Control systems for global operations

The challenge for international managers is how to coordinate far-flung operation' in different environments with various work processes and rules, and economic, political, legal and cultural norms. Feedback from control methods and information systems should signal need for changes in strategy, structure or operations.

Monitoring systems

Multinational managers usually employ a variety of direct and indirect coordinating and control mechanisms, depending on organization structure, as summarized in Table 1. Mechanisms for direct and indirect coordination.

 

 

ГаЫе 1 Control mechanisms in MNC structures
Multinational structures	Output control	Bureaucratic control	Decision-making control	Organization control
International division structure	Most likely profit control	Must follow company policies	Some centralization possible	Treated like other divisions
Global geographic structure	Profit center most common	Some policies and procedures necessary	Local units have autonomy	Local subsidiary culture often most important
Global product structure	Unit output for supply; sales volume for sales	Tight process controls for product quality and consistency	Centralized at product division headquarters	Possible for some companies but not always necessary
Transnational network structure	Used for supplier units and some independent profit centers	Less important	Few decisions centralized at headquarters; more decisions centralized in key network nodes	Organizational culture transcends national cultures; supports sharing and learning; the most important control mechanism
Source: Adapted from John В Cullen. Multinational management: a strategic approach, 2nd edn. South-Western.Cincinnati, 1909. p.329.

 

Direct methods include the design of appropriate structures and the use of effective staffing practices. Such decisions set the stage for operations to meet goals rather than troubleshooting deviations or problems after they have occurred.

Indirect coordinating mechanisms typically include sales quotas, budgets and other financial tools, as well as feedback reports, which give information about the sales and financial performance of the subsidiary' for the last quarter or year. Domestic companies invariably rely on budgets and financial statement analyzes, but for foreign subsidiaries, financial statements and performance evaluations are complicated by financial variables in MNC reports, such as exchange rates, inflation levels, transfer prices and accounting standards.

Considerable differences exist in practices across nationalities, l-'or example, managers of US multinationals tend to monitor subsidiary outputs and rely more on frequently reported performance data than do their European counterparts, who assign more parent-company nationals lo key positions in foreign subsidiaries and count on a higher level of behavior control. This suggests that US practice is to measure more quantifiable aspects of each foreign subsidiary and compare relative performances. The European system, on the other hand, measures more qualitative aspects of subsidiaries and their environments, allowing focus on each unique situation but making it difficult to compare any one performance to those of others.

There is another whole dimension to the concept of performance measurement and that is its assessment on the same terms as assessment of public value. Public value is the equivalent in public management of private sector value to shareholders and customers. The criteria essentially are the same. Private, like public, value is what the public values; that is, what people are willing to sacrifice to acquire and achieve – particularly goods and services, security and trust. Unlike public value that is shaped through political process, dialogue and public engagement, private value comes through efficient management, but – like public value – is influenced increasingly by evidence, knowledge and learning in all its forms.

Mark Moore argues that performance measurement plays an essential role in creating public value through effective strategic management. He suggests that the work of developing and improving performance measurement systems involves philosophical and normative as well as scientific and cognitive issues, and that this argument applies also to the creation of value by private firms.

Moore makes this assumption: every statement that something is worth measuring is effectively a philosophical and normative claim, not merely empirical and positive. Performance measurement is about value and therefore has important political implications beyond its obvious administrative and technical dimensions. Few managers risk public discussion of the whole concept of ‘value’ for fear of exposing their organizations to criticism and to the risk of failure to produce what the public wants. There art- only two things that might motivate managers to open such a debate. One is that by doing so they might emerge with a stronger, clearer, more consistent definition of the value of the goods and services their organizations produce. The other is to clarify the conditions under which they can successfully manage and lead their firms.

Managing systems and mechanisms

Managers cannot live up to the duties of their office if they do not know in sufficiently concrete terms whether they are succeeding in those duties or not. They cannot know the answer if they do not have the measurement tools that would allow them to drive performance and seek out the technical means for continuing improvement. Only the strategic use of performance measurement makes such things possible.

However, engaging in the task of constructing performance measures always means confronting unresolved conflicts. In the end it means managers exposing themselves and their organizations to potential failure. The only motivator is the knowledge that nobody can run organizations without really understanding what constitutes value and how to contribute to its creation.

Relevant factors include management practices, local constraints and expectations regarding authority. time and communication. The degree to which headquarters' practices and goals are transferable probably depends on whether top managers are from the head office, the host country or a third country In addition information systems and evaluation variables are taken into account.

 

REPORTING SYSTEMS

Reporting systems, such as those described in this lecture, require sophisticated information systems to enable them to work properly – not only lor competitive purposes but also for purposes of performance evaluation.

Top management must receive accurate and timely information regarding sales, production and financial results to be able to compare actual performance with goals and to take corrective action where necessary.

Information systems

Most international reporting systems require information feedback at one level or another for financial, personnel, production and marketing variables; though specific types of functional reports, their frequency, and the amount of detail required from subsidiaries by headquarters will vary depending on organizational culture. Thus managers in cultures high in collectivism and in tacit forms of communication (as in Japanese companies) are likely to require fewer formal functional reports than others, who, by and large, develop more individualistic organizational cultures with more need to ‘spell things out’.

Unfortunately, the accuracy and timeliness of information systems are often imperfect, especially in less developed countries where managers typically operate under conditions of extreme uncertainty. Government information, for example, is often filtered or fabricated and other sources of data for decision making are usually limited. Employees are not used to the kinds of sophisticated information generation, analysis and reporting systems common in developed countries. Their different work norms and comparative lack of sense of necessity and urgency may also confound the problem. In addition, the hardware technology and the ability to manipulate and transmit data are usually limited.

These conditions in some foreign affiliates cause problems for headquarters' managers. They make it difficult for them to coordinate activites and consolidate results.

Evaluation across countries

A related problem when evaluating the performance of foreign affiliates is the tendency to assume that all evaluation data are comparable across countries. Unfortunately, many variables can make evaluation from one country look very different from that of another, owing to circumstances beyond the control of subsidiary' managers.

For example, one country may experience considerable inflation, significant fluctuations in the price of raw materials, political uprisings or governmental actions. These factors are beyond local managers’ control and are likely to have a downward effect on profitability. Yet they may have performed better than managers of subsidiaries not faced with such adverse conditions.

Other variables influencing profitability include transfer pricing currency devaluation exchange-rate fluctuations, taxes, and expectations of contributions to local economies. One way to ensure more accurate performance measures is to adjust the financial statements to reflect uncontrollable variables peculiar to the subsidiary environment. Another way is to take into account other non-financial measures such as market share productivity, sales relations with the host-country government, public image, employee morale, union relations and community involvement.

Finally, the Internet provides management information systems with a world of information not only attainable but instantaneously available.

Conclusion

As firms progress from domestic to international their managers adapt the organizational structure to accommodate their relative strategic focus on globalization versus localization, choosing a global product structure, a geographic area structure, a matrix form or a hybrid with elements of all o£ them. As the company becomes larger, more complex and more sophisticated, it may evolve into 2 transnational with alliances, networks and horizontal designs.

The command to 'think global, act local' is a warning to international managers not to lose their ability to respond to local market structures and individual consumer preferences. The term 'glocalization' indicates the relationship between local and global corporate strategies. It is essential to get the balance right. Interorganizational networks, global e-corporations and transnational corporation network structures for knowledge sharing are some of the means to do so.

Organizational cultures – and awareness of local cultures – affect decisions on how much to decentralize, how to organize work flow, and the various relationships of authority and responsibility. The best structure is flexible and appropriate and fits with the firm's goals.

Feedback from control methods and information systems – direct and indirect – should signal need for charges strategy, structure or operations. Direct methods include the design of appropriate structures and the use of effective staffing practices. Indirect mechanisms include sales quotas, budgets and other financial tools, as well as feedback reports. Emphasis on quantitative versus qualitative data differs considerably across nationalities.

Performance measurements should include assessment of the kinds of value the company is providing to all stakeholders. A problem is the non-comparability of performance data across countries. Factors that will affect such data include management practices, local constraints and expectations regarding authority, time and communication.

 

 

[1] International Business edn 13 chapter 1

[2]Deresky, H&Christopher, E International management chapter 1