Portfolio Assignment

Think – Pair - Share

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Copyright © 2015 Pearson Canada Inc.

Why are coordination and flexibility important when designing organizational structure?

Slide 34 is the second “Think-Pair-Share” in this chapter. These slides are intended to stimulate discussion between students. The activity requires students to consider the question individually, and then share their thoughts with one classmate or a small group. The goals of these slides are to 1) improve students’ conceptual understanding of the material, 2) hone critical thinking skills, and 3) improve problem solving.

A: When designing organizational structure, managers seek answers to certain key questions. What is the most efficient method of linking divisions to one another? Who should coordinate the activities of different divisions in order to achieve overall strategies? How should information be processed and delivered to managers when it is required? What sorts of monitoring mechanisms and reward structures should be established? How should the company introduce corrective measures, and whose responsibility should it be to execute them? To answer these types of questions, we must look at the issues of coordination and flexibility.

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Copyright © 2015 Pearson Canada Inc.

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In this chapter, you will explore how companies select their international strategies and structures.

You will also:

• Learn about the variety of strategies that companies use in international business.
• Examine the organizational structures used in international operations.
• And understand factors relevant to selecting these strategies and structures.

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• Planning is the process of identifying and selecting a company’s objectives and deciding how the firm will achieve those objectives.
• Strategy is the set of planned actions that managers take to help a company meet its objectives. A well-defined strategy coordinates divisions and departments to achieve company-wide goals effectively and efficiently.

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• Firms must determine what products to produce, where to produce them, and where and how to market them. Whether as a site for operations or as a potential market, each international location comprises a mixture of cultural, political, legal, and economic traditions and processes that complicate decision making.
• The strategy formulation process allows managers a chance to step back from day-to-day activities and get a fresh perspective on the direction of the company and its industry.

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• A mission statement explains why a company exists and what it plans to accomplish. It often describes how a company’s operations are likely to affect stakeholders in all nations where the firm is active.
• High-level company objectives are stated in general terms, as in “to be the largest global company in each industry in which we compete.”
• Business-unit objectives tend to be more specific, as in “to mass produce a zero-pollution emissions automobile by 2015.”
• And department-level objectives often carry numerical performance targets, as in “to increase global market share by 5 percent in each of the next three years.”

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To formulate strategies, managers should analyze the company, its industry, and the markets in which it is active and those it plans to enter.

• This type of analysis helps managers identify activities that create value for customers and discover a company’s core competency.
• A core competency refers to the coordination of multiple skills to form a single technological outcome, develops over a long period of time, and is difficult to teach.

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Value chain analysis is the process of dividing a company’s activities into primary and support activities and identifying those that create value for customers. Each business activity is a source of strength or weakness for a company. Insights gained from this analysis are then fed into the strategy formulation process.

• Primary activities include inbound and outbound logistics, production, marketing and sales, and customer service. When analyzing primary activities, managers look for areas in which the company can directly increase customer value.
• Support activities include business infrastructure, human resources, technology development, and sourcing. These assist in the performance of primary activities.

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National and international business environments are extremely important to strategy formulation. Differences in language, religious beliefs, customs, traditions, and climate complicate strategy formulation.

• Manufacturing processes must sometimes adapt to local customs, traditions, work practices, and labor supply. Marketing practices must also often adapt to cultural, political, and legal differences among markets.

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What are the three stages of the strategy-formulation process, and what is involved at each stage?

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Answer:

The first stage is to identify the company’s mission and goals, which involves defining the business and its main objectives. The second stage involves identifying a company’s core competency and value-creating activities, which requires analyzing a firm’s unique abilities, primary and support activities, and the national and international business environments. The third stage is to formulate strategies, which means selecting a multinational or global strategy and then formulating corporate- , business-, and department-level strategies.

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Generally speaking, companies approach international markets using one of two international strategies. When following a multinational strategy, a company adapts its products and marketing to local preferences in each national market.

• The benefit of this approach is that it allows a company to monitor buyer preferences in each local market and respond quickly and effectively to changes in buyer preferences.
• The drawback is that a firm may not be able to exploit scale economies in product development, manufacturing, or marketing, which can make it ill-suited to price-competitive industries.

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When following a global strategy, a company offers the same products using the same marketing strategy in all markets. This approach helps firms take advantage of scale and location economies by producing entire inventories or components in a few, optimal locations.

• The benefit of this approach is the cost savings from standardized products and marketing. Also, lessons learned in one market can be shared with other markets.
• The drawback is that it allows for only simple modifications in features. If a firm overlooks an unmet customer need, a competitor may step in and create a niche market for itself by satisfying that need.

Slide 13 is the first “Think-Pair-Share” in this chapter. These slides are intended to stimulate discussion between students. The activity requires students to consider the question individually, and then share their thoughts with one classmate or a small group. The goals of these slides are to 1) improve students’ conceptual understanding of the material, 2) hone critical thinking skills, and 3) improve problem solving.

A: There is some homogenization of product preferences worldwide. However, although people of many countries desire the same products, they must often be modified at least slightly to increase their appeal in the local market. Only a few products can be made entirely the same and marketed in the exact same manner worldwide.

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Companies involved in more than one business must first formulate a corporate-level strategy by identifying the markets and industries in which it operates. The corporation develops overall objectives for different business units and determines the role of each unit in reaching those objectives.

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One type of corporate strategy is a growth strategy, which is designed to increase the scale or scope of operations. Scale refers to the size of a corporation’s activities and scope refers to the kinds of activities it performs.

• Firms can grow organically (that is, through internal sources of expansion) and by forming mergers and acquisitions, joint ventures, and strategic alliances. Potential partners for cooperation include competitors, suppliers, and buyers.

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Another corporate strategy is a retrenchment strategy, which reduces the scale or scope of a corporation’s businesses.

• Corporations can cut back the scale of operations by closing factories and laying off employees, such as during difficult economic times or when competition increases.
• They typically reduce the scope of activities by selling unprofitable business units or those in industries unrelated to the corporation’s main business.

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Another corporate strategy is a stability strategy, which guards against change and is used to avoid either growth or retrenchment. This strategy is seldom employed because it assumes that a corporation has met all objectives, is satisfied with all its accomplishments, and envisions no new opportunities or threats.

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The last corporate strategy is a combination strategy, which mixes growth, retrenchment, and stability strategies across a corporation’s business units. This approach is quite commonly used because rarely do international corporations follow identical strategies in all of its business units.

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A company that adapts its products and marketing to local preferences in each national market follows a __________ strategy.

a. Global

b. Multinational

c. Preference

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The correct answer is b. Multinational

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A company must also formulate a business-level strategy for each business unit. It may need only one strategy if it has just one line of business, or require a number of strategies for a number of businesses. Key to an effective business-level strategy is developing an appropriate general competitive strategy in the marketplace, of which there are three: low-cost leadership, differentiation, and focus.

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A company pursuing a low-cost leadership strategy exploits economies of scale to have the lowest cost structure of any competitor in its industry. This strategy works best with mass-marketed products aimed at price-sensitive buyers.

• A company following this strategy must contain administrative costs and the costs of its primary activities, including marketing, advertising, and distribution.
• Efficient production in large quantities can help a firm guard against attack by competitors because of the large start-up costs it requires.
• A drawback of this strategy is that it can encourage low customer loyalty. Price-conscious buyers will purchase from any low-cost leader, all else being equal.

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A company following a differentiation strategy designs products that buyers perceive as unique throughout an industry.

• This approach tends to force a company into a lower-market-share position because it involves the perception of exclusivity or meeting the needs of a special group.
• It can allow a company to develop a loyal customer base to offset a smaller market share and the higher costs of producing and marketing a unique product.
• Special features are used to differentiate products on the basis of quality, brand image, product design, or a combination of these factors.

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A company following a focus strategy satisfies the needs of a narrowly defined market segment by being the low-cost leader, by differentiating its product, or by doing both.

• Intense competition forces many products to be distinguished by price, quality, or design. In turn, the resulting expanded range of available products leads to more refined market segments.
• Some firms focus on a single geographic area whereas others serve the needs of one ethnic group.

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Effective department-level strategies are integral to a company achieving its corporate- and business-level objectives. Department-level strategies rely on capabilities grounded in a company’s primary and support activities.

• Each department creates customer value by helping to lower costs or by contributing to product differentiation. Manufacturing strategies can cut production costs and improve product quality, marketing strategies can promote differences from competitors’ products, efficient logistics can reap cost savings, and research and development strategies can identify unmet customer needs and design new products.

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What are the main differences between the three types of business-level strategy?

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Answer:

A low-cost leadership strategy exploits economies of scale to have the lowest cost structure of any competitor in an industry. A differentiation strategy designs products that buyers perceive as unique throughout an industry. A focus strategy focuses on the needs of a narrowly defined market segment by being the low-cost leader, by differentiating its product, or by doing both.

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Organizational structure is the way in which a company divides and coordinates its activities among separate units.

• Companies rarely centralize or decentralize all decision-making responsibilities, but strike a balance to maximize efficiency and effectiveness.
• Centralization helps coordinate international subsidiary activities, control financial resources, and promote a global organizational culture.
• On the other hand, decentralization improves local responsiveness in rapidly changing environments and increases personal accountability and commitment from managers and workers.

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The international division structure separates domestic and international activities by creating a separate international division with its own manager. A general manager for each nation in which a company operates then controls product manufacturing and marketing within that market.

• This structure concentrates international expertise in one division where the manager becomes a specialist in activities such as foreign exchange, exporting, and so forth. It can help a firm reduce costs and increase efficiency while preventing international activities from disrupting domestic operations.
• Potential problems include poor coordination between the international division and the rest of the company, and destructive rivalries between country managers within the international division.

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The international area structure organizes a company’s global operations into countries or regions. Each geographic division operates as a self-contained unit, with decision making decentralized to country or regional managers.

• This structure works well when a business operates in countries with vastly different cultural, political, and economic characteristics. General managers, then, become experts on the unique needs of local customers.
• A drawback is that units acting independently may cause resources to overlap and impair cross-fertilization of knowledge across units.

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The global product structure divides worldwide operations according to a company’s product areas. It is well-suited to a company that sells a diverse set of products. But with the primary focus on the product, domestic and international managers in each product division must coordinate their activities so they do not conflict.

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The global matrix structure splits the chain of command between product and area divisions. Each manager reports to two bosses who share decision making—the president of the product division and the president of the geographic area.

• Bringing specialists together can create a team-type organization, increase local responsiveness, reduce costs, coordinate worldwide operations, and increase coordination.
• Drawbacks can include slow decision making and reaction time due to the need for coordination, and fuzzy accountability due to shared responsibility.

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Establishing work teams can improve responsiveness by cutting across functional boundaries that slow decision making. Work teams coordinate their efforts to arrive at solutions and then implement corrective action.

• A self-managed team joins employees from a single department who accept the responsibilities of former supervisors. Quality-improvement teams are commonly used in manufacturing settings to improve efficiency, productivity, and product quality. Workers in more collectivist cultures and those with great reverence for authority may resist the implementation of self-managed teams.
• A cross-functional team joins employees who work at similar levels in different functional departments. They improve coordination and reduce inter-departmental barriers.
• A global team brings together a group of top managers from headquarters and international subsidiaries who meet to solve company-wide problems. Global teams must overcome large distances between team members, lengthy travel times to meetings, and the inconvenience of working across several time zones.

Slide 34 is the second “Think-Pair-Share” in this chapter. These slides are intended to stimulate discussion between students. The activity requires students to consider the question individually, and then share their thoughts with one classmate or a small group. The goals of these slides are to 1) improve students’ conceptual understanding of the material, 2) hone critical thinking skills, and 3) improve problem solving.

A: When designing organizational structure, managers seek answers to certain key questions. What is the most efficient method of linking divisions to one another? Who should coordinate the activities of different divisions in order to achieve overall strategies? How should information be processed and delivered to managers when it is required? What sorts of monitoring mechanisms and reward structures should be established? How should the company introduce corrective measures, and whose responsibility should it be to execute them? To answer these types of questions, we must look at the issues of coordination and flexibility.

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The organizational structure that divides worldwide operations according to a company’s product areas is called a __________ structure.

a. Global matrix

b. Global product

c. International division

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The correct answer is b. Global product