CH-7-8 Small Businesses and International Entrepreneurship: Overcoming Barriers and Finding Opportunities – Multinational Management: A Strategic Approach : Chapter Notes

This Document Contains Chapters 7 to 8 CHAPTER 7 SMALL BUSINESSES AND INTERNATIONAL ENTREPRENEURSHIP: OVERCOMING BARRIERS AND FINDING OPPORTUNITIES Learning Objectives •Understand the basic definitions of small business and entrepreneurship •Explain how small businesses can begin as global start-ups or follow the stages of internationalization •Understand how small businesses can overcome barriers to internationalization •Identify when a small business or entrepreneur should consider going international •Describe how small businesses or entrepreneurs can find customers, partners, or distributors abroad •Understand how new venture wedge strategies can be used in foreign markets •Explain the factors driving entrepreneurship at an international level Introduction •Small businesses contribute significantly to most national economies •In Europe, North American, and Japan, over 98% of all businesses are small •They employ more than 50% of the work force and produce nearly 50% of the countries' GNPs •Small companies created more than 2/3 of the new jobs •Consider the following facts regarding small businesses in the US •Represent 99.7% of all employing firms, employing about half of all private employees •Generate about 60-80% of all new jobs annually •Employ almost 41% of all high-tech workers •Pay almost 45 percent of the private payroll •Represent 97% of identified exporters, producing 29% of export value in 2007 •Generated 13-14 times more patents per employee than large patenting firms •Given the importance of small businesses to national economies, it is not surprising that small businesses seek opportunities outside their national boundaries •When going international, they can use the same participation strategies and multinational strategies available to larger businesses What Is a Small Business? •Many definitions of what makes a small business •United Nations definition: fewer than 500 employees •Popular press definition: fewer than 100 employees •U.S. Small Business Administration definition: varies by industry, and uses both sales revenue and the number of employees Internationalization and the Small Business •How do small businesses go international? •Small business stage model – incremental process of internationalization followed by many small businesses •Global start-up / born-global firm – company that begins as a multinational company The Small Business Stage Model of Internationalization •Traditionally, small businesses begin as passive exporters and then later take a more proactive approach to international sales •Stage 1 – Passive exporting: fills international orders but does not seek export business •Stage 2 – Export management: specifically seeking export sales, usually via indirect channels •Stage 3 – Export department: company uses significant resources to seek increased sales from exporting •Stage 4 – Sales branches: setting up of local sales office due to high demand •Stage 5 – Production abroad: production in other countries, beyond downstream activities •Stage 6 – The transnational: development of globally integrated network Small Business Global Start-Up, or Born-Global Firms •Global start-ups occur when companies begin as multinational companies •Born-globals are often very flexible and fast moving, especially in high-technology areas because they tend to be very knowledge intensive Exhibit 7.1 Comparison of Small Business Model Firms and Born-Global Firms (Shows the major differences between small business model and born-global firms) Small-Business E-Commerce •To a large extent, technology has helped to level the playing field for small companies •Small companies can be easily created using the power of the Internet •Advantages •Ability of small firms to compete with other companies both locally, nationally, and internationally •Possibility and opportunity for more diverse people to start a business •Convenient and easy way of doing business transactions (may operate 24 x 7) •An inexpensive way for small business to compete with larger companies •Availability of domestic products in other countries Overcoming Small Business Barriers to Internationalization •Conventional wisdom suggests that small businesses face many barriers that prevent them from becoming multinationals •Limitation: Small size •Often means limited financial and personnel resources •Lack of sufficient scale to produce goods or services as efficiently as larger companies •Managers with limited international experience and possibly negative attitudes toward internationalization, feeling it’s too risky Developing a Small-Business Global Culture •Global culture – managerial and worker values that view strategic opportunities as global and not just domestic •Members share a common language to describe international operations •Entrepreneurial owners develop a global mind-set for themselves and their companies •Characteristics of the key decision makers that affect the development of a global culture •Perceived psychological distance to foreign markets – the extent to which managers believe that foreign markets are “just too different” for involvement •International experience – training in foreign languages or international travel / exposure •Risk aversion – an entrepreneurial spirit and thus the willingness to face risks •Overall attitudes towards international strategies – global culture develops when the owner/entrepreneur promotes company values to support and reward the search for international opportunities Changing Attitudes of Key Decision Makers •International sales begin close in culture and in geography •Cautious early moves help overcome initial skepticism regarding the international markets •Positive attitudes toward international markets are more necessary for global start-ups Exhibit 7.2 Attitudinal Differences Concerning Internationalization for Small Business Exporters and Nonexporters (Shows that exporters and nonexporters in the U.S. industrial equipment industry have quite different attitudes regarding internationalization) Gaining Experience: Duties and the Personal life of the Small-Business CEO •The owner of a small business is often the CEO: driving entrepreneurial force in the business •Opening new markets is often the CEO's personal responsibility •The CEO must be willing to incur more than economic costs for the venture •Increased travel and stress from undertaking a new venture •Can adversely affect family life •Being away from the daily management of their businesses •Job of the small business CEO may change when company becomes multinational Exhibit 7.3 Training and Knowledge Needs of Small Firm CEOs Entering Internationalization (Shows key skills that CEOs felt they needed) Is Size a Barrier for Small Business Internationalization? •Larger firms tend to enter export markets more than small companies •Have more resources to absorb the risk •Often have a greater incentive to export when domestic markets become saturated •Liabilities of smallness – the challenges facing small businesses in getting access to necessary resources to internationalize •Size problem may exist only in the initial internationalization decision-later not a problem •International sales intensity – amount of international sales divided by the total sales of the company •Once involved in international ventures, small multinationals often gain sales revenues proportionately equal to or greater than those of larger multinationals Using the Small Business Advantage •Smaller organizations can change products and internal operations faster •Small business advantage – fast moving entrepreneurs can use their competitive advantage of speed. Being first to market, they can capture significant sales before large competitors react •Being first to the market may mean that they catch significant sales before larger companies The Future: Falling Barriers to Multinational Small Businesses and More Global Start-Ups •Government programs that support small business exporting and sales are expanding •Trade agreements make trade less complex and reduce the resource requirements •Rapid growth of international business information from governments and other sources •Increase in the number of small businesses engaged in international activities •Makes it easier for other businesses to develop a global culture •More managers gain experience in international business When Should A Small Business Go International? •Affirmative answers to these questions may suggest a small business is ready •Do we have a global product or service? •Do we have the managerial, organizational, and financial resources to internationalize? Exhibit 7.4 Questions to Consider in the Small Business Decision to Go International (Gives some of the questions concerning resource requirements that a small business needs to address) •Even if we have the resources, are we willing to commit them and face the risks of internationalization? •Is there a country in which we feel comfortable doing business? •Is there a profitable market for our product or service? •Which country should we enter? Exhibit 7.5 Steps to Picking a Foreign Market (Summarizes the steps that small businesses can follow to find customers abroad) •Do we have a unique product or service that is not easily copied by larger multinational corporations or local entrepreneurs? •Do location advantages exist upstream in the value chain? •Can we afford not to be a multinational? Getting Connected to the International Market Participation Strategies •Small and medium-sized business have the same participation options as larger firms, including exporting, licensing, joint ventures, and foreign direct investment •Most small businesses use exporting as its major international participation strategy Finding Customers and Partners •Small businesses must find ways to reach their foreign customers •Customer contact techniques •Trade shows •Catalogue expositions •International advertising agencies and consulting firms •Government-sponsored trade missions •Direct contact Exhibit 7.6 International Trade Leads: A Web Sampler of International Import-Export Trade Leads (Shows some of the sources on the World Wide Web that any multinational company can access to find trade leads) Ready to Go and Connected: A Synopsis •Finding the right overseas partner may be the most crucial decision of all •Even with the right company, the right product, and a potential customer, a small business needs a good wedge to break into a new market New Venture Strategies for Small Multinational Companies •New ventures need some type of entry wedge to gain an initial position in a business opportunity •Entry wedge – company’s competitive advantage for breaking into the established pattern of commercial activity (definition by Karl Vesper, renowned expert on new ventures) New Product or Service and First-Mover Advantage •First mover advantage – that of the entrepreneur who moves quickly into a new venture and establishes the business before other companies can react •The new product must be innovative •The new product must be “comprehensive” – meeting customer expectations in areas such as warranty, customer service, and expected components •Technological leadership – being first to use or introduce a new technology o Most common source of first mover advantage •Other sources of first mover advantage o First access to natural and social resources o Close relationships with research universities o Best locations not only for raw materials but also for proximity to customers o Best access to social relationships o Switching costs – expenses incurred when a customer switches to a competitor’s products Copycat Businesses •Copycat businesses – those following the me-too strategy, whereby they adopt existing strategies for providing products or services •Do not copy existing businesses identically •They find a niche or slight innovation to attract customers away from existing businesses •Suggestions for successful copycats include •Be the first to change to a new standard •Go after the toughest customers •Play to minor differences in customer needs •Transfer the location •Become a dedicated supplier or distributor •Seek abandoned or ignored markets •Acquire existing business International Entrepreneurship •Entrepreneur – person who creates new ventures that seek profit and growth •New ventures – entering a new market; offering a new product or service; or introducing a new method, technology, or innovative use of raw materials •International entrepreneurship – the discovery, evaluation, and exploitation of market opportunities •Why should you be concerned about international entrepreneurship? •Most experts consider entrepreneurship the driving force of all small businesses •Entrepreneurship is the driver of innovation and economic development anywhere •Many multinational firms rely on entrepreneurs and small businesses to do business when entering a new country •Small businesses often can provide critical products or services that can facilitate a multinational firm’s entry into a new country •Multinational companies may make location decisions based on the degree to which the country’s inhabitants are entrepreneurial Exhibit 7.7 Total Entrepreneurial Activity (TEA) Ratings for Selected Countries (Shows the total entrepreneurial activity (TEA) ratings for selected countries) Summary and Conclusions •Small businesses are important to the economies of all nations •Often they provide the most jobs, the most economic growth, and the most innovation •The small business faces some unique problems and prospects when entering global competition •Small businesses can go international – through stages or through global start-ups •Global start-ups are replacing stages of internationalization, especially for high tech entrepreneurial companies in fast-changing industries •A small business must overcome certain traditional barriers to its internationalization •A small business can develop a global culture, change the attitudes of key decision makers, gain crucial international experience, and overcome the size-related barrier •Small businesses have the same participation strategy options as larger firms •There are many public and private resources available to the business community wishing to become multinational •Entering the international market is an entrepreneurial venture which require successful entry-wedge strategies •A full appreciation of small businesses is not possible without also understanding international entrepreneurship •Entrepreneurship is important to a country because it generates jobs and wealth Chapter 7 Case Notes Aregak Micro-Credit Organization in Armenia Synopsis This case showcases an Armenian organization named Aregak Micro-Credit, an organization designed to assist low-income women in starting up small entrepreneurial ventures. Mariam Yesayan established Aregak Micro-Credit Organization while working for UMCOR in Armenia. The case begins by reviewing Mariam’s background, comprised of university education and charitable organizations, and then describes the recent history in Armenia and the surrounding area – from the fall of Communism, to the Armenian earthquake, to various other factors that led to a depressed nation. The case goes on to describe how Mariam developed her client base, and onto an explanation of her program’s successful outcome. The case continues by describing the unaffordable and inaccessible alternative sources of financing through the Armenian banking system, and then explains how the microfinance industry offers a viable alternative and ultimately benefits the communities in which it serves. The case concludes by explaining the dilemma faced by many NGOs – whether to seek government funding and submit to its regulations, or forego state assistance and remain self-funded. This is the decision ultimately faced by Mariam Yesayan for Aregak. Case Discussion Questions 1. Summarize the process Mariam Yeseyan used in approaching women about loan opportunities through Aregak. Mariam Yeseyan's approach involved identifying low-income women who had entrepreneurial ambitions but lacked access to traditional financing. She reached out to these women through community networks, gaining trust by emphasizing the supportive and empowering nature of the program. Her process was relational, focusing on building rapport with the women to ensure they felt comfortable and confident in pursuing loan opportunities. The loans were structured to provide practical assistance in starting small businesses. 2. Compare opportunities for funding for women entrepreneurs through the commercial banking system in Armenia with funding opportunities available to them through the Aregak program in the late 1990s. In the late 1990s, the Armenian commercial banking system was largely inaccessible to low-income women due to high-interest rates, stringent collateral requirements, and a general reluctance to lend to individuals without significant financial history or assets. In contrast, Aregak offered a viable alternative with microloans that required no collateral, lower interest rates, and a community-driven approach that supported women entrepreneurs in pursuing their ventures without the financial burdens imposed by traditional banks. 3. Explain the reason for a default rate on loans of only 2 percent with Aregak in spite of the face that their loans were not collaterized. The low default rate of 2 percent can be attributed to the community-based approach and strong relationships Mariam Yeseyan built with the loan recipients. Aregak fostered a sense of accountability and mutual support among the women, who were often part of closely-knit communities. Additionally, the loans were relatively small, designed to be manageable, and recipients were motivated to repay in order to maintain their standing within the community and potentially qualify for future loans. 4. Discuss the importance of microfinance programs in the progress of developing nations. Microfinance programs are crucial for developing nations as they provide financial access to individuals, especially women, who are typically excluded from the formal banking sector. By enabling entrepreneurship and self-employment, microfinance helps lift families out of poverty, stimulates local economies, and contributes to the overall development of communities. These programs also empower women, fostering gender equality and increasing their participation in the economic and social spheres. 5. In what way might Mariam Yesayan be considered a “social entrepreneur”? Mariam Yesayan can be considered a social entrepreneur because she identified a critical social issue—financial exclusion of low-income women—and created an innovative solution through Aregak. Her work combined economic impact with social change, empowering women and improving communities. Social entrepreneurship involves using business methods to address social challenges, and Mariam's microfinance initiative exemplifies this approach by promoting sustainable economic development. 6. Debate the issue of whether Mariam Yeseyan should take steps to license Aregak as a nonprofit organization in Armenia, which would bring with it regulation by the government, or remain an NGO (nongovernmental organization) as it had been originally structured. • Pro-Licensing: Licensing Aregak as a nonprofit could provide greater legitimacy and access to government funding, which could be crucial for scaling the organization’s impact. It might also offer opportunities for collaboration with governmental programs that focus on poverty alleviation and women's empowerment. • Against Licensing: However, becoming a regulated nonprofit could impose constraints and bureaucratic challenges that limit Aregak’s flexibility and independence. Remaining an NGO allows Aregak to operate without government interference and ensures that its mission remains focused on serving its clients' needs without the potential for political or regulatory complications. Analysis 1. Summarize the process Mariam Yeseyan used in approaching women about loan opportunities through Aregak. First and perhaps most important to getting the project off the ground, Mariam went directly to the communities of women she was trying to help, and worked hard to establish psychological connections with them in their own homes. She focused on building their self confidence and giving them hope. In order to make the women feel comfortable, she visited them wearing some of her oldest clothes, and then began discussions to try to change their attitudes about being dependent on other people or aid agencies. Her approach ultimately developed meaningful connections and trust between her and her would-be customers, a key to the success of any business. 2. Compare opportunities for funding for women entrepreneurs through the commercial banking system in Armenia with funding opportunities available to them through the Aregak program in the late 1990s. Following the fall of communism, and several other setbacks in Armenia, bank loans were neither accessible nor affordable. The bank loans required the women to put up collateral, which many did not have, or were not comfortable risking. Aregak’s program, however, did not require any material collateral. Interest rates through Aregak were between 20-25%, which was consistent with bank loan rates at the time because the commercial banking industry was young and still developing at that time as well. Aregak further offered assistance with business planning and credit consulting – something the banks did not. 3. Explain the reason for a default rate on loans of only 2 percent with Aregak in spite of the face that their loans were not collateralized. One possible explanation is that the women’s good name was of a high value. As one Armenian woman put it, “If I use my car for collateral of a bank loan, and I can’t pay the loan back, I may lose my car, but I can do without it for a while and finally get another one. But if I lose my good character by not paying back the Aregak loan, I can never get that back.” As further incentive to remain current on their loans, 35 scholarships of $350 each were being offered to talented children of the entrepreneurs that Aregak had funded. In addition, Aregak, as a microfinance program institution, offered many development and support tools that traditional banks would not. Aregak’s clients were likely provided financial literacy education, and training on entrepreneurship and management techniques. Aregak offered much more of a hand-in-hand approach that gave the women the support, and the self confidence, necessary to be successful. If their business was ultimately successful, then one can see that there is a much higher chance they will be able to keep their loans current. 4. Discuss the importance of microfinance programs in the progress of developing nations. Microfinance organizations are more than a simple banking tool – they include social improvements as well as financial improvement. This industry focuses on helping low-income households. Their assistance extends beyond mere banking, to include overall development in the way improving self-confidence and education on finances, entrepreneurship, and management techniques. They teach people how to market their company, and the importance of paying back loans so they can grow their business. Ultimately, microfinance programs aim to reduce poverty and develop people and markets. All of these things are critical to stimulating the growth and development of a local economy. 5. In what way might Mariam Yesayan be considered a “social entrepreneur”? Mariam Yesayan could be considered a social entrepreneur because she was one of the first to offer assistance to a group of low-income women. Far beyond any profit or recognition goal, she set out to change the lives of others – to show seemingly hopeless people that someone believed in them. 6. Debate the issue of whether Mariam Yeseyan should take steps to license Aregak as a nonprofit organization in Armenia, which would bring with it regulation by the government, or remain an NGO (nongovernmental organization) as it had been originally structured. This should be an interesting question for the class. If desired, break the class up into small groups to debate the issue, and have each group present their recommendations to the class. Key questions to consider in the debate and recommendation: •Is there a need for Aregak to access formal capital markets, an option which is usually not available to NGOs or unregulated microfinance institutions? •Is there a problem with consumer fraud or other scamming that might be remedied through government regulation? •What will the extent of the Armenian government regulations be? How much of an impact will those regulations have on Aregak and its customers? •What is the overall health of the Armenian economy? Will the social and economic health of Armenia be ultimately improved by a switch to a regulated Aregak? What was Mariam Yeseyan’s decision? Aregak was licensed in Armenia in 2006 as a non-for-profit business due to registration and licensing requirements imposed on micro finance practitioners by legal framework. Lessons •This case provides a good lesson for small business and international entrepreneurship. •This case offered the opportunity to learn about microfinance organizations – what they are, how they operate, and the impact they can have on depressed or developing areas. •Finally, this case demonstrates how small business and entrepreneurship can have a positive social impact, in addition to an economy. CHAPTER 8 ORGANIZATIONAL DESIGNS FOR MULTINATIONAL COMPANIES Learning Objectives •Understand the components of organizational design •Know the basic building blocks of organizational structure •Understand the structural options for multinational companies •Know the choices multinationals have in the use of subsidiaries •See the links between multinational strategies and structures •Understand the basic mechanisms of organizational coordination and control •Know how multinational companies use coordination and control mechanisms •Understand the need for knowledge management systems within organizations Introduction •Best multinational strategies do not ensure success •Implementation of a multinational business strategy requires that the managers build the right type of organization •Organizational design – how organizations structure subunits and use coordination and control mechanisms to achieve their strategic goals •The choices regarding how to set up an organization are complex and varied •Each organizational design has costs and benefits regarding the best way to deliver a product or service to the domestic or international customer •This chapter presents a survey or organizational design and a summary of basic background knowledge on organizational structure The Nature of Organizational Design •Basic questions of organizational design are: (1) How shall we divide the work among the organization’s subunits? (2) How shall we coordinate and control the efforts of the units we create? •In very small organizations, everyone does the same thing and does everything •As organizations grow, managers divide work into specialized jobs; then subunits •Once an organization has specialized subunits, managers must develop mechanisms that coordinate and control the efforts of each unit •Some centralize decision making at company headquarters to make certain that the production and delivery of products or services conform to rigid standards •Others give subunits greater flexibility by decentralizing decision making •A properly aligned organizational design allows for quick response to changing environments A Primer on Organizational Structures •Organizations usually divide work into departments or divisions based on functions, geography, products, or combinations of these criteria •Each choice has its advantages and disadvantages The Basic Functional Structure •Functional structure has departments or subunits based on separate business functions, such as marketing or manufacturing •Simplest of organizations and typical of small businesses Exhibit 8.1 Basic Functional Structure (Shows an organizational chart for a generic functional structure) •Chosen for efficiency from economies of scale in each function •Coordination of units can be difficult as functional subunits are separate from each other •Works best when organizations have few products, few locations, or few types of customers; or when the organization faces a stable environment The Basic Product and Geographic Structures •Product structure – has departments or subunits based on different product groups •Geographic structure – has departments or subunits based on geographical regions Exhibit 8.2 Basic Product Structure (Shows the basic product structure) Exhibit 8.3 Basic Geographic Structure (Shows the basic geographic structure) •Functional tasks are duplicated for each product or geographic-area department •Often requires more managers and more people •Loss of economies of scale •Usually less efficient than the functional organization •Geographic structure allows a company to serve customer needs that vary by region •Product structure are used when product(s) is/are unique enough to require specialized functional efforts •Organizations mix structures to best implement strategies •Hybrid structures – mixes functional, geographic, and product units Organizational Structures to Implement Multinational Strategies •When a company first goes international, it seldom changes the structure •Acts first as passive exporters •When international sales become more central to success, appropriate structure is adopted to fit with more sophisticated multinational strategy The Export Department •Export department – coordinates and controls a company’s export operations •Created when management believes the investment in additional human and financial resources is necessary to sustain and build international sales •Functions of the export department •Deals with international customers for all products •Often controls pricing and promotion of international products •May have specialists for particular country or product •Deal with export management companies •Overseas sales representatives also may report to the export department Exhibit 8.4 Functional Structure with an Export Department (Shows a hypothetical organization with a functional structure and an export department) Foreign Subsidiaries •Foreign subsidiaries – subunits of the multinational company located in another country •Used when more complex multinational organizational structures support direct investments in a foreign country •A growing component of international business Subsidiaries •Multinational firms vary their control over subsidiaries •Most avoid managing the local subsidiary and leave management decisions up to it •Several types: minireplica and transnational subsidiary •Minireplica subsidiary – scaled-down version of the parent company, using the same technology and producing the same products as the parent company o Produces product and services strictly for the local market, adapts well to local conditions o Uses few expatriate managers o Often little influence from headquarters o Usually a profit center (evaluated based on unit’s productivity) •Transnational subsidiary – has no companywide form or function; each subsidiary does what it does best or most efficiently anywhere in the world o May product products locally or for sale in worldwide market o May contribute to organizational learning •Subsidiary location •To take advantage of factor costs (cheaper labor or raw materials) •To take advantage of other resources (for example, educated work force or unique skills) •To gain access to the country •Most subsidiaries are neither pure minireplicas nor pure transnationals •Multi companies choose the mix of functions for their foreign subsidiaries based on several issues, including •The firm’s multinational strategy or strategies •The subsidiaries’ capabilities and resources •The economic and political risk of building and managing a subunit in another country •How the subsidiaries fit into the overall multinational organizational structure International Division •As companies increase the size of their international sales force and set up manufacturing operations in other countries, the export department often grows into an international division •International division – responsible for managing exports, international sales, and foreign subsidiaries •Differs from an export department in several ways •Usually larger and has greater responsibilities •Oversees foreign subsidiaries that perform a variety of functions •More extensive staff with international expertise Exhibit 8.5 International Division in a Domestic Product Structure (Gives an example of an international division in a domestic product structure) •International division structure has recently declined in popularity •Not considered an effective structure for multi-product companies operating in many countries •Remains popular and potentially effective for companies of moderate size with limited number of products or country locations Worldwide Geographic and Worldwide Product Structure •Worldwide geographic structure – has geographical units representing regions of the world •Used to implement a multidomestic or regional strategy, which requires differentiation of products or services by country or region •Provides the flexibility to tailor or develop products that meet the particular needs of local or regional markets Exhibit 8.6 Royal Vopak’s Worldwide Geographic Structure (Shows a geographic structure used by Royal Vopak, a Dutch multinational company that specializes in the distribution of chemicals) •Country-level divisions exist only when a country’s market size is sufficiently large or important (i.e. United States, France, Germany, Japan) •For the regional strategist, combinations of countries are as large as possible, and are based on similarities in customer requirements, balanced with efficiencies of uniform products •Worldwide product structure gives product divisions responsibility to produce and sell their products or services throughout the world •Worldwide product structure – gives product divisions responsibility to produce and sell their products or services throughout the world Exhibit 8.7 Worldwide Product Structure (Shows a worldwide product structure) •Considered the ideal structure to implement an international strategy •Attempts to gain economies of scale whereby most upstream activities are based at home •Provides an efficient way to organize and centralize the production and sales •Sacrifices regional or local adaptations strengths derived from a geographic structure to gain product development and manufacturing economies of scale •Foreign subsidiaries in the worldwide product structure serve product goals directed from product-division headquarters – little concern for local markets Hybrids and Worldwide Matrix Structures •Both the worldwide product structure and the worldwide geographic structure have advantages and disadvantages for international strategy implementation •The product structure supports strategies that emphasize global products and rationalization •The geographic structure supports strategies that emphasize local adaptation (managers are often from the area and are sensitive to local needs) •Most multinational companies adopt strategies that include both concerns for local adaptation needs and concern for globalization. •Structures tend to be hybrids, or mixtures of product and area units •The nature of the product determines the emphasis given to the product or geographic side of the company •How global are the products? •How complex and different are the major markets? •Worldwide matrix structure – symmetrical organization, usually with equal emphasis on worldwide product groups and regional geographical divisions Exhibit 8.8 Worldwide Matrix Structure (Shows a symmetrical organization, with equal lines of authority for product groups and for geographic divisions) •Allows the pursuit of both local and global strategies at the same time •Requires near equal demands from the environment for local adaptation and product standardization (associated with economies of scale) •Product bosses and geographic bosses reach consensus on how to balance local and worldwide needs •Requires extensive resources for communication among the managers •Requires middle and upper level managers with good human relations skills •Is the matrix worth the effort? •During the 1980s, it was a popular organizational solution to the global-local dilemma •Has come under fire recently because consensus decision making between product and geographic managers has proved slow and cumbersome •In many organizations, the matrixes have become too bureaucratic, with too many meetings and too much conflict •Many organizations have redesigned their matrix structures to become more flexible – speedier decision making on either product or geographic side depending on the need The Transnational Network Structure •Transnational network structure – network of functional product and geographic subsidiaries dispersed throughout the world, based on the subsidiaries’ location advantages •Unlike the matrix, the transnational has no basic form •No symmetry or balance between the geographic and product sides of the organization •Is a network that links different types of subsidiaries throughout the world •Nodes, or units at the center of the network, coordinate product, functional, and geographic information Exhibit 8.9 Geographic Links in the Philips Transnational Structure Exhibit 8.10 Product Links in the Phillips Transnational Structure •Three components to the basic structural framework of the transnational network •Dispersed subunits – subsidiaries located anywhere in the world where they can most benefit the company o Some take advantage of low factor costs (i.e. low labor costs) o Others provide information on new technologies, new strategies, and consumer trends o All subunits to try tap worldwide managerial and technical talent •Specialized operations – subunits specializing in particular product lines, research areas, or marketing areas o Builds on the diffusion of subunits by tapping local expertise or other resources anywhere and everywhere in the company’s subsidiaries •Interdependent relationships – continuous sharing of information and resources by dispersed and specialized subunits o Must exist to manage dispersed and specialized subunits o Usually facilitated by building communication systems based on the latest technology Beyond the Transnational: Is There a New Structure for the Multinational? •Some evidence suggests that the transnational network is not the end of the evolution of the multinational’s structure •Metanational – an evolution of the transnational network structure that develops extensive systems to encourage organizational learning and entrepreneurial activities •Characteristics of the metanational include •Nonstandard business formulas for any local activity •Looking to emerging markets as sources of knowledge and ideas, not just for local labor •Creating a culture and advanced communication systems that support global learning •Extensive use of strategic alliances to gain knowledge for varied sources •High levels of trust between partners to encourage knowledge sharing •A centerless structure that moves strategic functions away from headquarters and to major markets •A decentralization of decision making away from headquarters and to mangers who serve the key customers and strategic partners Multinational Strategy and Structure: An Overview Exhibit 8.11 Multinational Strategy, Structure, and Evolution (Shows the relationship between various multinational strategies and the types of organizational structure) •Most companies support their early internationalization with export departments or international divisions •Later, they evolve into worldwide product or geographic structures (see Exhibit 8.12) •After this, they move toward a hybrid structure with some matrix or transnational qualities Control and Coordination Systems •Top managers must design organizational systems to control and coordinate the activities of their subunits. •Control systems – vertical organizational links, up and down the organizational hierarchy •Two basic functions of control systems •Measure or monitor the performances of subunits regarding their assigned roles in the firm’s strategy •Provide feedback to subunit managers regarding the effectiveness of their units •Coordination systems – horizontal organizational links •Provide information flows among subsidiaries so that they can coordinate their activities Design Options for Control Systems •Four broad types of control systems 1. Output control 2. Bureaucratic control 3. Decision-making control 4. Cultural control •Output control systems – assesses the performance of a unit based on results, not on the processes used to achieve those results •Output goals for foreign subsidiaries are negotiated to support corporate strategy •Headquarters evaluates subsidiaries and rewards local managers based on how well they achieve output goals •Profit center – unit controlled by its profit or loss performance – most common output control •Other outcomes are market share, developing new technologies, and supplying high-quality raw materials •Bureaucratic control – focuses on managing organizational processes through budgets, statistical reports, standard operations procedures, and centralization of decision making •Budgets set financial targets for expenditures during specific time periods •Statistical reports provide information to top management on non financial outcomes) •Standard operating procedures (SOPs) provide the rules and regulations that identify approved ways of behaving •Decision making control – level in the organizational hierarchy where managers have the authority to make decisions •In most worldwide product structures, control over functional and strategic activities is centralized in product division headquarters •In worldwide area structures, decentralized decision making is more common •Transnational network structures do not exhibit a tendency for decision-making control in one direction or another •Cultural control – uses organizational culture to control the behaviors and attitudes of employees •The favored control mechanism for transnational network structures Exhibit 8.12 Use of Control Mechanisms in Multinational Organizational Structures (Shows the relationships between the control mechanisms to varying degrees, depending on their structure) Design Options for Coordination Systems •Six basic horizontal coordination systems 1. Textual communication (memos, reports) 2. Direct contact 3. Liaison roles 4. Task forces 5. Full-time integrators 6. Teams •Below, mechanisms are described from those that provide the least amount of coordination, up to the most •All organizations use textural communication, such as e-mail, memos, and reports, to coordinate the activities of subunits •Direct contact – face-to-face interaction of employees •For multinational companies, direct contact often requires sophisticated video conferencing and knowledge of a common language •Liaison roles – part of a person’s job in one department to communicate with people in another department •Usually, a liaison role is only part of a manager’s job responsibilities •Full-time integrators – cross-unit coordination as the main job responsibility •Product managers are often full-time integrators •Task forces – temporary teams created to solve a particular organizational problem •Teams – permanent units of the organization designed to focus the efforts of different subunits on particular problems •The strongest coordination mechanism Teams •Teams give global companies the ability to better coordinate the work and expertise of individuals, to develop and launch new products, and to become more flexible •Global virtual teams – groups of people from different parts of the world who work together by using information and communication technologies such as intranets, Web meetings, WIKIs, e-mails, and instant messaging •Global teams face significant hurdles based on various cultural backgrounds located in different parts of the world. •Multinational companies can take steps to ensure that their global teams collaborate to function effectively •Build relationships and trust •Pay attention to project planning and hold project progress meetings regularly •Cultural, language, and active-listening training Knowledge Management •Information overload means companies must make optimal use of available knowledge – that is, the filtered information of value to a company •Knowledge management refers to the systems and mechanisms to ensure that the right form of knowledge is available to the right individual at the right time •Why is it so critical for companies to better manage their knowledge? •For domestic companies, it can be instrumental in generating new knowledge, which can then lead to innovation and value creation •For multinational companies, it can give the means to create the global flexibility they will need to survive •How can a multinational company develop an effective knowledge-management system? •The first step is to identify potential barriers to knowledge sharing within the organization. •Next, assess the degree to which these barriers exist and implement appropriate actions to reduce their effects Exhibit 8.13 Knowledge Management Barriers (Summarizes some of the most important individual, organizational, and cross-cultural problems) •The organizational structure should be aligned with the need for knowledge management •An important aspect of knowledge management is the use of computer-based technology Summary and Conclusions •Most important part of strategy implementation is having the right organizational design •Organizational design entails the choice of subunits (how to divide work) and the choice of coordination and control mechanisms (how to focus the efforts of the subunits) •As companies internationalize, they progress from using an export department or international division to more complex organizational structures •Multidomestic or regional multinational strategies usually favor worldwide geographic structures; worldwide product structure supports an international strategy; and hybrid and matrix structures support companies with a mixture of strategies for different products and businesses •Transnational network structure has no set form, and its subsidiaries respond uniquely; metanational structure is driven by organizational learning and virtual information sharing •Organizational structure is not complete without integration mechanisms – they link subunits and coordinate activities •Knowledge-management systems allow the multinational company to encourage sharing of valuable expertise of individuals often located around the world Chapter 8 Case Notes Managing Strategic Growth at Sjöland & Thyselius AB Overview This case describes the organization and structure of a small European firm providing technical solutions to the Swedish defense industry in 2010. The material is cross-functional, combining crucial issues from strategic management, organizational behavior, and general management in a global context. It follows company cofounders Rune Thyselius and Magnus Sjöland from start-up to the development of the largest mid-sized defense firm in Sweden and offers unique opportunities to discuss the complex interaction of market forces, the control and management of valuable resources, and organizational issues—in particular its structure and culture. Founded in Stockholm, Sweden, in 1989, Sjöland & Thyselius (S&T) mainly worked in the Swedish defense industry, but it also served civilian customers. The conglomerate structure of S&T was a result of the opportunistic growth history of the firm, in turn reflecting the entrepreneurial spirit of its founders. This illustrates challenges common to firms suddenly facing international success. A break-through in international sales with an order of a highly advanced surveillance and evaluation system for missile training ranges to the United Arab Emirates (UAE) had Thyselius, then managing director, reviewing the structure of the organization, its strategic focus, resource allocation, and the industry and competition—in short, the structure and strategy that would bring S&T successfully into the international market. In the end, students should learn that beneficial conditions for internationalization at Sjöland & Thyselius should include divesting several firms not serving the core competencies, creating a new structure for handling internal affairs, and securing synergies between firms instead of relying on culture as a unifying tool. Teaching Objectives The case is designed with the following teaching objectives in mind: •Explore the dynamics of typical growth/success-related problems in an international market (both European and some Middle East countries). •Understand the importance of corporate strategy and its impact on structure and growth in an organization. •Understand the role played by organizational structure to concentrate firm resources towards a strategic goal. •Recognize the connection between strategy (market position) and management •(governance structure). •Examine the relevance of rapidly changing environments on formulating and executing strategies. •Understand the importance of correctly defining the industry as foundation of competitor analyses. •Illustrate the role of entrepreneurial spirit as a driver of growing organizations but as a potential drag on taking the firm to new heights. Topical Areas This case fills a gap between issues that instructors of strategy sometimes consider too messy and complex yet that management literature often omits as too strategic. This is accomplished by addressing multiple issues simultaneously, such as strategy (in terms of resources, capabilities, and market position in the day-to-day realities of an organizational history), managers’ personal aspirations and entrepreneurial zest, and organizational structure and culture. In addition, the case offers students insights about international business (notably for non-European students) and entrepreneurship. More specifically, the case centers on the intersection of three issues: •The firm was on the brink of international expansion by exporting advanced surveillance systems for firing range monitoring, namely to the UAE. Managing the expansion requires an understanding that the industry conditions shift dramatically from competing in a national market in Sweden. This can be analyzed using a Porter’s five forces (1980) framework. •To match and succeed under the new conditions, the firm must possess necessary and critical resources but would benefit from having unique resources. This can be analyzed using Barney’s (1991) VRIN framework, which in turn leads to the last area, organization. •The organization had grown through a typical entrepreneurial trial-and-error strategy, leaving the owner-managers in charge of a firm with eleven organizations spanning technical development, simulator systems, project management consulting in the defense industry, and a wind tunnel for aerodynamic analyses. The firm also spanned several nondefense related industries, such as construction engineering consulting, acoustic ceilings, and management consulting. The intended, if implicit, unifying force of the organization is its culture, the driving force of growth having been the owners’ personal development rather than financial ratios or profits. This requires analyzing whether the owner-managers have specific industry competencies in each area or the time to support, challenge, and develop the managers of its eleven firms. Firms in the corporation have very little to do with each other. This can be analyzed using Greiner’s growth curve. The analysis should conclude that the organization is stretched in different directions and that cohesion is being challenged. What is demanded is an understanding that the firm has outgrown its structure and requires restructuring to rise to the challenges of internationalization. Student Skill Prerequisites This case is intended to help train students in analyzing the relationship between strategy and organization by highlighting the complex dynamics among external competitive forces, firm organization, and capabilities. The material illustrates the questions managers should ask, such as: What are our capabilities and given our resources, what market should we expand into? If we need to restructure our organization to do it, how should we do it? Further, it allows expanding insights into typical—though not textbook—cases of organizational growth, highlighting related issues often treated separately. The case is demanding in terms of forcing students to combine different theories on a real-life case. No single problem definition is offered in the text, so students are forced to analyze and define the situation, problem, and solution. The case has been successfully taught in courses of strategic management and organization and management at both the undergraduate and graduate levels. It could be used either as background material for teacher-led discussions in class or as the foundation for student-led presentation and discussion of the case, in whole or in part. It also can be used in courses of organization theory to highlight organizational growth and development as well as motivational and cultural issues in a strategic, competitive environment. Classroom discussions will be enhanced if students are familiar with basic strategic management and organizational theory, in particular Porter’s five forces analysis and resource-based and core-competence views of strategy (e.g. Peteraf, 1993, or Prahalad and Hamel, 1990). For instructors wanting to use organizational theory models, several would be suitable for structural analysis, including Henry Mintzberg’s Structures in Five (1993) or Schein’s model of levels of culture (1992). Time Allocation Plan (90-minute class) 10 min Where is the firm now? What are its goals: profit or fun? Where do its goals stem from? (Briefly allow students to sketch the present situation and the organization’s goals.) 20 min What do you make of the founders’ tendency to “go with the flow” (both in terms of personal goals and business opportunities)? Does that create any problems? This should lead to new markets (PESTEL and Porter’s five forces). What would those challenges look like when international expansion is considered? 15 min How many firms make up this corporation? How can we understand the firm’s development (Greiner)? What is the current corporate structure? (Mintzberg’s structures; excessively broad portfolio of industries, interpersonal problems, motivational issues, strategy, or structure?) 20 min Is there a structure that would be better suited? What firms are necessary for or supportive of the international expansion? Could any new roles be introduced? A controller for example? Should firms be sold? If so, which ones? 20 min How should change be brought about? What competencies are required for change itself? What persons have to be tied into the process? What competencies are crucial for success on the competitive market following any changes? 5 min Summing up: The organizational structure and culture are inherently tied to the organization’s capabilities. In turn, its capabilities are related to possibilities in terms of strategy. Regardless of whether one moves from a privileged market position view (Porter) or a competences and capabilities view (Barney 1991, Prahalad and Hamel 1990), things must fit. Student Assignment Reading Svante Schriber and Gerry Yemen, “Managing Strategic Growth At Sjöland & Thyselius AB” (UVA-S-0189) Larry E. Greiner, “Evolution and Revolution as Organizations Grow,” Harvard Business Review 50(4) 38–46 See end of note for list of other suggested readings. Assignment Questions 1. Do you agree with S&T’s decision to expand internationally? Why or why not? Yes, expanding internationally makes sense for Sjöland & Thyselius (S&T), as their advanced surveillance systems and technical solutions can serve a broader market beyond Sweden. The successful sale to the UAE demonstrates a demand for their products in international markets. However, the decision requires careful planning, as the shift from competing in a national market to an international one involves complex dynamics such as different regulatory environments, cultural differences, and intensified competition. Expansion offers growth opportunities but must be aligned with a well-defined strategy and structure to manage the associated risks. 2. What analysis would you need to run or what questions would you need answered? • Several analyses and questions are essential to guide S&T’s expansion: • Porter’s Five Forces: How intense is the competition in the international defense market? What is the bargaining power of buyers and suppliers? What are the barriers to entry in new regions? • VRIN Framework: What unique resources and capabilities does S&T possess? Can these resources be a sustainable competitive advantage in global markets? • PESTEL Analysis: What are the political, economic, social, technological, environmental, and legal factors that may affect S&T’s expansion, particularly in regions like the Middle East? • Internal Structure Review: How does the current organizational structure support international growth? Is the conglomerate model sustainable, or should the firm focus on its core competencies? • Competitor Analysis: Who are the key competitors in the new international markets, and how does S&T’s offering compare in terms of technology, price, and value? 3. What advice would you give S&T regarding their intention to become a vibrant global company? • To become a successful global player, S&T should: • Restructure the organization: Streamline the firm's structure to focus on core competencies, divesting non-essential businesses. A more coherent and focused structure would enable better resource allocation and strategic alignment. • Invest in global management capabilities: Expand the leadership team with individuals experienced in managing international operations. This may include hiring a controller to oversee global financial operations and ensuring synergies between international and domestic divisions. • Adopt a clear strategic focus: Define a long-term strategy that aligns with international growth, identifying specific markets where their defense solutions can thrive. S&T should avoid the opportunistic, “go with the flow” approach and instead adopt a more disciplined market entry strategy. • Emphasize adaptability: Given the rapidly changing environments in international markets, S&T should build organizational flexibility to respond to shifts in regulations, market conditions, and customer needs. • Cultural integration: Develop a strategy for integrating the corporate culture across different countries, ensuring cohesion and a shared mission while allowing for regional flexibility. Case Analysis 1. Do you agree with S&T’s decision to expand internationally? Why or why not? Expanding or growing a business is a costly decision that can have a significant impact on a firm’s performance. Several factors influence decisions to change strategic positions; doing so on a global scale involves even more consideration. If instructors ask students to describe the industry and company, the discussion should reveal fundamental reasons why S&T executives decided to expand and why they should reconsider it. Students should be able to identify that there is a clear tension between the present state and the opportunities and intention to grow internationally. Reasonable answers should include both potential benefits and problems. For instance: •On one hand, the firm has succeeded in getting orders from abroad, indicating a sales force capable of generating and doing business in an international arena. What’s more, no indication is given that the firm should not be able to sustain this. Several critical resources are already available; skills, competencies, and resources such as the wind tunnel all support an international expansion. •On the other hand, the structures fall short of supporting an expansion effort. Too many small firms with divergent interests take up too much of Thyselius’s time. The competencies are tied to managers and specialists in the firm, any of whom could walk out the door at any time. More specific discussions could be organized according to the strategic market situation and the organization itself. 2. What analysis would you need to run or what questions would you need answered? A discussion of S&T’s goal to expand can lead naturally into a discussion around the firm’s strategic situation by presenting the outside characteristics that influence it. To do this, a PESTEL analysis could be used. (PESTEL is a framework for covering and sorting out a wide array of environmental factors that can influence a firm.) Politics: Students should be able to identify that S&T is more influenced by political decisions than firms in many other industries. Cuts in the Swedish and international defense budgets conditioned the market for S&T, leading to price pressure. The defense industry is highly regulated, and control authorities in this instance are politically appointed. This was obvious following the Swedish election in 2006, which hindered official governmental organizations in their efforts to contact the UAE. That hampered an official continuation of contacts but, at the same time, presented an opportunity for S&T that paved the way for its first large international project. Although political conditions in this example helped the company’s situation, that is not always the case. Students should be aware that both elections and smaller political shifts can alter conditions for exports of S&T. Given the industry ST&T competes in, developing and maintaining healthy relationships with politicians is important. In addition, changes in government policy towards the military influence the firm’s business. For example when countries change their purchasing behavior, such as buying more off-the-shelf products, there are huge consequences for suppliers such as S&T. Economics: The financial crisis forced many defense forces to reduce the number of soldiers and equipment. Socio-cultural: The Swedish business climate is likely to differ dramatically from that in the Middle East. Technological: The firm is relatively well prepared for international competition in terms of technology. Ecological: Students might point to natural disasters (earthquakes, tsunamis, etc.) that strain government spending, but this is not mentioned in the case. Legal: Clearly influencing the possibilities to sell. In the Swedish case, weapons and nonweapons are treated differently. Weapons, for instance, can only be exported to countries presently not actively engaged in war. Laws such as these greatly influences what S&T can and cannot do legally. If students have not raised the crucial insight that S&T is leaving the Swedish defense industry with well-known actors, cooperation, and competitors, in favor of international expansion, instructors could bring it up. In the case, the American firm Raytheon—several times the size of S&T—is mentioned, which should trigger the realization that S&T is moving into a new industry. By now, students should be familiar with Michael Porter’s five forces analysis, and this case is useful for illustrating it. Instructors could call on several students to run through their analysis. Answers should acknowledge both the firm spanning at least two, partly separate industries: the defense industry and civilian industries (i.e. data consulting and management consulting). Further, the geographical change (from Sweden to international) should suggest the importance of being very clear about the industry definition (see Figure 1 for a five forces analysis that could be unfolded on the board). Figure 1. Five forces analysis. More advanced discussions also can touch upon and highlight the limitations of the assumptions underpinning Porter’s model. Topics could include: •Much of the distanced view on competitors, suppliers, and customers is not relevant. Instead, firms can be both customers and competitors in different constellations. Therefore, the industry is much more of a relation-based industry than is emphasized in the five forces framework. The view taken by Porter could be compared with a network view (e.g. Håkansson, 1982), instead highlighting the importance of long lasting relations between organizational actors. Such a network perspective is supported by the basic strategy of growing with the customer (which, for both Ericsson and Swedish defense, added the challenge of managing sudden cutbacks by those organizations). The role of the government—which in Porter is rarely discussed—is of vital importance here. Further, the needs perceived by customers develop over time and often in cooperation with potential suppliers. •The government plays a much more prominent role in actively influencing the business than is assumed in Porter (1980). Thereby the case works to illustrate that some markets are not purely influenced by the five forces. 3. What advice would you give S&T regarding their intention to become a vibrant global company? At the heart of this section of analysis includes both the organization and its leaders’ capabilities. Some of the resources critical for success in the international launch are mentioned in the case, for example the tremendous amount of time required to support an international expansion. To succeed it would be central to shift top management’s attention from dealing with internal issues to supporting expansion and dealing with issues associated with that. This should naturally lead students to the conclusion that the internal organization must be changed. At the same time, several skills and competencies are crucial and must be retained. For example, Mattias Larsson is called “Mr. Fighting Vehicle” in Sweden. Along with some of the other top managers and consultants, his involvement is crucial for an attractive product offer. Thus, organizational changes must take this into consideration. Other necessities include retaining the person who initiated the sale to the UAE, or seeking someone with similar skills who knows both the language and culture in the targeted market. Relationship-building, often over long periods of time, also requires support to sell. A service organization would have to be in place for S&T to be a serious actor, in turn demanding financial resources from S&T’s Swedish firms, increasing the demands for profitability from each. Students may or may not realize that much of the problem boils down to the internal organization. Summarizing Thyselius’s challenges should reinforce that the overarching challenge for S&T is a set of changes which, put together, should form the foundation for a solution. Some of the major challenges are as follows: •The firm has shifted from national to international player. As a result, the firm’s market changed and landed it square into competition with new, unfamiliar actors. •The growth over the previous couple of years rendered Thyselius’ time scarce, with the risk of forsaking opportunities to manage day-to-day operations in the firms under the corporate fold. •The opportunistic growth strategy of the past few years meant that the corporation had become a conglomerate. General managerial skills made previous ownership stakes successes, but might not provide a sufficient competitive edge in such varied industries as defense, acoustics, and management consulting. •Old proof of competencies counts for less when shifting to larger deals in the international defense industry from the relatively transparent and long-term, relationship-based Swedish defense industry. This means that the ability to win deals might require a clearer profile toward the defense industry, and aligning resources towards that particular goal. Structurally, S&T can be described as a small conglomerate (160 employees) in twelve different firms, all under the umbrella of a small holding company (Thyselius, his co-founder Sjöland, and a financial controller), or as sometimes described, a divisionalized form (Mintzberg 1978). This structure works best when firms are free to adapt to their local conditions and are measured only on their financial output. In essence, this is a hands-off governance structure. Further, Thyselius’ strong sense of avoiding authoritarian leadership gives managers much freedom. However, Thyselius keeps the right to control certain issues, and demands loyalty to the overarching goal of the corporation; control methods best suited for small companies (direct supervision). Sidestepping is not tolerated. Further, Thyselius is emotionally invested in the running of the firm, not least shown by the credos and such symbolic acts as providing flowers on the desk of every new employee on their first day. Classroom discussions thereby can focus on how the culture is used alongside formal control mechanisms. Partly, this has to do with the firms’ managers demands for support taking so much of Thyselius’ time—a major distraction. But the operative interest in the firms indicates a level of intervention exceeding that of a clear divisionalized form (Mintzberg 1978). A means of discussing this is to point to motivation of the growth and life cycle of the firm. Once the class has considered the structural aspects of the organization, start to move the discussion toward how Thyselius’ personal ambitions and interests have contributed to shaping it. The wide array of firms is a result of how the overall company had grown—by opportunistic acquisitions in different directions, without integration. This illustrates Thyselius’ goal to do things for self-development, casting the firm as a project of personal fulfillment, compared to more distanced goals such as profit maximization. For instance, it is mentioned that Thyselius wants to do the opposite of his father’s career path (p.2): “I have always gone my own way, too impatient for research and pursuing a PhD,” doing what interested him and being motivated by developing himself. This is not least illustrated by the fact that either partner could step in to become manager over the defense sector firms, although that was not a task they found especially challenging. So, we can explain the problems via the expansion, which in turn was the result of the entrepreneurial drive for personal challenges, and a trial-and-error approach, which has been highly successful—up until now. Having an understanding of the individual’s effect on the organization, attention should be turned toward what S&T’s business life cycle looks like. Instructors could chose to use Greiner’s curve of the life cycle of firms to analyze problems (Figure 2). It describes six typical phases through which firms pass, each characterized by a particular management or governance style and each ending in crisis when the organization outgrows itself and needs to be reinvented. When students apply Greiner’s analysis to S&T, the firm’s life cycle should point to the crisis of control phase. If Greiner’s reading was assigned beforehand, ask students to unfold the symptoms and their answers should include: •Thyselius spent time on internal issues rather than the international expansion. •A clearly entrepreneurial culture – Thyselius was operationally involved in decisions such as hiring and firing, but at the same time demanded that managers drive business themselves and deliver results with little support. •Increased coordination which could run the risk of firm managers feeling constrained and lead to either personnel turnover and competence losses, or lack of motivation. In the early years, the firm grew through creativity and through acquisition practices that allowed managers of acquired firms to act relatively freely. The launch into an international market, however, demands freeing more of Thyselius’ time. One way to do that is to restructure the firm. Instructors could apply Greiner’s solution which would be to increase the coordination. Specifically, this could include: •Divesting from firms that do not align with a defined core. Perakustik and some of the smaller consulting firms belong to this category. •Organizing groups coordinating central functions. For instance, the defense products could be given to one manager, other areas to another, thus freeing top management to focus on international expansion. Additionally, an international office supporting the expansion could be considered. •Dispensing with the entrepreneurial culture. The structure should carry the firm’s processes forward instead of Thyselius being involved in decisions such as hiring and firing. Depending on the strategic scope of the firm a more suitable structure could include either a bureaucracy focusing on the most promising area (such as defense products) or a divisionalized structure with civilian and international Swedish defense divisions. At this point in the class, and if time permits, the organizational culture could be discussed. In terms of corporate culture the firm can be analyzed using Schein’s (1992) three levels of culture (artifacts, values, and basic assumptions). It argues that strong cultures are aligned on all three levels. Much too often, managers attempt to use cultures by only altering the more superficial aspects (see Figure 2 for analysis). Students may wish to relate the discussion also to Swedish culture. Culture can be analyzed on different levels. Instructors could use Geert Hofstede’s (1980) framework to discuss the national culture. On a national level the Swedish national culture, as expressed in business life, can be described as democratic, egalitarian, consensus-driven, and participative. Much emphasis is put on giving responsibility to employees, but rarely with direct orders. Rather, the foundation is built upon implicit norms of hard work and a sense of responsibility. Direct supervision can be considered rather atypical. To summarize, Swedish culture in this setting therefore is more feminine than masculine, etc. All in all, in our view, it is not clear that S&T is in a position to undertake growth through international expansion. The class could end by asking students to give a show of hands whether they believe S&T has or doesn’t have the capability to compete in a more global context. Suggested Literature For more information and as a guide for finding the academic material mentioned in the teaching notes: Greiner, L.E. 1998. “Evolution and Revolution as Organizations Grow.” Harvard Business Review 50(4) 38–46. Hofstede, G. 1980. Culture’s Consequences: International Differences in Work-Related Values. Sage, Beverly Hills. Håkansson, H. 1982. “International Marketing and Purchasing of Industrial Goods. An Interaction Approach.” H. Håkansson, ed. International Marketing and Purchasing of Industrial Goods. An Interaction Approach. John Wiley & Sons. Mintzberg, H. 1993. Structure in Fives. Designing Effective Organizations. Prentice Hall, Englewood Cliffs, N.J. Peteraf, M.A. 1993. “The Cornerstones of Competitive Advantage: A Resource-Based View.” Strategic Management Journal 14(3) 179–91. Porter, M.E. 1980. Competitive Strategy. Techniques for Analyzing Industries and Competitors. The Free Press, New York. Schein, E.H. 1992. Organizational Culture and Leadership, 2nd ed. Jossey-Bass Publishers, San Francisco. Instructor Manual for Multinational Management: A Strategic Approach John B. Cullen, Praveen K. Parboteeah 9781285094946