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MGT504 - Organization Theory and Design - Lecture Handout 43

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An organization’s structure must fit its situation by providing sufficient information processing for coordination and control while focusing employees on specific functions, products, or geographic regions. Organizations design for international structure follows a similar logic, with special interest on global versus local strategic opportunities.


A major strategic issue for firms venturing into the international domain is whether (and when) to use a globalizations rather than a multi-domestic strategy. The global strategy means that product design and advertising strategy are standardized throughout the world. For example, the Japanese took business away from Canadian and American companies by developing similar high quality, low cost products for all countries. The Canadian and American companies incurred higher costs by tailoring products to specific countries. Black & Decker became much more competitive internationally when it standardized its line of power hand tools. Other products, such as Coca-Cola and Levi Jeans, are naturals for globalizations, because only advertising and marketing need to be tailored for different regions.

A multi-domestic strategy means that competition in each country is handled independently of competition in other countries. Thus, a multi- domestic strategy would encourage product design, assembly, and marketing tailored to the specific needs of each country. Some companies have found that their products do not thrive in a single global market. The French do not drink orange juice for breakfast, and laundry detergent is used to wash dishes, not clothes, in parts of Mexico Parker Pen Experienced a disaster when it reduced from five hundred to one hundred pen styles because the different styles were valued in different countries.

Companies can be characterized by whether their product and service lines have potential for globalizations, which means advantages through worldwide standardization, Companies that sell diverse products or services across many countries have a globalizations strategy.

On the other hand, some companies have products and services appropriate for a multi-domestic strategy, which means local – country advantages through differentiation and customization.

As indicated in below when forces for both global integration and national responsiveness in many countries are
low, simply using an international division with the domestic structure is an appropriate way to handle international
business. For some industries, however, technological, social, or economic forces may create a situation in which
selling standardized products world wide provides a basis for competitive advantage. For example, the introduction
of transistors and integrated circuits for the design and production of products such as televisions and radios meant
companies could achieve global economies by standardizing these products worldwide. In theses cases, a global
product structure is appropriate. This structure provides product managers with authority to handle their product
lines on a global basis and enables the company to take advantage of a unified global marketplace. In other cases, a
company can gain competitive advantages through national responsiveness- by responding to unique needs in the
various countries in which it does business. For example, people in different countries have very different
expectations regarding personal care products such as deodorant or toothpaste. For companies in these industries, a
worldwide geographic structure is appropriate. Each country or region will have subsidiaries modifying products
and services to fit that locale.

In many instances, companies will need to respond to both global and local opportunities simultaneously, in which case the global matrix structure can be used. Part of the product line may need to be standardized globally, and other parts tailored to the needs of local countries.


As companies begin to explore international opportunities, they typically start with an export department that grows into an export department that grows into an international division. The international division has a status equal to the other major departments of division within the company and is illustrated international division has its own hierarchy to handle business ( Licensing, joint ventures) in various countries, selling the products and services created by the domestic division, opening subsidiary plants, and in general moving the organization into more sophisticated international operations.

Although functional structures are often used domestically, they are les frequently used to manage a worldwide business. Lines of functional hierarchy running around the world would extend too long, so some form of product or geographical structure is used to subdivide the organizations into smaller units. Firms typically start with an international department and, depending on their strategy, later use product or geographic divisional structures.


In a global product structure, the product division takes responsibility for global operations in their specific product area. Each product division can organize for international operations as it seas fit. Each division manager is responsible for planning, organizing, and controlling all functions for the production and distribution of its products for any market around the world. The product – based structure works best when a division handles products that are technologically similar and can be standardized for marketing worldwide. Eaton Corporation has used a form of worldwide product structure, as illustrated in this structure, the automotive components groups, industrial group, and so on are responsible for manufacture and sale of products worldwide. The vice – president of international is responsible for coordinators in each region, including a coordinator for Japan, Australia, South America, and northern Europe. The coordinators find ways to share facilities and improve production and delivery across all product lines sold in their region.
The product structure is great for standardizing production and sales around the globe, but it also problems. Often the product divisions do not work well together, competing instead of cooperating in some countries; and some countries may be ignored by product managers. The solution adopted by Eaton Corporation of using country coordinators who have a clearly defined role is a superb way to overcome these problems.


A worldwide regional organization divides that world into regions, each of which reports to the CEO, each region has full control of functional activities in its geographical area. Companies that use this global geographic structure tend to have mature product lines and stable technologies. They find low – cost manufacturing within countries as well as different needs across countries for marketing and sales. Strategically, this structure can exploit many opportunities for regional or locally based competitive advantages.

The problems encountered by senior management using a global geographic structure result from the autonomy of each regional division. For example, it is difficult to do planning on a global scale – such as new product R&D – because each division acts to meet only the needs of its region. New domestic technologies and products can be difficult to transfer to international markets because each division thinks it will develop what it needs. Likewise, it is difficult to rapidly introduce product developed offshore into domestic markets; and there is often duplication of line and staff managers across regions. Companies such as Dow Chemical find ways to take advantage of the geographic structure while overcoming these problems.

Services that became an autonomous division: Subsequently the Pacific and Latin American areas developed as regional entities also. As did Canadian operations, Dow handled the problems of coordination across regions by creating a corporate – level product department to provide long-term planning and worldwide product coordination and communication. It used six corporate product directors. Each of whom had been a line manager with overseas experience. The product directors are essentially staff coordinators. But they have authority to approve large capital investments and to move manufacturing of a product from one geographic location to another to best serve corporate needs, with this structure. Dow maintains its focus on each region and achieves coordination for overall planning, Savings in administrative staff, and manufacturing and sales efficiency.


We‘ve discussed how Eaton used a global product division structure and found ways to coordinate across worldwide division. Dow Chemical used a global geographic division structure and found ways to coordinate across geographical regions. Each of these companies emphasized a single dimension. A matrix structure provides a way to achieve vertical and horizontal coordination simultaneously along two dimensions.
The matrix works best when pressure for decision making balances the interests of both product standardization and geographical localization and when coordination to share resources is important. An excellent example of a global matrix structure that has worked extremely well is ABB, an electrical equipment corporation headquartered in Zurich.
Asea Brown Boveri (ABB)
ABB, which employs more than 200,000 people worldwide and has annual revenues of $29 billion, has given new meaning to the notion of “ being local worldwide” ABB owns 1,300 subsidiary companies. Divided into 5,000 profit centers located in 140 countries ABB’s average plant has fewer than 200 workers and most of the company’s 5,000 profit centers contain only forty to fifty people. Meaning almost everyone stays close to the customer.

At the top are the chief executive officer and an international committee of eight top managers, who hold frequent meetings around the world. Along one side of the matrix are sixty-five or so businesses areas located worldwide, into which ABB’s products and services are grouped. Each business area leader is responsible for handling business on a global scale, allocating export markets, establishing cost and quality standards, and creating mixed – nationality teams to solve problems for example, the leader for power transformers is responsible for twenty –five factories in sixteen countries.

Along the other side of the matrix is a country structure, ABB has more than one hundred country managers, most of them citizens of the country in which they work. They run national companies and are responsible for local balance sheets, income statements, and career ladders. The German president, for example, is responsible for 36,000 people across several business areas that generate annual revenues in Germany of more than $ 4 billion.

The matrix structure converges at the level of the 1,300 local companies. The presidents of local companies report to two bosses – the business area leaders. Who is usually located outside the country, and the country president, who runs the company of which the local organization is a subsidiary?

ABB’s philosophy is to decentralize things to the lowest levels. Global managers are generous, patient, and multilingual. They must work with teams made up of different nationalities and be culturally sensitive. They craft strategy and evaluate performance for people and subsidiaries around the world. Country managers by contrast, are regional line managers responsible for several country subsidiaries. They must cooperate with business area managers to achieve worldwide efficiencies and the introduction of new products. Finally, the presidents of local companies have both a global boss – the business area manager and a country boss. And they learn to coordinate the needs of both.

ABB is a large, successful company that has achieved the benefits of both product and geographic organizations through this matrix structure. However, over the past several years, as ABB has faced increasingly complex competitive issues, leaders have been transforming the company toward something called the transnational model.


The transnational model of organizations structure goes beyond the global matrix to apply the concept of the learning organization for a huge, international corporation. The transnational model of organization is essentially the learning organization extended to the international arena. It is useful for large, multinational companies with subsidiaries in many countries that try to exploit both global and local advantages, and perhaps technological superiority, rapid innovation, and global knowledge sharing. While the matrix is effective for handling two issues (product and geographic), dealing with multiple, interrelated. Competitive issues require a more complex form of organization and structure.

The transnational model represents the most current thinking about the kind of structure needed by complex global organizations such as N.V Phillips, Headquartered in the Netherlands; Phillips has operating units in sixty countries and is typical of global companies, such as Heinz, Unilever, or Procter & Gamble.

The units in previous example are far – flung. Achieving coordination, a sense of participation and involvement by subsidiaries, and a sharing of information, new technologies, and customers requires a complex and multidimensional form of structure. For example, a global corporation like Phillips is so large that size itself is a problem when coordinating global operations. In addition, some subsidiaries may become so large that they no longer fit a narrow strategic role assigned to them by headquarters. While being part of a large organization, they also need autonomy for themselves and need to have impact on other parts of the organization.

The transnational model is much more than just an organization chart. It is a state of mind, a set of values, a shared desire to make a worldwide learning system work, and an idealized organization structure for effectively managing such a system. The transnational model cannot be given a precise definition, but the following characteristics distinguish it from and move it beyond a matrix structure.

  1. The transnational model differentiates into many centers of different kinds. Like the global matrix structure, the transnational model strives to achieve global competitiveness through both global integration and national responsiveness. However, the matrix structure had a single headquarters, a single center of control for each country, and a single center for each product line. The transnational operates on a principle of “flexible centralization.” A transnational may centralize some functions in one country, some in another, yet decentralize still
    other functions among its many geographically dispersed operations. An R&D center may be centralized in Holland and a purchasing center located in Sweden, while financial accounting responsibilities are decentralized to
    operations in many countries. A unit in Hong Kong may be responsible for coordinating activities across Asia,
    while activities for all other countries are coordinated by a large division headquarters in London.
  2. Subsidiary manager, initiate strategy and innovations that become strategy for the corporation as a while. In traditional structures, managers have a strategic role only for their division. In a transnational, various centers and
    subsidiaries can shape the company from the bottom up because there is no notion of a single headquarters, no clear top-down corporate level responsibility. Managers at all levels in any country have authority to develop creative responses and initiate programs in response to emerging local trends, then disperse their innovations worldwide. Transnational companies recognize that different parts of the organization possess different capabilities. In addition, environment al demands and opportunities vary from country to country, and exposing the whole organization to this broader range of environmental stimuli can trigger greater learning and innovation. By ensuring that the entire organization has access to the combined knowledge, abilities, and intellectual capacities of all divisions and all employees, transnational engage in continuous worldwide learning and knowledge sharing.
  3. Unification and coordination are achieved through corporate culture, shared vision and values, and management style rather than through the vertical hierarchy. The transnational is essentially a horizontal. It is diverse, extended, and exists in a fluctuating environment so that standard rules, procedures, and close supervision are not appropriate. The very nature of the transitional organization dramatically expands the difficulty of unifying and coordinating operations. To achieve unity and coordination, organization leaders build a context of shared vision, values, and perspectives among managers, who in turn cascade these elements down through all parts of the organization. For example, people are often promoted by rotation through different jobs, divisions, and countries.
    Moreover, long experience with the company is highly valued because these people have been strongly socialized
    into the corporate culture. Experience plus rotation through different divisions and regions mean that people share
    corporate culture and values sufficient for unity of purpose.
  4. Alliance is established with other company parts and with other companies. Although resources and functions are widely dispersed, the transnational may integrate them through strong interdependencies. A world – scale production plant in Singapore may depend on world –scale component plants in Australia, Mexico and Germany, major sales subsidiaries, in turn, depend on Singapore for finished products. In addition, each part of the organization can serve as an independent catalyst, bringing together unique elements with synergistic potential, perhaps other firms or subsidiaries from different countries, to improve its performance, these alliances may include joint ventures, cooperation with governments, and licensing arrangement.

Taken together, these characteristics facilitate organizational learning and knowledge sharing on a broad, global scale. Although the transnational model is truly a complex and “Messy” way to conceptualize organization structure, it is becoming increasingly relevant for large, global firms that treat the whole world as their playing field and do not have a single country base. The autonomy of organizational parts gives strength to smaller units and allows the firm to take advantage of rapid change an competitive opportunities. Managers follow their own instincts, using worldwide resources to achieve their local objectives. Strategy is the result of action in the sense that company parts seek to improve on their own rather than waiting for a strategy from the top. Indeed, each part of the company must be aware of the whole organization so its local actions will complement and enhance other company pars.

To achieve the advantages of the transnational model, a broad range of people throughout the organization must develop the capacity for strategic thinking and strategic action. People are not constrained by rigid rules or hierarchies but are instead empowered to think, experiment develop creative responses, and take action.


The shift to the learning organization, on both the domestic and international level, goes hand in hand with the recent trend toward empowering employees throughout the organization. Whether we are talking about self – directed teams, organic management process and systems or participative cultures, the attempts to diffuse and share power throughout the organization are widespread. The notion of giving employees the power, freedom, and information to make decision and participate fully in the organization is called empowerment.

In an environment characterized by intense global competition and new technology, many top managers believe that giving up centralized control will promote speed, flexibility, and decisiveness. Indeed, fully 74 percent of CEOs report that they are more participatory, more consensus – oriented, and relies more on communication than on command in today’s global environment. They are finding less value in being dictatorial, autocratic, or imperial. The trend is clearly toward moving power out of the executive suite and into the hands of employees. This trend can be the best known companies in the world, such as Hewlett Packard, Southwest Airlines, Boeing, General Electric, and Caterpillar.


Why so many organization empowering workers are and what advantages do these organizations achieve? One study suggests three primary reasons firms adopt empowerment; (1) as a strategic imperative to improve products or services;(2) because other firms in their industry are doing so, how firms tend to imitate similar organizations in the same environment); and (3) to create a unique learning organization with superior performance capabilities. Of the three reasons, the most compelling in terms of durability and success is the third – to create a learning organization that becomes the basis of sustainable competitive advantage. Empowerment is essential for learning organizations because it unleashes the potential and creativity of all employees, allowing them to experiment and learn and giving them the freedom to act on their knowledge and understanding. In today’s world, where competitive advantage relies increasingly on ideas and innovations, an empowered work force is critical to organizational success. People create and share knowledge because they want to these activities can’t be forced out the employees or supervised in the traditional sense. Activities can’t be forced out of employees or supervised in the traditional sense

Empowerment provides a basis of sustainable competitive advantage in several ways. For one thing, empowerment increases the total amount of power in the organization. Many managers mistakenly believe power is a zero –sum game, which means they must give up power in order for someone else to have more. Not true. Both research and the experience of managers indicate that delegating power from the top creates a bigger power pie, so that everyone has more power. Ralph Stayer, CEO of Johnsonville Foods, believes a manager’s strongest power comes from committed workers. “Real power comes from giving it up to others who are in a better position to do things than you are,” the manager who give way power gets commitment and creativity in return. Employees find ways to use their knowledge and abilities to make good things happen. Front line workers often have a better understanding than do managers of how to improve a work process, satisfy a customer ,or solve a production problem. In addition, employees are more likely to be committed to a decision or course of action when they are closely involved in the decision making process. Management’s fear of power loss is the biggest barrier to empowerment of employees; however, by understanding they will actually gain power, delegation should be easy. For example, at Fastenal, a highly successful company that sells 49,000 different kinds of fasteners, from hex nuts to pin bolt drive anchors, CEO Bob Kierlin constantly pushes management level decision making down to entry – level positions. Kierlin believes empowering his workers has been the primary reasons for the company’s rapid growth, record profits, and high shareholder returns. “Just believe in people, give them a chance to make decisions, take risks, and work hard,” is Kierlin’s philosophy of management

Empowerment also increases employee motivation. Research indicates that individual have a need for self – efficacy, which is the capacity to produce results or outcomes, to feel they are effective. Increasing employee power heightens motivation for task accomplishment because people improve their own effectiveness, choosing how to do the task and using their creativity. Most people come into the organization with the desire to do a good job, and empowerment enables them to release the motivation already there. Their reward is a sense of personal mastery and competence. Giving employees the power to actively affect outcomes led to a 100 percent increase in productivity in Monarch Marking Systems.

Monarch Marking Systems

When Jerry Schlaegel and Steve Schneider first rolled out a new empowerment program at Monarch Marking Systems, a manufacturer of bar coding and price marking machines, some employees flat – out refused to participate. They’d seen too many similar programs do nothing but waste their time

The time, however, managers decided to try a new approach. Rather than initiating an open-ended process of giving workers more decision – making authority, Schlaegel and Schneider decide to give employees specific problems and charge them with not only creating a solution, but also implementing its. They told workers, “ Go make it happen, then tell us about it, Some teams rapidly achieved results – one found a way to reduce the number of job categories from 120 to only 32 through cross – training; another synchronized the changing of paper rolls in a label – making line to cut set – up time by 25 percent. However, the team charged with coming up with a more efficient assembly process for a hand-held bar code reader at first rebelled. Assuming this was another exercise in coming up with ideas that never turned into action. Top managers called them into a conference room. Laid out the problem, and gave the team a deadline for implementing their own solution.

Seeing that top managers truly expected them to produce final results. Not just ideas, the group quickly began talking about ways to solve the problem. They all knew, for example, that building a two – pound product on a mechanical conveyor belt was ridiculous -- they could stand around a work station and simply pass the product by hand. People could easily talk to one another, and those who got ahead could help out if any one else was falling behind. Ultimately, the team reduced the square footage of their assembly area 70 percent. Cut work in progress inventory by $ 127,000 doubled productivity, and reduced past due shipments 90 percent.

Worker enthusiasm and motivation at Monarch dramatically increased once employees saw the results of their own creativity and hard work. “We‘re not just pieces of equipment anymore,” said employee Effie Winters, “my input means something.”

Truly empowering workers means not only giving employees the responsibility to come up with ideas and make decision, but also allowing them to take action. By replacing an open ended “empowerment” initiative with a system that gave employees a chance to really make a difference, managers at Monarch increased employees’ self – efficacy and thus their inner motivation, enabling the company to tap into the knowledge and creativity of all employees.

Another benefit from empowerment is that it may help companies retain good employees – and their knowledge. Companies that effectively empower employees often have uncommonly low turnover rates. Hewlett-Packard’s turnover of engineers is only 3 percent, against an industry norm of 7 to 8 percent. People stay with companies where they feel appreciated and where their knowledge and actions can make a difference.


Empowering employees means giving them four elements that enable them to act more freely to accomplish their jobs; information, knowledge, power, and rewards.

  1. Employees receive information about company performance. In companies where employees are fully empowered, such as Semco S/A, Brazil’s largest manufacturer of marine and food processing equipment, no information is secret. At Semco, every employee has access to the books and any other information, including executive salaries, to show they’re serious about sharing information, Semco management works the labor union
    that represents its workers to train employee’s even messengers and cleaning people to read balance sheets and cash flow statements.
  2. Employees have knowledge and skills to contribute to company goals. Companies use various approaches to training to give employees the knowledge and skills they need to personally contribute to company performance in an empowered environment. At Ashton Photo, a volume producer of prints for professional photographers, more experienced employees are expected to educate new ones about how to read financial statements and understand how their actions and performance affect company finances. CIBC uses individual development planning guides to provide workers with a clear target of what competencies they need to develop. Fourteen Employee Development Centers across Canada provide consultants to assist employees in using learning resources to meet their goals. Xerox gives its workers what the company calls “ line of sight” training, in which employees familiarize themselves with how their jobs fit into upstream and downstream activities. The training helps empowered employees make better decision that support other workers and contribute to the organization’s gals.
  3. Employees have the power to make substantive decision. Many of today’s most competitive companies are giving workers the power to influence work procedures and organizational direction through quality circles and self – directed work teams. At Ashton Photo, teams of workers schedule their own work loads and have the freedom to determine how to best serve customers. Each worker has a key to the building and is able to schedule his or her work time as the production schedule warrants, Team of workers at a Lucent Technologies factory in Mt. Olive, New Jersey, are continually altering the production process and even the product design. Although management establishes a list of working principles, teams have the freedom to make day to day decision and take action within those guidelines.
  4. Employees are reward based on company performance. Two of the ways in which organizations can reward employees financially based on company performance are through profit sharing and employee stock ownership plans (ESOPs). At W.L. Gore & Associates, makers of Gore- Tex, compensation takes three forms salary, profit sharing, and an associate’s stock ownership program.


Many of today’s organizations are implementing empowerment programs, but they are empowering workers to varying degrees. At some companies, empowerment means encouraging employee input while managers maintain final authority for decisions; at others it means giving front – line workers almost complete power to make decision and exercise initiative and imagination. At Nordstrom (a department store chain), for example, employees are given the following guidelines; “Rule No. 1; Use your good judgment in all situations. There will be no additional rules.”

Example shows a continuum of empowerment, from a situation where front – line workers have no discretion (for example, a traditional assembly line) to full empowerment, where workers actively participate in determining organizational strategy. Current methods of empowering workers fall along this continuum. When employees are fully empowered, they are given decision making authority and control over how they do their own jobs, as well as the power to influence and change such areas as organizational goals, structures, and reward systems. As example is when self directed teams are given the power to hire, discipline, and dismiss team members and to set compensation rates. One example is W.L. Gore and Associates. The company, which operates with no titles, hierarchy, or any of the conventional structures associated with a company of its size, has remained highly successful and profitable under this empowered system for more than thirty year’s. the culture emphasizes teamwork, mutual support, freedom, motivation, independent effort, and commitment to the total organization rather than to narrow jobs or department.

Empowerment programs are difficult to implement in established organizations because they destroy hierarchies and upset the familiar balance of power. A study of fortune 1000 companies found that the empowerment practices that have diffused most widely are those that redistribute power and authority the least, for example, quality circles and other types of participation groups and job enrichment and redesign. Managers may have difficulty giving up power and authority; and although workers like the increased freedom, they may balk at the added responsibility freedom brings. Most organizations begin with small steps and gradually increase employee empowerment. For example, at Recyclights, a small Minneapolis based company that recycles fluorescent lights; CEO Keith Thorndyke first gave employees control of their own tasks. As employees kills grew and they developed a greater interest in how their jobs fit into the total picture, Thorndyke recognized that workers also wanted to help shape corporate goals rather than having a plan handed down to them as a finished package.

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