F. International Operations: Implications for Organizational Structure
Consistency between strategy and structure is required to be successful in global markets.
Firms that pursue multidomestic strategies (as discussed in Chapter 7) would most likely
use international division or geographic-area division structures. With these, local managers
Global strategies, by contrast, typically have more centralized operations in order to
manage for overall efficiency. Here, worldwide functional and worldwide product division
Discussion Question 18: What are some examples of international companies that use
worldwide, international, and geographic-area structures?
G. Global Start-Ups: A Recent Phenomenon
Up to this point in this section, we have suggested that international expansion occurs
primarily after the potential of domestic growth is exhausted. However, there are two interrelated
trends that have given rise to “global start-ups:”
many firms now decide to expand internationally relatively early in their history
some firms are “born global”—that is from the very beginning many start-ups
There is no reason for all start-ups to be global; global start-ups require a higher level of
the required human resources are globally dispersed, going global may be the
foreign financing may be easier to obtain and more suitable for the project
the target customers in many specialized industries are located in other parts of
there is a gradual move from domestic markets to foreign markets, and if a
high up-front development costs; a global market is necessary to recover the
costs.
STRATEGY SPOTLIGHT 10.3 discusses BRCK, a Kenyan technology start-up with a
global vision and scope of operations.
H. How an Organization’s Structure Can Influence Strategy Formulation
Typically, in discussing the relationship between strategy and structure, we strongly
imply that structure follows strategy. However, in this section we stress the caveat that structure
The SUPPLEMENT below discusses how a new role in many corporations—Chief
Diversity Officer (CDO)—can promote diversity and spur innovation.
Extra Example: A New Position in the Corporate Organizational Chart: Chief Diversity Officer
In the corporate world, a new position in the typical organizational chart has emerged in recent years—the Chief
Diversity Officer (CDO). The more progressive companies are releasing CDO’s from the confines of human
resources departments and positioning them to work closely with the heads of product development, business
development, marketing, and sales. This change in reporting relationships (a key component of organization
structure) allows the CDO to more easily detect innovation opportunities throughout the organization. “Increasingly,
CDOs report to the CEO, outside of HR,” asserts Edie Fraser, founder and president of Diversity Best Practices, an
organization that tracks diversity initiatives by corporations.
One company that has taken this approach is the Russell Corporation with $1.5 billion in revenues. The company
(founded in 1902 and recently acquired by Berkshire Hathaway) now has three business segments: apparel, sports
equipment, and athletic shoes. At Russell, the human resources function handles the traditional diversity matters
such as affirmative action, recruiting, and legal issues. However, CDO Kevin Clayton is busy turning a separate
diversity department into a profit center. For example, Clayton’s group discovered that a large number of Russell’s
employees had graduated from historically black colleges and universities. The group then used those graduates’
ideas to create products for the black university market, resulting in an $8 million-to-$10 million contract. Since
then, Clayton has created several additional development groups that combine employees of different ethnicities and
religions. Clayton is expecting to significantly increase revenues in the future.
Sources: Johansson, F. 2006. Masters of the multicultural. Harvard Business Review, 83(10): 18–19; Young, N.
2006. Berkshire Hathaway to acquire Russell Corporation. Russell Corporation press release, April 17: np; and
www.russellcorp.com.
Discussion Question 19: In organizations that are too small to have a separate Chief
Diversity Officer, what would be the best ways to achieve the objectives described in the
above supplement; that is, spurring innovation and promoting diversity?
II. Boundaryless Organizational Designs
Organizations that become boundaryless become more open and permeable, not
“chaotic.”
STRATEGY SPOTLIGHT 10.4 discusses four types of boundaries—vertical boundaries,
Boundaryless approaches should be considered a complement to, not a replacement for,
traditional forms of organizing. Several types of structures can be used to make organizations
more boundaryless. Barrier-free approaches involve removing internal boundaries to encourage
STRATEGY SPOTLIGHT 10.5 discusses efforts to break down barriers in the Veterans
Administration to better serve the needs of veterans.
The SUPPLEMENT below highlights some of the big challenges faced by firms in
today’s global economy associated with coordinating activities among diverse professionals
Extra Example: Coordinating a Firm’s Activities in a Global Economy—A Perspective
For global companies, success once meant having bodies and factories on the ground from Sao Paulo to Silicon
Valley to Shanghai. Coordinating their activities was a deliberately planned effort handled by headquarters.
Now, the challenge is to weld these vast, globally dispersed workforces into superfast, efficient organizations. Given
the conflicting needs of multinational staff and the swiftly shifting nature of competition brought about by the
Internet, that’s an almost impossible task. And getting professionals to collaborate instantly—not tomorrow or next
week, but now—requires nothing less than a management revolution.
Complicating matters is the fact that the many business activities are no longer accomplished by a single, integrated
entity with full-time employees and a recognizable hierarchy. Business activities are now being accomplished by a
fluid constellation of firms, with a classic corporation at the center of an ever-shifting network of suppliers and
outsourcers, some of whom only join the team for the duration of a single project.
To adapt, multinationals are hiring sociologists to unlock the secrets of teamwork among colleagues who have never
met. They are arming staff with an arsenal of new technology tools to keep them perpetually connected. They
include software that helps engineers to co-develop 3D prototypes in virtual worlds and services that promote social
networking and that track employees and outsiders who have the skills needed to nail a job. Corporations are
investing lavishly in posh campuses, crafting leadership training enters, and offering thousands of online courses to
develop pipelines of talent.
Source: Engardio, P. 2007. Managing the new workforce. BusinessWeek, August 20–27: 48–51.
Discussion Question 20: Have you coordinated project work with professionals in other
parts of the organization? Other countries? What were the challenges? How were they
overcome?
Discussion Question 21: What are some examples of other companies that have
implemented more flexible and permeable organizational structures? Have they been
successful? Why? Why not?
A. The Barrier-Free Organization
Traditional organizations had boundaries intended to maintain order by making the role
of managers and employees clearly defined. But these boundaries also stifled communication
1. Creating Permeable Internal Boundaries
Teams are an important part of barrier free structures because they 1) substitute peer-
based for hierarchical control; 2) often develop more creative solutions via brainstorming and
The SUPPLEMENT below provides examples of how two firms—Nokia and Accenture
Extra Example: How Nokia and Accenture Developed High Performing
Teams Across National Boundaries
Lynda Gratton, of the London Business School, led a study of 52 global teams in 15 multinationals. She asserts that,
“Complex teams really struggle to be productive.” Not surprisingly, she found that some multinationals were very
successful in overcoming coordination challenges. Below, we discuss Nokia and Accenture:
Nokia’s global marketing and product development teams were very effective—even though they involved
scores of people working in several countries. Why? Nokia carefully selects people who have a “collaborative
mindset” and carefully includes in task forces a range of nationalities, ages, and, educational levels. Teams are
also made up of people who have worked together in the past and others who have never met. Members are
encouraged to network online and share their photographs and personal biographies.
Accenture, which spent $700 million on education in 2006, says its 38,000 consultants and most of its service
workers take courses on collaborating with offshore colleagues. And each year, Accenture puts up to 400 of its
most promising managers through a special leadership development program. They are assigned to groups that
can include Irish, Chinese, Belgians, and Filipinos, and specialist in fields such as finance, marketing, and
technology. Over 10 months, teams meet in different international locations. As part of the program, they
pick a project—developing a new web page, say—and learn how to tap the firm’s worldwide talent pool to
complete it.
Source: Engardio, P. 2007. Managing in the new workforce. BusinessWeek, August 20–27: 48–51.
Discussion Question 22: What are some other means of ensuring coordination across
geographically dispersed team members? (e.g., leadership, culture, trust, reward
systems, rules/regulations)
2. Developing Effective Relationships with External Constituencies
Emphasize that barrier-free relationships must also extend to other divisions of a
corporation and to external stakeholders. To promote interdivisional coordination and resource
sharing, firms often use interdivisional task forces and common training programs, and create
Discussion Question 23: Have you ever worked for a barrier-free organization? How
were relationships among participants in barrier free transactions and/or projects
managed?
The SUPPLEMENT below addresses the example of the Irvine Medical Center, a
hospital that developed more efficient processes by fostering barrier-free relationships inside the
hospital and with employee unions.
Extra Example: Breaking Barriers at the Irvine Medical Center
In 2008, the Irvine Medical Center, a unit of Kaiser Permanente, wanted to streamline its costliest, most time-
intensive surgeries: total hip and knee replacements. The task was daunting, because the solution required
collaboration among specialists who normally fight for resources.
Neither a top-down administrative mandate nor a surgeon-driven approach would work to improve the processes. A
top-down approach wouldn’t have worked because surgeons in different groups each had their own way of doing
things and would be resistant to an administrative mandate, and each surgery group had little influence on the
practices in other surgery units. Also, the hospital had to get other employees on board, and most of those are
covered by unionized contracts that limit changes in workload and flow.
Kaiser created a collaborative community, the Labor Management Partnership (LMP), that included Kaiser
managers, surgeons, and most of the hospital’s employee unions. The LMP worked cooperatively to find efficiency
gain opportunities. The benefit was that all members felt engaged. As one nurse stated about operating room
procedures, “Usually when we are in the room, we wish it would be done differently, but this time we actually got a
voice in how it’s done differently.” They identified ways to streamline sequential operations, such as by bringing
housekeeping in to begin clean-up as soon as a surgeon begins suturing the patient closed. They also set up an alert
system to ensure that staff knew when they were needed. For example, they trigger the post-op and transportation
staff to prepare fifteen minutes before the end of a surgery. Finally, they found ways in which the hospital could be
more efficient by adding staff. For example, they added a “floater” nurse who could move between operating rooms
to provide extra help or relieve staff on breaks.
These steps all reduced surgery cycle-times and also improved employee morale. They increased the number of total
joint replacement surgeries from two to four per day and freed up 188 hours of operating time room per year. A
survey of the operating room staff showed an 85% increase in job satisfaction.
Seeing the benefits, Kaiser implemented similar LMP teams in general surgery, head and neck surgery, urology,
heart, and other surgery specialties in Irvine as well as in other Kaiser hospitals.
Source: Adler, P., Heckscher, C., & Prusak, L. 2011. Building a collaborative enterprise. Harvard Business Review.
89(7/8); 94–101.
Discussion Question 24: How might approaches such as the Irvine Medical Center’s
LMP be used in other organizations?
Some organizations have even benefited from breaking down barriers with competitors
Discussion Question 25: In what ways might competitors work together cooperatively to
mutually benefit all participants?
Point out that barrier-free approaches can be difficult to implement and maintain. The
type of democratic processes that emerge in a boundaryless approach often need to be carefully
Discussion Question 26: What other types of organizational systems might be utilized to
ensure the success of a barrier-free approach?
STRATEGY SPOTLIGHT 10.6 discusses how large corporations benefit by participating
in the Business Roundtable. We highlight how it has aided Walmart’s sustainability initiatives.
3. Risks,
Challenges,
and Potential
Downsides
Not all efforts to create barrier-free structures have been successful. Examples are given
of companies whose process times increased rather than decreased or broke down because
Teaching Tip: Virtually all students have worked in teams—either in “real world
organizations” or on projects for their college courses. Ask them what they felt the
characteristics were of both effective and ineffective teams that they worked on. And, ask
them how the teams that they worked on could have been made more effective.
EXHIBIT 10.6 outlines the pros and cons of the barrier-free type of organization.
B. The Modular Organization
The modular organization type is actually a central hub surrounded by networks of
outside suppliers and specialists that perform non-vital functions. Such outsourcing allows the
For modular companies, outsourcing the non-core functions offers three advantages:
1. It can decrease overall costs, quicken new product development by hiring
suppliers whose talent may be superior to that of in-house personnel, avoid idle
2. It enables a company to focus scarce resources on the areas where they hold a
competitive advantage. These benefits can translate into more funding for
3. By enabling an organization to tap into the knowledge and expertise of its
The modular type of organization allows a company to leverage relatively small amounts
of capital and a small management team. By minimizing the need to make big investments, it can
The SUPPLEMENT below discusses how Porsche relies on outsourced engineering to
remain innovative.
Extra Example: Porsche Outsources Research
Porsche makes some of the most technologically advanced cars in the world, but the company does not have a large
in-house R&D staff. It has to find another way of sourcing innovative ideas and expertise. One highly successful
method is to outsource the work to universities and doctoral students doing basic R&D. Another method is to bring
students into the company with internships. Every year, Porsche welcomes some 600 Masters students to work with
its engineers for four to six months. Porsche budgets for both outsourced research and internships and has found that
it has resulted in cheaper and faster results than most equivalent in-house research efforts. A critical factor in making
this work is that the engineers at Porsche must respect their colleagues; whether they are full time colleagues,
university researchers or graduate students doing internships; and value what comes out of their research efforts.
This allows Porsche to draw on much of this research and rapidly integrate it into their product line.
Source: Lorange, P. 2010. Leading in turbulent times. Lessons learnt and implications for the future. Bingley, UK:
Emerald Group.
Discussion Question 27: Do you believe the average corporation is capable of
integrating such R&D efforts into its operations? Why? Why not?
Discussion Question 28: Are you familiar with any other organizations that have similar
programs?
1. Strategic Risks of Outsourcing
Potential disadvantages of the modular form include 1) loss of critical skills or
EXHIBIT 10.7 addresses the pros and cons of the modular form of organizational
structure.
It is not only what a firm chooses to outsource but also how they manage relationships
with the firms they use as suppliers that will determine their long-term prospects. The
Extra Example: The Need to Manage the Supply Chain
Thomas Choi and Tom Linton argue that manufacturers have delegated too much power to their top-tier suppliers.
By pushing the design of key components and the management of lower-tier suppliers onto top-tier suppliers,
manufacturers are undermining their ability to control key technologies, innovate, cut costs, and manage risk.
Their prescription is for firms to retain or reassert control for items that have the most significant impact on the cost
of goods sold. They use the old 80/20 rule and note that typically 20% of the components of a product account for
80% of the product’s total component cost. For example, in a typical smartphone, two or three semiconductors and
the LCD screen account for over 50% of the total component cost of the phone. Rather than delegate the design,
manufacturing, and sourcing of these components to top-tier suppliers, manufacturers should be more involved in
managing the design process and maintain direct contact with lower tier suppliers of key components. If they don’t,
they delegate key decisions to firms that may not always be working in the firm’s best interests. For example, one
risk that arises if a phone manufacturer outsources the purchasing of the semiconductors to a top-tier supplier is that
the supplier may choose to use a chip that benefits the supplier firm at the expense of the phone manufacturer. If the
supplier works with several phone manufacturers, it may choose to use a supplier and a specific semiconductor that
it is also using in a competing company’s phone rather than the optimal chip for this phone design. If the phone firm,
instead, works directly with the chip supplier, they are more likely to get the best chip for their phone.
Manufacturers who retain control over their key components develop deep knowledge of the technical aspects of the
parts, have stronger knowledge of the critical costs in their supply chains, and can react more quickly to market
dynamics since they have direct ties with the suppliers of these key components. The experience of LG Electronics
bears this out. In 2009, when recession hit the electronics industry, LG worked directly with about 300 top- and
lower-tier suppliers to reduce components costs and found savings of more than $6 billion. It would have been
unlikely to find similar savings potential if it delegated the cost savings efforts to top-tier suppliers. Having direct
ties with lower-tier suppliers also gives the manufacturers direct insight on new technology development and new
product introductions in these supplier industries, enhancing their ability to design and launch innovative products
using these leading technologies.
Sources: Choi, T. & Linton, T. 2011. Don’t let your supply chain control your business. Harvard Business Review.
89(11); 112–116.
Discussion Question 29: Why do firms often choose to delegate responsibilities to top
tier suppliers even though it leaves them less responsive and less able to manage costs in
their supply chain?
C. The Virtual Organization
The virtual type of organization is an evolving network of independent companies—
suppliers, customers, even competitors—linked together to share skills, costs, and access to one
Virtual organizations are a type of strategic alliance in which complementary skills are
Virtual organizations may not be permanent. And, participating firms may be involved in
Unlike the modular type, virtual organization firms give up part of their control and
The INSIGHTS FROM RESEARCH for this chapter offers evidence on how to
effectively manage virtual teams.
The SUPPLEMENT below discusses some key statistics regarding virtual teams.
Extra Example: The Challenge of Virtual Teams
As companies expand geographically and as telecommuting becomes more common, work groups often span far-
flung offices, shared workspaces, private homes, and hotel rooms. It is no surprise, then, that the use of virtual teams
is on the rise. A survey by Ferrazzi Greenlight, a consulting firm, found that 79% of knowledge workers always or
frequently worked in dispersed teams.
The appeal of virtual teams is clear. Employees can manage their work and personal lives more flexibly, and they
have the opportunity to work with colleagues around the world. Companies can use the best and lowest-cost talent
from around the world and lower their real estate costs.
While the promise with virtual teams is great, they are a challenge to manage well. In a study of virtual teams
conducted by management scholars Vijay Govindarajan and Anil Gupta, it was found that 82% of the teams fell
short of their goals and 33% rated the teams as largely unsuccessful. In a study of virtual teams undertaking IT
projects conducted by Deloitte, a management consulting firm, 66% of the teams failed to satisfy client’s
requirements.
However, others studies show that well managed virtual teams can offer great value for corporations. In a study of
global software teams, researchers from the Boston Consulting Group and WHU School of Management found that
well-managed dispersed teams can outperform those in shared office space. Similarly, an Aon Consulting report
found that using virtual teams can lead to improved employee productivity, in some cases by up to 40%.
These results reinforce the idea that virtual teams have great potential, but they need to be consciously and
effectively managed by organizations.
Source: Ferrazzi, K. 2014. Managing Yourself: Getting Virtual Teams Right. Harvard Business Review, December:
120–123.
The SUPPLEMENT below describes the importance of technology in linking
organizations virtually. It describes a virtual organizing initiative that led to cost savings and
faster response times.
Extra Example: Technology-Enabled Virtual Organizing Enhances
Productivity at Analog Devices
When Analog Devices, a global designer and manufacturer of semiconductors needed to enhance collaboration
among the 9,000 engineers it employs around the world, it turned to virtual organizing. Analog Devices produces a
wide range of integrated circuits for analog, digital, and mixed signal processing used in many sectors of the
economy including cars, cameras, medical imaging, and factory automation. It is a competitive arena and Analog
Devices reasoned it could respond faster and be more competitive if the engineering staff could collaborate more
effectively across long distances.
To achieve this, it made infrastructure changes that allowed it to be more agile and operate more virtually. First, it
introduced Voice over IP (VoIP) at all its U.S. sites. This alone led to efficiencies that saved the company thousands
of dollars per month, in part because it allowed engineers on both sides of the Atlantic to collaborate in real time
without interruption. Secondly, it increased the capacity of its network such that engineers could share information
from very large databases using “any-to-any” conversion processes, that is, a uniform method of converting all
message structures into easy-to-understand formats regardless of the message syntax. In other words, it allows for
exchanging information that previously might have been incompatible with drag and drop ease. According to David
Coughlan, Analog Devices’ Network Planning and Design Manager, “The [new] network has allowed our total
throughput to triple. . . . That was a twofold win: dollar savings with huge service improvements.”
Sources: Dharmagadda, T. 2009. Why is the concept of ‘virtual organizations’ all encompassing?
http://tushneem.wordpress.com, May 24: np. Anonymous. 2007. Analog Devices case study. www.bt.com, March 19:
np.
Discussion Question 30: What are some other ways that virtual organizing—either with
the help of technology or not—might contribute to costs savings and service
improvements?
The SUPPLEMENT below points out that effective leadership is the number one factor
that influences success in a virtual organization. Moreover, it discusses the importance of
Extra Example: Transitioning to a Virtual Organization
The virtual workspace can be defined as an environment where employees work away from company locations and
communicate with their respective workplaces via telephone or digital devices. The virtual organization has different
and/or greater challenges than the traditional face-to-face workplace environment, with lines of work crossing over
geographies, markets, cultures, alliances, partnerships, and supplier networks.
The very nature of virtual work requires planning and thoughtful design. The development and evaluation of virtual
teams present a unique opportunity for HR to partner with many different elements of the business. Further, with
increasing dependence on technology for communication in the workplace, the role of leadership is changing.
Leaders of virtual workplaces require certain essential skills including a strong focus on relationships, emotional
intelligence, a track record of results and innovation, a focus on process and outcome, and the ability to give positive
and constructive feedback. HR should be part of any pilot program to help leaders understand, anticipate and
mitigate management problems. Elain Orler, president of talent Function Group LLC, summarizes, “Leaders need to
be more flexible in how and when they communicate. Some people connect on instant messenger while others prefer
text messages…the more flexibility I have, the more I can connect with my diverse team.” Flexibility of leadership
seems to be the paramount to ensure success in virtual workplace.
Source: Anonymous. 2010. Successfully transitioning to a virtual organization: Challenges, impact and technology.
HR Magazine. April. Vol. 55 Issue 4: 1–9.
Discussion Question 31: The supplement above discusses the role of leadership in a
virtual workplace. Can you think of an example of how a leader bridges and understands
cultural differences in a virtual workplace?
Discussion Question 32: Can such virtual organizations be successful in the long run?
How can leaders motivate employees whom they rarely see in person? Can relationships
develop in such an environment? Are they relevant for productivity?