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1
Robert (2004), p.12
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First wave of globalisation took place between 1850-1914. After the post-WWI retreat another wave
of globalisation took place between 1945-1980
3
Hatzichronoglou (1999), p.7
4
Apart from these changes that took off in 1980s, the World Bank (2007) mentions other: De-
regulation and liberalisation in developed and developing countries, advances in information
technology, fall in cost of communications, partial integration of world financial markets, changing
relationship between investors and managers, focus on “shareholder value”
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MN425 Business in the Global Environment Candidate number: 77800
5
In the past the problem was not that the company did not have know-how in the company. The
problem sometimes was that the company did not know that they had certain know-how in the
company. Recently employees start putting their knowledge online, they share their professional
interests and they allow for information sharing.
6
Some economists argue that the capital market deregulation went too far. For example Stiglitz (2003)
strongly criticized the excessive deregulation in the economy that took place during the Reagan, Bush,
and Clinton administrations (even though he was the Chairman of the Council of Economic Advisors to
the President Bill Clinton)
7
Roberts (2004, p.181) uses as an example of more the increased linkage of top CEOs compensation to
performance. However, I am persuaded that the ongoing financial crisis will change the managers’
compensation. This question is largely linked with the issue whether the sole objective of a company
should be profit maximisation. The impact of the crisis on company’s organisation is discussed in the
following part.
8
For example IBM shifted its business in consulting, some companies are redesigning jobs and
relationships with employees who are more often allowed to work from home or have more flexible
working hours.
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Langlois (2003)
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Caves (2007) argues that to secure scale economies and reduce costs – a multi-plant firm may
allocate particular tasks to each plant and that multinationality is most likely to occur when there are
high firm-scale economies and relatively low plant-scale economies.
11
Roberts (2004), p.228
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MN425 Business in the Global Environment Candidate number: 77800
12
Knight (1933), preface
13
Coase (1937), p.396 summarises: “Other things being equal, therefore, a firm will tend
to be larger: (a) the less the costs of organising and the slower these costs rise with an increase in the
transactions organised. (b) the less likely the entrepreneur is to make mistakes in the transactions
organised and the smaller the increase in mistakes with an increase. (c) the greater the lowering (or
the less the rise) in the supply price of factors of production to firms of larger size.
14
Coase also argues that there is a difference between the co-ordination outside the firm and inside the
firm. While outside the firm there is the main drive the price mechanism, coordination through a series
of exchange transaction on the market; within a firm, these market transactions are eliminated.
15
Coase (1937), p.388
16
Following Coase (1937), p.393
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MN425 Business in the Global Environment Candidate number: 77800
often been taken to be relatively stable, changing only slowly and infrequently.17
Roberts18 even notes that many management scholars and practitioners have asserted
in recent years that, in sufficiently turbulent environment, ex ante strategizing from
the top becomes nearly pointless. On the other hand a strategy is very important for
employees and customers. Employees need to share the strategy the common goals,
otherwise they would work only for money which is not sufficient. As the market is
getting more matured and saturated, differentiation is becoming an issue. Different
strategy linked with different organisation of a company might bring significant
advantage on the market19. Obviously the organisation of a company has to take into
account external and internal factors. External factors are legislation, local culture and
habits20, all institutions – both formal and informal, customers, suppliers, and industry
development. On the other side, internal factors are the strategy of the company,
internal environment and norms and employees. Chandler argues that strategy should
determine organisation. But there is a lot if inertia in changing a strategy. Therefore
Roberts (2004) proposes the opposite model: Strategy to follow organisation. He
says21 that the idea is to alter the strategy and some of the more formal but malleable
elements of the organisation to keep up with the changes in technology and markets22.
Therefore changing strategy in short cycles is not a good option as it takes time for the
organisation to adapt23. Roberts24 uses as a good example the British Petroleum
Exploration (BPX). BPX had been structured through a collection of geographically
defined Regional Operating Companies (ROCs), which had staffs of technical and
business people overseeing the actual operations. Performance data were usually
aggregated to the level of the ROCs and the managers had very limited power and
17
Roberts (2004), p.24
18
Roberts (2004), p.27
19
Figure 1 shows the link between these factors, but there is no best and unique combination of them.
20
It is possible to change customers’ habits. It is possible to change their consumption basket, to get
them used to new products and services. Habits do evolve, so do people.
21
Roberts (2004), p.28. He uses the example of Nokia, a successful Finnish manufacture of mobile
phones.
22
For example Czech companies after the Velvet Revolution in 1989 were supposed to be transformed
into private entities that would be able to compete with foreign companies. However there were several
big obstacles. First they produces goods that nobody really wanted, there were no markets for them.
Second they lacked experienced managers as people who were in charge of running the entities were
mostly communist. Third external environment was completely different. While during communism
the only aim of a company was to fulfil a plan that had been agreed.
23
Roberts (2004, p.23) follows institutional economics in saying that: “While it is easy enough to
change the formal architecture, it certainly takes real time to change the set of people in the firm and
the networks among them., to redefine the fundamental beliefs they have, and to induce new
behavioural norms.”
24
Roberts (2004), p.185
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MN425 Business in the Global Environment Candidate number: 77800
control over the resources used in their units. After the reorganisation the managers of
a number of fields were given authority how to run theory operations. The change was
successful as it resulted in increased outputs and reduced costs. The main issues were
as follows: rating business units with clear scope of responsibility and clear
accountability, strong norms emerged from mutual trust, flattering hierarchy and
increasing spans of control, outsourcing improved information, measurement and
communication systems a creation of a culture that is oriented to delivering
performance25.
Here, I would like to discuss the differences and similarities between the
previously described organisational changes and the period of 1920s. In the 1920s
several companies26 like Dupont, Sears Roebuck and Co. or Standard Oil of New
Jersey, E.I. du Pont de Nemours and Company, General Motors created new
multidivisional form of organizing and managing their companies. Roberts27 even
argues that the multidivisional organisational design must rank as one of the major
innovations of the last century. Companies were becoming more sophisticated, they
were larger than ever before and this gave the rise of corporate governance. For the
first time in history the separation of management and ownership became the model
for the biggest corporations. Alfred Chandler28 in his book The Visible Hand29
describes the problems linked with increasing number of mergers at the beginning of
the 20th century. After merger initial administrative processes were more complex
than those in the companies that grew by internal expansion.30 In the new
consolidation a family or single group of associates rarely held all the voting stocks.
25
Another option might be the organisation of management consulting companies. Each office is an
independent unit with own revenues and cost plans. However these plans are thoroughly discussed with
the management board of such a company. Every office then works hard to meet these agreed targets,
the profit stays in the office. Every office pays for consultants from different offices, workload can be
shifted to an office with spare time. Knowledge from previous project is stored and can be accessed for
free from any office around the world. Should a project require specific local knowledge, the question
is being raised and sent to consultants who share their knowledge portfolio on the intranet. There is a
need to fulfil the plan and frequent comparison is being made between offices.
26
Companies like Sears Roebuck and Co., Standard Oil of New Jersey, E.I. du Pont de Nemours and
Company or General Motors
27
Roberts (2004), p.2
28
Alfred DuPont Chandler, Jr. (September 15, 1918 – May 9, 2007) was a professor of business history
at Harvard Business School, who wrote extensively about the scale and the management structures of
modern corporations. He found that managerial organization developed in response to the corporation's
business strategy.
29
Chandler (1993). Especially the part The Management and Growth of Modern Industrial Enterprise
is focused on our topic.
30
Chandler (1993, p.415)
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31
Tomas Bata was born in 1876 in Zlín, Czechoslovakia and died in an airplane crash in 1932 ,when
Bata Shoe Company was already present in 60 states around the world.
32
By the early 1930s the Bata enterprise – and Czechoslovakia – were the world’s leading footwear
exporters.
33
The purchasing power of the general public had been significantly reduced during WWI.
34
See Annex
35
For example, the manager may appoint someone to be in charge of the tool-room, where expensive
tools are kept and supplied to workers. Having delegated this responsibility and the authority that goes
with it, the manager still retains accountability. This is a subtle but important issue. You may delegate
responsibility and authority, but you cannot delegate accountability.
36
Tribus (2001), p.11. What made the Bata system different from other methods of cost accounting
was the agreement that if the workers could devise an improved method, which reduced waste,
improved times of delivery and produced a profit beyond expectations, the workers could share in this
profit. In other words, Bata produced a system which encouraged each work unit to become more
entrepreneurial.
37
Tribus (2001), p.14
38
Also in Japan the Kyocera Corporation employs the "Amoeba System" in which individual work
units, called 'amoeba', are engaged in buying and selling to other 'amoebas'. At Kyocera the individual
amoebas do not share the profits among their own workers but the entire work force does participate in
a profit sharing scheme. Semco, in Brazil, uses a scheme which is similar, in some respects, to the
Bata method.
39
Chandler (1993), p.454
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40
Ando and Kimura (2003), p.2
41
F. Donaldson Brown – an electrical engineer who joined the chemical company DuPont’s Treasury
department in 1914 – proposed a model of financial analysis that is in its simplified form being used
until today. When DuPont acquired 23% of General Motors Corp. Brown was given the task to put in
order GM’s financial statements. This acquisition is considered as the first large-scale reengineering
effort in the USA and lots of credit was given to Mr. Brown by Alfred Sloan, GM’s chairman. The
DuPont model was used as a dominant form of financial analysis until 1970s. This accounting
innovation helped to lay the base for modern asset accounting by effectively combining and
consolidating for the first time three basic types of accounting – financial, capital, and cost. With these
innovations, modern managers had completed the essential tools by which the visible hand of
management was able to replace the invisible hand of market forces in coordinating and monitoring
economic activities (Chandler 1993, p.448).
42
Dosi et al (2008)
43
Roberts (2004), p.10
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notes that there needs to be a fit between strategy and organisation and between these
and the technological, legal, and competitive environment. However, when comparing
the changes in organisation in 1920s and now, we have to realise that will discover
that we cannot "install" or "copy" this system of organisation. What type of
organisation structure an enterprise will have would depend upon its growth stage;
apart form the size and the success factors inherent. Businesses go through economic
or performance cycles. The company can grow through these cycles because of our
portfolio depth and breadth. Size and diversity create consistent performance.44
Overall the speed of changes in the organisational structure that we can see today will
be affected with the economic crisis, but neither globalisation nor the advances in new
technologies will be stopped. It will still lead to more flexible and innovative
organisation. Therefore, the conclusion is that innovations in the organisation of the
firm nowadays are as momentous as the invention of the multi-divisional form in the
1920s.
44
GE Annual Report 2006
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Reference
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MN425 Business in the Global Environment Candidate number: 77800
Tribus, M. (2001). Lessons from Tomas Bata for the Modern Day Manager.
Conference on Tomas Bata, Zlin, Czech Republic.
United Nations Conference on Trade and Development (Unctad) 2004. World
Investment Report 2004.The Shift Towards Services. United Nations New York and
Geneva.
Varian, H. R. (2002). If there was a new economy, why wasn't there a new
economics? New York Times; New York, N.Y.; Jan 17, 2002;.
Webster Jr., F. E. (2005). A Perspecive on the Evolution of Marketing
Management. Journal of Public Policy & Marketing. Vol. 24 (1), spting 2005 pp.121-
125.
Winter (1973). The Industrial State: Old Myths and New Realities. Harvard
Business Review, March-April, 1973, pp. 133-148.
World Bank (2007). The Coming Globalization. Global Economic Prospects
REFE
Zeleny, M. (1990). Management Wisdom of the West. Human Systems
Management, (1990) pp 119-125.
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Annex
Figure 1. The design problem is to select the strategy and organization to achieve
maximal performance I the context of the environment (Roberts 2004, p.19)
Designer
Strategy Organisation
Activities
Environment Performance
Figure 2.: Tomas Bata’s scheme of stategy, organisation, and firm’s aims
The Aim
Serve Society!
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