International Business Ch. 14 Vocab/Ideas Flashcards Preview

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Flashcards in International Business Ch. 14 Vocab/Ideas Deck (38):

Organizational Architecture

  • The totality of a firm's organization, including:
    • formal organizational structure
    • control systems and incentives
    • processes
    • organizational culture
    • people.


Organizational Structure

  • The formal division of the organization into subunits.
  • The location of decision-making responsibilities within that structure
    • centralized vs. decentralized
  • The establishment of integrating mechanisms to coordinate the activities of subunits including cross-functional teams or pan-regional committee.
  • Goal is to balance how to achieve benefits of de-centralization, yet maintain benefits of integration and scale.


Control Systems

  • The metrics used to measure performance of subunits.



The device used to reward managerial behavior.



  • How decisions are made and work is performed within the organization.
  • The inputs and outputs of the organization
    • Goal is to avoid falling into routine so as to be able to spot room for improvement.
    • **Kaizen- Constant improvement.


Organizational Culture

Norms and values that are shared among the employees of an organization.



(within organizational architecture)

  • The employees and 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.


Vertical Differentiation

  • The location of decision-making responsibilities within a structure.
  • Determines where decision-making power is centralized.


Horizontal Differentiation

  • The formal division of the organization into sub-units.
    • usually based on function, type of business, or geographical area.


Integrating Mechanisms

The mechanisms for coordinating sub-units.


Centralized Decision-Making

  • facilitates coordination **most important**
  • ensures decisions are consistent with the organization's objectives
  • gives managers the means to bring about organizational change
  • avoids duplication of activities


Decentralized Decision-Making

  • relieves the burden of centralized decision-making
  • has been shown to motivate individuals
  • permits greater flexibility
  • can result in better decisions
  • can increase control


Functional Structure

  • Most firms begin with no formal structure, but as they grow they split into functions reflecting the firm's value creation activities.
  • functions are coordinated and controlled by top mgmt.
  • decision-making is centralized
  • product line diversification requires further horizontal differentiation.
  • A typical functional structure:


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Product Divisional Structure

  • each division is responsible for a distinct product line
  • headquarters retains control for the overall strategic direction of the firm and for the financial control of each division.
  • form of horizontal differentiation
  • Useful when you have many different products covering distict product lines/consumer needs, requiring differing technologies, production, operations, etc.
  • A Typical Product Divisional Structure:


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International Division

  • When firms expand they often group all of their international activities together
  • Over time manufacturing may shift to foreign markets
    • firms with a functional structure at home would replicate the functional structure in a foreign market.
    • firms with a divisional structure at home would replicate the divisional structure in a foreign market.
  • In either case, there is potential for conflict and coordination problems between domestic and foreign operations.
  • A Typical International Divisional Structure:


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Worldwide Product Divisional Structure

  • adopted by firms that are reasonably diversified.
  • allows for worldwide coordination of value creation activities of each product division.
  • helps realize location and experience curve economies
  • facilitates the transfer of core competencies
  • does not allow for local responsiveness
  • A Typical Worldwide Product Divisional Structure:



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Worldwide Area Structure

  • favored by firms with low degree of diversification and a domestic structure based on function
  • divides the world into autonomous geographic areas
  • decentralizes operational authority
  • facilitates local responsiveness
  • can result in a fragmentation of the organization
  • is consistent with localization strategy
  • A Typical Worldwide Area Structure:


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Global Matrix Structure

  • tries to minimize the limitations of the worldwide area structure and the worldwide product divisional structure
  • allows for differentiation along two dimensions
    • product division and geographic area.
  • has dual decision-making
    • product division and geographic area have equal responsibility for operating decisions
  • can be bureaucratic and slow
  • can result in conflict between areas and product divisions
  • can result in finger-pointing between divisions when something goes wrong
  • A Typical Global Matrix Structure:


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Knowledge Network

  • Network for transmitting information within and organization that is based not on formal organization structure, but on informal contacts between between managers within an enterprise and on distributed information systems.
    • a non-bureaucratic conduit for knowledge flows
    • must embrace as many managers as possible and managers must adhere to a common set of norms and values that override differing subunit orientations.


What Is Organizational Architecture?

  • To be most profitable:
    • the elements of the organizational architecture must be internally consistent.
    • the organizational architecture must fit the strategy.
    • the strategy and architecture must be consistent with each other, and consistent with competitive conditions.


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How Does Organizational Structure Change Over Time?

The International Structural Stages Model:


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Formal Integrating Mechanisms

Formal Integrating Mechanisms:



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A Simple Management Network:

A Simple Management Network:

Managers A, B, and C all know each other personally, as do managers D, E, and F. Although manager B does not know manager F personally, they are linked through common acquaintances (managers C and D). Thus, we can say that managers A through F are all part of the network, and also that manager G is not.
Imagine manager B is a marketing manager in Spain and needs to know the solution to a technical problem to better serve an important European customer. Manager F, an R&D manager in the United States, has the solution to manager B’s problem. Manager B mentions her problem to all of her contacts, including manager C, and asks if they know of anyone who might be able to provide a solution. Manager C asks manager D, who tells manager F, who then calls manager B with the solution.
In this way, coordination is achieved informally through the network, rather than by formal integrating mechanisms such as teams or a matrix structure.


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Personal Controls

  • Personal contact with subordinates
    • Most widely used in smaller firms.


Bureacratic Controls

  • A system of rules and procedures that directs the actions of subunits
    • budget and capital spending rules.


Output Controls

  • setting goals for subunits to achieve and expressing those goals in terms of objective performance measures.
    • compare actual performance against targets and intervene selectively to take corrective action.
    • Performance Goals


Cultural Controls

  • exist when employees "buy into" the norms and value systems of the firm.
    • strong culture implies less need for other forms of control.
  • Culture dictates policies and procedures.
    • i.e. mission statement, vision statement, etc...



  • devices used to reward behavior.
    • usually closely tied to performance metrics used for output controls.
    • should vary depending on the employee and the nature of the work being performed.
    • should promote cooperation between managers and sub-units.
    • should reflect national differences in institutions and culture.
    • can have unintended consequences.
  • Need to recognize cultural perspectives:
    • Collectivist vs. Individualistic cultures.
    • Could seem offensive to some cultures; Japan, China.....


Performance Ambiguity

  • exists when the causes of a subunit's poor performance are not clear.
    • is common when a subunit's performance is dependent on the performance of other subunits.
    • is lowest in firms with a localization strategy
    • is higher in international firms.
    • is still higher in firms with a global standardization strategy.
    • is highest in transnational firms.


What Is The Link Between Control, Incentives, And Strategy?

  • Interdependence, Performance Ambiguity, and the Costs of Control for the Four International Business Strategies:

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refer to the manner in which decisions are made and work is performed

- many processes cut across national boundaries as well as organizational boundaries

- processes can be developed anywhere within a firm’s global operations network

- formal and informal integrating mechanisms can help firms leverage processes


Orgainizational Culuture

the values and norms that employees are encouraged to follow

Evolves from:

-founders and important leaders
-national social culture
-the history of the enterprise
-decisions that resulted in high performance

Organizational culture can be maintained through:

-hiring and promotional practices
-reward strategies
-socialization processes
-communication strategies

*Organizational culture tends to change very slowly*


What Is The Link Between Strategy and Architecture?

A Synthesis of Strategy, Structure, and Control Systems:


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Localization Strategy

focus on local responsiveness

-they do not have a high need for integrating mechanisms

-performance ambiguity and the cost of control tend to be low

-the worldwide area structure is common


International Strategy

firms create value by transferring core competencies from home to foreign subsidiaries

-the need for control is moderate

-the need for integrating mechanisms is moderate

-performance ambiguity is relatively low and so is the cost of control 

-the worldwide product division structure is common


Global Standardization Strategy

firms focus on the realization of location and experience curve economies

-headquarters maintains control over most decisions

-the need for integrating mechanisms is high

-strong organizational cultures are encouraged

-the worldwide product division is common



Transnational Strategy

focus on simultaneously attaining location and experience curve economies, local responsiveness, and global learning

-some decisions are centralized and others are decentralized

-the need for coordination and cost of control is high

-an array of formal and informal integrating mechanism are used

-a strong culture is encouraged

-matrix structures are common


To implement organizational change:

(Change Management)

1. Unfreeze the organization through shock therapy

-requires taking bold actions like plant closures or dramatic structural reorganizations

2. Move the organization to a new state through proactive change in architecture

-requires a substantial and quick change in organizational architecture so that it matches the desired new strategic posture

3. Refreeze the organization in its new state

-requires that employees be socialized into the new way of doing things