The Organisation Of International Business

The Organization of International Business – Chapter 14
Organisational Architecture = The totality of a firm’s organization, including formal organization structure, control systems and incentives, processes, organizational culture, and people.
Superior Enterprise Profitability requires three conditions to be fulfilled:
1. The different elements of a firm’s organisational architecture mustbe internally consistent – i.e. the control and incentive systems must be consistent with the structure of the firm.
2. The organizational architecture must match or fit the strategy of the firm – i.e. strategy and architecture must be consistent.
3. The strategy and architecture of the firm must be consistent with the competitive conditions prevailing in the firm’s markets – i.e.strategy, architecture, and competitive environment must all be consistent.
See example of Nestlé in textbook.
Organizational Structure :
1. The formal division of the organisation into subunits such as product divisions, national operations, and functions.
2. The location of decision-making responsibilities within that structure (e.g. centralised or decentralised)
3. The establishment ofintegrating mechanisms to coordinate the activities of subunits including cross-functional teams and/or pan-regional committees.
Control Systems = The metrics used to measure the performance of subunits and make judgements about how well the managers are running those subunits e.g. Unilever used a performance metric.
Incentives = Devices used to reward appropriate managerial behaviour. They arevery closely tied to performance metrics.
Processes = The manner in which decisions are made and work is performed within the organisations e.g. processes for formulating strategy. They are conceptually distinct from the location of decision-making responsibilities.
Organisational Culture = The norms and value systems that the employees of the organisation share. This can have a profound impacton how a firm performs.
People = Not just employees of the organisation but also the strategy used to recruit, compensate, and retain those individuals and the type of people they are in terms of their skills, values, and orientation.

The various components of an organization’s architecture are not independent of each other: Each component shapes, and is shaped by, other components ofarchitecture e.g. a firm will hire people depending on whether they fit in with the organisation’s culture.

Organisational Structure
1. Vertical Differentiation: Centralisation and decentralisation
This determines where in its hierarchy the decision-making power is concentrated. There are arguments for centralisation and other arguments for decentralisation.
Arguments for Centralisation |Arguments for Decentralisation |
Facilitates Coordination – ensures the smooth flow of products between two different operation locations. | Top management can become overburdened when decision-making authority is centralised, which can lead to poor decisions. Top management should delegate more routine issues to lower-level managers and focus on critical issues. |
Ensures that decisions areconsistent with organisational objectives – minimises the chance of inconsistency occurring. | Motivational research favours decentralisation – people are more willing to work when they have more freedom and control over their work. |
Can give top-level managers the means to bring about needed major organisational changes. | Permits greater flexibility – more rapid response to environmental changessince decisions do not need to be “referred up the hierarchy”. |
Avoids the duplication of activities that occur when various subunits within the organisation carry on similar activities. | Can result in better decisions – decisions are made by people involved, who have better information than managers several levels higher. |
| Can increase control – can establish relatively autonomous,...