81.
Explain organizational structure.
A firm’s organizational structure refers to three things. First, the term refers
to the formal division of the organization into subunits such as product
divisions, national operations, and functions. Second, the term refers to the
location of decision-making responsibilities within the formal structure.
Third, organizational structure refers to the establishment of integrating
mechanisms to coordinate the activities of subunits including cross–
functional teams and/or pan-regional committees.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-01 Explain what is meant by organization architecture.
Topic: Organizational Architecture
82.
Discuss the relationship between a firm’s control systems and a firm’s
incentive system. Why is this relationship important?
The relationships between a firm’s control systems and incentive systems is
a close one.
Control systems are the metrics used to measure the performance of
subunits and make judgments about how well managers are running those
subunits. Incentives are the devices used to reward appropriate managerial
behavior. The relationship between these two areas is important because
incentives are very closely tied to performance metrics. For example, the
incentives of a manager in charge of a national operating subsidiary might
be linked to the performance of that company. Specifically, he/she might
receive a bonus if his/her subsidiary exceeds its performance targets.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-01 Explain what is meant by organization architecture.
Topic: Organizational Architecture
83.
What are the three dimensions of organizational structure?
Organizational structure can be thought of in terms of three dimensions:
First, vertical differentiation or the location of decision- making
responsibilities within the firm. Second, horizontal differentiation or the
formal division of the organization into subunits. Finally, the establishment
of integrating mechanisms that coordinate subunits.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
84.
Why should a firm centralize its decision-making?
Firms should centralize their decision-making for four main reasons. First,
centralization can facilitate coordination. Second, centralization can help
ensure that decisions are consistent with organizational objectives. Third,
by concentrating power and authority in one individual or a management
team, centralization can give top-level managers the means to bring about
needed major organizational changes. Finally, centralization can avoid the
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
85.
Explain the five reasons why a firm should decentralize its decision-
making.
Firms should decentralize their decision-making for five main reasons. First,
top management can become overburdened when decision-making
authority is centralized, and this can result in poor decisions. Second,
motivational research favors decentralization – behavioral scientists have
long argued that people are willing to give more to their jobs when they
have a greater degree of individual freedom and control over their work.
Third, decentralization permits greater flexibility – more rapid response to
environmental changes – because decisions do not have to be “referred up
the hierarchy” unless they are exceptional. Fourth, decentralization can
result in better decisions because decisions are made closer to the spot by
individuals who have better information than managers several levels up in
a hierarchy. Finally, decentralization can increase control.
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
86.
Discuss the location of decision-making in a firm that is following a
transnational strategy.
Decision-making in a firm pursuing a transnational strategy is complex. The
need to realize location and experience curve economies requires some
centralized control over global production centers. Yet, the need for local
responsiveness requires the decentralization of many operating decisions,
particularly those for marketing, to foreign subsidiaries. Decentralization of
decision-making is also needed to allow subsidiaries the freedom to
develop their own skills and competencies—a requirement that is necessary
for the global learning component of the transnational strategy.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
87.
Describe the situation where an international division makes sense. How
common is this structure? What are the disadvantages of the structure?
When firms initially expand abroad, they often group all their international
activities into an international division. This has tended to be the case for
firms organized on the basis of functions and for firms organized on the
basis of product divisions. Many manufacturing firms expanded
internationally by exporting the product manufactured at home to foreign
subsidiaries to sell.
According to a Harvard study, some 60 percent of all firms that have
expanded internationally have initially adopted the international division
structure.
This type of structure does have problems however. One problem is that the
heads of foreign subsidiaries are not given as much voice in the
88.
What type of firms favor the worldwide area structure and why? What are
the disadvantages of this type of structure?
The worldwide area structure tends to be favored by firms with a low
degree of diversification and a domestic structure based on functions. This
structure divides the world into geographic areas, each area being a self–
contained, largely autonomous unit. Firms choose this structure because it
facilitates local responsiveness. Decision-making is decentralized, allowing
subsidiaries to customize marketing to local needs. A key disadvantage of
this structure, however, is the fragmentation of the organization that
ensues, making it difficult to realize location and experience curve
economies. Firms that choose this structure find it difficult to respond to
pressures for cost reductions or to transfer core competencies within the
firm.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
89.
Discuss the type of firm that uses the worldwide product division structure.
Firms that adopt the worldwide product division structure are reasonably
diversified and originally had domestic structures based on product
divisions. In the worldwide product division structure, each division is a self-
contained, largely autonomous entity with full responsibility for its own
value creation activities. The headquarters retains the responsibility for the
overall strategic development and financial controls of the firm.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
90.
What are the main strengths and weaknesses of the worldwide product
division structure?
The primary strength of the worldwide product division structure is that it
provides an organizational context in which it is easier to pursue the
consolidation of value creation activities at key locations necessary for
realizing location and experience curve economies. It also facilitates the
transfer of core competencies within a division’s worldwide operations and
the simultaneous worldwide introduction of new products. The main
weakness of the structure is the limited voice it gives to area or country
managers, since they are seen as subservient to the product division
managers. This can lead to a lack of local responsiveness.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
91.
Discuss the global matrix structure.
In the classic global matrix structure, horizontal differentiation proceeds
along two dimensions: product division and geographic area. The
philosophy is that responsibility for operating decisions pertaining to a
particular product should be shared by the product division and the various
areas of the firm.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
92.
What are the formal integrating mechanisms used to integrate subunits?
The formal mechanisms used to integrate subunits vary in complexity from
simple direct contact and liaison roles, to teams, to a matrix structure.
Direct contact between subunit managers is the simplest integrating
mechanism. By this “mechanism,” managers of the various subunits simply
contact each other whenever they have a common concern. When the
volume of contacts between subunits increases, coordination can be
improved by giving a person in each subunit responsibility for coordinating
with another subunit on a regular basis. When the need for coordination is
greater still, firms tend to use temporary or permanent teams composed of
individuals from the subunits that need to achieve coordination. When the
need for integration is very high, firms may institute a matrix structure, in
which all roles are viewed as integrating roles.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
93.
What is a knowledge network? What is the advantage of such a system?
A knowledge network 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.
The great strength of such a network is that it can be used as a
nonbureaucratic conduit for knowledge flows within an organization.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
94.
Consider the use of personal controls in international firms. In which type of
firm is this control most common?
Personal control is control by personal contact with subordinates. This type
of control tends to be most widely used in small firms, where it is seen in
the direct supervision of subordinates’ actions. However, it also structures
the relationships between managers at different levels in multinational
enterprises. For example, the CEO may use a great deal of personal control
to influence the behavior of his or her immediate subordinates, such as the
heads of worldwide product divisions or major geographic areas. In turn,
these heads may use personal control to influence the behavior of their
subordinates, and so on down through the organization.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Control Systems and Incentives
95.
What are output controls?
Output controls involve setting goals for subunits to achieve and expressing
those goals in terms of relatively objective performance metrics such as
profitability, productivity, growth, market share, and quality. Control is
achieved by comparing actual performance against targets and intervening
selectively to take corrective action. Subunits’ goals depend on their role in
the firm.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Control Systems and Incentives
96.
What is performance ambiguity? Discuss the relationships between
strategy, interdependence, and performance ambiguity.
Performance ambiguity exists when the causes of a subunit’s poor
performance are not clear. In firms pursuing a localization strategy, each
national operation is a stand-alone entity and can be judged on its own
merits. The level of performance ambiguity is low. In an international firm,
the level of interdependence is somewhat higher. In firms pursuing a global
standardization strategy, the levels of interdependence and performance
ambiguity are high. The level of performance ambiguity is highest of all in
transnational firms.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Control Systems and Incentives
97.
Discuss the sources of inertia in organizations. Is it easy to make
organizational changes?
Organizations are difficult to change. Within most organizations are strong
inertia forces. These forces come from a number of sources. One source of
inertia is the existing distribution of power and influence within an
organization. Managers who are not happy with the changes are likely to
resist and slow the process. A second source of inertia is the existing
culture. Since value systems reflect deeply held beliefs, they can be very
hard to change. A third source of inertia derives from senior managers’
preconceptions about the appropriate business model or paradigm.
Managers may not recognize the value in a given business model that has
been successful in the past. Finally, institutional constraints may act as a
source of inertia. In some cases, local content rules or regulations
pertaining to layoffs can make it difficult for firms to adopt the most
effective strategy and architecture.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-04 Discuss what is required for an international business to change its organization so that it better
matches its strategy.
Topic: Organizational Change
98.
What are the basic principles for successful organizational change?
There are three basic principles for organizational change. First, unfreeze
the organization through shock therapy and change the distribution of
power and influence. Second, move the organization to a new state through
proactive change in the architecture, so that it matches the desired new
strategic posture. Finally, refreeze the organization in its new state and
socialize employees into the new way of doing things.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-04 Discuss what is required for an international business to change its organization so that it better
matches its strategy.
Topic: Organizational Change
99.
Discuss the issues involved in unfreezing an organization.
Because of inertia forces, incremental change is often no change. Those
whose power is threatened by change can too easily resist incremental
change. This leads to the big bang theory of change, which maintains that
effective change requires taking bold action early to “unfreeze” the
established culture of an organization and to change the distribution of
power and influence. Shock therapy to unfreeze the organization might
include the closure of plants deemed uneconomic or the announcement of a
dramatic structural reorganization. It is also important to realize that change
will not occur unless senior managers are committed to it. Senior managers
must clearly articulate the need for change so employees understand both
why it is being pursued and the benefits that will flow from successful
change. Senior managers must also practice what they preach and take the
necessary bold steps.
100.
Discuss the issues involved in refreezing an organization.
Refreezing the organization takes longer and may require that a new culture
be established, while the old one is being dismantled. Thus, refreezing
requires that employees be socialized into the new way of doing things.
Hiring policies must be changed to reflect the new realities, with an
emphasis on hiring individuals whose own values are consistent with that of
the new culture the firm is trying to build. Similarly, control and incentive
systems must be consistent with the new realities of the organization, or
change will never take.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-04 Discuss what is required for an international business to change its organization so that it better
matches its strategy.
Topic: Organizational Change