International Business - Decentralized and Centralized Operations Systems - Essay Example

Total Words (Excluding Bibliography 2958 Why are some overseas operations in multinational firms highly decentralized while others are very centralized (what factors influence this arrangement)? Introduction: Every organisation is faced with a number of different decisions that it is required to make to enhance their business. It is a known fact that behind every successful business there is a strong and well planned strategy (Mintzberg, et.al, 2002). Strategy plays a very essential role in every business and is the in some terms the backbone for the businesses. There have been a number of different views and explanations of strategies by different authors. As said by Markides (1999), “There is surprisingly little agreement on what strategy really is”. The organisational structure and operations of a company also depend to a great extent on the strategy being adopted by the company. This report aims at discussing why certain overseas businesses have a decentralized operations systems while the other follows a more centralized form. There have been several debates and discussions on this topic and the reasons why companies choose different forms of organisational structures in different places. To understand this better it is essential to firstly understand the meaning of decentralised and centralised forms of organisational operations. This will lead various factors that allow companies to choose the different style and also how the two differ in the case of different companies. Decentralized Firms: There have been numerous debates and discussions in regards to the definition of ‘Decentralization’, and in a number of events this term has been mixed with ‘devolution’ or ‘delegation’. In the case of multi national companies and their operations, decentralization can be taken to mean the decision making rights or responsibilities, i.e. away from the centre and spread out across the various locations. Decentralization of a business operation simply means that the operation of every location is separate and based on the needs of the particular location. Here the main managers and heads of the company for each location are held responsible for the strategies, plans and operations of the particular location. In simpler terms the process of decentralization involves the decision making process and authority of the firm to a larger number of actors rather than a limited few in the central office. Operations in these kinds of companies are decentralized and the management for each area is different. Hence a decentralized management allows the company to perform better in the various regions and ensure that the company works in accordance with the region, culture, values and ethics. Also if the operations are tailor made for the specific location, other factors like sourcing and catering to the needs of the markets will also improve. Some excellent examples of firms / companies that use a decentralised structure include, Dallas Cowboys. If a company trusts and allows the employees to contribute to the company, the employee will be more motivated and interested in their job as well. The paper deals with the allocation of decision making rights and why companies choose any particular style of management. Hence to move on with the discussion it is essential to also get a clear understanding of centralised firms. Centralized Firms: Centralized firms are the opposite of decentralized firms. Here businesses tend to take on the decision making at the head office. Unlike the decentralized firms, a few multinational businesses prefer to keep all the decision making powers at the head office rather than spreading the decision making across the various locations of operations. This has also been referred to as a situation where the top management takes decisions for the firm without the inputs from the people working below. In most cases where the CEO of the company have set ideas and worked out plans for the company and prefer not to be interrupted in their own approach, here the company mostly tend to be centralized. This is a very beneficial step for companies which are facing issues and need to stabilize here it is most appropriate to choose the centralized form of operations. Centralized vs. Decentralized Multinational Firms: When a firm decides to take its business across the globe, there are several factors that need to be considered, including, the laws and regulations of the area. Hence different companies depending on the sector they belong to follow different approaches. Take the example of Google, or Microsoft. Both these companies provide standardized products and services across the globe. The two companies do not require changing the products based on the country and hence they can adopt the decentralized approach for all of its operations. However consider the example of Vodaphone, or Virgin Mobiles, both these companies operate around the world. These companies clearly require having different operation techniques across all the locations. Hence it would be best for these types of companies to adopt a decentralized approach. Organizations can range anywhere between highly centralized to strongly decentralized. A few firms like the ones mentioned above tend to lie at the end of the continuum, however most firms tend to adopt a decentralized approach of operations. The most common example of companies that prefer to operate with a decentralized format includes Multi national companies. There are several reasons for companies to make the choice of either being decentralized or centralized (Johnson, Scholes and Whittington, 2006). The factors that affect this decision making will be discussed in the following section. Factors Influencing the Decision: There are several factors that lead companies to follow a decentralized form of operations. Firstly factors that influence firms to use decentralized approach: a) Better local information: It is a known fact that being in a particular position allows for better decision making (Hansen, Mowen, & Guan, 2009). A manager working in the local markets tend to have better knowledge of the markets, competition and also the local labor forces. This allows them to make more relevant decisions and also allows for the application of specialized knowledge that is needed for the particular market. A decentralized firm has this benefits and companies that require knowing the local markets better hence tend to lean more towards decentralized operations. b) Timely Responses: In a centralized firm, for any decision to be made, it is essential for the local market information to be firstly sent to the headquarters following which a decision is made and sent back. This form of decision making leaves a high scope for miscommunication and high amounts of time for the decision making (Hansen, Mowen, & Guan, 2009). Hence if a company prefers to make faster and quicker decisions the best method to be adopted is the decentralized approach. This will allow the company to make the decisions in the local markets itself and also it will enable more timely responses. c) Focusing on Central Management: In a decentralized approach, the top level management is free to make strategic plans and decision making. For the success of any organization it is essential to keep a clear view on the long term plans. Hence in a decentralized approach there is more scope for the management to take on the long term planning rather than focusing on the day – to –day activities. This will allow for higher levels of success for the company (Hansen, Mowen, & Guan, 2009). d) Training and Evaluation of Segment Managers: A decentralized approach allows the lower level management to make decision and also implement them. This gives the segment managers a high level of hands – on experience of the markets and the decision making. Having a decentralized approach within an organization allows the managers to learn, very similar to an on – the – job training. It also allows the higher level managers to take a keen look at the performance of the managers and the best of the managers can then be promoted to the central management. This acts as a method of filing in any available positions in the top management when the need arises (Hansen, Mowen, & Guan, 2009). e) Motivation for the Segment Managers: Providing a person with the decision making power in some manner tends to fill out the needs of self esteem and self actualization. If these needs are met for a person, the performance of the individuals tends to be much higher and the efforts that are put in by the individuals also tend to be much greater. This is based on Abraham Maslow’s theory of motivation. In a decentralized approach the segment managers will reach the highest level of the motivational model and this leaves them with a high urge to contribute to the company (Johnson, Scholes and Whittington, 2006). Secondly factors that influence firms to use centralized approach include: a) Close Control of Operations: The operations in this form of organizational structure are close with a few people in charge of the decision making process. This allows the decision making and all strategic planning to go hand in hand without the possibility of any contradiction in the plans. Since a closed group of people work on the decision making there tends to be a balanced plan that is executed and it reduces the chances of misunderstanding and miscommunication within the organization (Hansen, Mowen, & Guan, 2009). b) Better Utilization of Centralized Experts: The top management of any company usually tends to be the most strategic thinkers and excellent planners. Using a centralized approach enables the company to benefit to the maximum possible extent from the centralized leaders and allow them to groom the company and have a tab on all the operations. c) Uniformity: There tends to be a high level of uniformity in these kinds of organizations as the decisions are made by one set of people and this allows them to set policies and all regulations in a standardized mode across all the operations. The use of the uniformity is that it allows a uniform outward appearance of the organization along with a strong and focused organization as well. d) Focused Emphasis: The centralized approach allows the organizations to have a focused emphasis on the bottom up approach within the organization along with the political and cultural environment within the organization. This also allows for higher learning dynamics within the organization and focused improvements at all times (Hansen, Mowen, & Guan, 2009). Conclusions: In conclusion it is safe to say that both these styles of organizational structures have their own benefits and are effective in their own manner. The choice of a multinational company to move to either one of the styles is completely a management decision based on the needs of the organization and the type of products that they deal with. It would be impossible for a car manufacturer to work in line centralized approach as the needs of the markets are different along with the different laws and regulations as well (Johnson, Scholes and Whittington, 2006). Similarly, it is easier for Google to work under a centralized management as the products and services are standardized across the world and having a centralized management is more effective for the company needs. What kind of organizational arrangement is the most conductive to current global economic conditions? Introduction: After having discussed the two kinds of organizational arrangements, the following sections will discuss which of these two styles of organizational arrangements prove to be more effective in the current global economic condition. However before moving on to which of these two styles is better it is essential to gain a brief outlook on the current economic condition. The next section will provide a brief overview of the current economic condition following which the discussion of which of the two organizational arrangements prove to be most effective will be presented. Current Global Economic Condition: The economies world over have been trying to develop after the major crash in 1970. The current global economic condition has been quite low. Countries like United States and United Kingdoms have been faced with a negative gross domestic profit and other under developed and developing countries in a worse situation. The UK economy however has had a continuous growth for sixteen years and now the growth graph is expected to be broken and the country is expected to see a recession. United Kingdom is one of the largest countries based on its exchange rates, however now the deputy governor of Bank of England expects the market to see a high recession in 2008. Similarly the US economy has also hit a big slow down and for the first time in the current economic expansion had been recorded to have a negative real GDP. Considering this current global economic crisis situation it is essential to understand which organisational arrangement will prove to be most effective. The next section will deal with the most effective organisation arrangement in this form of economic situation. Most Beneficial Organizational Arrangement: In the current market with the entire global economy moving down hill, it is essential that the companies adopt the decentralized approach of management. This is mainly because the level of economic downturn for every country is presently different and the different markets currently require different approaches. Hence if a company allows the management to be spread across the locations, it will be easier for the managers to make decisions as they are aware of the needs of the market and know the exact requirements and strategies that will help the company perform in the economic slowdown. According to Henry Mintzberg, strategy can be used by people in a number of different ways of which he has discussed the essential ones to be, a) strategy is a plan of how to get from a here to there, b) it can be considered to be the actions over time, c) it refers to the position, i.e. how products and services can move to particular markets, and d) it is a perspective, i.e. it refers to a vision, mission or direction that the company undertakes. He has developed a number of different arguments which imply that strategy is something that would grow over time and normally accommodates reality (Mintzberg, Lampel, Quinn & Ghoshal, 2002). Adopting a polycentric strategy is very beneficial for the current economic condition. This is a fundamental where the principle of organisation of a region is surrounded by several political, financial and social centres. A multi domestic strategy is one where the companies use the world as a portfolio of national opportunities. This strategy is generally used in situations where the forces for global integration are weak and the national responsiveness forces are strong. The in simpler terms this refers to companies that implement strategies that are based more so for the local needs, demands and values. In multi domestic strategies, the companies design their plans and strategies keeping in mind the individual countries and the research and development departments aim mainly to allow the companies to cater to these needs specifically. A few strong examples for this kind of company are companies like Unilever, McDonalds and many more. McDonalds has been known for the way that it adapts to the various cultures and the various values of each country. Take the example of the Big Mac, McDonald’s does not sell this or any other beef product in the India as beef is not well accepted in the country and the company takes regions and cultures into account before entering into a market. In companies that use this kind of strategy, the decision making is decentralised and each are has a separate management. This is mainly because it would be impossible to tailor make products for different regions and yet have all the outlets within one management. Hence a decentralized management allows the company to perform better in the various regions and ensure that the company works in accordance with the region, culture, values and ethics. A decentralised management also leads the companies to have local sourcing which again proves to be very beneficial as this allows the companies to use the local resources (Hitt, Ireland, & Hoskisson, 2000). This allows the company to save on the costs and also provides for better and cheaper human resources as well. Also since the multi domestic strategy mainly aims at catering to the markets specifically, it provides the customers from every nation with what they actually need and demand and this allows for higher sales and higher profits as well. This strategy also provides for more autonomy for the subsidiaries and enables each of the subsidiaries to complete independently in the various markets. This also leads to higher profits in most cases (Kates & Galbraith, 2007). Conclusions: Bartlett and Ghoshal, argue that, “…in today’s environment, competitive conditions are so intense that to survive in the global marketplace, firms must exploit experience-based cost economies and location economies, they must transfer core competencies within the firm, and the must do all this while paying attention to pressures for local responsiveness” (Hill, 2003, p424). Hence having a more decentralised approach for management in these markets allow the companies to compete in the markets and also develop a strong position in the markets without being faced with issues due to the global economic conditions. Nature of the markets is a very essential element for any business strategy and decision made by companies across the world. Take into consideration a Tesco might work well in UK however it has been noted that the company has not performed well in US (Bernus, Nemes & Schmidt, 2003). This is because of the differences in the markets and the various different needs for the market as well. It has become inevitable that companies have to choose a combination and not just stick with one channel for every market. Hence considering all these factors it is clear that a decentralised approach of management is most beneficial in the current global economic condition. 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