MNE organisation, structure and control

Question 1

What is an architecture?

Answer 1

framework or skeleton of an organisation and how it structures itself. Without a supporting architecture, a firm may not be able to effectively implement its strategy to realize the benefits of internationalization.

Question 2

Organizational architecture

Answer 2

consists of its structure, people, processes, culture, incentives and control systems. these components must be internally consistent.

Question 3

What is organizational structure?

Answer 3

provides a guide for the application of management processes. formal division of the organization into sub-units. pattern of relationships and communication between sub-units. structure represents the “bones” or “skeleton” of an organization.

Question 4

Key dimensions of organizational structures:

Answer 4

vertical differentiation - decision making in the firm
horizontal differentiation - division or segmentation of the firm

Question 5

Vertical differentiation

Answer 5

focus on power and decision-making within the firm. centralization vs decentralization. degree of autonomy of subsidiaries.

centralization - puts the responsibility of the decision making on upper-level managers mostly at the HQ
pros: easier coordination, consistency, avoids duplication

decentralization - delegates the responsibility of decision making to lower-level subsidiary managers.
pros: reduces burden on top management, increases motivation and innovation.

Question 6

Split or mixed control

Answer 6

centralize: standards, procedure, financial management, procurement.

decentralize: strategy and HR marketing

often control is not absolutely centralized or decentralized - decision making power is split

Question 7

On what basis will you centralize or decentralize control of subsidiaries?

Answer 7

HQ: expertise, confidence in subsidiary, interdependency, importance of foreign market

subsidiary: performance, ownership structure

host country: laws, culture, voids and constraints

NB need to think about the local environment complexity when thinking about decisions

Question 8

Control mechanisms

Answer 8

bureaucratic measures - rules, systems, procedures, standards

output control - focuses on measurable results within the organization - budgets etc.

cultural control - organisational norms and values

Question 9

Can a multinational firm have one strong corporate culture across all of its subsidiaries?

Answer 9

emerging markets serve several important needs (labour, raw materials, market)

control is more important in emerging countries

the corporate governance scandals of subsidiaries in emerging countries can damage the reputation of MNEs

Question 10

Institutional duality

Answer 10

MNE subsidiaries dilemma: simultaneous need to conform to both external legitimacy forces (host country) and internal legitimacy forces (HQ)

happens in a lot of MNE

Question 11

Horizontal differentiation

Answer 11

division of a firm into sub-units, division could be based on - departmentalization or functions.

Question 12

Functional structure

Answer 12

enterprise divides diff functions into sub units, firms are organized on the basis of tech expertis. suited to domestic and non-diversified firms - don’t need to consider cultural differentiation

Question 13

International division

Answer 13

centralises all the international operations in a dedicated department. common when firms start to internationalize.

adv - reduces CEO burden on direct operations of overseas subsidiaries
disadv - not always suitable for large/diversified MNEs.

Question 14

Worldwide product division

Answer 14

highly diversified firms, group products/services into divisions. each division is self-contained and responsible for the value-creation activities. easy coordination worldwide - easier realization of location and learning economies

Question 15

Strategic business units (SBUs)

Answer 15

wise business line. need to be managed in diff subsidiaries. cluster them and divide into different sub units makes it easier to control and measure the process.

Question 16

Global area structure - national

Answer 16

under diff national subsidiaries there will be sub units. by clustering diff national subsidiaries into one decision is helpful for local responsiveness - changes that happen somewhere wont happen elsewhere. hard in terms of knowledge transfer - segregated, diff expertise etc..

Question 17

Global area structure - regional

Answer 17

cluster similar countries within proximity into regions for better management

Question 18

Matrix structure

Answer 18

Matrix: an organizational structure often used to alleviate the disadvantages associated with both geographic area and global product division structures, especially for MNEs adopting a transnational strategy.

Question 19

Matrix forms

Answer 19

can be 2 dimensional - product division x functional division

can be 3 dimensional - product x functional x national

Question 20

Changes in structure and strategy: organizational Inertia

Answer 20

Organizational inertia refers to the resistance or reluctance within an organization to change its current state, strategies, structures, or processes

- Strong inertia forces may hinger changes in structure and strategy
- Changes in power distributions - some people will lose power
- Organizational culture - causing rigidity
- Competency traps - keep doing what has worked well in the past
- National regulations - local content requirements 
- Inertia must be managed effectively for change to succeed.

Question 21

In conclusion..

Answer 21

• Structure may inhibit strategic ability
  
  • Clearly delineated parent-subsidiary relationships facilitate implementation and execution of strategic aims
  • Strike balance between autonomy and integration (importance of local vs centralized decisions)
    Structure must match strategy