Chapter 14 ‒ The Organization of International Business
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The Organization of International Business
Learning objectives
• Explain what is meant by
organizational architecture
choices that can be made in an
international business.
global strategy to improve
performance.
• Discuss what is required for an
strategy.
This chapter identifies the organizational
architecture that international businesses use to
manage and direct global operations. The core
organizational architecture must be internally
consistent.
Third, the strategy and architecture of the firm
must be consistent with competitive conditions
architecture at the British-Dutch conglomerate,
Unilever Group. With over one billion euros in
annual sales, the company is a complex one,
employing 170,000 people. The closing case
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Chapter 14 ‒ The Organization of International Business
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OUTLINE OF CHAPTER 14: THE ORGANIZATION OF
Vertical Differentiation: Centralization and Decentralization
Management Focus: Walmart International
Horizontal Differentiation: The Design of Structure
Management Focus: Dow—(Failed) Early Global Matrix Adopter
Integrating Mechanisms
Processes
Organizational Culture
Creating and Maintaining Organizational Culture
Organizational Culture and Performance in the International Business
Management Focus: Lincoln Electric and Culture
Environment, Strategy, Architecture, and Performance
Organizational Change
Organizational Inertia
Implementing Organizational Change
Chapter Summary
Chapter 14 ‒ The Organization of International Business
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CLASSROOM DISCUSSION POINT
Pick a few companies with international operations like The Gap, Nestlé, and Toyota.
Ask students to identify what issues are important for these companies as they develop
their strategies. Try to get students to think in terms of the trade-offs between pressure for
cost reduction and pressure for local responsiveness.
Then, ask students to think about how each company should be organized in order to
successfully carry out their strategy. Jot the responses on the board in a diagram form
following the framework presented in the text.
Finally, using company websites, explore how close students got to each firm’s actual
organizational structure. If significant differences exist between expected structure and
the actual structure, discuss why.
OPENING CASE: Unilever’s Global Organization
Summary
The opening case explores organizational architecture at Unilever, the British-Dutch
conglomerate. The Unilever Group involves a number of agreements between the Dutch
and British sides of the business that organize the company into four main divisions:
Food, Refreshment, Home Care, and Personal Care. Within these divisions are some 400
miscellaneous brands and 13 core brands. Discussion of the case can begin with the
following questions:
QUESTION 1: Unilever owns 400 brands, but counts just 13 as being the core of its
business. Based on this information, what type decision making strategy would you
expect Unilever to follow and why?
ANSWER 1: Despite owning some 400 brands, Unilever views just 13 as being central to
working to achieve common goals.
QUESTION 2: Consider organizational culture at Unilever. Given its dual-nationality
along with its size, what norms and values would be important to the company?
ANSWER 2: Unilever’s unique corporate format of being composed of two companies
Chapter 14 ‒ The Organization of International Business
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Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
promoting a global mindset could facilitate communication and cross-cultural
understanding among employees.
QUESTION 3: With 400 brands and a presence in countries around the world, Unilever
is a complex organization. How can the company minimize duplication of effort across
its product lines and divisions?
ANSWER 3: Most students will probably suggest that centralizing decision making is
Another Perspective: To explore Unilever in more depth, go to the company’s website at
{https://www.unilever.com/}.
LECTURE OUTLINE
This lecture outline follows the Power Point Presentation (PPT) provided along with this
clicking on “view,” then on “notes.” The following provides a brief overview of each
Power Point slide along with teaching tips and additional perspectives.
Slide 14-3 Introduction
Three conditions must be satisfied for an organization to deliver profitability: architecture
must be internally consistent; strategy and architecture must be consistent; and strategy
and architecture together must be consistent with the competitive environment of the
firm.
Slides 14-4 – 14-6 What Is Organizational Architecture?
Organizational architecture refers to the totality of a firm’s organization, including
formal organizational structure, control systems and incentives, processes, organizational
culture, and people.
Organizational structure refers to:
• the formal division of the organization into subunits.
• the location of decision-making responsibilities within that structure (centralized
versus decentralized).
• the establishment of integrating mechanisms to coordinate the activities of
subunits including cross-functional teams or pan-regional committees.
Control systems measure and evaluate managerial performance and the performance of
subunits. Incentives connect to control systems, and processes need to be consistent with
Chapter 14 ‒ The Organization of International Business
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Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
the strategic objectives of the organization. Efforts to shape values and norms in an
organization are intricately linked to human resource practices, especially at the selection
and recruitment stages. Processes refer to the manner in which decisions are made and
work is performed within the organization.
We can view organizations as societies of individuals coming together to perform
collectives tasks. The norms and values that are shared among employees refer to the
firm’s organizational culture.
Slides 14-7 – 14-28 Dimensions of Organizational Structure
Organizational structure has three dimensions:
1. Vertical differentiation—the location of decision-making responsibilities within
a structure
2. Horizontal differentiation—the formal division of the organization into subunits
3. The establishment of integrating mechanisms—the mechanisms for coordinating
subunits
Vertical Differentiation: Centralization and Decentralization
Vertical differentiation determines where decision-making power is concentrated.
Global Matrix
The global matrix structure is an attempt to minimize the limitations of the worldwide
area structure and the worldwide product divisional structure.
Integrating Mechanisms
Chapter 14 ‒ The Organization of International Business
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1. Personal controls—control by personal contact with subordinates
2. Bureaucratic controls—control through a system of rules and procedures that
directs the actions of subunits
3. Output controls—setting goals for subunits to achieve and expressing those
goals in terms of relatively objective performance metrics
4. Cultural controls—exist when employees “buy into” the norms and value
systems of the firm
Incentive Systems
Incentives are the devices used to reward behavior. Incentives are usually closely tied to
Chapter 14 ‒ The Organization of International Business
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• national social culture
• socialization processes
• communication strategies
Managers in companies with a “strong” culture share a relatively consistent set of values
and norms that have a clear impact on the way work is performed.
A strong corporate culture is typically discussed as a positive phenomenon, but a strong
social-media-use-increases-work-productivity}.
Another Perspective: Corporate culture is becoming increasingly important in firms. To
learn more, go to: {https://www.forbes.com/sites/larryalton/2017/02/17/why-corporate-
culture-is-becoming-even-more-important/#3fc80ee569da} and
{https://www.forbes.com/sites/chriscancialosi/2015/03/02/4-questions-that-will-define-a-
need for integrating mechanisms, have low performance ambiguity, and control costs.
Firms pursuing an international strategy create value by transferring core competencies
from home to foreign subsidiaries. They have moderate needs for control and integrating
mechanisms. Performance ambiguity is relatively low and so is the cost of control.
Firms pursuing a global standardization strategy focus on the realization of location and