Week 5 - Transnational Organizational Structure Flashcards
According to Stopford and Wells, what were the two variables used to capture the strategic and administrative complexity most companies faced as they expanded abroad?
o Foreign product diversity – the number of products sold internationally
o Foreign sales as a percentage of total sales – the importance of international sales to the company
Stopford and Wells’ research found that MNEs adopted different organizational structures at different stages of international expansion. What were the stages and which organizational structure did MNEs adopt at these stages?
o In the early stages of foreign expansion, MNEs typically managed their overseas operations by creating a separate international division.
o Subsequently, those companies that expanded further by entering more countries with a limited range of products typically adopted an area structure (e.g., European region, Asia-Pacific region, etc.)
o Other MNEs that chose to grow overseas by increasing their foreign product diversity in fewer countries tended to adopt a worldwide product division structure (e.g., chemicals division, plastics division, etc.)
o Finally, when both foreign sales and foreign product diversity were high, companies were likely to organize around some form of global matrix in which, for example, the manager of the chemicals business in France might report simultaneously to the company’s European regional head as well as the global chemicals division president.
What are some of the challenges associated with the matrix structure?
- Often seemed to result in complex, bureaucratic processes and relationships
- By forcing all issues through the dual chains of command, the global matrix amplified the differences in perspectives and interests so that even a minor difference could become the subject of heated disagreement and debate.
- Separated by barriers of distance, time, language, and culture, managers found it virtually impossible to clarify the resulting confusion and resolve the conflicts.
Define and explain the concept of administrative heritage.
- Administrative heritage – an MNE’s history and embedded management culture (values, norms, practices)
- A company’s organization is shaped not only by current external task demands but also by past internal structures and management biases.
- Administrative heritage can be one of the company’s greatest assets providing the underlying score of its core competencies. At the same time, it can also be a significant liability, because it embeds attitudes that may resist change and thereby prevents realignment.
Describe the decentralized federation organization model. In what countries/regions did this model develop? What type of strategy is consistent with this model?
- European companies that dominated international foreign direct investment in the pre-World War II era
- These MNEs expanded abroad in a period of rising tariffs and discriminatory legislation.
- As they expanded abroad, they were forced to build local production facilities to compete effectively with national competitors. These local plants were run by the national subsidiaries of MNEs allowing them to modify products and marketing approaches to meet widely differing local market needs (widely distributed assets and delegated responsibility).
- The increasing independence of these self-sufficient national units was reinforced by the high international communication barriers that existed in that era, limiting headquarters’ ability to intervene in the management of the company’s spreading worldwide operations.
- Adopted a MULTINATIONAL STRATEGY
Describe the coordinated federation organization model. In what countries/regions did this model develop? What type of strategy is consistent with this model?
- American companies, 1950s & 60s
- “Professional” managerial culture – a willingness to delegate responsibility while retaining overall control through sophisticated management systems and specialist corporate staffs.
- Foreign subsidiaries were often free to adapt products or strategies to reflect market differences, but their dependence on the parent company for new products, processes, and ideas dictated a great deal more coordination and control by headquarters than did the classic European decentralized federation organization.
- The main handicap such MNEs faced was that the parent company management often adopted a parochial (having a limited or narrow outlook or scope) and even superior attitude toward international operations, perhaps because of the assumption that new ideas and developments came predominantly from the parent (they need us!!!)
- Often seemed to view foreign operations as appendages whose principal purpose was to leverage the capabilities and resources developed in the home market.
- Adopted the INTERNATIONAL STRATEGY
Describe the centralized hub organization model. In what countries/regions did this model develop? What type of strategy is consistent with this model?
- Japanese companies, 1970s & 80s
- The rapid postwar growth of their domestic economy gave the Japanese MNEs new, efficient, scale-intensive plants that became major assets as they expanded into a global environment of declining trade barriers.
- Their competitive strategy emphasized cost advantages and quality assurance, both of which demanded tight control over product development, procurement, and manufacturing.
- When forced by political pressure or regulation will, these Japanese-based MNEs moved some assembly operations offshore, but most kept the major value-adding and strategic activities at home.
- By keeping primary decision making and control at the center, the Japanese company could retain its culturally dependent management system that was so communications intensive and people dependent.
- Adopted a GLOBAL STRATEGY
What are some of the disadvantages of the centralized hub, decentralized federation, and coordinated federation models?
• Centralized Hub (global strategy)
o The central groups often lack the understanding to respond to local market needs, while its national subsidiaries lack the resources, capabilities, or authority to do so.
o A global organization cannot overcome such problems without jeopardizing its core advantage of global efficiency.
• Decentralized Federation (multinational strategy)
o Although its dispersed resources and decentralized decision-making authority allow its national subsidiaries to respond to local needs, the resulting fragmentation of activities leads to inefficiency.
o Worldwide learning suffers because knowledge is not consolidated and does not flow freely across national boundaries.
• Coordinated Federation (international strategy)
o Less efficient than the global company and less responsive than the multinational company.
What are the 3 important organizational characteristics of the transnational organization?
- Transnational organizations have decision-making roles and responsibilities that legitimize multiple diverse management perspectives
- Their structure is based on assets and capabilities that are both distributed and interdependent
- They have built internal integrative processes that are robust and flexible.
What are the 3 important management groups of transnational organizations?
- Strong NATIONAL SUBSIDIARY MANAGEMENT is needed to sense and represent the changing needs of local consumers and the increasing pressures from host governments
- Capable GLOBAL BUSINESS MANAGEMENT is required to track the strategy of global competitors and provide the coordination necessary to respond appropriately
- Influential WORLDWIDE FUNCTIONAL MANAGEMENT is needed to concentrate corporate knowledge, information, and expertise, and facilitate its transfer among organizational units.
Explain the MNE organizational characteristic of distributed, interdependent capabilities.
- Transnational organizations ensure that key operations are located wherever they have the greatest strategic advantage – whether in the home country or abroad.
- Transnational organizations identify their most effective manufacturing operations and make them the company’s regional or global source for a given product or expertise.
- One major consequence of such a distribution of specialized assets and responsibilities is that the relationship across organizational units changes from dependence/independence to interdependence.
Briefly describe the integrated network structure.
Management regards each of the worldwide units as a source of ideas, skills, capabilities, knowledge, and expertise that can be harnessed for the benefit of the total organization.
Explain the MNE organizational characteristic of flexible integrative processes.
- The transnational organization requires a management process that can resolve tensions across the diversity of interests and integrate the dispersed assets and resources.
- The transnational organization recognizes that there is not a single static management model that it can apply universally. The management process must be able to change from product to product, from country to country, and even from decision to decision.
Explain the following concept: Building a transnational organization - structuring the organizational anatomy
- Ensure that those without line authority also have appropriate access to and influence in the management process.
- This typically requires the use of micro-structural tools such as cross-unit teams, task forces, or committees.
Explain the following concept: Building a transnational organization - building the organizational physiology
- Operating in such a multidimensional, interdependent system requires large volumes of information to be gathered, exchanged, and processed, so the role of formal systems – including information, planning, reporting, and control systems – is vital.
- Recognize, legitimize, and reinforce existing informal relationships that have the potential to contribute to the corporate objective.
