Organization of the Multinational Firm

1. Organization of the Multinational Firm VK Int. Unternehmensführung SS 2005 Elmar Kiesling, 0008665 Irmgard Krebner, 9804601 Padmini Ranawat, 9905070

2. Outline • Introduction • Structural Designs for Global Operations • Home-based vs. heterarchical MNC • Multidivisional & Network Form (M&N) • The Transnational form • Case Study: Acer • A glimpse at the future: 2 scenarios • Discussion Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

3. Global trends and developments • Intense competition among developed countries • Increasing competition through newly industrialized Asian countries • Shift towards market economies (e.g. Eastern Europe, China) • Power blocks (e.g. European Union, Yen-Block, NAFTA) Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

4. Today´s Challenges To enable organizations to compete effectively in this global environment MNC´s have to: • be at least as good as a local firm providing similar products or services • approach new organization design possibilities Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

5. Stages of International Development Global Multinational International Domestic Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

6. Global Transnational International explorer Multidomestic International corporate structure model High Economies of global standard-ization and size Low High need for localization Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

7. Structural Designs for Global Operations Global product structure • Product divisions responsible for global operations • Uses globally based advantages • Overlook of locally advantages Geographic area structure • Each region has functional activities • Exploits local advantages Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

8. Structural Designs for Global Operations Matrix structure • balances global product and local market concerns • Problems: • complexity • dual reporting structure • confusion over responsibility and decision making • Solution: 3 C’s • clarity of firm’s basic objectives • continuity in commitment to those objectives • consistency in the work of divisions together Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

9. Structural Designs for Global Operations Horizontal organization • Structured around workflows and processes • Flat vertical hierarchy • Management tasks delegated to lowest level • Customer-driven Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

10. Horizontal organization structure Decision making: • lateral decision processesdirect contact, temporary task forces, self-directed teams, … • horizontal network flexible responding to external changes • common decision premises shared set of values Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

11. Horizontal organization structure Differentiation from matrix structure: • Coordination more mixed and flexible • Internal flexible processes link system elements • Latterly resolution of conflicts Advantages: • Simultaneously achieving global and local advantages • reduced barriers among departments Problems: • Time intensive coordination of decisions • „Being stuck in the middle“ Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

12. Home-based vs. heterarchical MNC • Home-based: • Core functions (strategic decision making, R&D etc.) in a limited geographic area • Links to • other firms • local research and education facilities • governmental bodies • Heterarchical: • many centers of different kinds • combining diverse technologies worldwide Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

13. Home-based MNC • „Simple“ home-based MNC • Home base of all businesses in home country • Selective tapping • Core technology in home base • Selective tapping of international environment for support • Multi-home-based MNC • Separate bases for individual lines of businesses • Often connected to mergers and acquisitions Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

14. Heterarchical MNC • Many centers: traditional HQ functions geographically dispersed • Holographic structure: information stored in each part of the organization • Interdependencies: tasks of any unit complexly related to the tasks of other units • „firm as a brain“: thinking not only restricted to one exclusive center, but goes in whole enterprise => global competitive advantage Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

15. Multidivisional & Network Form (M&N) Contrasts between the multidivisional and the network : Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

16. The Transnational form • Network form:philosophy of responsiveness, flexibility and ability to learn of a MNC in a borderless world • Objective: respond to the MNC´s central dilemma of having to be globally integrated but locally responsive at the same time Multidomestic form Global form Transnational form Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

17. The Transnational form Asymmetricalorganizational form: • Multilateral communications between all levels and layers • Resources, responsibilities and decision-making dispersed across all types of units Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

18. Case Study: Acer Group • Taiwanese company founded 1979 • PC and computer component manufacturer • 1992: „global brand, local touch“ • First corporate re-engineering • Decentralized its organization towards network structure Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

19. Client-server organization (1994) RBUs SBUs Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

20. Restructuring 1997-1998 • External challenges: • Direct vendors, price cuts of market leaders • New price war (sub-$1000 PCs) • Internal problems: • Service and support • Serious coordination problems • Redundant functions • Duplicate investments • Inefficient use of enterprise resources. • Lack of IT infrastructure • No common information system Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

21. Organizational structure 1998 1997-98: simplification of organization structure restructuring into 5 core businesses: Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

22. Organizat. structure since 2001 • Flexible, cell based organization structure • Interaction of semi-autonomous firms Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

23. A glimpse at the future: 2 scenarios for 2015 • Elaborated by MIT Scenario Working Group between 1994 and 1997 • Main focus: size of companies Two extreme scenarios for 2015: • Small companies, large networksnearly every task is performed by autonomous teams • Virtual countriesdominance of keiretsu-style alliances Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

24. 1. Small companies, large networks • Linked by fluid networks • Temporary combinations for each project • Importance of electronic markets • Rapid innovation in dynamically changing markets e.g. radical outsourcing in producing athletic shoes, computer displays and software Autonomous and self-organizing teams of 1-10 Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

25. 1. Small companies, large networks Stable communities providing: • health insurance • protection against unemployment and income fluctuation • professional development • sense of belonging Comparable to guilds of pre-industrial times e.g. guilds in film industry Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

26. 2. Virtual countries • Providing job-security, health care etc. • Pervasive role of firms in employees‘ lives • Employee ownership of firms • Employee selection of firm management • Oligopolistic structure in most sectors • Minimal national allegiance e.g. Merger wave Large vertically- and horizontally-integrated firms each with operating companies in almost every industry Introduction Structural Designs Home/heterarchical M&N Transnational form Case Study Scenarios

27. Discussion Thank you for your attention!

28. References • Daft, R. (1998), Organization Theory and Design, Chicago, Chap. 7. • White, R. E., T. A. Poynter (1991), Organizing for World-wide Advantage, in: C. A. Bartlett, Y. Doz, G. Hedlund (eds.), Managing the Global Firm, London, 95- 113. • Söllvell, Zander (1995) Organization of the Dynamic Multinational Enterprise, Int. Studies of Organization and Mangement, 25. 17 - 38. • Segal-Horn & Falkner (1999), The Dynamics of International Strategy, Ch. 9. • Laubacher, R. J., T. W. Malone (1999), Two Szenarios for 21st Century Organizations: Shifting Networks of Small Firms or All-Encompassing ‚Virtual Countries‘, Working Paper, MIT. • Dedrick, J., K. L. Kraemer, T. Tsal (1999), Acer: an IT company learning to use Information Technology to compete, Center for research on IT and organization, University of California