International Strategies an Organizational Design - Term Paper Example

International Strategy and Organizational Design The relevance of international strategy to businesspeople Businesspeople or executives of an organization with an international scope, will find that an international strategy is not only relevant but also vitally important if the organization he represents has to survive and earn above-average returns. Profitability is a function of the strategy the enterprise adopts and implements in the global marketplace. The firm has to develop competitive advantage over its rivals in order to be profitable. A sound strategy at all levels will ensure that such competitive advantage is maintained over the long haul. It is the responsibility of the CEO to conceptualize and chart the strategic plan of the business to ensure the health and viability of the organization under his direction. Below him are functional managers whose leadership, -- such as in marketing, finance, production and R&D -- will help enable the company to achieve effective results through division by specialization. Despite lack of general management orientation, they are important role players in the implementation of the overall strategy of the business. Because of the level and intensity of competition in the global markets, the companys international strategy must be prepared carefully and employed dynamically so that the company can survive and earn above-average returns in both the short and long term. 2.The global strategic planning process The global planning process starts with the CEO taking the initiative or recognizing the need for a global strategic planning. While plans can exist solely in the mind of the CEO, a formal and rational planning process is necessary in order to obtain participation and commitment of those who will execute the plan. The major activities in such planning activity involves the following: 1) defining the mission and major goals and objectives of the organization, 2) analyzing the internal and external environments, 3) choosing the business model and strategies that will align or fit an organizations strengths and weaknesses with the opportunities and threats of the external environment; 4 adopting the organizational design or structures of the organization, and 5) the establishing of control systems to ensure proper implementation, monitoring and evaluation. A feedback mechanism may suggest changes in the components of the plan so that corrective action can be carried out. A SWOT analysis will identify the fit between the existing resources and competencies of the organization and the opportunities and threats in the external environment. What is perhaps of major importance is for the organization to look into the building of new resources and capabilities in order to create and exploit future opportunities. For this reason, the firm might find it useful to have a strategic intent, a kind of obsession with the achievement of an objective that prods the firm to build new resources and capabilities. An example of this is GEs resolve to be either no. 1 or no. 2 in any business it goes into. While a global strategic planning process may be excellent, there remains the problem of putting it into effect. The execution of such a plan depends on the existence of certain traits of those executives involved: vision, consistency, commitment, ability to find and process information, willingness to delegate and empower the lower levels, political skills, and emotional intelligence. Further, if decision-making process is subject to what Janis & Mann (1977) referred to as Groupthink and cognitive biases intrude into the decision making process, the implementation can suffer. 3.Prediction of changes in the business environment affecting strategic planning The planning process uses certain assumptions about the future, normally based on past developments and trends. The past is merely extrapolated into the future in the planning model, with the assumption of linear relationships among the variables used. As has been demonstrated repeatedly, however, forecasts often prove inaccurate. For example, who would have forecast the disintegration of the Soviet Union, with the consequent problems created for the West to help former members join the liberal economic system? Years before China emerged as member of the World Trade Organization (WTO), many planners would have been unable to predict the world trade dominance China has reached today. There is so much uncertainty and turbulence that the future holds that many managers are uneasy about formal strategic planning, criticizing the activity as a waste of time, effort and resources. When the assumptions of the global strategic plan are negated by events, it may be necessary to revise the plan to incorporate the new events and create new assumptions. Plans do not have to be adhered to regardless of new circumstances. Plans are supposed to be flexible and dynamic, although they may cover 3 or 5 years into the future. At least, if the management knows what it aims to achieve 5 years hence, it will be able to determine with more assurance what has to be done today as it moves forward. Steiner (1979) has proposed that companies create contingency plans and that staffs be designated to prepare studies of alternative futures. Although written nearly three decades ago, Steiners recommendations remain valid today. Contingency plans are plans to "take specific actions when an event or condition not planned for in the formal planning process actually does take place." (Steiner, 1979, p.230). An advantage of contingency planning is that it forces management to look at improbable events, whose moment of occurrence is unpredictable, that nevertheless have potentially critically damaging impact on the company when it happens. Because this kind of planning process forces managers to dwell on unpleasant events or situations, it may create pessimism, negativity in thinking, and fear, thus eroding optimism which is often emphasized in order for plans to be carried out effectively. A brainstorming process will identify what the general and task environments of the organization may produce as potentially having negative impact on the organization, such as catastrophes, very unfavorable government regulations, death of the CEO, civil war, high interest rates, withdrawal or disruption of supply, nationalization of foreign assets, and so on, will generate possible responses - first, in terms of measures to prevent them if possible, and second, if prevention does not work, in terms of action plans that will take care of handling the problems quickly and promptly in order to minimize losses. A team within the organization can be tasked to study alternative scenarios in relation to contingency planning. The value of such a study and the formulation of alternative scenarios and forecasts is that it would enable management to visualize what it would do if those improbable events take place. It would force managers to see the broader aspects and patterns of the environment, to generalize and interrelate the components of the system wherein the firm is one of such components. 4. Explain the relationship between strategic planning and organizational design Ball et al. (2005) defines organizational design as a "process that deals with how an international business should be organized in order to ensure that its worldwide business activities are able to be integrated in an efficient and effective manner." This concept is related to organizational structure, as described by Hill and Jones (2004), whose purpose is to "coordinate and integrate the efforts of employees at all levels -corporate, business, and functional -- and across a companys functions and business units so that they work together in the way that will allow it to achieve the specific set of strategies in its business model (p.404)." There is a strong interdependent relationship between organizational structure on one hand and the international environment and competitive strategy on the other. To pursue its profit objectives in the global marketplace, the organization needs to formulate a strategy that will enable it to gain competitive advantage and earn above-average returns. Such a strategy depends on how the firm was able achieve a good fit between its internal environments resources capabilities vis-a-vis the opportunities and threats in the external environment. The aim is to maximize exploitation of opportunities while minimizing the threats. The organizational structure would be so configured as to be able to respond strongly and advantageously to the environment utilizing its competitive strategy. When competing across countries and across industries, the organization at the corporate level must select a mix of structure, control systems, and organizational culture if it wants to operate a multi-business model that can obtain superior profitability. The issue of control and culture will be discussed separately. As the firm expands and diversifies, it will adopt a multi-divisional structure, distinguished from product structure and functional structure, by the fact that divisions are established at the corporate headquarters with its own set of functional managers dealing with specific markets. A firm with multiple products organizes its operations by product category worldwide, while the functional structure is organized globally according to such functions as marketing, finance, production and R&D. A multi-divisional structure is considered to be better than the other two in terms of savings on bureaucratic costs. A change in corporate strategy implies the need for a change in organizational structure, to make it more efficient and effective in carrying out the new strategy. For example, the shift from unrelated diversification (different industries) to vertical integration (e.g., backward to suppliers) means changes in the way the firm is organized for better coordination. Hill and Jones (2004) classifies strategies for an international firm into multi-domestic, international, global, and transnational strategy. The multi-domestic model is one where product offerings are customized to match national conditions, with a complete set of value-creating activities done in the national market. International strategy is one where values are created by transferring valuable skills and products to foreign markets where indigenous competition lacks those skills and products. Global strategy emphasizes cost reductions arising from location economies and experience curve effects (economies created by efficiency of operations due to experience of doing the same job for a length of time), where functions are located in a few favorable locations, and standardized products are marketed worldwide. Finally the transnational strategy stresses the flow of skills and product offerings from foreign subsidiary to home country and from foreign subsidiary to another. As the firm moves from one of these strategies to another, it has to have the ability to adopt more complex structures that will allow it to coordinate increasingly complex transfers of resources. The more complex integration (and control) system will facilitate resource sharing and leveraging of competences of the firms units globally (Hill and Jones, 2004). 5. Assess the types of controls in an international company Basically, control means managerial control that seeks to ensure that performance conforms to plans. It involves evaluating performance and taking corrective action when performance deviates from plans (Steiner, 1979). In the context of a multinational corporation, there are organizational strategies and structures that are used to enable managers to utilize resources effectively while pursuing is business model and creating values and profits. Strategic control systems are formal target-setting, measurement and feedback systems that allow managers to evaluate whether the firm is achieving superior efficiency, quality, innovation, and customer responsiveness, and implementing the strategy successfully (Hill and Jones, 2004) Controls are not very useful, however, unless there are incentives systems that reward good performance that hits or exceeds standards. Controls can be implemented in relation to efficiency (how given inputs are used to maximize outputs, or how targeted outputs require minimal amount of inputs); to quality which can be measured by the number negative feedback from customers; to innovation when management empowers subordinates to take risks to be creative; to responsiveness to customers, shown by helpfulness shown to customers. A strategic control system should be flexible, by enabling managers to respond as necessary to unexpected events; accurate in generating information; and providing such information in a timely manner. Hill (2005) identifies and describes four more kinds of control: personal, bureaucratic, output, and cultural controls. These are metrics used to measure performance of subunits and to evaluate the effectiveness of managers in running their subunits. These will be explained below. Personal control comes about as a result of direct supervision of subordinates. In the multinational context, the CEO, for example, may influence the behavior of his direct subordinate (an officer lower in the hierarchy) such as the heads of worldwide product divisions. Former GE CEO Jack Welch exercised personal control over his officers through one-on-one meetings with them to probe them about their strategies and performance. Bureaucratic control pertains to a system of rules and procedures that directs the action of subunits (Hill, 2005). Such controls may consist in budgets and capital spending rules which have to be followed as prescribed. Output controls have to do with certain goals such as profits, production, quality, sales, and so on. Using "management by exception," managers are left alone as long as they hit their goals but an alert can be triggered if they fall short, and the unit in question may be probed by higher management. Cultural controls refer to adherence to the norms and value systems of the organization. REFERENCES Ball, et al (2005). International business. (10th ed.). New York: McGrawHill Hill, C.W.L. & Jones, G.R. (2004). Strategic management: An integrated approach. Boston, MA: Houghton Mifflin Hill, C.W.L. (2005). International business: Competing in the global marketplace . New York: McGraw-Hill ________ (2001). Global Business Today (2nd ed.). New York: Irwin/McGraw Hill Hitt, M.A., Ireland, R.D. & Hoskisson, R.E. (1996). Strategic management: Competitiveness and globalization (2nd ed.) St. Paul, MN: West Publishing, Janis, I.L. & Mann L. (1977). Decision making. New York: Free Press, Steiner, G.A. (1979). Strategic planning: What every manager should know. New York: Free Press Read More