The Organizational of International Business

Organizational Architecture
The term organizational architecture refers to the totality of a firm’s organization, including formal
organizational structure, control systems and incentives, organizational culture, processes, and people. By
organizational structure, we mean three things: First, the formal division of the organization into
subunits such as product divisions, national operations, and functions (most organizational charts
display this aspect of structure); second, the location of decision-making responsibilities within that structure (e.g.,
centralized or decentralized); and third, the establishment of integrating mechanisms to coordinate
the activities of subunits including cross functional teams and or pan regional committees.
Control systems are the metrics used to measure the performance of subunits and make
judgments about how well managers are running those subunits. For example, historically Unilever
measured the performance of national operating subsidiary companies according to profitability-profitability was
the metric.

Incentives are the devices used to reward appropriate managerial behavior. Incentives are
very closely tied to performance metrics. For example, the incentives of a manager in charge of
a national operating subsidiary might be linked to the performance of that company.
Specifically, she might receivea bonusif her subsidiaryexceedsits performancetargets.
 Processes are the manner in which decisions are made and work is performed within the
organization. Examples are the processes for formulating strategy, for deciding how to
allocate resources within a firm, or for evaluating the performance of managers and givingfeedback.
Processes are conceptually distinct from the location of decision-making responsibilities
within an organization, although both involve decisions. While the CEO might have
ultimate responsibility for deciding what the strategy of the firm should be (i.e., the
decision-making responsibility is centralized), the process he or she uses to make
that decision might include the solicitation of ideas and criticism from lower-level
managers.
Organizational structure
Organizational structure can be thought of in terms of three dimensions.
 Vertical differentiation
 Horizontal differentiation
 Integrating Mechanisms
Vertical differentiation: Centralization and decentralization
In a vertical organization, your business has a pyramidal top-down structure, with a CEO, president or
owner at the top, a middle section of managers and supervisors, and a bottom section of regular
employees. As a business owner, you would make all the major decisions about marketing, sales, and
customer service standards, then communicate those decisions to your middle management. These
managers would then be responsible for telling your employees the work processes that will achieve
desired goals. The word “vertical” refers to the fact that the organization works from the top to the
bottom, and that employees are not required or expected to contribute to the choices that you make
regarding how the company operates.

Centralization vs. Decentralization

When the authority of the organization is concentrated only at few central points, it is known as
centralization. Only selected people involve in decision-making process. The process of centralization
involves the following aspects -
 Only the top level management are involved in decision-making
 The operations are carried by the mid-level managers
 The top level management directs the operations of the subordinates.
The top level management take decisions regarding the operational activities of the lower management.
 When the authority of the organization is distributed among all the levels of management, it is known
as decentralization. The important decisions regarding the policies of the organization are mostly taken
by the top level management. The rest is distributed among the mid and lower-level management.

The use of Subsidiary Board of Directors

The top level management of the international business is being monitored and directed by a board
of directors. This board of director have assigned certain responsibilities. They are -
 The board of directors have to advice, appraise and approve the decisions relating to the local
management.
 Assist the management in facing the local challenges and solving the local issues
 Assist top management in strategic planning
 The ethical issues of the company have to be supervised.

The different organizational Structures

An organizational structure is followed by all the international business organizations. The main
responsibility of following an organizational structure is to set right all the processes of the
organization. There are different types of organizational structures and the type of organizational
structure adopted by the business depends on the business requirements and operations.
Initial Division Structures

Some of the business which is into on-site manufacturing, the firms involved in export usually
adopts this Initial Division Structure. Some of the illustrations are the consulting and financial
firms usually follow Initial Division Structure. Some of the export firms that adopt this type of
organization structure include the firms with technological advanced products.
 International Division Structure

In order to take care of the international operations of the business, a specific international division
structure is being built. All the business which are still developing for setting up the business
operations internationally, this structure is being adopted.

Advantages
 The top management is exposed to the knowledge about the attitude of the foreign market.
 The international operations are performed united.
Disadvantages
 It requires separate managers locally for managing the international counterparts.
 Global allocation of resources turns out to be very difficult.
 Global Product Division

In accordance with the groups of the product, the structure is divided such that the specific product
groups are taken care by the divisions. Each of the division is considered as a profit center.

Advantages
 Product, technology and customer diversity is managed
 All the local needs are catered
 This model facilitates in coordination of all the different departments such as marketing,
production and finance.
Disadvantages
 There is a possibility of existence of duplication of the staff.
 Usually the managers get deviated from concentrating on the long-term goals.
 Only the local market is concentrated by the division managers.
 Global Area Division

When the operations of a business are controlled on the basis of geographical location rather than
the type of product, it is known as Global Area Division. Many companies that are usually in the
business which has only selected products adopt this global area division.

Advantages
 The operations at domestic and international level remain to be the same.
 The operations of the specific geographical area are being managed by the global managers
 The unit cost can be reduced.
Disadvantages
 According to the geographic locations, it is very difficult to align the product
 No efforts are being out on R&D.
 Global Functional Division

On the basis of different functions, the global operations are organized by this global functional
division.

Advantages
 More emphasis is given to functional leadership, leaner managerial staff and centralized
control.
 The businesses that require control on the integrated production mechanisms adopt this practice
of Global Functional Division.
 This model is best suitable for the business which involve in transportation of goods and raw
materials.
Disadvantages
 This model is not suitable for all business types. This model best suits only to oil and mining
firms.
 The coordination of the different processes becomes difficult.
 Since the different processes are not integrated, management of all the processes turns out to
be difficult.