Topic 3 The internal structure of the company

3.1. Assigning responsibilities and delegation of authority 3.2. Incentive systems, monitoring and evaluation 3.2.1. Issues to be taken into account in order to optimize the contractual relationship 3.2.2. Remuneration and incentives 3.2.3. Wages vital cycle 3.2.4. Promotion systems 3.3. Types of organizational structures

The internal structure of the company

The architecture of an organization is composed of three elements: Coordination (distribution of authority and decision making rights) Evaluation and control of the employees
Incentive system design reward systems that promote performance and specific investments

Control: Performance evaluation systems

3.1. Assigning responsibilities and delegation of authority

Two organizational systems are more frequent: The western firm Hierarchical structure. There is a boss deciding what is to be done. The information shared is more reduced and the decision making process faster. The Japanese firm More horizontal structure. Group decision making process, implying rotation and participation of the employees. The decision making process is slower given that it is necessary first for the information to be shared by all participants. The hierarchical structure is the dominant one.

The pyramidal organizational structure (hierarchic)

Management tasks
Board of Directors

Top management Middle management

Employees

Executing tasks

Definition:

An elemental task is one that cannot be divided among several people

It is a basic part of the production process It is important how it is executed

It is important to define how the jobs in a company are defined:

either basic or polyvalent tasks? how are the decisions made?

The main problem is to decide how to allocate the tasks: specialization vs. polyvalence And, once established this division, it is important to know whether the employees can make decisions related to the tasks they execute: centralization vs. decentralization of authority
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Coordination two dimensions:

A) Assignation of tasks B) Delegation of authority

Variety of tasks

Any point could be a feasible combination

Decision margin
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A) Assignation of tasks: Specialization vs. Polyvalence (moving along the vertical axis) Specialization: "the right person for the right place"
Polyvalence: rotation of tasks among employees in order to achieve more flexibility Specialization Advantages Takes better advantage from the specific qualities of the employees Reduces learning costs by focusing in one tasks Reduces costs: highly qualified people execute complex tasks saving time dedicated to simple tasks Disadvantages Complementarities among tasks are lost Increases coordination costs

Functional myopia, each employee only knows a small part of the hull process
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A higher or lower specialization has consequences in the design of the incentive system. If has to make charge of several tasks, the employee will dedicate more time to the one better remunerated Graphically:

Variety of tasks

Japanese firm: polyvalence,

flexibility and L/R relationship with the employees

Western firm: specialization, rigidity, and

conflictive relations among owners and employees

Margin of decision
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B) Delegation of authority: centralization vs. decentralization, moving along the horizontal axis Decentralization Advantages Takes better advantage from the local knowledge Liberates capacity for the higher decision level Motivates employees to solve problems Disadvantages Creates an agency relation (different objectives) Coordination could be complicated

3.2. Incentive systems, monitoring and evaluation 3.2.1. Issues to be taken into account in order to optimize the contractual relationship

The asymmetry of Information

The parties participating in a transaction do not have the same information. One of the parties knows more.

Two types:
Ex-ante Asymmetric Information (adverse selection or hidden information) Ex-post Asymmetric Information (moral hazard or hidden action)

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Adverse Selection
Examples: second-hand car market, health insurance, car insurance,
employment contract etc.

1. Second-hand car market Potential buyers do not know the condition of the vehicle, whether it has had breakdowns, suffered accidents, how much care the previous owner has taken of it, etc. The seller has all the information relating to the used car, but this does not mean that he or she is prepared to reveal it because this may influence the sale price Consequence The buyer does not risk purchasing an expensive car because he or she does not know the quality; therefore, no good cars are sold and there are only bad cars on the market.
2. Job market: employment contract
companies are looking for workers with disutility per unit of reduced effort, but they do not have this information before hand
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Solution: Signalling and creating a reputation

The better informed party applies strategies aimed at providing security and credibility: A1) Signalling Guarantees: signals regarding quality, independent technical check-up before sale, etc. CV: in the job market, professional career, etc. A2) Reputation The valuation buyers make regarding the quality of the firms current product based on the quality of the product observed in the past Ft = reputation at time t q = quality

Ft = f (qt-1, qt-2, qt-3,., qt-n)

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Reputation: as an investment by the firm

>0 =0 Investment in Reputation <0

Enjoys the reputation achieved Time

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Price Cost

P(q) C(q)

The difference between price and cost increases with quality Quality

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Moral Hazard

Moral Hazard: arises once the contract has been signed; it is made very difficult for one of the parties to verify the other partys compliance with that agreed (post contractual opportunism) Examples:
Contract between Managers and Business Owners (Agency relation)

Employees: opportunistic behavior =>suboptimal effort

Health Insurance: unlimited no. of visits to the doctor Car Accident Insurance: driving more riskily, unlimited km.
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3.2.2. Remuneration and incentives

When the effort of an employee is not observable the employer has two alternatives:
Observe the output: that is, use an [imperfect] measure of performance which is both observable and measurable use a measure of the input (for example, time spent at the workplace)

If monitoring is costly, a way to stimulate the effort is through incentives Incentives at: firm level, individual and/or group Another alternative in order to avoid high monitoring costs is the "efficiency wage"
A substantial increase of the wage (well above the market wage) will induce the worker to work harder in order to avoid the risk of losing this highly paid job
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The variable part of the remuneration (bonus) will depend on:

workers risk aversion: if it is high, he must be paid more in expected terms Workers aversion to effort Marginal contribution of the effort to the chosen reference variable [output or input]: the larger the marginal contribution, the lower the expected payment uncertainty of the environment

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Disadvantages of the bonuses (performance based)

1. 2.

Final products may have defects that may harm the reputation of the company the lack of uniformity in the execution of any phase of the production process may generate costs

Solutions to this problem Establish quality control Increase the fixed part of the remuneration (at the cost of assuming some loss of performance). 3. Problems with the remuneration of works consisting of more than one task Solution: One way to motivate the worker in performing a specific task is to pay higher premiums (bonuses) for that task New Problem: the employee may end up preferring to perform only one task, if there is too much disparity between bonuses.
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Example: Incentive schemes and attitude towards risk

Assume that you have two job opportunities to choose among. Calculate EV, standard deviation and CV for each one. Comment the results based on your attitude towards risk.

High Sales p = 0.5 1) Commission () 2000 p = 0.99 2) Fixed Salary () 1510

Modest Sales p = 0.5 1000 p = 0.01 510

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3.2.3. The life cycle of the wage

The salary varies over time
Antiquity bonus:
First years of employment: the worker receives a wage below the value of the work done The situation is reversed at an intermediate point of his career in the firm At the end of the contract the firm adds an additional compensation (when the employee does not leave the firm voluntarily but because he retires)

Conclusion: if leaves the firm the worker will loose the antiquity bonuses Promotion: a wage increase due to promotion (advance in the hierarchy within the organization)
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3.2.4. Promotion systems

Two systems of promotion:
A. Open ranks hierarchy B. Closed ranks hierarchy

A. The hierarchy of open ranks

The number of people in each rank is not fixed The members of the superior rank in the hierarchy decide who can advance from the inferior rank To access a superior rank the worker must fulfill some requirements In the organization there is only one entry gate and the starting salary is not very attractive The promotion does not necessarily imply a radical change in the type of tasks performed
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Advantages of open ranks: i) does not require a continuous measurement of employees performance (regular controls are sufficient), reducing this way the costs due to moral hazard ii) Only those who believe that they will meet the requirements for promotion will accept low initial wages, so reducing adverse selection costs iii) Encourages investment in human capital, since workers expected to advance within the organization iv) It is not very damaging for the cooperation among workers; the promotion of a colleague does not imply that this will not be possible for the rest too
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B). The hierarchy of closed ranks only a fraction of the lower rank can access the superior one when there is a vacancy the firm organizes a competition (or tournaments) among the members of the lower rank (is a kind of internal "market) promotion involves increased wages, greater authority (decision making margin) and responsibilities Disadvantages: difficult to foster the cooperation among workers "influence activities" may happen (influence on those who determine the outcome of the tournament)
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3.2.5. Control and Evaluation

Objective of the control systems provide managers with information to determine if strategy and structure are working effectively and efficiently

A good control system should:

be flexible so managers can respond as needed. provide accurate information about the organization. provide information in a timely manner.
Source: Jones, G.R. & George, J.M. (2005). Contemporary Management, 4th ed., McGraw-Hill.

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Three types of control:

1. Feedforward: used in the input stage of the process.
Managers anticipate problems before they arise. Managers can give rigorous specifications to suppliers to avoid quality problems

2. Concurrent: gives immediate feedback on how inputs are converted into outputs.
Allows managers to correct problems as they arise. Managers can see that a machine is becoming out of alignment and fix it.

3. Feedback: provides after the fact information managers can use in the future.
Customer reaction to products are used to take corrective action in the future.
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The steps of the control process

1. Establish standards of performance, goals, or targets against which performance is evaluated. 2. Measure actual performance Standards must be consistent with strategy. For example, for a low cost strategy, standards should focus mainly on cost. Measure the output Measure the behaviour (when difficult to measure the output non routine tasks; come to work on time, etc.) Managers must decide if performance actually deviates (often, several problems may combine together generating low results) Perhaps the standards have been set too high. Workers may need additional training, or equipment (this step is often hard since the environment is constantly changing).
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3. Compare actual performance against established standards 4. Evaluate results and take corrective action when the standard is not being achieved.

Control systems
Output Control Financial Measures or Performance Goals Operating budgets Direct supervision Management by Objective (MBO) Rules & Standard Operating Procedures Values Norms Socialization
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Behaviour Control

Culture or Clan Control

Output Control
1. Financial Controls: are objective and allow comparison to other firms. Profit ratios measures how efficiently managers convert resources into profits (Return on Investment-ROI, is the most common; Return on Assets -ROA, Return on Equity ROE). Liquidity ratios measure how well managers protect resources to meet short term debt (current ratio, acid test ratio or quick ratio, etc.) Leverage ratios show how much debt is used to finance operations. (debt-to-asset ratio, debt-to-equity ratio, debt ratio, equity ratio, etc.) Activity ratios (efficiency ratios) measures how managers create value from assets. (inventory turnover, fixed assets turnover)
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Output Control
2. Organizational Goals: after corporate financial goals are set, each division is given specific goals that must be met to attain the overall goals.
Goals and hence output controls, will be set for each area of the firm.
Goals are specific & difficult (not impossible) to achieve. Goal setting is a management skill developed over time.

3. Operating budgets: a blueprint showing how managers can use resources.

Managers are evaluated by how well they meet goals and stay in budget.
Each division is often evaluated on its own budgets for cost, revenue or profit.

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Output Control
Problems/difficulties: Managers must create output standards that motivate employees at all levels. Must avoid stressing too much short-term goals that motivate managers to forget the future.
It is easy to cut costs by dropping R&D now but it may affect the future profitability of the firm

If standards are too high, workers may follow unethical behaviour to attain them.
Increase production by skipping safe production steps.

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Annex: Example

Cost -Volume- Profit (CVP) and Break-Even Analysis

CVP analysis examines the effects of the behaviour of total revenues, total costs and the output level on the operating income of the firm.
Break-Even Analysis

Notation: Q = Quantity of output units sold p = Selling price per unit TR = Total revenues v = Variable cost per unit FC = Fixed costs TC = Total costs
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BREAK-EVEN POINT (BEP)

TR TC TR TC

Q BE
BEP

FC FC = = p v cmu

The break-even point is determined by the equation:

TR = TC TC = FC + vQ TR = pQ BEP is the point where the firm has zero profits from the investment.
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pQ= FC + vQ (p-v) = contribution margin per unit (cmu)

Example: BEP
Assume that a boutique can purchase sweaters for 32/unit from a local producer; other variable costs = 10 per unit. The local producer allows the boutique to return all unsold pieces and receive a full 32 refund per unit within one year. The average selling price per sweater is 70 and total fixed costs amount to 84,000. Questions to answer: 1. How much revenue will the business receive if 2,500 units are sold? (175,000) 2. How much variable costs will the business incur? (105,000) 3. How much profits will the business obtain? (14,000) 4. What is the contribution margin per unit? (28) 5. What is the total contribution margin when 2,500 sweaters are sold? (70,000) 6. What is the BE quantity? (3,000)
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How many units must be sold to earn an operating income (profit) ?

FC + Q = pv
7. Assume that management wants to have an operating income of 14,000. How many sweaters must be sold? (3,500) 8. What profit will the firm make if it reduces its fixed costs by 10% and produces a volume of 5,000 units? (64,400) 9. What should the price of sale be to reach a BEP volume of 4,000 units? (63)

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Break-Even time
-

the amount of time that it takes a company to break even, is also important: 1. the longer it takes to break even, the longer resources may have to be tied up performing unprofitable activities, thereby causing the firm to forgo potentially profitable investment opportunities. 2. the longer it takes a firm to break even, the more time competitors have to catch up if they were behind or to increase their level if they were ahead.

BE quantity FC BEtime = = sales rate ( p v) x( sales rate )

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Example 1: BE analysis may be used to illustrate the strategic

significance of resources Two firms, A and B, each developed their own operating system for PCs in 2007 at an estimated cost of 1 billion. The cost to produce and deliver each copy to the customers was of 15 for each firm. The operating system of A is incorporated in each PC that PC makers sell, while B sells its operating systems in the PC that it makes. Given that A has a huge base of customers and its operating system is compatible with Bs, A was able to sell 146 million copies in 2007 at 55 each, while B sold only 3 million copies.
a. b.

c.

What are the break-even times for each firm? Assuming that BE quantity for firm A is 146 million, calculate by how much firm A can reduce the selling price and still make profits. What is the strategic significance of each firms installed base?

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Example 2: BE analysis can be used to illustrate the decision to invest in technological change (Fixed Costs contribute to shape the structure of an industry after a major technological change). The market shares of 6 pharmaceutical companies are given below. Each of these companies developed a similar drug but the doctors who prescribe the drug to their patients are loyal to a company in particular (they dont want to switch pharmaceutical companies). In order to develop and sell a new version of the drug each company should invest 200 million in costs for R&D and advertising. A daily dose of the drug has a price of 2.20 and it costs 0.20 to produce. The total market volume of sales is 900 million per year.
a. b. c.

d.

Calculate the sales rate (market share in million for each company). Calculate the break even time for each company. The technology is easy to imitate but even so firms are willing to invest. Why are they not afraid of loosing market share? How does this investment in technology affect the market structure?

Company /Market share: C1/40%; C2/30%; C3/15%; C4/7%; C5/6%; C6/2%

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2) The production indifference point (Qip)

Own production vs. Outsourcing (externalization) Total cost of producing internally Cint = TC =FC+VC=FC + v*Q Total cost of outsourcing Cout =Q*Pout (Pout= the price to per for each unit outsourced) The indifference point: Cint=Cout =>

CF Qip = Pout v

(Pout-v) = the cost saved by the firm for producing above the indifference point level

TCout TCint TCout TCint

FCint
Qip

Q<Qip TCint>TCout Better outsourcing

Q>Qip TCint<CTout Better own production

Example: A TV set manufacturer is buying one of the components from another firm. In 2010 the firm consumed 50,000 units of the component for which has paid 25,000. A study made by the accounting department indicates that the firm could produce this component with a fixed cost of 60,000 and a cost per unit of 0.35. what would you advise the manager? Produce internally or outsourcing?

Behaviour Control
Managers must motivate and shape employees behaviour in order to meet organizational goals.
1. Direct Supervision: managers who directly manage workers and can teach, reward, and correct them.
Very expensive since only a few workers can be managed by one manager. Can dimotivate workers who desire more autonomy. Hard to do in complex job settings.
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Behaviour Control
2. Management by Objectives (MBO): evaluates workers depending on the attainment of specific objectives

Goals are set at each level of the firm. Goal setting is participatory involving managers AND workers. Evaluation by looking at the progress toward goals attainment. Pay raises and promotions are tied to goal attainment. Teams are also evaluated in this way, with goals and performance measures for the team work.
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Behaviour Control
3. Bureaucratic Control: control through a system of rules and standard operating procedures (SOPs) that shape the behavior of divisions, functions, and individuals.
Rules and SOPs tell the worker what to do Standardized actions so outcomes are predictable Still need output control to correct mistakes

Problems of Bureaucratic Control:

Rules easier to make than delete Firm can become too standardized and loose flexibility Best used for routinary problems.
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Organizational Culture & Clan Control

1. Organizational culture is a collection of values, norms, & behavior shared by workers that control the way workers interact with each other. It defines the unique character and the personality of an organization. 2. Clan Control: control through the development of an internal system of values and norms.
Both culture and clan control accept the norms and values as their own and then work within them.
Examples include dress styles, work hours, pride in work.

These methods provide control where output and behavioral control does not work. Strong culture and clan control help worker to focus on the organization and enhance its performance.
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Organizational Culture & Clan Control

3. Organizational values and norms inform workers about what goals they should pursue and how they should behave to reach these goals. Some organizations work hard to create a culture that encourages and rewards risk taking.

Microsoft, Oracle seek innovation.

Others, create an environment of caution.

Oil refineries, nuclear power plants must focus on caution.

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Components of the organizational culture: Values of founder Socialization process Ceremonies and rites Stories and language
Objective of the firm: create a strong organizational culture

How? Most of the organizations do this unconsciously, based on the values of the founder or of the top management. Many people agree on the issue that there are no strong or weak cultures but rather different organizational cultures
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Organizational Culture
1. Founders values are critical as they hire the first managers

Founders are more likely to hire those who share their vision. This contributes to develop the culture of the firm
2. Socialization Process: newcomers learn norms & values.

Learn not only because they have to but because they want to Organizational behavior, expectations, and background is presented
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Organizational Culture
3. Ceremonies and Rites: formal events that focus on important incidents
Rite of passage: how workers enter firm & advance Rite of integration: build common bonds with office parties, celebrations Rites of enhancement: enhance worker commitment to values. Promotions, awards dinners

4. Stories and Language: Organizations repeat stories of founders or events

Show workers how to act and what to avoid Stories often have a hero that workers can mimic Most firms also have their own jargon that only workers understand

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Some examples: HP way of life :

humanistic management provide lifelong employment But, these values are not necessarily shared by everybody in the company: In 2006 they cut more jobs than any other Silicon Valley Company.

Boeing
Permanent objective:
Leadership Integrity Quality Satisfaction of the clients People in the company working together Very involved and polyvalent team Create value for the shareholders

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Why EGG Bank?

Egg's a fun place to work, with a fantastic team atmosphere - we all work hard, play harder and take great pride in celebrating our successes. And we've had more than our fair share of those (oh, and we like to blow our own trumpets too). We're based over three main sites - Derby, Dudley and London. Our locations have chill out areas and even 'play' areas. Wherever you work at Egg you can be sure that your development will be taken seriously. And it doesn't have to stop at the end of your working day either - there's loads of other stuff going on - sports teams, community work and fundraising, performing arts and the list goes on...

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Benefits of working for EGB Pensions : We automatically make you a member of our non-contributory pension scheme from day one. Whether you choose to contribute or not we will automatically contribute a percentage of your base salary. Childcare vouchers: All Egg People can take advantage of our discounted rates on childcare. Holidays: At Egg everyone gets up to 25 days' holiday a year. Medical insurance: All employees can benefit from discounted rates on healthcare. We will advise you individually on the level of cover you are entitled to. Life assurance: Receive our death in service cover from day one of your employment. Corporate discounts: Egg People can benefit from a fantastic selection of online shopping offers and other corporate discounts. Casual dress policy: Just because we are a bank doesn't mean we wear suits. Egg People are welcome to wear what's comfortable and appropriate for the work they're doing.

http://www.egg.com/visitor/0,,3_86856--View_1805,00.html
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3.3. Types of organizational structures

The structure is about the internal organization of different activities and tasks that are performed in a firm or organization. Decision making process in a firm depends largely on the type of its organizational structure. The organizational structure or design of a firm allows to:
Define the tasks Assign the responsibilities Develop accounting information systems oriented towards the control and management of the costs and profit centers Coordinate all the activities involved.
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The organizational chart

The firms organizational chart is the graphical representation of the organizational structure of the firm. All organizational chart must be flexible and adaptable, so that if there are changes in the firm, the organizational chart can be adapted, for example so that a new position or service can be included; It must adjust to the reality; They must be clear, precise and comprehensible for the people to whom one is due to inform. The structure of the organization is like a network of communications through which information is transmitted. These communications can take place in a two-way traffic: Horizontal, between positions or points of the same level of the hierarchic structure. Vertical, between different ranks, of information (ascendant), or decision and control (descendent).
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Each firm has its own organizational structure, depending on objectives, size, products and activities developed

Organization structure is about: Effective Communication Effective Coordination Speed/Responsiveness to the Customer (both internal & external) Empowerment throughout the organization

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Evolution of the organizational structures: from more to less hierarchical levels

Past

Present

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Mechanistic Organizational designs

Specialized tasks, few teams Strict hierarchy, many rules Centralized decision making process Limited information-processing capability Very good for simple and repetitive tasks Designed for production efficiency

Most of the firms are in between

Organic Organizational Designs

Shared tasks, highly interdependent work efforts, many teams Relaxed hierarchy, few rules Expanded information-processing capability More effective for unique and complex tasks Designed for innovation, creativity and learning
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Most frequent organization structures The Functional Structure The Multidivisional Structure The Matrix Structure Hybrid Structure ( a combination of various
structures)

New models
The inverted organization The network organization Clover organization Hyper text and hyper clover organizations

The dominant structure: multidivisional

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Most frequent structures:

The Functional Structure

Small-size, single-product firms Undifferentiated market Scale of production defined by the functional structure Long product development and life cycles Common standards Usually, at the early stage of the organizational life cycle
Funcional

Source: Ball, D.A.; McCulloch, W.H.; Geringer, J.M.; Minor, M.S.; McNett, J.M. (2007). International Business: The Challenge of Global Competition. McGraw-Hill, 11th edition.

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The Multidivisional structure

Model imposed by the diversified growth of the firms: multiple products, multiple markets and multiple plants A division is almost like a quasifirm having its own departments and objectives but subordinated to a superior level, the general management. The criteria used to create divisions in a firm are: 1. Products. 2. Markets - geographical areas. - types of consumers. 3. Functions or processes 4. Mixed (a combination of markets and products)

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Divisions organized by products & markets Example: Divisions organized by products

Central headquarters

Product Division 1

Product Division 2

Product Division 3

Product Division 4

Each division is structured in functional areas

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Example: Divisions organized by geographic areas

Central Headquarters
Division US Division Europe Division Far East Division Australia

R&D

Mark.

H.R.

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Advantages: Simplifies the coordination problems at corporative level Favors the growth of the firm Is easier to measure the final results but more difficult to determine responsibilities It is easier to identify the problems and solve them Disadvantages: Duplicates efforts and resources Specialized knowledge is not fully taken advantage of at corporate level Divisions may compete among them, instead of cooperate
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Divisions organized by functions Example:

Central Headquarters Europe

Finance & Accounting Staff

Manufacturing China

Marketing Peru

R&D US

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Functional divisions: The units or divisions are designed around the business areas or functional departments inside the firm. Advantages: Facilitates the specialization of the employees and their professional trajectory inside the organization Facilitates the control and supervision of the employees. Allows for a high degree of specialization in the execution of a task The organization can take better advantage of economies of scale: as each division is specialized in a function, all the others can have access to this specific knowledge Disadvantages:
May eventually generate coordination problems and conflicts between division if they are treated differently (wages, participation in the decision making process) In case of conflicts, they might need a lot of time to be solved out, disturbing the normal development of the firms activity. Difficult to change Loyalty to the function or activity developed could be grater than the loyalty to the organization itself

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Mixed divisional structures (hybrid & matrix). Matrix structure

Double entry (double control or authority): two organizational variables are used (i.e. functions and products). Each employee has at least two direct chiefs: head of department (hierarchical) and the head of product line.

HQ
Fin/Acc. HR

R&D

Manuf.

Marketing

Product 1 Product 2 Product 3

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Main features:
This structure works well when the functional resources are scarce The matrix design has two combine optimally several requirements:
The organization should maintain its flexibility in order to react to changes in the environment (the double control may increase bureaucracy) Functional directors must be able to provide good knowledge and information about any unit The equilibrium between horizontal and vertical hierarchy is important

It works well in a changing and complex environment although if a fast adjustment is needed , this is not the best structure
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Global characteristics of the Multidivisional structure

Centralization of the strategic decision at the HQs and decentralization of the operative decisions at division level Each division counts with all the assistance needed HQs assign the financial resources depending on the strategic role played by each division inside the corporation, the financial results obtained and the contribution of each division to the global profits HQ exercise the financial control of all the divisions Growth and diversification of activities is easy to be done as new divisions are created and incorporated to the structure of the firm This structure enables the creation and functioning of internal markets (products, services, financial assets, components, etc.) depending on the number of transactions among the divisions

Advantages: Reduces information and communication costs It is easier to implement standard control systems Each division is treated as a profit center Efficient assignment and assessment of the financial resources of the company Facilitates growth and diversification of the company
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Evidence from Spain Source: Bonet & Barber, Economa Industrial, no. 333, 2000. Data referring to 323 Spanish multinational firms (exports above 25% of the sales volume, in 1996)

Types of organizational structures -Functional -International division -Matrix-subsidiary -Divisions by product -Divisions by areas -Matrix Total 51.1% (165 firms) 17.0% (55 firms) 8.0% (26 firms) 4.7% (15 firms) 11.2% (36 firms) 8.05% (26 firms) 323 firms
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Global overview Organizational culture & Management acting hand in hand:

Planning function: in innovative firms, the culture will encourage all managers to participate
Slow moving firms focus on the formal process rather than the decision.

Organizing: Creative firms will have organic, flexible structures

Probably very flat with delegated authority

Leading: encourage leading by example

Top managers take risks and trust lower managers

Controlling: innovative firms choose controls that match the structure

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Control system & Organizational structure The higher the degree of decentralization, the more difficult and costly the control is. In a decentralized firm the system of control is more sophisticated and formal, dominating the financial control systems and oriented towards monitorizing the actions of each manager In a more centralized firm the control system is less sophisticated, being based on either informal mechanisms of control or rigid internal procedures

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Functional structure:
Dominates a more bureaucratic control with the focus on efficiency In the management control the importance is given to information registration which is mainly used to assign resources to different departments

Multidivisional structure:
Dominates the control based on results achieved stressing the efficacy Management control has to provide information for the decision making process, planning and evaluation of the decision makers.

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Matrix structure:
Due to its complexity, it combines a control based on results (objectives) and a more informal control based on direct supervision and the interpersonal trust Given the interaction among different units it is difficult to evaluate the activity of each responsible alone without taking into account the influence of the rest of the units. The qualitative indicators and the non-financial information is fundamental to ensure a good coordination among units. In this case, the accounting information should facilitate the negotiation of objectives and budgets, and has to be taken in flexible manner when evaluate the activity of the managers.

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