INTERNATIONAL MANAGEMENT Chapter 13: The Structure of the International Firm
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Chapter 13
THE STRUCTURE OF THE INTERNATIONAL FIRM
Learning Objectives
After studying this chapter, you should be able to:
2. learn how to pick the structure that is right for your organization.
3. understand and analyze issues surrounding restructuring firms, including firm
turnaround and reengineering.
General Teaching Suggestions
Identify few major international firms. Divide the class into teams. Assign a firm to each
team and research the organizational structure of each firm. Guide the discussion into the
concepts in the chapter.
Opening Case Discussion Guide
The case describes Honda Motor Company’s efforts to address concerns in its dealerships
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CHAPTER OUTLINE: KEY CONCEPTS AND TERMS
Sections I through V of Chapter 13
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I. DIFFERENT ORGANIZATIONAL STRUCTURES
1. Key Concepts
The need for different types of organizational structure is consistent with a firm’s
growth and evolution. As an enterprise becomes more complex there is a need for
its organizational structure to change, as the enterprise has more people and a
greater need to achieve coordination between its various units.
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structure. In an M-division structure, the firm is divided into different divisions,
sometimes along product lines, each of which has its own internal set of
functional areas.
• Strategic Business Unit: As firms grow larger they may find that they have so
many distinct and different businesses that another layer of management must be
2. Key Terms
• Organizational structure – The official manner in which the various parts of a
business are to report and coordinate with each other, and at what levels
decisions are made.
• Administrative component – The ratio of support staff (e.g. secretaries and
supervisors) to line staff directly engaged in the production and distribution of an
organization’s products and services.
II. HOW TO DECIDE WHICH STRUCTURE IS RIGHT
1. Key Concepts
Organizations need to adopt the structure that fits their situational factors because
this leads to higher organizational performance, and the organization needs to
look at a variety of factors to choose which may be the best structure. The issues
to consider include:
• Size: As an organization grows, new layers of management are introduced to
• Degree of Diversification: A large organization with activities which are strongly
related to each other is expected to have a functional structure or perhaps a
INTERNATIONAL MANAGEMENT Chapter 13: The Structure of the International Firm
• Technology: The nature of the technology used by a firm makes a significant
difference in how the business is operated and should be structured.
2. Key Terms
• Economies of scale – Average unit costs decline as production quantity increases
over a limited period of time.
III. IMPLEMENTING CHANGE IN AN ORGANIZATIONAL STRUCTURE
1. Key Concepts
There are a few fundamental rules that should underlie any efforts to change a
firm’s structure if the business ultimately determines it needs a different
organizational structure. These rules apply whether the structural change affects a
small part of the firm or its entire organization.
i. First, participation and communication are important to this process.
IV. INFORMAL ORGANIZATIONS
1. Key Concepts
Informal organizations are the unofficial connections that exist among individuals
in a business. Such informal structures and groups in a business can be stronger
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V. SUMMARY
1. Key Concepts:
• Organizational structure is a critical element to a firm’s success.
• There is no dogmatic answer about which structure is best. The key is for the
organization to match its structure with its given situation.
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END-OF-CHAPTER GUIDE
* MANAGERIAL GUIDELINES
* OPENING VIGNETTE DISCUSSION QUESTIONS
* DISCUSSION QUESTIONS
* IN-CLASS EXERCISES
* TAKE-HOME EXERCISES
* SHORT CASE QUESTIONS
MANAGERIAL GUIDELINES
1. Structure and strategy are intertwined and important to each other. The firm
cannot prosper if the two are not aligned.
2. Well-known business historian Alfred Chandler argued that organization structure
3. The alignment of structure and strategy needs to consider a varied set of issues,
such as diversification (both level of product and internationalization), size, and
stakeholders.
4. The structure should allow a firm’s strategy to be implemented correctly.
5. The firm’s national culture also helps to determine which organizational structure
6. The structure can be different from that which the culture may have indicated was
7. In mature organizations, the ability to create learning organizations can provide a
competitive advantage as the firm’s employees learn to adapt and change.
Table 13-1 is helpful to students or managers as they analyze the type of structure
they can expect in different international settings.
OPENING VIGNETTE DISCUSSION QUESTIONS
1. Do you think Japan’s cohesive culture helped Honda make the structure changes
discussed?
Discuss the efforts of restructuring an organization in a high-tradition bound
2. We previously looked at the work of Dr. Deming and the quality movement.
Japan has a strong interest in the concepts of quality. How do you think those
concepts would have affected the structural changes identified here?
It was discussed in earlier chapters that while “quality circles” worked well in
Japan, they did not catch on as well in other parts of the world. As discussed in
the section on implementing structural changes, two important factors that
impacts the process are:
i. Participation and communication by all parties involved.
DISCUSSION QUESTIONS
1. Why do you think strategy and structure are so interconnected?
In discussing strategy in Chapter 5, it was noted that the functional-, business-,
2. Referring to the discussion on ethnic communities, discuss why you think such
ethnic or religious minorities have been able to develop greater achievements in
certain fields than others?
Cohesiveness as a cultural factor has been influential in determining the
3. Name key advantages and disadvantages of three different organizational
structures.
4. Are there specific industries in which you would expect a matrix structure to do
particularly well?
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IN-CLASS EXERCISES
1. Sam’s Club is Wal-Mart’s low-cost warehouse unit. Break into teams and design
what you might think would be a good organizational structure for the firm.
2. Examine the concept of set-asides in the defense industry. Break into to teams and
design what you believe would be a matrix structure for an international defense
industry firm like Lockheed Martin.
3. Assume you and a team of other students from your school form a new firm that
quickly grows to 100 employees. The firm is an Internet company that designs
marketing programs for major international clients that are in the business of
selling oil-industry equipment. What should your structure look like at this point
in time? Present your ideas to the class.
As your company is delivering a service, a functional design could be
4. In an earlier chapter we learned about the case involving the failure of Barings,
the British investment firm that fell into ruin when a single employee in
Singapore invested large sums of money without the firm’s knowledge or
approval. How could such a situation have been avoided by changes in structure?
TAKE-HOME EXERCISES
1. Research the organizational structure of a Fortune 500 company. Present your
findings to the class, and be prepared to discuss the reasons why you believe the
firm pursues this given structure.
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2. Research a large multinational firm in a country other than your own. Can you
find any substantive differences in the organizational structure that may be due to
culture?
3. Research and contrast the organizational structure of McDonald’s and YUM!
Brands. Why do they have such different structures?
4. Research a large Korean firm like Samsung and its chief European rival Philips.
Why do their structures differ so much?
Despite being in the same industries, these two companies represent cultural
SHORT CASE QUESTIONS
1. Why do you think Telia had to restructure employee hierarchies in addition to the
overall organization of the business?
Student responses may vary. According to the case, the personnel department
2. Why do you think there was such a lapse in time between the two restructurings
within Telia?
3. Would a U.S. firm be able to restructure its employees in the same manner as
Telia?
Discussions on the cultural aspects of American society should help students