Chapter 8
ORGANIZATIONAL STRUCTURE AND CONTROL SYSTEMS
LECTURE OUTLINE
General Outline
Opening Profile: BMG Signs Distribution Deal with Alibaba
Organizational Structure
Evolution and Change in MNC
Organizational Structures
Management in Action: Procter & Gamble’s Think Globally–Act Locally Structure
Emergent Structural Forms
Teams as a Global–Local Structure
Comparative Management in Focus: Changing Organizational Structures of
Emerging Market Companies
Interorganizational Networks The Global E-Corporation Network Structure
The Transnational Corporation (TNC) Network Structure
Summary of Key Points
Discussion Questions
Application Exercises
Experiential Exercise
Case Study: HSBC in 2015: Complex Global Operations and Downsizing
Chapter Learning Objectives (see slides 8-2 & 8-3)
8-1 To understand the importance of appropriate organizational structures to effective s
strategy implementation.
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to appreciate the role of teams in achieving business goals.
Chapter Learning Goals and Opening Profile: BMG Signs Distribution Deal with
Alibaba (see slides 8-4 & 8-5).
China’s leading ecommerce group Alibaba has signed with BMG in the latest content
deal featuring Chinese internet companies. The deal includes digital rights to more than
2.5m recordings and shows Alibaba’s intention to grow its share of the music market.
The deal indicates that it is possible to make money in China, a long-time center for
piracy. Major record companies have signed licensing agreements with China’s online
music services. but a crackdown against sharing sites with copyrighted material is under
II. Evolution and Change in MNC Organizational Structures (see slide 8-8)
A. Historically, a firm reorganizes as it internationalizes to accommodate new
strategies. The structure typically continues to change over time with growth and
with increasing levels of investment or diversity and as a result of the types of
entry strategy chosen.
B. At each stage of international involvement, the firm’s managers redesign the
organizational structure to optimize the strategy’s chances to work, making
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follow the stages model because they may start their internationalization at a
higher level of involvement.
C. Even a mature MNC needs to make structural changes from time to time to
facilitate changes in strategy—perhaps a change in strategy from globalization or
an effort to improve efficiency or effectiveness.
E. To facilitate access to and development of specific foreign markets, the firm can
take a further step toward worldwide operations by reorganizing into a domestic
structure plus foreign subsidiary in one or more countries. This is shown in
Exhibit 8-1 (see slide 8-10).
F. With further market expansion, the firm may then decide to specialize by creating
an international division, organized along functional, product, or geographic lines.
The creation of an international division facilitates the beginning of a global
G. Integrated Global Structures (see slide 8-11)
1. To respond to increased product diversification and to maximize benefits from
both domestic and foreign operations, a firm may choose to replace its
international division with an integrated global structure. This structure can be
organized along functional, product, geographic, or matrix lines.
2. The global functional structure is designed on the basis of the company’s
functions—production, marketing, and finance, and so forth. Foreign
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4. Each regional manager is then responsible for the operations and performance
of the countries within a given region. In this way, national and regional needs
and relative market knowledge take precedence over product expertise. Local
managers are familiar with the cultural environment, government regulations,
and business transactions. In addition, their language skills and local contacts
facilitate daily transactions and responsiveness to the market and the
customer.
H. Although this is a good structure for consolidating regional expertise, problems of
coordination across regions may arise. With the geographic structure, the focus is
on marketing, because products can be adapted to local requirements
I. A matrix structure (see slide 8-14) is a hybrid organization of overlapping
III. Organizing for Globalization (see slides 8-15 & 8-16)
A. No matter what the stage of internationalization, a firm’s structural choices
always involve two opposing forces: the need for differentiation (focusing on and
specializing in specific markets) and the need for integration (coordinating those
same markets). The way the firm is organized along the differentiation-integration
continuum determines how well strategies—along a localization-globalization
continuum—are implemented.
arranged around broader functional themes to streamline its technologies and
compete better with Apple and Google in the global mobile and Internet markets.
C. Organizing to facilitate a globalization strategy typically involves rationalization
and the development of strategic alliances. To achieve rationalization, managers
choose the manufacturing location for each product based on where the best
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1. In their rush to get on the globalization bandwagon, too many firms have
sacrificed the ability to respond to local market structures and consumer
preferences. Managers are now realizing that a compromise must be made
along the globalization-regionalization continuum, and they are experimenting
with various structural configurations to “be global and act local.”
2. Although strategy may be the primary means to a company’s competitive
advantage, the burden of realizing that advantage rests on the organizational
structure and design. Because of the difficulties experienced by companies
Asia Pacific Division (APD), based in Singapore.
In the LSEMA division there is a network of nine sales offices, six
distribution centers, and three production facilities, employing a total of
approximately 4,600 people. The headquarters are located in Brussels,
Belgium. The company’s European franchise partners bring the products to
consumers throughout the region.
Under the Lens: Amazon of India Uses Curry-Carrying Dabbawallas to Spice up Parcel
Delivery (see slide 8-18)
India’s leading online retailer is launching a low-tech approach to deliveries – by
joining forces with 5,000 dabbawallas, famous for carting hot curry lunches around
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Mumbai. In an unusual experiment in just-in– time logistics, Flipkart, is launching a tie-
up with the city’s network of bicycle-riding delivery- men, who ferry lunch boxes in
India’s financial capital each day. The deliverymen pick up home– cooked meals, before
Management in Action: Procter & Gamble’s “Think Globally—Act Locally” Structure
(see slide 8-19)
Procter & Gamble is succeeding with a global-local strategy through the use of its “four
pillars” structure. P&G’s organizational structure is built on the following units: 1)
Global Business Units (GBU)—build major brands with robust strategies; 2) Market
Comparative Management in Focus: Changing Organizational Structures of
Emerging Market Companies (see slide 8-20)
Rapidly changing competition and global business activities demand that companies run
their worldwide operations efficiently and effectively. Stable organizational structures
IV. Chapter Learning Goals (see slide 8-21)
A. Teams as a Global–Local Structure
1. Similar to a matrix structure, but more fluid, flexible, independent, and
often short-term, are the now common global teams that crisscross
functional and geographic lines on any of the formalized structures
described in this chapter.
B. Interorganizational Networks (see slide 8-22)
1. Whether the ever-expanding transnational linkages of an MNC consist of
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2. The complex linkage in networks highlights the intricate task of a giant MNC
to rationalize and coordinate its activities globally to achieve an advantageous
cost position while simultaneously tailoring itself to local market conditions
(to achieve benefits from differentiation).
C. The global e-corporation network structure
1. The organization structure for global e-businesses involves a network of
virtual e-exchanges and “bricks and mortar” services. Those services may be
D. The transnational corporation (TNC) network structure
1. To address the globalization-localization dilemma, firms that have evolved
through the multinational form and the global company are now seeking the
advantages of horizontal organization in the pursuit of transnational
capability—that is, the ability to manage across national boundaries, retaining
local flexibility while achieving global integration. This capability involves
linking their foreign operations in a flexible way to one another and to
headquarters, thereby leveraging local and central capabilities.
V. Choice of Organizational Form
A. Two major variables in choosing the structure and design of an organization are
the opportunities and need for (1) globalization and (2) localization.
Exhibit 8-6 (see slides 8-24 & 8-25) summarizes alternative structural forms
appropriate to each of these variables and to the strategic choices regarding the
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Teaching Tip: Schools of Business are often very similarly designed. Ask students to attempt a
redesign of the structure of the Business School at your university. What would be the
advantages and challenges of changing the organizational form of the business school?
C. Organizational Change and Design Variables (see slide 8-28)
1. When a company makes drastic changes in its goals, strategy, or scope of
operations, it is usually quite clear that a change in organizational structure is
called for as well. Exhibit 8-8 lists some indications of the need for change in
organizational design.
Teaching Tip: Ask your students how much autonomy and control they would want if they
were the subsidiary manager. They will likely answer they wish to have near total authority.
Ask them to switch roles. If they ran the home office, how much authority would they want
to give? Ask them to reconcile the differences in their answers.
4. In summary, there is no one best way to organize. Contingency theory applies
to organizational design as much as to any other aspect of management. The
VI. Chapter Leaving Goals (see slides 8-30 & 8-31)
A. To complement the organization structure, the international manager must design
efficient coordinating and reporting systems to ensure that actual performance
conforms to expected organizational standards and goal.
Under the Lens: FIFA—Restructuring for Governance Oversight of Ethics
(see slide 8-31)
Following the proposals made by the FIFA President, Joseph S. Blatter, at the
FIFA Congress on June 1, 2011 in terms of good governance, transparency, and zero
B. Control Systems for Global Operations (see slide 8-33)
1. The design and application of coordinating and reporting systems for foreign
subsidiaries and activities can take any form that management wishes.
C. Direct Coordinating Mechanisms
1. Direct mechanisms that provide the basis for the overall guidance and
management of foreign operations include the design of appropriate
regular meetings.
D. Indirect Coordinating Mechanisms
1. Domestic companies invariably rely on budgets and financial statement
analyses, but foreign subsidiaries, financial statements, and performance
evaluations are complicated by financial variables in MNC reports, such as
exchange rates, inflation levels, transfer prices, and accounting standards.
2. To reconcile accounting statements, MNCs usually require three different sets
of financial statements from subsidiaries. One set must meet the national
accounting standards and procedures prescribed by law in the host country;
VII. Managing Effective Monitoring Systems (see slide 8-34)
A. Management practices, local constraints, and expectations regarding authority,
time, and communication are but a few of the variables likely to affect the
appropriateness of monitoring systems. How transferable headquarters’ practices
and goals are probably depends on whether top managers are from the head
office, the host country, or a third country. In addition, information systems and
evaluation variables must all be considered when deciding on appropriate
systems.
B. The appropriateness of monitoring and reporting systems
1. One example of differences in the expectations regarding monitoring
practices, and therefore in the need for coordination systems, is indicated by a
C. The role of information systems
1. Reporting systems such as those described in this chapter require sophisticated
information systems to enable them to work properly—not only for
competitive purposes, but also for purposes of performance evaluation. Most
international reporting systems require information feedback at one level or
evaluation process.
D. Evaluation variables across countries
1. A major problem in the evaluation of the performance of foreign affiliates is
the tendency by headquarters managers to judge subsidiary managers as if all
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2. Clearly, one way to ensure more meaningful performance measures is to
adjust the financial statements to reflect the uncontrollable variables peculiar
to each country where a subsidiary is located. This provides a basis for the
true evaluation of the comparative return on investment (ROI), which is an
overall control measure. Another way to provide meaningful, long-term
performance standards is to take into account other nonfinancial measures.
3. The coordination process is the same whether it takes place in a domestic
company, a multinational company with a network of foreign affiliates, or a
specific IJV. It is the extent, the focus, and the mechanisms used for
Conclusion (see slide 8-35)
Internet Resources
Chapter Discussion Questions
8-1. What variables have to be considered in designing the organizational structure
for international operations? How do these variables interact, and which do you
think are most important?
Learning Objective: 1; AACSB: Analytic skills
The firm’s strategy, size, appropriate technology, and local environment, including
culture, are the variables to be considered. Students should be able to discuss linkages
between strategy and structure, size and structure, and culture and structure. Some
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8-2. Explain the need for an MNC to “be global and act local.” How can a firm
design its organization to enable this?
Learning Objective: 2; AACSB: Dynamics of the global economy
Despite the many economies of scale advantages to be obtained by global strategy,
companies still find it necessary to respond to local markets and customs. Being
8-3. What is a transnational organization? Because many large MNCs are moving
toward this format, it is likely that you could at some point be working within
this structure—how do you feel about that?
Learning Objective: 2; AACSB: Analytic skills
A transnational organization is an emergent structural form that provides the
company with the ability to manage across national boundaries, retaining local
flexibility while achieving global integration. This capability involves linking their
8-4. Discuss the implications of the relative centralization of authority and decision
making at headquarters versus local units or subsidiaries. How would you feel
about this variable if you were a subsidiary manager?
Learning Objective: 4; AACSB: Analytic skills
Exhibit 8-9 provides a continuum of the relative centralization of authority. Students
need to understand that the level of centralization/decentralization is contingent on
8-5. As an international manager, what would make you suggest restructuring of
your firm? What other means of direct and indirect monitoring systems could
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you suggest?
Learning Objective: 5; AACSB: Analytic skills
Exhibit 8-8 offers an answer to the first part of this question. These indicators of
8-6.What is the role of information systems in the reporting process? Discuss the
statement, “Inadequate MIS systems in some foreign affiliates are a control
problem for MNCs.”
Learning Objective: 3; AACSB: Use of information technology
Because control depends upon information, and information comes from managed
Application Exercises
8-7. If you have personal access to a company with international operations, try
to conduct some interviews and find out about the personal interactions
involved in working with the organization’s counterparts abroad. In
particular, ask questions about the nature and level of authority and
decision making in overseas units compared with headquarters. What kinds
of conflicts are experienced? What changes would your interviewees
recommend?
Learning Objective: 4; AACSB: Analytic skills
Although not all students may have the opportunity to personally visit companies
8-8. Do some research on monitoring and reporting issues facing an MNC with
subsidiaries in (1) a country in Asia, and (2) a country in South America.
Discuss problem areas and your recommendations to the MNC management
as to how to control potential problems.
Learning Objective: 5; AACSB: Analytic skills
One of the major issues facing MNCs with operations in India and Eastern Europe
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8-9. Find out about a foreign company with an IJV in the United States. Google
some articles, email the company for information, and if possible visit the
company and ask questions. Present your findings on the company’s major
control issues to the class—both at the beginning of the venture and now.
What is the company doing differently in its control process compared to a
typical domestic operation? Are the control procedures having the desired
results? What recommendations do you have?
Learning Objective: 5; AACSB: Analytic skills
In researching international join ventures, it might be interesting to have
Experiential Exercise
A number of companies have opened fast-food operations in Eastern Europe.
McDonalds, Pizza Hut, KFC, and others are now operating in Eastern European
countries. A good source of information can be found at the Center for International
Business Studies at the University of Manitoba
https://umanitoba.ca/libraries/units/management/media/eastern_europe02.pdf
This link is to a detailed report on operating a business in the region and should be very
useful to students.
End-of-Chapter Case Study: HSBC in 2015: Complex Global Operations and
Downsizing
8-10. How do you evaluate HSBC’s global reorganization after the 2008 global
financial crisis, its position in 2015, and its current position?
Learning Objective: 1; AACSB: Dynamics of the global economy
By March 2015, global operations had become complex and puzzling because of
fast growth, diverse and complex organizational structure, and control systems in
8-11. Compare and contrast HSBC and other multinational banks in global
business.
Learning Objective: 2; AACSB: Analytic skills
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In 2014, HSBC had 6,300 offices in 75 countries and was headquartered in
London, U.K. HSBC was rated the second largest bank in the world with total
assets of $2.68 trillion after Industrial and Commercial Bank of China ($2.95
8-12. What did you learn from HSBC’s case when applying concepts and theories
from this chapter?
Learning Objective: 1; AACSB: Analytic skills
Chapter 8 is about organizational structures and about how – if correctly matched
to the situation and industry- the corporate structure and systems can provide a
significant competitive edge. HSBC’s case demonstrates the main points of the
Web Exercise
Since 2008, the global economy has been greatly affected by the economic downturn.
How has this affected the strategies of those companies who went “global” in the early
2000s? Has the global e-corporation network structure been affected and if so, how?
Select four to five companies in different fields, as mentioned in the text, and evaluate
their changing strategies as a result of the economic downturn.