Structuring & Controlling Global Operation

Structuring & Controlling Global Operation

Global Strategic Implementation


o     Organizational structure can be considered as the blueprint depicting the formal reporting relationships within the firm.

o     Organizational structure is ultimately driven by strategy; in the near term however, strategy is shaped by organizational structure, because structure provides a constraint to action.


o       Associated with structure is Design- the way the major activities of an organization are carried out within the structure that provides the skeleton for control and coordination.

o       Control systems are the metrics used to measure subunit performance and Incentives are devices to reward appropriate managerial behavior.

o       Together Structure, Design and Control have been termed as “ Organizational Architecture”


o       Organizational architecture is the totality of a firm’s organization, including

n       Structure

n       Design/Process

n       Control

o       Superior enterprise profitability requires three conditions:

n       An organization’s architecture must be internally consistent.

n       Strategy and architecture must be consistent.

n       Strategy, architecture and competitive environments must be consistent.

Domestic Organization Structure

o      Functional Structure: Organizations are primarily structured based on Functions with Centralized decision making system.

n      Typically, the structure evolves in a company’s early stage/Simplest of organizations.

n      Usually pursued by undiversified firms.

n      Works best when organization has:

o    Few products

o    Few locations

o    Few types of customers

o    A stable environment

o    Routine technology

Basic Functional Structure

Domestic Organization Structure

o      Product Divisional Structure: departments or subunits based on different product groups.

n      Firms offering diversified products usually pursue this structure.

n      Each division is responsible for a distinct product line.

n      Each division is set up as self contained, largely autonomous entity with its own functions.

n      Operating decisions are usually decentralized.

n      Semi-autonomous and accountable for its performance.

Product Divisional Structure

Structure of Multinationals

o     Stopford & Wells ( 1927) suggested “The International Structural Stages Model” which portrays that MNC’s might pursue four structures:

n      International Division Structure

n      Area/ Geographic Division Structure

n      Product Division Structure

n      Matrix Structure

Stopford-Wells Structure Model

o In their model Stopford & Wells ( 1927) recommended that

nForeign Product Diversity, measured by the number of product sold internationally, and

nForeign Sales as % of Total Sales, i.e. the importance of international sales to the company,

Determine the structure of the multinational firm.

International Division Structure

o      At the initial stage of foreign expansion, foreign product diversity and foreign sales both are both relatively low. Multinationals tend to support this small level of international expansion with an international division structure.

o      Characteristics:

n      It’s a low risk method of servicing overseas market.

n      Deals with all products

n      Manages overseas sales force and manufacturing sites

International Division Structure

International Division Structure

International Division Structure

o    Reasons to abandon the international division:

n     Diverse products overwhelm capacities of multinational

n     Not close enough to local markets

n     Cannot take advantage of global economies of scale or global sources of knowledge.

Area Division Structure

o      Multinationals following Area Division Structure divide the global markets into geographical areas, each allocated its own headquarters responsible for all lines of products and businesses within that area.

o      Subsidiaries in each geographical area  coordinate their activities to optimize performance.

o      Favored by firms with low degree of diversification and a domestic structure based on function.

o      Facilitates local responsiveness.

Area Division Structure

o    Problems:

n     Lack of coordination and communication between geographical areas.

n     Large separate regional headquarters

n     Compromise EOS

n     Duplication of products

n     Can’t share R&D

n     High cost structure

Area Division Structure

Product Division Structure

o      Firms that are reasonable diversified and originally had domestic structure based on product structure tends to adopt product division structure.

n       Gives product divisions responsibility to produce and sell their products or services throughout the world

n       Grouping by products is suitable when the organization makes well-delineated groups of products and where global economics of scale can be achieved

n       Weak local responsiveness

Product Division Structure

n      Implements strategies that emphasize global products

n      Provides an efficient way to organize and centralize the production and sales of similar products

n      Attempts to overcome international division and area structural problems

n      Believe that product value creation activities should be coordinated worldwide.

n      Attempts to overcome international division and worldwide area structural problems.

Product Division Structure

The Matrix Structure

o      Symmetrical organization with equal emphasis on

n      Worldwide product groups and

n      Regional geographical divisions

o      Balances the benefits produced by area and product structures

o      Creates equal lines of authority for products and areas

n      Works best with near equal demands from both sides

o      Requires extensive resources for communication and coordination

o      Requires middle and upper level managers with good human relations skills

The Matrix Structure

The Matrix Structure

o     May not work as well as theory predicts.

o     Result

n     Companies have redesigned their matrix structures to be more flexible with speedier decision making

n     Other companies have abandoned their matrices and returned to product structures

Control Systems

o      Control system helps to link the organization vertically, up and down the organizational hierarchy

o      Basic functions of control system

n      Measure or monitor the performances of subunits

n      Provide feedback to subunit managers regarding the effectiveness of their units

Control Systems

o    Four types of control systems

n     Output control system

n     Bureaucratic control system

n     Decision-making control

n     Cultural control system

Control Systems

o    Output Control System:

n     Assesses the performance of a unit based on results, not on the processes used to achieve these results

n     Profit center: unit controlled by its profit or loss performance

Control Systems

oBureaucratic Control System

Focuses on managing behaviors within the organization

n     Budgets: financial targets for expenditures

n     Statistical reports: information to top management about non-financial outcomes

n     Standard operating procedures: rules and regulations of appropriate behavior

Control Systems

o    Decision-making Control: level in the organizational hierarchy where managers have the authority to make decisions

o    Cultural Control: uses organizational culture to control behaviors and attitudes of employees

Control Mechanisms