Management 411: Organizational Theory
Thomas G. Goddard
® Case 10
check on groups.
else on exam?
Chapter 8 -- Managing the International
What is the
Creating Value from
the Choice of Global Expansion Strategy
Managing the International Environment
Strategy, Structure, & Culture
® International Strategic Alliances
the International Environment?
The IE is the set of
available global resources.
Remember the “OT”
from “SWOT” -- what are the opportunities & threats?
New markets (O), but
environmental uncertainty & complexity (T).
The Specific International Environment
What specific forces
& outside stakeholders make organizational domain difficult to manage?
® Foreign competitors have advantage: more product choices.
Suppliers are located worldwide; competitors search for
® Distributors & marketers must tailor advertising & promotion.
® The workforce
entails knowledge of foreign employee attitudes toward pay, seniority, &
working conditions. A firm needs
relationships with the new workforce & unions.
Government regulations & legal system impose constraints on
The General International Environment
general international environmental forces & outside stakeholders make the
organizational domain difficult to manage?
® Economic forces
(diff. In int. rates, wage levels, GDP) impact global operations.
® Technological forces need to be accessed in a foreign country for a low-cost or
® Demographic, cultural
& social forces affect a country’s attitudes toward foreign products. A
product’s value depends on nation’s lifestyle, values, & customs.
Creating Value from Global Expansion: 4
Competences Abroad: Facilitates
low-cost or differentiated products & a competitive advantage.
® Establishing a Global Network: Entails organizing task & reporting relationships
among managers, functions, & divisions that connect value creation
How can a company
Production can occur
in a country with low “Factor costs”, like labor, land, taxes, & raw materials.
Creating Value from Global Expansion: 4
Gaining Access to
Global Resources & Skills: Gives
an organization a competitive advantage. (e.g., accessing Japanese technology
& QM approaches)
Using Global Learning
to Enhance Core Competences: New
skills learned abroad are transferred to the US & improved, & vice
Factors Influencing the Choice of Global
Pressures for Global
An organization must
integrate value creation activities, use skills efficiently to reduce costs,
& increase quality to gain a low-cost advantage.
pursue global learning, making it important to protect an existing competitive
Factors Influencing the Choice of Global
Expansion Strategy, cont.
Pressures for Local
® Localized customer tastes & preferences.
® Relationship with stakeholders (suppliers, workforce).
® Increase when differences are greater.
creates a differentiation advantage
® As pressures for integration & responsiveness
increase, resource transfers & customization increase costs
Bureaucratic costs are
affected by the choice of global expansion strategy.
Strategies for Managing the International
® Transnational Strategy
Multidomestic Strategy: Characteristics
Reaction to high
pressures for local responsiveness.
Products tailored to
meet customer needs in each country of operation
Wholly owned foreign
divisions created; core competencies transferred from home country.
Each division has
value creation activities (mftg., product design, marketing).
Each division has
Sole link is
Multidomestic Strategy: Advantages &
Access to resources
advantage through combined core competences
Becoming the dominant
Lack of global
learning due to little interaction among divisions
for long-term value creation
International Strategy: Characteristics
Not responsive to
high pressures for local responsiveness or global integration.
Core competences in
manufacturing & distribution are transferred.
development, & marketing are centralized.
Foreign divisions do
not customize, so customers get a standardized product: COCA-COLA!
International Strategy: Advantages & Disadvantages
® Consistent product.
® Continual transfer of core competences to foreign
® Limited local responsiveness.
® Higher production costs because manufacturing is
located in many countries.
® No global learning.
® No access to foreign resources & skills because
core competences are exported.
® Higher bureaucratic costs because resource transfers
must be coordinated.
Global Strategy: Characteristics
® Responds to
pressures for global integration.
product is manufactured at a few low-cost locations.
Advantages & Disadvantages
® Economies of scale with decreased costs & prices.
® Competitive advantage of a high quality product.
® Network with value creation functions established in
® Long-term contracts with low-cost suppliers
® High bureaucratic costs because of centralization.
® Controlled resource transfers by corporate
® Lack of local responsiveness.
® Decreasing product demand.
® No learning to differentiate products.
® No differentiation.
Transnational Strategy: Characteristics
® Responds to
pressures for global integration & local responsiveness.
advantages of global strategy (value creation activities located in countries
with low factor costs) & multidomestic strategy (value creation activities
located in foreign countries for customization).
Transnational Strategy: Advantages & Disadvantages
® Low-cost & differentiation achieved by
transferring core competencies to countries with low cost & differentiation
® Network for skill transfer among domestic &
® Divisions build on skills received & transfer
improved products & process.
results in low-cost, high-quality products.
® Higher bureaucratic costs.
Complex design structure
& control systems due to high level of coordination & customization.
Global Expansion Strategy, Structure, &
What is Vertical
VD determines the
hierarchical levels & decision making.
Minimum chain of
command: structure should be as
flat as possible.
expansion increases levels needed for adequate control.
Size of the
hierarchical levels depends on the coordination needed.
Does a multidomestic
strategy imply a flat or tall hierarchy?
Flat, & not much
coordination. Global &
international strategies have tall hierarchies because value creation must be
coordinated. Transnational strategy
involves much coordination but has a flatter hierarchy.
Why does transnational
have such a flat hierarchy despite much coordination?
Tall hierarchy results
in communication & motivation problems.
Remote HQ managers do
not understand problems faced by foreign managers.
Vertical Differentiation: Centralization of Authority
® Choices about degree of centralization depends on the
global expansion strategy:
Decentralized authority to foreign divisions. HQ uses financial information
such as sales to monitor performance.
Centralizes decision making at HQ. Divisions control local distribution,
marketing, & submit local information. Resource coordination at HQ through
rules & procedures.
Centralizes decisions about resource coordination, but manufacturing &
marketing decisions are decentralized.
Centralized control for global learning & transferring competences, but
decentralization for local responsiveness.
support global expansion:
® Global geographic: Good for multidomestic strategy.
Global product group:
Good for global or international strategy.
Global matrix: Transnational structure. Maximizes quick decision
making & enhancement of core competencies, but it is costly & hard to
coordinate decision making & facilitate global yearning.
Def: Groups of
managers who have made various personal contacts with other managers around the
Used to integrate
geographic areas & product groups.
managers. Learning fostered. Subunit orientations overcome.
Developing an International Organization
Culture can control
resource transfers & realize advantages of global network.
organizational culture important for resource sharing.
International Strategic Alliances
Long-Term Contracts: Licensing or franchising core competences to a foreign
company is an alternative to establishing a foreign division.
Organizations: Interconnected global
companies that perform value creation activities, removing the need for foreign
divisions. Fosters “matrix in the
Minority Ownership: Develops loyalty within a network.
® Joint Ventures: 2 or more organizations pool resources & create new organization.
Chapter 9 -- Organizational Design & Technology
® What is
& Organizational Effectiveness
Tasks & Complex Tasks
What is technology?
Combination of skills, abilities, techniques, materials, machinery, & other
equipment that people use to transform inputs into outputs.
Technology & Organizational Effectiveness
® 3 Stages of
value creation process
skills & procedures used to manage relationships with outside stakeholders
in the org’s specific environment.
combines machines, techniques, & procedures to transform inputs into
Technology used for distribution to external stakeholders.
Measuring & Increasing Effectiveness
resource approach: for managing & controlling outside stakeholders.
systems approach: for innovation, product development, & reduced
approach: for increasing efficiency & quality, & reducing costs.
Three Complementary Theories
Because each function
develops technologies to create value, the organizational structure must
maximize the effectiveness of technology.
consider the relationship between technology & design:
complex & routine tasks
Technical Complexity (TC), Generally
® Def: A measure of the extent to which a production
process can be programmed so that it can be controlled and made predictable.
® Woodward (1965) argues that TC is the dimension that
® High complexity occurs when conversion processes,
programmed in advance and fully automated, make work standardized and
® Low TC occurs when the conversion process relies
mainly on individual skills, not machines.
® Low TC makes quality and consistent production
® Woodward associated 10 levels of technical complexity
with 3 steps of technology:
TC: Small-Batch & Unit Technology
® This type
produces customized products or small quantities.
® Low TC:
personal skills more important than machines.
Flexibility for a wide range of products tailored to individuals.
® Costly, but
ideal for new or complex products.
TC: Large-Batch & Mass Production
® This technology uses machines to increase TC and
® Large volumes of standardized products are produced
with tasks programmed into machines, resulting in standardized work and
® Lower production costs lead to lower prices.
® Ford used mass production to decrease production costs
and create a mass market.
® Mass production is generally connected with automated
equipment, but people perform assembly operations when labor costs are low.
TC: Continuous-Process Technology
® This is the height of TC because production is almost
totally automated and mechanized.
® Employees only handle exceptions in the work process,
such as machine breakdowns.
® Continuous production, little variation, greater
technical efficiency, more predictability in production, lower costs.
® Not always practical, however: e.g., research.
® People will pay premium for customized products.
TC & Organizational Structure
® Because technology affects structure, Woodward
developed a model showing the structure of each type of technology.
® Increased TC makes organizations taller with a wider
span of control, at least for CEO.
® However, 1st level supervisors have narrow span of
control in small-batch, wide in mass production, & narrow in
® Note that in mass production, rules and procedures
substitute for supervision, allowing wider span of control.
® Continuous-process has programmable tasks &
predictable process; however, breakdowns are possible, so close monitoring
requires very tall structure. Organic
structure, narrow span of control, and mutual adjustment fits the needs of this
The Technological Imperative
® This is the argument that technology determines
® Some argue that Woodward’s sample, focusing as it did
on small firms, was not representative.
® Technology may have a smaller affect on larger
companies than Woodward found.
® Size may be more important than technology in
Routine Tasks & Complex Tasks
® Perrow: 2 dimensions underlie the difference between
routine & nonroutine or complex tasks and technology: task variability and
task analyzability. He assessed technology along these dimensions.
® Task Variability: the number of new or unexpected situations faced while performing a
® Task Analyzability: the need for search activity to solve problems.
Perrow’s Four Types of Technology
Routine Technology & Organizational Structure
® Perrow’s types of technology affect structure.
® He and others have proposed that an organization
should move from a mechanistic to an organic structure as tasks become more
complex and less routine.
® So, routine technology suggests:
® A tall structure
® Centralized decision making
® Jobs simplified
® Mechanistic structure
Nonroutine Technology & Organizational Structure
® Nonroutine technology suggests:
® Flat structure
® Decentralized decision making
® Mutual adjustment through teams and task forces
® Organic structure
® These considerations operate at the department level
® R&D requires organic structure
® Manufacturing requires mechanistic structure
Task Interdependence (TI)
® TI: The manner in which different organizational tasks
are related to one another.
® James D. Thompson looked at the relationship among
tasks, TI, and the impact on technology & structure.
® People & departments who work independently have
low TI; those who rely on each other have high TI.
® Thompson identified 3 types of technology: mediating,
long-linked, and intensive, each associated with a different type of TI.
TI: Mediating Technology & Pooled Interdependence
® Meditating technology is a work process in which
input, conversion, and output can be performed independently.
® It is based on pooled TI.
® Each part of the organization contributes
independently to performance.
® Because individuals do not work with others, TI is
® Monitoring, controlling, and evaluating performance are
easier by measuring outputs objectively.
® Costs are low because of control through
® Computers facilitate mediating technology to coordinate
® Companies using mediating technology may use
® Example: sales force.
TI: Long-Linked Technology & Sequential Interdependence
® Based on sequential interdependence: one person’s
actions affect another’s, performed in a series.
® Mass production technology is founded on sequential
TI, which requires coordination.
® How are sequentially interdependent activities
® Program conversion processes standardize procedures.
® Planning & scheduling manage connections between
input, conversion, & output.
® Slack resources and extra resources handle unexpected
® Vertical integration acquires a supplier or
Evaluating Long-Linked Technology &
® Specialization and division of labor to increase
® Simplifies tasks
® Reduces task variability
® Increases task analyzability, making tasks routine.
® Repetition of routine tasks increases efficiency.
® Coordination costs are higher
® Employees do not become skilled.
® Sensitive to bad timing.
TI: Intensive Technology & Reciprocal Interdependence
® The work of all people and departments is inseparable,
making tasks impossible to program.
® More complex and nonroutine tasks decrease technical
® Hospitals and R&D departments use intensive
® Much coordination is required, usually through mutual
® Product team and matrix structures provide
coordination and decentralized control.
® Some organizations avoid through long-linked technology
Technology & Culture
® Technology affects culture, values, norms.
® Sociotechnical systems theory contends that:
® Managers need a fit between technical systems and
social systems or technology & culture.
® If change occurs, managers must ensure that
technology, structure, & culture are matched.
® Team-oriented system promotes values that enhance
efficiency & product quality.
® TQM uses sociotechnical systems theory.
Case 10: The Lincoln Electric Company
® What kind of technology does LE use to produce its
® Routine mass-production.
® Sequential task interdependencies.
® Highly vertically integrated.
® Components made in factories-within-the-factory, &
stored close to the main assembly lines for final assembly.
® LE’s control over all mftg stages accounts for product
reliability and quality.
Lincoln Electric, Continued
® According to Woodward’s model of technology, what kind
of organizational structure is typically found in a company with a technology
like LE’s? Is this what LE uses?
® Woodward: manufacturing has a tall hierarchy with wide
span of control. Programming &
production line speed are the main ways of monitoring and controlling
employees. Mechanistic structure, top-down communication, standardization,
division of labor.
® LE: No formal org. chart. Employees find best person
to resolve problem. Mutual adjustment
is main control. Flat organization. Huge span of control. Low costs.
Lincoln Electric, Continued
® What are LE’s primary means of coordinating and
® Sequential TI
® Well-developed and well-understood division of labor.
® Incentive management plan
® Strong workers’ property rights
® Cultural values/ organizational norms.
Lincoln Electric, Continued
® What are the main elements of LE’s incentive &
property rights system?
® Bonus plan
® Stock ownership system
® Continuous employment policy
® Open-door policy
® What kinds of instrumental values do they create?
® Cooperation, open communication, loyalty, continuous