chapter 14 Flashcards
Three conditions for superior enterprise profitability.
Different elements of a firm’s organizational architecture must be internally consistent.
Organizational architecture must match or fit the strategy of the firm—strategy and architecture must be consistent.
Strategy and architecture of the firm must make sense given the competitive conditions prevailing in the firm’s markets—strategy, architecture, and competitive environment must all be consistent.
what is organizational arhcietcure
refers to the totality of a firm’s organization, including formal organization structure, control systems and incentives, processes, organizational culture, and people.
what is organizational structure composed of
The formal division of the organization into subunits.
The location of decision-making responsibilities (centralized vs decentralized).
The establishment of integrating mechanisms to coordinate activities of subunits.
what are control systems
metrics used to measure performance of subunits. are used to make judgments about how well managers are running those subunits
what are incentives
devices used to reward managerial behavior. are very closely tied to performance metrics.
what are processes
the manner in which decisions are made and work is performed.
are distinct from the location of decision-making responsibilities within an organization, although both involve decisions.
what is organizational culture
Norms and values shared by employees.
Organizations are societies of individuals who come together to perform collective tasks.
Distinct patterns of culture and subculture
what is people
People include employees and strategies to recruit, compensate and retain them.
what are the three dimensions of structure
Vertical differentiation: centralization and decentralization of decision-making responsibilities.
Horizontal differentiation: division of the firm into subunits.
Integrating mechanisms: used to achieve coordination between subunits.
what is vertical differentiation
determines where in its hierarchy the decision making power is concentrated
what is vertical differentiation arguments for centralization
centralization can facilitate coordinaton and integration of operations
can help ensure that decisions are consistent with organizational objectives
- by cpncnetratig power and authority in one person or team, allows top level managers to make org changes
can avoid the duplication of activities that occur when similar activities are carried on by various subunits within the org
what is vertical differentiation arguments for decrentralization
- top management can become overburdened if theres centralization and this can create slow decisions and bad decisions, so decentralization allows top management more time and focus
- motivational research favours decentralization and shows that people are willing to give more effort when they have more freedom over their work
- permits greater flexibility –> faster response to compettive markets and changes
- can result in better deicisonbs
- increase control
Vertical Differentiation:
Global Strategy and Centralization.
Typically centralized: overall firm strategy, major financial expenditures, financial objectives, and legal issues.
May be decentralized: operating decisions, such as those relating to production, marketing, R&D, and human resource management.
what is horizontal differentiation
how does the firm divide itsself into subunits, based on function, type of business or gegrpagic area
when would horinzetal differentiation may be required
- if the firm significantly diversifies its product offering
what is the global standardization strategy
Very centralized org.
Cost pressures high – thus location of production matters, HQ decides.
Local responsiveness low
a company is assured that its products and the way they are marketed are largely the same everywhere around the world, across countries, cultures, and platforms.
ex; Coca Cola
what is the localization strategy
subsidiaries make operating decisions.
Cost pressures low
Local responsiveness high
Localization is a strategy of considering each market individually
what is international statregy
subsidiaries make operating decisions (e.g., sales).
Cost pressures low
Local responsiveness low
exporting or importing goods and services while maintaining a head office or offices in their home country.
everything is centralized at the home office but still go international
what is transnational strategy
Cost pressures high thus location of production matters, HQ decides.
Local responsiveness high
Transnational businesses operate with a central or head office in one country that coordinates local subsidiaries in international markets. This organizational structure means that there is one overarching brand and center of operations that determine overall decision-making and supply chain management, harnessing the power of scale.–>t’s a way for companies to operate internationally while adapting to the specific needs and preferences of different local markets
what is the functional structure
functions reflect the firm’s value creation activities (for example, production, marketing, R&D, sales).
team structure that groups employees into different departments based on areas of expertise.
what is the product divisional structure
– each division is responsible for a distinct product line (business area).
products are grouped intop separate divisions according to their similarities and idfferences
separate divisions
organized into divisions that deal with products
what is the international division structure
Division responsible for a firm’s international activities.
organized on geography
an international division structure involves organizing a company’s operations based on geographic regions, with a central authority overseeing global strategies.
there’s a specific team who is repsinible for all international stuff
what are issues with the international division structure
-the heads of foreign subsidiaries dont have as much of a voice
- lack of coordination between domestic nd foreign operations
what is the worldwide area structure
is one in which the world is divided into areas. An area may be a country (if the market is large enough) or a group of countries
Favored by firms with a low degree of diversification and a domestic structure based on functions.
The world is divided into geographic areas
Good for local responsiveness
what are issues with the worldwide area structure
- very autonomous so may be difficult to transfer core competencies
what is the worldwide product divisional structure
Business organizational structure based on product divisions that have worldwide responsibility.
Favored by firms that are reasonably diversified and originally had domestic structures based on product divisions.
Helps overcome coordination problems in the international division and worldwide area structure
what is an issue with teh worldwide product divisional sytcuure
- limited voice it gives to area or country managers since they are seen as less compared to product division managers –> can lead to performance issues
what is the global matrix structure
Horizontal differentiation proceeds along 2 dimensions: product division and geographic area. –> the company is divided into different product divisions, each responsible for a specific product or service, and also into geographic areas, such as different countries or regions
Dual decision-making and dual responsibility.
have two bosses (divisional and area boss)–> This means that employees, particularly managers, have two bosses—one from their product division and another from their geographic area. So, they need to report to and take direction from both their divisional boss (responsible for the product/service) and their area boss (responsible for the geographic region).
what are issues with the global matrix structure
Often clumsy and bureaucratic (lead to power struggles )
hard to ascertain accountability
what is integrating mechanisms
A way to achieve effective coordination.
the need for cooridnation is lowest and highest where
lowest in companies pursuing a localization statretgy, (firms will work in areas that have autonomy and is established so dont need as much)
higher in international companies (need coordination to transfer skills between units)
higher in global companies (have to make sure there is a smooth flow of inputs, finished products to the world)
highest inn transnationaln companies (have to ensure smooth flow of products )
Impediments to Coordination
Managers have different orientations (production, marketing) and goals.–> can create a lack of communication
differences in subunits orientations
May be lack of respect between subunits, inhibiting communication.
formal integrating mechanisms
: It’s a structured and organized way for different parts or units of a company to work together and share information
vary In complexity from simple direct contact and liaison roles to teams and a matrix structure
more integration= more complex
coordination between subunits
what is the simplest integrating mechanism
direct contact between subunit managers
what is direct contact between subunit managers
mamagers of the various subunits contact each other whenever they have a common concern.
may not work if the managers have different goals
what is the liaison roles
more complex
A person as a rep in a subunit coordinates with another rep in another subunit–> helps establish relatioshuops
coordinate coordination
each person in the subunit coordinates with someone else in a different subunit = creates a permanent relationship
when the need for coordination is greater still, firms use what
temporary or performent teams composed of individuals from the subunits that need to achieve coordination
they coordinate product development, help with strategy
when the need for integration is very high, what will firms institute
a matrix structure–> all roles are viewed as integration roles
maximum integration among subunits
but could have issues like could be inflexible, bureaucratic so need to have informal networks
transferring core competencies,
what is the informal integrating mechanism
knowledge networks
what are knowledge networks
is a network for transmitting information within an organization that is based not on formal organizational structure, but on informal contacts between managers within an enterprise and on distributed information systems.
Transmitting information based on informal contacts between managers.
Can be used as a non-bureaucratic conduit for knowledge flows within a multinational enterprise.
Makes use of distributed computer and telecommunications information systems.
what are the two techniques used to establish networks
information systems –> help faicilate communication between managers who are scattered over the world. ex: zoom, Skype
management development policies –> helps build informal networks, could be rotating managers, bring foreign subunits
for a knowledge network to work well, what must happen
managers must share a strong commitment to the same goals
have to create a common set of cultural norms and values–> strong org culture and team work
what are the four main types of control systems used in multinaitioanl firms
personal controls, bureaucratic controls, output controls and cultural controls
what is personal control
Achieving control by personal contact with subordinates.
- mostly used in small firms
structures the relationships between managers at different levels in multinational enterprises
direct supervision and management through personal contact, which may be more practical in smaller firms
what are bureaucratic controls
Achieving control through establishment of a system of rules and procedures.
BUDGETS and capital spending rules are examples
what are output controls
Achieving control by setting goals for subordinates, expressing these goals in terms of objective criteria, and then judging performance by a subordinate’s ability to meet these goals.
if goals are met, subunit managers get regraded
comparing actual performance against targets and intervening if there are issues
create a framework for performance management by defining clear expectations, rewarding success, and addressing challenges to ensure that organizational objectives are met.
“management by exception”: as long as managers meet goals they will be left alone
what are cultural controls
Achieving control by persuading subordinates to identify with the norms and value systems of the organization
employees control their own behaviour so dont need direct supervision
strong culture = self control can reduce the need for other control systems
what are incentive systems
Devices used to reward appropriate employee behavior.
Usually closely tied to performance metrics used for output controls. Requires significant cooperation between managers in different subunits.
Often adjusted to account for national differences in institutions and culture.
Can have unintended consequences.
type of incentive varies depending on what
have to be adjusted for the employee employee
have to match the job they are doing
have to be adjusted to account for national differences in institutions and culture
incentives can also have unintended consequences
what is performance ambiguity
Occurs when causes of good or bad performance are not clearly identifiable
could happen when a subunits performance is partly dependent on the other performance of other subunits
in localization strategy,
performance ambiguity is low.
in international strategy
higher level, integration is necessary.
Global standardization strategy:
higher still, many activities are interdependent.
in transnational
highest level of performance ambiguity, high degree of joint decision making.
what are cost controls
Costs defined as amount of time top management devotes to monitoring and evaluating subunits’ performance.
Costs are greater when performance ambiguity is greater.
Management must devote time to resolving problems arising from performance ambiguity.
what are processes
the way which decisions are made and the work is done. effective and efficient processes can lower the cost of value creation and add more value
processes can cut across national boundaries
valuable processes may lead to a competitive advantage
what is culture
Culture refers to a system of values and norms that are shared among people
what are values
Values are abstract ideas about what a group believes to be good, right, and desirable
what are norms
. Norms mean the social rules and guidelines that prescribe appropriate behavior in particular situations.
where does an Orgs culture come from
- founders or important leaders
- broader social culture of the nation where the firm was founded or has big operations
- history of the enterprise
how Is culture maintained
- Hiring and promotional practices of the organization.
2.Reward strategies.
3.. Socialization processes – formal or informal. - Communication strategy – communicating corporate mission statements, stories and symbols
want to hire people who have the same values as the company
what are strong cultures
All managers share a consistent set of values and norms that have a clear impact on work performance.
strong does not necessarily mean good
what are adaptive cultures
Most managers care deeply about and value customers, stockholders, and employees.
People and processes that create useful change are valued.
good to have adaptive but strong cultures
a fit between what is necessary for a firm to achieve high performance
strategy and architecture
have to have both
firms strategy has ti be consistent with its enveionrment
org ahructecture most be consistent with its strategy
If the strategy does not fit the environment
, the firm is likely to experience significant performance problems. If the architecture does not fit the strategy, the firm is also likely to experience performance problems. Therefore, to survive, a firm must strive to achieve a fit of its environment, its strategy, and its organizational architecture.
what is organizational inertia
Organizational inertia refers to the tendency of an organization to resist change and maintain its current state or course of action.
what can organizational inertia be caused by
Existing distribution of power and influence within an organization.
Existing culture expressed in norms and value systems.
Senior managers’ preconceptions about the appropriate business model or paradigm.
Institutional constraints, such as national regulations.
what are ways of implementing organizational change to get rid of organizational inertia
- unfreeze the organization through shock theraoy
- move the org to a new state through proactive change in architecture
- refreeze the org in its new state
what is unfreezing the org
May require bold action.
Senior management must articulate need for change and take steps.–> need to be committed to the change
may have to close plants that are not working or re structure the org
creating a sense of change
what is moving to the new state
Requires substantial change.
Requires sufficient speed
re organizing the structure, changing control, redesigning
have to be fast
involve the employees
all about redesigning
what is refreezing the org
Long-term endeavor.
New culture must be established while old is dismantled. Refreezing requires that employees be socialized into the new way of doing things. Companies will often use management education programs to achieve this
may require ghat a new culture is established
solidifying the change and reinforcing so that its permanent
