independence and strategic freedom to them. Subsidiaries were often managed more as a portfolio of offshore investments rather than a single international biz.
Transnational challenge: subsidiaries can respond to local needs but fragmentation leads to inefficiency. Learning also suffers, as knowledge is not consolidated and does not flow among the various parts of the company. As a result, local innovations often represent little more than the efforts of subsidiary mng to protect its turf and autonomy or reinventions of the wheel caused by blocked communications or the not-invented –here syndrome.
? Coordinated federation – international strategy, American company
The strength lies in the new tek and mng processes, so the international expansion focused on leveraging this strength.
The mng approach was built on a willingness to delegate responsibilities while retaining overall control through sophisticated mng systems and specialist corporate staffs. The system provided channels for a regular flow of info to be interpreted by the central staff and used by top mng for coordination and control.
Subsidiaries dependence on the parent company for new products, processes, and ideas. In addition, it viewed foreign operations as appendages whose principal purpose was to leverage the capabilities and resources developed in the home mkt.
Transnational challenge: was able to leverage the knowledge and capabilities of the parent company, but its resources configuration and operating systems make it less efficient than the global company and less responsive than the multinational company.
? Centralized hub – global strategy, mostly adopted by Japanese com.
Greatly altered external environment and operated with very different internal norms and values, trade barriers declined.
Incentive to develop a competitive advantage at the upstream end of
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the value-added chain emphasized cost advantages and quality assurance, demanding tight control over product development, procurement and manufacturing.
Transnational challenge: Resources and capabilities consolidated at the center, companies achieve efficiency primarily by exploiting potential scale economies in all its activities. However, national subsidiaries’ lack of resources and responsibilities may undermine their motivation and ability to respond to local mkt needs, whereas central groups often lack adequate understanding of mkt needs and production realities outside their home mkt.
The transnational org
1) Multidimensional perspectives
To create the ability to sense and analyze the numerous and often conflicting opportunities, pressures and demands it faces worldwide. Strong national subsidiary mng is needed to sense and represent the changing needs of local consumers and the increasing pressures form host gov;
Capable global biz mng is required to track the strategy of global competitors and provide the coordination necessary to respond appropriately;
Influential worldwide functional mng is needed to concentrate corporate knowledge, info and expertise and facilitate their transfer among org units.
2) Distributed, interdependent capabilities
? Transnational org mng ensures the viable national units achieve
global scale by specializing their activities and giving them the responsibility of becoming the company’s world source for a given product or expertise.
? By securing the cooperation and involvement of each national units,
they tap into important tek advances and mkt developments wherever they are occurring around the globe.
? Consequently, the interdependence of worldwide units automatically
increases. The structure here is called ‘integrated network configuration’, where mng regards each of the worldwide units as a source of ideas, skills, capabilities and knowledge that can be harnessed for the benefit of the total org.
3) Flexible integrate process
? The transnational org requires a mng process that can resolve the
diversity of interests and perspectives and integrate the dispersed assets and resources. Thus, mng must be able to differentiate its operating relationships and change its decision-making roles by function, across biz, among geographic units and over time.
Org change
To be effective, change in an org’s anatomy (the formal structure of its assets, 3
resources and responsibilities) must be complemented by adaptations to its physiology (org’s systems and decision processes) and its psychology (org’s culture and mng mentality). ? Structuring the org anatomy
1. Define the structure and responsibilities of all mng groups
2. Ensure that those without line authority have appropriate access to
and influence in the mainstream mng process.
? Building the org physiology
Org physiology is the info flow, the communication channels through which the org’s decision-making process operates.
In the integrated network configuration, task complexity and uncertainty are very high, which requires large volumes of complex info to be gathered, exchanged, and processed. Companies are forced to look beyond their traditional tools and conventional systems.
? Developing the org psychology
International operated companies’ employees come from a variety of different national backgrounds and shared mng understanding is often a much more powerful tool than formal structure and systems for coordinating diverse activities.
Tools and techniques that can affect an org’s psychology: 1) Company’s mission and objectives.
2) The visible behavior and public actions of senior mng.
3) Nested in the company’s personnel policies, practices and
systems.
Managing the Process of Change 1) The traditional change process
? Change in formal structure and responsibilities (Anatomy)→change in
interpersonal relationship and processes (Physiology)→change in individual attitudes and mentalities (Psychology)
? Disadvantages: lose sight of the real organization behind the boxes and
lines on the chart. There will be a high cost by altering the formal structure. Time consuming to define new relationship and develop new individual attitudes and behaviors.
2) The emerging change process
? Change in individual attitudes and mentalities ?change in interpersonal
r/p and processes ? change in formal structure and responsibilities
e.g. European and Japanese companies use personnel assignment as an important mechanism of organizational change to forge interpersonal links, build organizational cohesion and develop policy consistency.
? Although the more gradual change process is much less
organizationally traumatic, a radical restructuring may be necessary to achieve rapid and sweeping change.
e.g. Philips’ PD & NO Matrix structure made it slow to response to the
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market change, which is mainly due to the complexity and ambiguous relationship that lies in the matrix structure. In order to solve this prob, Philips has carried out several restructuring schemes from 1970s till 2001. However, the overall results are not with most of the reorganization project presenting unpleasant outcomes. This major reason is that Phillips simply change its formal structure without any considerations about the ppl involved and not enough considerations in the process and mentality.
Philips
Founded in 1892 for the light-bulb biz in Holland, Philips one of the largest light-bulb producer in the world. Started internationalization in 1899, Philips built its international success on a worldwide portfolio of responsive national org. Largely due to the WWII, the structure of Philips become decentralized and the NOs was given high autonomous, which eventually formed a matrix structure with the previously product divisions.
However, Philips’ PD & NO Matrix structure made it slow to response to the market change, which is mainly due to the complexity and ambiguous relationship that lies in the matrix structure. In order to solve this prob, Philips has carried out several restructuring schemes from 1970s till 2001. The overall results are not with most of the reorganization project presenting unpleasant outcomes. This major reason is that Phillips simply changes its formal structure without any considerations about the ppl involved and not enough considerations in the process and mentality.
Matsushita
Matsushita, established in 1918, based its global competitiveness on its centralized, highly efficient operations in Japan. In 1982, the growing host country’s pressure caused concern about the company’s highly centralized operations. Then the Matsushita’s four presidents carried out organizational change from 1990s to 2000s in order to make its operation more localized. However, the result is not pleasant and it even became one of targets for takeover in Japan.
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