RELATED ISSUES IN GLOBAL ORGANIZATION DESIGN

In addition to the fundamental issues of organization design we have addressed, MNCs also face a number of other related organizational issues that must be carefully managed.

 

Centralization Versus Decentralization

When designing its organization, an MNC must make a particulary critical decision that determines the level of autonomy, power, and control it wants to grant its subsidiaries. Suppose it chooses to decentralize decision making by allowing individual subsidiaries great discretion over strategy, finance, production, and marketing decisions, thereby letting those decisions be made by manager closest to the market. these managers may then focus only on the subsidiary's needs rather than on the firm's overall needs. An MNC can remedy this deficiency by tightly centralizing decision making authority at corporate headquarters.  Decisions made by the corporate staff can then take into account the firm's overall needs.  However, these decisions often hinder the ability of subsidiary manager to quickly and effectively respond to changes in their local market conditions.  Because both centralization and decentralization offer attractive benefit to the MNC, most firms constantly tinker with a blend of the two to achieve the best outcome in terms of overall strategy.

Numerous U.S businesses have stumbled after setting uo  shop in China because they try to maintain centralized control from abroad. This has been especially problematic in industries where responsiveness to market conditions is critical.  Both Google and eBay, for instance,  have struggled in China because small local rivals have been more nimble in responding to customer preferences. Amazon, meanwhile, recently acquired a major online Chines retailer CallednJoyo.com.  Amazon founder and CEO Jeff Bezos has vowed to not replicate the mistakes of other firms, but instead that the local Joyo.com manager will have a great deal of discretion and control over how they respond to peculiarities in the Chinese market.

Role of Subsidiary Boards of Directors  

An MNC typically incorporates each its subsidiaries in the subsidiary’s country of operation. This is done to limit the subsidiary’s liability and to allow it to attain legal status as a local citizen. Most countries require each corporation, including a wholly owned subsidiary of a foreign MNC, to have a board of directors. 18 The board is elected by corporate shareholders (which is the MNC), is responsible to those shareholder or the effective management of the subsidiary (which is owned by MNC), and overseas the activities of top-level managers (who are hired by the MNC).

The issue facing most MNC s is whether to view the creation of a subsidiary board of directors as a pro forma exercise and therefore give the board little real authority or to empower the board with substantial decision-making authority.

Empowering the subsidiary’s board promotes decentralization. Foreign subsidiaries may need the authority to act quickly and decisively without having to always seek the parent’s approval. Also, if the MNC decentralizes authority to local level, an active board provides a clear accountability and reporting link back to corporate headquarters. Some MNCs also have found that appointing prominent local citizen to the subsidiary’s board is helpful in conducting business in a foreign country. These members can help the subsidiary integrate itself to the local business community and can be an effective source of information for both parent and subsidiary about local business and political conditions.

For example, prominent local business officials on the board of Apple’s Japanese subsidiary were key to the firm’s success in the Japanese market in the early 1990s. They enhanced the credibility of Apple’s products in a country where corporate connections and status are an important marketing tool, while their appointment demonstrated Apple’s long-term commitment to the Japanese market. A subsidiary board also can help monitor the subsidiary’s board is that the subsidiary may become too independent as its board assumes substantial authority and thereby fails to maintain the desired level of accountability to the parent.

In general a subsidiary board is most useful when the subsidiary has a great deal of autonomy, its own self-contained management structure, and a business identity separate from the parent’s. Active subsidiary boards are particularly useful in H-form organizations because a holding company’s subsidiaries are typically run independently of one another. For example, Nestle U.S. subsidiary, Carnation, meets each of the three criteria noted above. Not surprisingly, therefore, Carnation also has a very active board of directors to make decisions and respond to local conditions.

Coordination in the Global Organization

Finally, as part of creating an effective design for itself, an international firm must address its coordination needs. Coordination is the process of linking and integrating function and activities of different group, units, or divisions. Coordination needs vary as a function of interdependence among the firm’s division and function. In other word the higher the level of interdependence among divisions and functions, the more coordination is necessary among them. 

MNC's can use any of several strategies to achieve and manage their desired of coordination. The organizational hierarchy itself is one way to manage interdependence and promote coordination. An organization design that clearly specifies all reporting relationships and directions of influence facilitates coordination because each manager knows how to channel communications, decision making, and so on. Rules and procedures also facilitate coordination. For example, a standard operations procedure that requires the reporting of monthly and quarterly revenue, cost, and profit data to headquarters allows corporate staff to coordinate the firm’s cash flows and to quickly identify troublesome markets.

MNCs also may adopt somewhat more temporary or ad hoc coordination techniques. 20 Using employees in liaison roles is one such technique. Suppose two divisions of an MNC are collaborating on an activity or function. Each may designate a specific manager as its liaison with the other. If any manager in one unit has information questions that involve the other unit, they are channeled through the liaison to the appropriate person or unit. Toyota, for example, frequently uses this technique for managing relatively small-scale joint efforts. 

When the magnitude of the collaboration is significant, task forces may be used for coordination. In such cases each participating unit or division assigns one or more representatives to serve on the task force. The assignment may be either full time or part time. Ford and Mazda, for example, used a task force when they collaborated on the design of the Ford Focus. Each firm designated member of its design, engineering, operations, and finance departments to serve on the task force.  Employees of the firms rotated on and off the task force depending on its needs and on the automobile was put into production, the task force dissolved.

Many international firms also rely heavily on informal coordination mechanisms. Informal management networks can be especially effective. An informal management network is simply a group of managers from different parts of the world who are connected to one another in some way. These connections often form as a result of personal contact, mutual acquaintances, and interaction achieved via travel, training program, joint meeting, task force experiences, and so on. Informal management networks can be very powerful for short-circuiting bureaucracy that may delay communications and decision making. They also can be effective for getting things done more quickly and more effectively than if normal and routine procedures were always followed.