426 Part 5 The Strategy and Structure of International Business
most important challenges it is likely to face in Do you think these problems are typical of
implementing this change? How can the firm matrix structures?
overcome these challenges? b. W hat drove the shift away from the matrix
6. Reread the Management Focus on Walmart In- structure for companies such as Dow and
ternational; then answer the following questions: ABB? Does Dow’s structure now make
a. Why did the centralization of decisions at sense given the nature of its businesses
the headquarters of Walmart’s international and the competitive environment it
division create problems for the company’s competes in?
different national operations? Has Walmart’s 8. Reread the Management Focus on Lincoln
response been appropriate? Electric; then answer the following questions:
b. D o you think that having an international di- a. To what extent is the organizational culture
vision is the best structure for managing of Lincoln Electric aligned with the firm’s
Walmart’s foreign operations? What prob- strategy?
lems might arise with this structure? What b. H ow was the culture at Lincoln Electric
other structure might work? created and nurtured over time?
7. Reread the Management Focus on Dow Chemical; c. Why did Lincoln Electric’s culture and
then answer the following questions: incentive systems work well in the United
a. Why did Dow first adopt a matrix structure? States? Why did it not take in other
What were the problems with this structure? nations?
research task globaledge.msu.edu
Use the globalEDGE website (globaledge.msu.edu) to 2. You work at a European-based pharmaceutical
complete the following exercises: company that is planning to expand operations
to other parts of the world. To design the struc-
1. Fortune conducts an annual survey and publishes
ture of the organization as it expands internation-
the rankings of the world’s most admired compa-
ally, management has requested additional
nies. Locate the most recent ranking available,
information on the pharmaceutical sector world-
and focus on the factors used to determine
wide. Use the Industry Profiles section on the
which companies are most admired. Prepare an
globalEDGE site to prepare a risk assessment of
executive summary of the strategic and organiza-
the food and beverage industry that can help
tional success factors for a company of your
management gain a better understanding of the
choice.
external environment in foreign markets.
C LO S I N G C A S E
Organizational Architecture at P&G
The Procter & Gamble Company (P&G) is a force in the eographically, these 180 countries are divided into the
G
global marketplace. P&G is the biggest U.S. advertiser at core markets of Asia; Europe; India, the Middle East,
some $5 billion annually, and it spends a staggering and Africa; Latin America; and North America. The
$9 billion annually worldwide on advertisement. Beyond company sells products to about 5 billion of the world’s
ad spending, P&G is also the world’s largest maker of 7 billion people.
household products. It is a very large company with more P&G organizes its many products into four industry-
than $80 billion in annual sales and with a net worth based sectors: (1) Baby, Feminine and Family Care;
(sometimes referred to as “market capitalization”) greater (2) Beauty, Hair and Personal Care; (3) Fabric and Home
than the gross domestic product (GDP) of most coun- Care; and (4) Health and Grooming. In fact, P&G states
tries. P&G markets products in more than 180 countries. that “we have made P&G’s organization structure an
The Organization of International Business Chapter 14 427
important part of our capability to grow . . . it combines than 1 percent of job applicants actually get a job offer
global scale benefits with a local focus to win with from P&G. There is strength in architecture (structure,
consumers and retail customers in each country where people, incentives and control, culture, processes) at
P&G products are sold.” P&G.
To best serve the global markets, P&G decided that it
Sources: Antoine Gara, “Reckitt Benckiser Is Building a 21st Century
would cut around 100 brands from its portfolio and focus Procter & Gamble,” Forbes, February 10, 2017; Leonie Roderick,
on its core remaining 80 brands, which generated 95 per- “P&G On How It Cut Agencies by Almost 50% to Optimize Its Marketing
cent of the company’s profits. Alan “A.G.” Lafley, then Spend,” Marketing Week, November 21, 2016; “Global Structure and
the company’s board chair, president, and CEO, said, Governance,” www.pg.com, accessed March 29, 2017; J. Neff, “Biggest Ad
“This will be a much simpler, much less complex com- Spender P&G Has New North America Media Chief,” Advertising Age,
January 15, 2015; “Around 100 Brands to Be Dropped by Procter and
pany of leading brands that’s easier to manage and oper- Gamble to Boost Sales,” CincinnatiNews.net, August 1, 2014; S. Ng,
ate.” Additionally, P&G cut its marketing and advertising “P&G CEO Lafley Lays Groundwork for Exit,” The Wall Street Journal,
agency roster by 50 percent over the previous three years April 13, 2015.
from around 6,000 to 3,000 companies in a bid to in-
crease its marketing productivity. C a s e Di s c u s s i o n Q u e s ti o ns
With the organizational size and product line breadth
1. Advertising is important for most companies, es-
come both industry responsibility and business opportu-
pecially companies such as P&G that sells mostly
nity (see Chapter 5 on ethics, corporate social responsi-
to end customers. But, most people already know
bility, and sustainability for a discussion of combining
about P&G products such as Charmin bathroom
industry and business opportunities). P&G says that “our
tissue and moist towelettes, Crest toothpaste, and
responsibility is to be an ethical corporate citizen” and
so on. Does P&G really need to constantly put
the company articulates this in its Purpose Statement:
money into advertising when its products already
“We will provide branded products and services of supe-
have a strong hold in the global marketplace?
rior quality and value that improve the lives of the world’s
consumers, now and for generations to come. As a result, 2. P&G cut its marketing and advertising agency
consumers will reward us with leadership sales, profit and roster by 50 percent over the past three years
value creation, allowing our people, our shareholders and from around 6,000 to 3,000 companies in a bid
the communities in which we live and work to prosper.” to increase its marketing productivity, efficiency,
As P&G continues to streamline its product assort- and effectiveness. At a $9 billion worldwide
ment, it focuses heavily on its Selling and Market Opera- spend on advertising, should P&G have more or
tions (SMOs) as a mechanism to reach global customers fewer marketing and advertising agencies doing
in all four of its industry-based sectors. P&G views the its advertising?
SMOs as more of a name change from its old Market 3. By consolidating and cutting 100 brands from its
Development Organizations to a structure that supports consumer portfolio of brands, does P&G run the
each of the four industry sectors with “superior, effective risk of ultimately losing out on global market
and efficient selling, distribution, shelving, pricing execu- opportunities?
tion and merchandising—every day, every week—in every Design Elements: Implications (idea): ©ARTQU/Getty Images; Problem
store.” The SMOs are staffed with employees represent- (jigsaw): ©ALMAGAMI/Shutterstock; All Others: ©McGraw-Hill
ing 140 different nationalities. At the same time, fewer Education.
E n dn o t e s
1. This has long been a central theme of the strategic management Strategy Structure Theory,” Strategic Management Journal 23
literature. See, for example, C. W. L. Hill and R. E. Hoskisson, (2002), pp. 181–90.
“Strategy and Structure in the Multiproduct Firm,” Academy of 2. Eric M. Olson, Stanley F. Slater, and G. Tomas M. Hult,
Management Review, 1987, pp. 331–41. Also see J. Wolf and “The Performance Implications of Fit among Business Strategy,
W. G. Egelhoff, “A Reexamination and Extension of International
