Chapter 8

FIFA Restructuring for Governance Oversight of Ethics

FIFA Congress FIFA Executive Committee Task Force Revision of Statutes; Task Force Ethics Committee; Task Force Transparency & Compliance; Task Force Football 2014 Independent Governance Committee

Chapter 8 Conclusions

-An organization must be designed to facilitate the implementation of strategic goals, reflects its international entry strategy and changes over time -MNCs can be regarded as inter-organizational networks -Transitional structure allows a company to "be global & act local" by using decentralized networks -Indications of the need for structural changes include, inefficiency, conflicts among units, etc. -Appropriate monitoring systems must be in place

Organizational Change and Design Needed When

-Clashes among divisions, subsidiaries, or individuals over territories or customers -Duplication of administrative or personnel services, sales offices, account executives -As increase in overseas customer service complaints -Downturn in profitability or finances -Conflict between overseas and domestic staff -New management with different goals and strategies -Underutilization of overseas manufacturing or distributing facilities Signs of organizational inefficiency or any major organizational change usually indicate the organizational structure must change as well. This slide and the next highlight some of the change indicators presented in the text in Exhibit 8-8. They particularly highlight international indicators that change is needed.

Managing Effective Monitoring Systems

-Management practices, local constraints, and expectations regarding authority, time, and communication are some of the variables likely to affect the appropriateness of monitoring (or control) systems. The degree to which headquarters' practices and goals are transferable may depend on whether top managers are from the head office, the host country, or a third country. -Research by Ueno and Sekaran indicates that individualism may lead US managers to use more formal communication and coordination processes, whereas Japanese managers may be more likely to use informal and implicit processes. Likewise, because US managers are often evaluated on individual performance, they are more likely than their Japanese counterparts to build slack into budget calculations. -Reporting systems require sophisticated information systems to enable them to work properly. Managers must receive accurate and timely information about sales, production, and financial results to be able to compare actual performance with goals and take corrective action when necessary. Research by Neghandi and Welge indicates that US companies use far more specific functional reports than do German or Japanese MNCs. -Accuracy and timeliness of informational systems are often imperfect—especially in less developed countries. Problems may stem from false information provided by governments, differences in work norms, and inadequate technology. -An additional problem is the difficulty of comparing performance data across various countries because of the variables that make that information appear different—which hinders the evaluation process. To combat some of these problems, some companies are taking advantage of the Internet to create Internet MIS systems for supply-chain management. -It can be difficult to evaluate the performance of foreign affiliates because performance data is not necessarily comparable across countries. For example, factors like considerable inflation, which is beyond the manager's control, can have a downward effect on profitability. It is possible, though, that this manager may have done more to maximize opportunities for long-term profitability relative to a manager in a country with less inflation problems. -One way to ensure meaningful comparison is to adjust financial statements for uncontrollable variables particular to each country where a subsidiary is located. Another way is to take nonfinancial measures into account. These include market share, productivity, sales, relations with the host country government, public image, employee morale, union relations, and community involvement.

Locus of Decision Making in an International Organization

-When modifying the organizational structure, managers must establish a system of communication and control that will provide for effective decision-making. The organization design must determine effective behaviors at both the macro and micro levels. The level of decision-making centralization can have important consequences and is a matter of degree. This figure illustrates the centralization-decentralization continuum and the different ways that decision making can be shared between headquarters and local units or subsidiaries. Two key issues are the speed with which the decisions have to be made and whether they affect only a certain subsidiary or part of the company. For functions that are organized for the entire organization (e.g., finance, research and development), centralization is generally preferred. -In general, though, there is no one best way to organize. Ideally, a company tries to organize in a way that will allow it to carry out its strategic goals; the staffing is then done to mesh with those strategic goals and the way the structure has been set up. In reality, though, the result is likely to be trade-off between the desired strategy and existing constraints.

Three Parts of Managing Effective Monitoring Systems

1. Evaluation Variables Across Countries 2. Role of Info. Systems 3. Appropriateness of Monitoring and Reporting Systems

Three Principles of Organization Structure

1. Must evolve to accommodate internationalization 2. Should be contingency based 3. Must fit with strategy A firm's structure must "fit" with its strategy—that is, be conducive to its implementation. Choice of structure also should be contingency based, taking into consideration factors such as the firm's size, the appropriate technology, the organizational environment, geographic dispersion, and differences in time, language, cultural attitudes, and business practices. Many managers find it more difficult to develop the appropriate organizational structure than it is to develop the strategy.

Organizing for Globalization

A firm's structural choices always involve two opposing forces: the need for differentiation (focusing on and specializing in specific markets) and the need for integration (coordinating those same markets). The way a firm is organized along the differentiation-integration continuum determines how well strategies, along the localization-globalization continuum, are implemented. A globalization strategy treats the world as one market by using a standardized approach to products and markets. IBM is an example of a company reorganizing to achieve globalization. They are moving away from a geographic structure toward the use of centralized industry expert teams. A globalization strategy usually involves rationalization and the development of strategic alliances. To achieve rationalization, managers must choose the manufacturing location for each product based on where the best combination of cost, quality, and technology can be attained. This means different parts and components are often produced in different countries and that product design and marketing are essentially the same in all markets. As such, differentiation and specialization in local markets is minimized. Another risk associated with globalization is exposure to volatility from all corners of the globe. -Differentiation: -Focusing on and specializing in specific markets -Integration: -Coordinating those same markets -ROA: -Moved away from its traditional geographic structure to a global structure -ABB is legendary in changing its organizational structure to fit its new strategic directions and its competitive environment. In their rush to become global, many companies sacrificed the ability to respond to local markets and consumer preferences. They are now realizing they must find structures that allow them to "be global, act local." Two companies that have successfully struck a balance between globalization and localization is Levi Strauss. Levi Strauss gives foreign managers freedom to adjust their tactics to meet the changing tastes of their home markets. Additionally, although the company maintains centralized control of some aspects of the business, it decentralizes control to its foreign subsidiaries. The subsidiaries are supplied by a global manufacturing network. As such, Levi Strauss achieves local coordination and the flexibility to respond to ever-changing fashion trends and fads in denim shading. -Be Global Act Local: -Responding to local market structures and consumer preferences, along the globalization-regionalization continuum -Allows managers to act independently -Keeps some centralized control, but decentralizes control of foreign subsidiaries

Matrix Structure and Transnational Company: Coordination and Control System

Attempts to combine: -The capabilities and resources of a multinational corporation -The economies of scale of a global corporation -The local responsiveness of a domestic company -The ability to transfer technology efficiently typically of the international structure

Global Geographic (Area) Structure

Board of Directors Chair CEO VP Finance; Group VP; VP North America; VP South America; VP Europe; VP Pacific VP Plastics; VP Agriculture France; UK Finance; Production; Marketing -One answer to the difficulties associated with a global product structure is to use a global geographic (area) structure, which is the most common form of organizing foreign operations. With this structure, divisions are created to cover geographic areas. Regional managers are responsible for the operation and performance of the countries within a given region. As such, country and regional needs and relative market knowledge take precedence over product expertise. In this structure, the focus is on marketing and adapting products to local requirements. Nestle is a good example of a company using the global geographic structure. They produce a range of products that can be marketed through similar channels of distribution to similar customers. -A matrix structure is a final option from which organizations can choose, but it has recently fallen into disfavor.

Global Product (Divisional) Structure

CEO Corporate Functional Staff; Area Specialists: North America, Latin America, Europe, Far East Product 1 Division; Product 2 Division; Product 3 Division Country A; Country B Finance; Production; Marketing -For companies with diversified product or service lines and that are aimed at dissimilar or dispersed markets, a global product (divisional) structure may be more strategically advantageous than a functional structure. In this structure, a single product or product line has its own separate division, headed by its own general manager, and which is responsible for its own production and sales functions. Often each division is a strategic business unit (SBU) or a self-contained business with its own functional departments and accounting systems. -The advantages of this structure are market concentration, innovation, and responsiveness to new opportunities in a particular environment. It also facilitates diversification and rapid growth. Nonetheless, the structure can create difficulties in the coordination of widely dispersed operations.

Domestic Structure Plus Foreign Subsidiary

CEO Headquarters departments: Finance; Production; Marketing; HRM VP International Operations Overseas subsidiaries: Japan; Germany; Mexico There are several common ways that firms organize their international activities, which are presented in this and the following slides. -Many smaller firms start their international involvement by exporting. As such, they may reorganize into a simple domestic structure plus export department. They can take a step further by reorganizing into a domestic structure plus foreign subsidiary in one or more countries. This structure works well for companies with one or a few subsidiaries located relatively close to headquarters. -With further expansion, a firm may create an international division organized along functional, product, or geographic lines. In this case, foreign subsidiaries are organized under the international division, and subsidiary managers report to its head. In turn, the head reports to the CEO of the corporation. This structure allows managers to coordinate resources for foreign activities under one roof and thus, facilitates the beginning of a global strategy.

Comparative Management in Focus: Emerging Market Companies

Changing Organization Structures of Emerging Market Companies Major Variables: company's global involvement and degree of localization Fast-growing companies from emerging markets using expansion models which are unique Many emerging market corporations avoid traditional roadmap to internationalization Find niche markets where competition is limited Thriving old-economy industries that have been abandoned by established MNCs

Kraft's Post-Merger Integration and Reorganization

Companies change their structures to align with new strategic directions and competition, but also to respond to development in their operating environments. Such was the case early in 2009, when Samsungs electronics of Seoul south Korea, implemented a radical reorganization in order to become more efficient to deal with worsening economic conditions. As a result, Samsung electronics Co. announced a major restructuring which necessitated reassigning two-thirds of it executives and relocating 1200 staff members. Clearly, the company strategy has had to change from high-tech competition to controlling cash-flow and profitability. -To capitalize on the Kraft sought two major acquisitions: -LU for $7.6 billion in 2007 -Cadbury PLC for $19 billion -December 2011 Kraft announced a split into two entities: "snack business" ($32 billion) and "grocery business" ($16 billion) -British Parliaments Commons Select Committee: "positive messages would have been considerably more convincing if conveyed directly to bodies such as ourselves"

Control Systems for Global Operations

Direct Coordinating Mechanism: -McDonald's in Moscow -Problem: quality control -Solution: built processing plant in Moscow and provided managerial training -Other options: visits by head-office personnel and regular meetings Indirect Coordinating Mechanism: -Examples: sales quotas, budgets, and financial tools and reports -Three financial statements: -One for accounting standards in host country -One for the standards in the home country -One for consolidation -Direct mechanisms include the design of appropriate structures (as already discussed) and the use of effective staffing (discussed in Chapter 9). They proactively set the stage for operations to meet goals, rather than troubleshooting problems after they occur. -When McDonald's first opened in Moscow in 1990, they anticipated their biggest challenge would be quality control of food products. In response to this challenge, they adopted a strategy of vertical integration for sourcing raw materials and built a large plant in Moscow to process beef, milk, buns, vegetables, sauces, and potatoes. The company also sent Russian managers for five months of training in Canada. -Another form of direct control is periodic visits to subsidiaries by executives from headquarters. These visits allow them to check performance, troubleshoot, and anticipate future problems. Likewise, regular meetings can be a form of direct control. International Telephone and Telegraph Corporation (ITT) holds monthly management meetings at headquarters. Each general manager shares performance data, and problems and solutions also are shared. -Domestic companies often rely on financial statement analysis, but doing so becomes more complicated for foreign subsidiaries due to exchange rates, inflation levels, transfer prices, and accounting standards. MNCs usually require three sets of financial statements from subsidiaries. The first must meet the accounting standards prescribed by law in the host country (which also allows for comparison of subsidiaries within the same country). The second is in accordance with the accounting standards required by the home country (which allows for comparison with subsidiaries in other countries). The third translates the second set of statements (with adjustments) into the currency of the home country for consolidation purposes. -Evidence suggests that US companies may tend to rely more heavily on indirect mechanisms than European companies, which tend to favor direct mechanisms.

With further expansion, a firm may create an international division organized along functional, product, or geographic lines. In this case, ____________ are organized under the international division, and subsidiary managers report to its head. In turn, the head reports to the CEO of the corporation. This structure allows managers to coordinate resources for foreign activities under one roof and thus, facilitates the beginning of a global strategy. Examples of companies with an international division are IBM and Pepsi. Their divisions are called IBM World Trade and Pepsi Cola International, respectively. There are three integrated global structures presented in this and the following slides. These structures allow companies to respond to increased product diversification and to maximize benefits from both domestic and foreign operations. The global functional structure is based around the organizational functions—e.g., production, marketing, finance—with foreign operations integrated into the activities of each function. This structure is primarily used by small firms with highly centralized systems and is appropriate for product lines using similar technology and for businesses with a narrow spectrum of customers. The result is plants that are highly integrated across products and that serve single or similar markets.

Foreign subsidiaries

Interorganizational Networks

I-Form: Acer-Taiwan, Royal Philips Electronics -> Relational Networks <- Platformisation Intel -MNC linkages with different companies, subsidiaries, suppliers, and individuals result in relational networks. Regarding the MNC's overall structure as a network of interconnected relations helps them consider organizational design imperatives at both global and local levels. The network framework makes clear that the company's operating units link vastly different environmental and operational contexts based on varied economic, social and cultural milieus. Philips and Intel are examples of companies with interorganizational networks. -The global e-corporation network structure involves a network of virtual e-exchanges and "bricks and mortar" services. This structure of functions and alliances makes up a combination of electronic and physical stages of the supply chain network. -Philips has operating units in sixty countries. These units range from large subsidiaries to very small single-function operations. Some have centralized control at Philip's headquarters; others are autonomous. -In 2005 Intel developed a structural focus called "Platformisation," which is customizing a range of chips in a combination suitable for a particular target market as a response to the need for speed adaptation. Because Intel is not very hierarchical, its formalized structure is not a good representation of how the company works.

Integrated Global Structures

International Division: -Organized along functional, product, or geographic lines -IBM World Trade -Pepsi Cola International Global Functional Structure: -Designed on the basis of the company's functions -Allows for functional specialization and economies of scale -Small firms with highly centralized systems

Matrix Geographic Structure

Management VP Europe; VP Asia; VP North America Research; Production; Sales; Finance

Management Focus: Proctor & Gamble's "Think Globally—Act Locally" Structure

P&G's Global/Local Structure -> Philosophy -Global business units -> Think globally -Market Development Organizations -> Act Locally -Global Business Services -> Provide business technology and services -Corporate functions -> Maintain place as leader of industries -In January 2006, Gillette India announced merger plans with Proctor and Gamble (P&G) India. Even though it would remain a separate legal entity, Gillette intended to take P&G's structure as a means of increasing reach, cost efficiencies, speed to market, and growth momentum. -P&G's structure is divided into three heads: GBU, MDO, GBS. Gillette will move form business units based on geographic regions to GBUs based on product lines. MDOs will develop market strategies to build business based on local knowledge. GBS will bring together business activities such as accounting, human resource systems, order management, and information technology. P&G is the only consumer products company with global shared services, all supported by innovative corporate functions.

Evolution and Change in MNC Organizational Structures

Structure continues to change over time with growth, increasing levels of investment or diversity, and the types of strategy chosen. This structural evolution that accompanies internationalization is known as the stages model. Though some firms do not follow the stages model because they start their internationalization at a higher level of involvement, even mature MNCs must make structural changes sometimes. For example, the reorganization of Aluminum Company of America (Alcoa) split the company into smaller more autonomous units to give greater focus to growing businesses where the market for aluminum is strong. Alcoa also sought to increase communication by linking similar, but geographically dispersed, businesses. -Structural evolution/stage model -Alcoa -Created smaller units -Linked geographically dispersed, but similar businesses (e.g., Brazil and Australia) -Typical ways to structure international activities -Domestic structure plus export department -Domestic structure plus foreign subsidiary -Global functional structure + international division -Global product structure + matrix structure

Global E-Corporation Network Structure

The global e-corporation network structure combines some global and some local functions. Customized e-exchanges for logistics, supplies, and customers could be housed anywhere; suppliers manufacturers, and distributors may be in various countries, separately or together, wherever efficiencies of scale and cost may be realized. The final distribution system and customer interaction must be tailored to the customer-location physical infrastructure and payment infrastructure, as well as local regulations and languages. The end result should be efficiency and cost effectiveness throughout the chain.

Choice of Organizational Form

Two major issues in choosing the structure and design of an organization are the opportunities and need for (1) globalization and (2) localization. This exhibit shows alternative structural forms appropriate to each of these variables and to the strategic choices regarding the level and type of international involvement desired by the firm. It updates the evolutionary stages model to reflect alternative organizational responses to more recent environments and to the anticipated competitive environments ahead. As the company progresses through various stages from domestic to transnational the organizational structure must be adapted to accommodate changes in relative focus on globalization versus localization, choosing a global product structure, a geographic area structure, or perhaps a matrix form.