Video Transcript: Lecture 10

Hello, hello. So we are on to lecture number 10, organizational design and  control. So as I said at the conclusion of lecture number nine, organizational  structure is obviously very important. It's a way that that an organization formally will arrange their workforce, that happens both domestically and internationally  and and the relationships of those different units and how everything works  together. So an organizational structure helps determine the formal and  remember, there's a distinction between formal authority and informal authority,  but it helps determine the formal arrangement and the formal power and  authority and where that is located within an organization. So developing a  structure of an international company, it's it's generally a task that senior  management does, and then they structure the organization how they see it  would best fit. So remember that, that it has to be, as I said last when we're  talking about competitive advantage, this needs to occur in a very structured  way, in a way that aligns with the overall mission. Again, you can't have different  structures where you can have different structures, obviously, but you can't have structures that are fundamentally different causes, confusion, different policies,  those kind of things, and it does not lead to competitive advantage. So things to  keep in mind. So when we talk about organizational design, what is  organizational design? And design is the process that determines how a  company should be organized to ensure that the worldwide business activities  are effective and efficient as possible. So this is obviously driven by a few  drivers, or determined by a few drivers, and some of those drivers would be the  strategy of the organization, the size of the organization, the complexity of the  organization. Smaller firms tend to have a flatter organizational structure, where  more mature firms, and this isn't completely the case, but more mature firms  seem to have a more hierarchical structure, firms that have more people. So  organizing normally follows planning. So remember that structure always follows strategy, but you know, you got to find the find a way to take advantage of your  team and a specialization, and you got to make sure that you're meeting your  overall objective. So one of the things that you don't consider is the fact that  maybe I want to be have a certain title within the organization that's not really  consideration. It has to be a factor of a couple things, and that is effective way to take care of labor and then coordinating the activities. So you know, you would  put units together. That makes sense, and that's how one way of organizing. So  you would probably want to put certain activities like finance and accounting.  Probably they would work together, and even though they may have individual  departments, they would generally fall under the CFO for a position, Chief  Financial Officer, and then other areas would align well as well. So when you're  when you're designing this, this environment, product and technical expertise is  a consideration, geographic expertise is a is a consideration, customer expertise and then functional expertise. So remember that companies often enter form  markets by exporting, then they form the sales teams, and then they set up the 

production facilities. So thinking about that is is a way to set up, but that can  cause conflicts within the firm if it's not set up within the existing structure. So  something to keep in mind when you are creating these organizations is to make sure that the structure makes sense, that as you enter a new market, or you  enter a new company, that our country, that you employ an effective strategy. So make sure that that is occurring. Let's see. So as companies operations  increase in important importance and scope, companies will also often eliminate international divisions and set up a formal worldwide organizational structure.  And I think you saw that when we started looking at Coca Cola, you saw that  they came up with a more formal worldwide structure, although they still had,  you know, different areas. So, you know, you didn't see like a like CEO of South  Africa. You just saw, you know, somebody that was in charge of Africa. So  managers will make these changes. They will change the organizational  structure because they see that there's a greater capability to take advantage of  skill set, to develop competitive strategies and advantages, to lower production  costs, to ignite to enhance technology transfer and resource allocation. These  are all reasons why somebody would do this. They would change the formal  structure of the organization. There's also a way to organize around product  structure. So remember that a product division is responsible for the global line  and staff operations that each of these have regional experts, and you want to  avoid duplication of effort. And the reason why you want to is, remember  competitive competitive advantage, scarcity of resources, the smaller and leaner you can be, the better you can be, and then you can deploy those resources in  other areas. So it's a constant balancing act between what is enough, what is  too much, and what is not enough. So as a company, you need to consider  those different things a lot. Remember that product coordination across regions  presents challenges, as does global product planning. So to realize these is you  need to have specific product managers on staff that operate across the  international company. And that's a way to combat those kind of things. And then they work with the regional specialties to develop an overall strategy. So a few  companies organized by function. So most are not organized by function. Most  operate under a hybrid organizational structure. So there's a regionally  organized company that that may be organized through a worldwide product  division. So a mixed structure is what you're going to see a lot of times. So let  me try to break all that down in just a couple sentences to kind of synthesize it.  So there's different ways of organizing. Some people, what they will do is they  will organize flat as flat as possible, or some more organized, hierarchical,  meaning that there are several levels. There are some companies that are going to organize if they're international by region. There's some that will organize by  specific country. There's some that's going to organize across region, across the product line. There's some that are going to organize in different ways. It's very  complex, but whatever your strategy is then, then so too, does your structure 

need to follow that strategy. So there's no sense in organizing across an  organizational structure in Latin America and when your strategy is to remove  North when to remove Latin America from your product base. So, so that would  make sense to organize at the worldwide level, at the global level, at the  corporate level, and then manage those functions from there. So if that makes  sense, what I guess, what I'm trying to say is you got to find what works best for  your company and organize in a way that makes sense. So whether it's a hybrid  approach, whether it's a regional approach, whether it's a hierarchical approach, whether it's a flat organization, whether it's an immature organization or mature  organization, all those factors go into organizing. Again, this stuff is very, very,  very, very complex. And what do we like? We like stability. We like ability to  adapt. We don't like change a lot. We like the ability to to gain competitive  advantage, to create that value proposition, to do those things and  organizational structures is another way to do those things, to bring stability and  to bring all those things I talked about, so I talked a little bit of flat organizations.  Those are also called matrix organizations. And what that is, is it's a way that  you can kind of put organizations together. So geographic area managers and  product managers are generally at the same. Level, and they work together.  Their responsibilities will overlap, and they they work together across products.  The problem with this is the reporting language relationships can be very  convoluted. So I worked at an organization which was a hierarchical structure.  They tried to go to a matrix format, and I was reporting to six different people,  and I have like 12 different people reporting to me. It was very confusing. So if  you take that, you put that on a worldwide scale, you can see that that devolves, or has the potential to devolve into chaos. So that's quite a, quite a challenge for international firms. There's also strategic business units, so those operate as  independent units, and then they would pay a percentage of their revenue, and  that's based on product lines. So, you know, I've said in my organization, I would like to operate as an SBU. So the way that would work would be, we would be,  we would have to generate our own revenue, and then we can use that revenue  to operate however we want. And then we would kick back, you know, whatever, 15, 20, 25, 30, 35% back to our formal organization. So that's a, that's a  strategic business unit, which is a, definitely a way to operate. There's the notion of a Virtual Corporation, which is also known as a modular corporation, or a  network organization, and that uses resources that are outside traditional  business boundaries. So a Virtual Corporation obviously allows for the forming  of dynamic relationships and takes advantages of competencies by being  virtual, but that also allows them to be adaptable. There's a horizontal  Corporation, which is very similar to a matrix organization, and that's lateral  decision processes, horizontal networks. So the organization looks like this,  right? So everybody kind of operates at the same level. Then there's the vertical  which is boom, boom, boom, boom, boom, boom. Let me see. Oh, so horizontal.

What's great about that, and you see this in metric organizations as well, is  people form teams that are from different departments, and they come together  to solve a problem. So that's kind of a neat way to do things, right? So you have  an organizational problem, it's very complex. You bring in a bunch of people  from a bunch of different areas, you bring them in together into one room, you  put them together as a team, they solve that problem, and then they go back to  their individual units and work together again. It's a very informal structure, and  it's kind of hard to implement given the complexity of certain international  companies. The reason, the reason for that, by the way, the reason for that is  because of innovation. So the idea is, is that if I'm in my unit and I'm working  independently in my unit, then innovation is only going to occur in my unit, and  then it's going to be hard. It has to go through a bunch of layers to filter up the  top and then filter all the way back down. So this is a way to spark innovation  and get ground roots effort around different areas. So that's the advantage of a  horizontal or a matrix organization. So this, I found this was a pretty bold  statement, and I like it, so I included it in my notes to discuss with you all, and  what it says is, every successful company uses controls to put its places, to put  its plans and effects and evaluate and reward or correct executive performance.  So it does these through parent companies, subsidiaries by combinations, but  there are controls that are in place and that that help execute the plans. And I  thought, and I thought that was interesting, when we're talking about wholly  owned subsidiaries, that there is still that, that oversight, those controls, that are  in place to ensure that the mission is achieved. And that's an important point as  well. Remember that that as we allow these companies, these units, these  things, to operate internationally, obviously the further. A way you get from the  corporate headquarters. Traditionally, that would mean you have more freedom,  more autonomy, those kind of things. So organizations will put controls in to  make sure that their company objectives are being met. Let's see, as a company grows, it can hire more specialists, experts and experienced executives, and it  will have, the longer it's been a business, it's going to have more experienced  executives, which will have a knowledge of policies, trends and those kind of  things. So as the company gets older and matures more, they generally bring in  more seasoned people. The problem with this is, when you're operating  internationally, sometimes you have to adapt locally. You have to adapt quickly.  And there's sometimes there's tension when you have a very seasoned and  senior staff, there could be tension between the overall company and then the  local adaptation that is needed sometimes to be successful. Let's see. You  know, sometimes a subsidiary of a company so a smaller unit, could be  frustrated with the company. It could be frustrated with the fact that has limited  power. It could be frustrated with having to give resources to the main company.  It could be frustrated with a number of things. So when you think of span and  control, when you think of control, when you think of these kind of things, when 

you think about control for an organization, one of the things to really consider is how much control is too. Much that stifles people from being innovative, from  responding in their local market, from doing these kind of things. So again,  organizational planning, organizational structures, the amount of control you're  going to give these are all important decisions that affect other decisions, which  affect other decisions. And sometimes I think you need to take a step back and  look at your organizational structure and see if it's working or see if it's not  working. So, you know, I just, I just thought I would mention that. Let's see, okay. And then the last thing I want to mention, regarding controls and all that is  reporting structure. Remember that if you're operating in different countries, they have different rules, so there's going to be different reporting requirements and  those kind of things. So when you have a unit that's operating in a country, you  have to make sure that as a company, you're aware of the different  requirements, the different legal requirements, and the different structural  requirements, and make sure you are meeting those. So I just wanted to  mention that, because I think that's an important point. When we talk about  organizational controls and organizational structure, when we talk about these  different vertical, horizontal matrix, all these different organizational types. I think it's important to mention that sometimes the political or legal requirements or  economic requirements, or whatever, all those external forces that we've talked  about a lot over these last 10 lectures, all these will play a part in how an  organization operates. So with that, we will be talking about global leadership  issues and practices, one of my favorite lectures next. But before we do, I want  to talk about Airbnb. I think people think that Airbnb is a US based company, but  certainly it has a major international presence, and I know that because I just  booked a hotel on Airbnb, so you can book, obviously, anywhere. You know,  here's what people are saying about it. But as a company, Airbnb is very, very  interesting. The way they work, how they handle hosting, how they allow you to  be a an entrepreneur, you know, and then, as you can see here, they they really  are committed to diversity and supporting their hosts as well. So if you want to  know how Airbnb works, this is it. You found something, you bat you book, and  then you go. And then if you have questions, you can ask those but certainly  they are against discrimination, value diversity, so as most of these companies,  they have intense focus on ensuring that they're doing the right things as a  company. So thought you would find this interesting. The last thing I want to  point out, if you explore this site a little bit later, is the letter from the founder and and he talks about, he talks about what happened, why he created. It, the  responsibility, and everything else. So I will leave his signature up for a minute,  but I think it's pretty cool that the founder took their time to write a letter. So as  we do every lecture, we are going to close in prayer, and then we will be able to  move on to our penultimate lecture, which is on global leadership issues and  practices. So please join me in prayer, Dear Heavenly Father, it is really all 

about that cross, that cross that's behind me, and that cross that I can see in  several places around this room. It's about what you did for us. It's about it's  about your sacrifices, you're sacrificing yourself for us sinners. It's about  knowing that we are sinners, and it's about accepting the free gift that you offer  us. We are saved by you, by faith in you and the grace that you gave us and we  thank You, Lord. I thank you that, that you have have transformed us,  transformed us like you know, we've been talking about transformation in  companies and how companies can operate in complex environments and  everything else, but individually, the day we accepted you, we became  transformed. We became a follower of Christ. And I thank you for that, Lord. I  thank you that we've had the opportunity to become followers of You. And Lord, I pray that each and every person does not forget their commitment to you and  their devotion to you and their focus on you. So as we conclude this lecture, I  pray that you will give us a calm heart, a reflective spirit, and that you will  remove the troubles and impediments to us learning this material and applying it to your kingdom in Jesus name, I pray. Amen. Thank you class for joining me for lecture number 10, we will now move into lecture number 11, and I could not be  more thrilled for you that we're almost done. We're in a home stretch, and I hope you have found this class very enjoyable and informative. Thank you so much.