IBUS 618 Dr. Yang1 Chapter 2 The Organizational Context.

IBUS 618 Dr. Yang 1

Chapter 2

The Organizational Context

IBUS 618 Dr. Yang 2

Chapter Objectives

Examine how international growth places demands on management and HRM

Identify factors that impact on how managers of internationalizing firms respond to these challenges

We cover the following areas:Structural responses to international growthControl and coordination mechanismsMode of operation used in various international marketsEffect of responses on HRM approaches and activities.

We start with the premise that the HR functions do not operate in a vacuum, and that HR activities are determined by and influence organisational factors.

We start with the premise that the HR functions do not operate in a vacuum, and that HR activities are determined by and influence organisational factors.

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Demands on Management by International Growth

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The Path to Global Status

As the nature and size of international activities change, organizational structures response, due to: The strain imposed by growth and geographical

spread The need for improved coordination and control

across business units The constraints imposed by host-government

regulations on ownership and equity The evolution path is common but the steps

are not normative

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Stages of Internationalization

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Stages of Internationalization:

Exporting Typically the initial stage of international

operations Usually handled by an intermediary

(foreign agent or distributor) Role of the HR department is unclear at

this stage

Exporting Typically the initial stage of international

operations Usually handled by an intermediary

(foreign agent or distributor) Role of the HR department is unclear at

this stage

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Export Department

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Sales Subsidiary

Replacing foreign agents/distributors with own sales subsidiaries or branch offices in the market countries

May be prompted by: Problems with foreign agents More confidence in international activities Desire for greater control Give greater support to exporting activities

PCNs may be selected, leading to some HR involvement

Replacing foreign agents/distributors with own sales subsidiaries or branch offices in the market countries

May be prompted by: Problems with foreign agents More confidence in international activities Desire for greater control Give greater support to exporting activities

PCNs may be selected, leading to some HR involvement

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Sales Subsidiary

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International Division

Creation of a separate division in which all international activities are grouped

Resembles ‘miniature replica’ of domestic organization

Subsidiary managers report to head of international division

Objectives regarding foreign activities may determine approaches to staffing of key positions Expatriate management role of corporate HR

Creation of a separate division in which all international activities are grouped

Resembles ‘miniature replica’ of domestic organization

Subsidiary managers report to head of international division

Objectives regarding foreign activities may determine approaches to staffing of key positions Expatriate management role of corporate HR


International Division


Global Product/Area Division

Strain of sheer size may prompt structural change to either of these global approaches

Choice typically influenced by: The extent to which key decisions are to be

made at the parent country headquarters or at the subsidiary units (centralization versus decentralization)

Type or form of control exerted by parent over subsidiary

Strain of sheer size may prompt structural change to either of these global approaches

Choice typically influenced by: The extent to which key decisions are to be

made at the parent country headquarters or at the subsidiary units (centralization versus decentralization)

Type or form of control exerted by parent over subsidiary


Global Product Division


Global Area Division


The Matrix

An attempt to integrate operations across more than one dimension

Violates Fayol’s principle of unity of command

Considered to bring into the management system a philosophy of matching the structure to the decision-making process

An attempt to integrate operations across more than one dimension

Violates Fayol’s principle of unity of command

Considered to bring into the management system a philosophy of matching the structure to the decision-making process


The Matrix


Problems with the Matrix

Dual reporting Proliferation of

communication channels

Overlapping responsibilities

Barriers of distance, language, time and culture

Dual reporting Proliferation of

communication channels

Overlapping responsibilities

Barriers of distance, language, time and culture

Tend to lead to conflict and confusion

Creates informational logjams

Produce turf battles and loss of accountability

Make it virtually impossible to resolve conflicts and clarify confusion

Tend to lead to conflict and confusion

Creates informational logjams

Produce turf battles and loss of accountability

Make it virtually impossible to resolve conflicts and clarify confusion


Beyond the Matrix

Less hierarchical structural forms: Heterarchy Transnational Multinational as a network Networked firms

Delegation of decision-making authority Geographical dispersal of key functions Delayering organizational levels Debureaucratization Differentiation of work, responsibility and authority

across subsidiaries

Less hierarchical structural forms: Heterarchy Transnational Multinational as a network Networked firms

Delegation of decision-making authority Geographical dispersal of key functions Delayering organizational levels Debureaucratization Differentiation of work, responsibility and authority

across subsidiaries


The Networked Organization


US, European and Japanese Structural Changes


Control Mechanisms

“Globalization brings considerable challenges which are often under-estimated….

Every morning when I wake I think about the challenges of coordinating our operations in many different countries”

Quote by Accor CEO

“Globalization brings considerable challenges which are often under-estimated….

Every morning when I wake I think about the challenges of coordinating our operations in many different countries”

Quote by Accor CEO


Control Mechanisms


Mode of Operation and HRM

Not just subsidiary operations Firms may also adopt contractual modes

Licensing Franchising Management contracts Projects

And cooperative modes (such as joint ventures)


Linking Operation Mode and HRM


Interfirm Linkages

Alliances (strategic alliance, cooperative venture, collaborative venture or corporate linkage)

A form of business relationship that: Involves some measure on interfirm

integration Stops short of a full merger or acquisition


HR Factors

HR issues and activities that affect the successful functioning of international joint ventures include: Assigning mangers to the joint venture Evaluating their performance Handling aspects pertaining to career path Compensation and benefits


Chapter Summary

The organizational context in which IHRM activities take place;

Different structural arrangements as the firm moves along the path to multinational status – from export department through to more complex varieties such as the matrix, heterarchy, transnational and networked;

(cont.)

The purpose of this chapter is to identify the HR implications of the various options and responses that international growth places on the firm. The chapter focused on:

The purpose of this chapter is to identify the HR implications of the various options and responses that international growth places on the firm. The chapter focused on:


Chapter Summary (cont.)

Control and coordination aspects – Formal and informal mechanisms were outlined, with emphasis on control through personal networks and relationships, and control through corporate culture, drawing out HRM implications;

The various modes of operation – such as wholly owned, franchising, management contracts and international joint ventures – used by multinationals for foreign market entry and expansion.

Again, we attempted to demonstrate the IHRM implications of these various modes, although noting that most of the literature focuses on wholly owned subsidiaries and international joint ventures.(cont.)

Again, we attempted to demonstrate the IHRM implications of these various modes, although noting that most of the literature focuses on wholly owned subsidiaries and international joint ventures.(cont.)


Chapter Summary (cont.)

How international growth affects the firm’s approach to HRM

Firms vary from one another as they go through the stages of international development, and

React in different ways to the circumstances they encounter in the various foreign markets.

There is a wide variety of matches between IHRM approaches, organizational structure and stage of internationalization. We compared examples of

U.S. firms European firms Japanese firms


Implications to IHRM

Stages of international development, organizational forms and mode of operation should not be taken as normative.

Research does suggest a pattern and a process of internationalization but firms do vary in how they adapt to international operations – we use nationality of the parent firm to demonstrate this.

Cont.

Stages of international development, organizational forms and mode of operation should not be taken as normative.

Research does suggest a pattern and a process of internationalization but firms do vary in how they adapt to international operations – we use nationality of the parent firm to demonstrate this.

Cont.


Implications to IHRM (cont.)

Through the approach taken in this chapter, we have been able to demonstrate that there is an interconnection between IHRM approaches and activities and the organizational context and that HR managers have a crucial role to play.

In order to perform this role better, it is important that HR managers understand the various international structural options – along with the control and coordination demands imposed by international growth.

Through the approach taken in this chapter, we have been able to demonstrate that there is an interconnection between IHRM approaches and activities and the organizational context and that HR managers have a crucial role to play.

In order to perform this role better, it is important that HR managers understand the various international structural options – along with the control and coordination demands imposed by international growth.

IBUS 618 Dr. Yang1 Chapter 2 The Organizational Context.

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Transcript of IBUS 618 Dr. Yang1 Chapter 2 The Organizational Context.