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GROUP E

TERM PAPER FOR ORGANIZATIONAL BEHAVIOR COURSE

HOW CULTURE AFFECTS STRUCTURE A CASE STUDY OF HENKEL VIETNAM

EXECUTIVE REVIEW

Any perfect business models effectiveness could be changed in a country with different culture. The story of Henkel group is quite a good example. The wining culture, codes and values of its own is applicable in almost every country where its offices are located. But when it comes to Vietnam, the big difference between the west and the east culture was forgotten in a way that it didnt change much to adapt with the new culture.

This leads to some existing problem now at Henkel Vietnam. Departments are somehow working separately. Each knows themselves and has no tendency in supporting others due to too many uncertainties at work. And there is no head director to figure out the solution for all.

In this paper, we would analyze the problem in depth on what are the causes of such problems and how to solve them all in order to bring the business to the place it should be at the beginning. The method of doing so is to look at the problem from to angles. One is from Henkel Vietnam, a foreign company operating in Vietnam, and CNC APTECH, a Vietnamese company. In doing so, we are not meant to judge which is better but to compare alternatives and help readers understand the Vietnamese way.

In the end, the problem could be improved by the assigning a country manager. This would be the local person of this global organization. And with their knowledge, they would find out a way to reduce the current distance and conflict between those employees and carry out the true values which were looked for at Henkel with some adjustments to ignite in Vietnam culture.

From this, our group suggests that each organization should be able to understand Vietnam in the way it is first before they decide to set up their business here. Because this would help them accelerate the pace of their revenue growth a lot.

INTRODUCTION

Behind every powerful leader is a powerful invisible, which contributes to create a strong corporate culture. That culture motivates people to work hard and longer for their company. With stable development, the remaining difference among companies today is culture factor. Other factors such as technology and business processes are almost no difference much. For example the reason why we distinguish between Unilever and P&G is not the quality, the difference is corporate culture and their brand image.

Culture has considered as an identification sign of each company, enabling us to distinguish the company with another company. Culture reflects in the work style and behavior of employees both at work and in life. Corporate culture plays an important role in the success or failure of that company. Companies which have adaptive culture will outperform their competitors. Many companies build their own culture on the basis of inherited cultural traditions. And here, the mission of the Henkel Group is not out of that goal. Unfortunately, applying corporate culture in this company seems somehow ineffective and causes some internal problems.

THE THEORIES

I.

ORGANIZATION DESIGN

An organizations design is very important to point out the role of the managers and employees in the organization. 1. Key factors in organization design a) Environmental factors There are four most important factors:

COMPETITORS: make the org. to become productive

SUPPLIERS: obtain the required materials

ORGANIZATION

DISTRIBUTORS: deliver and sell products

CUSTOMERS: evaluate the cost of products

An organization must maintain and manage the good relationship with those factors in order to develop and succeed.
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b) Strategic factors: one of the most popular competitive strategies was developed by Michael Porter of Harvard University. According to Porter, there are three main strategies that an organization can use to take the competitive advantage:

Cost leadership strategy Organization's ability to provide goods or services with the lowest cost. Differentiation strategy Organization's ability to provide the unique goods and services. Focused strategy Organization's target on a specific niche in an industry.
c) Technological factors: Technology is a process which an organization changes inputs into outputs. Task interdependence: refers to the extent one person or departments performance can affects what other members do. There are three types of task interdependence: - Pooled interdependence - Sequential interdependence - Reciprocal interdependence 2. Mechanistic and organic organizations

Mechanistic
formal rules and regulations centralization of decision making narrowly defined job responsiblities rigid hierarchy of authority characterize

Organic
informal rules and regulations descentralized and shared decision making broadly defined job responsiblities flexible authority structure

3. Foundation organization designs Result of various pattern of environmental and technological factors make the design of an organization may differ and change.

the creation of positions, teams, and departments Functional the most widely used and accepted form
design

Place design

establishing an organizations primary units geographically All functional group for one geographic area are in one location the establishment of self-contained units, each capable of developing, producing, marketing, and distributing its own goods and services

Product design

tasks are organized by division on the basis of the product or geographic market in which the goods or services are sold Multidivisi
onal design

4. Contemporary organization designs

Multinational design
maintain coordination among products, functions and geographic areas produce and sell products and services in two or more countries

Network design
subcontract its operations to other firms coordinate them to accomplish specific goals
II. ORGANIZATIONAL CULTURE 1. Dynamics of organizational culture An organizational culture is a collection of unspoken rules and traditions; it reflects the shared and learned values, beliefs, and attitudes of its members. Culture influences what happens to employees within an organization. Organizational culture exists on several levels, which differ from terms of visibility and resistance to change.

Shared assumptions and philosophies the least visible, deepest level basic reliefs about reality, human nature and the way things should be done

Organizational cultural values collective beliefs, assumptions and feelings about what things are good, normal, rational and valuable

Shared behaviors more visible norms and somewhat easier to change than values

Cultural symbols the most superficial level physical objects such as words, pictures, gastures that have a particular meaning within a culture

2. Types

of

organizational

culture

Bureaucratic culture

formality, rules, standard operating procedures, and hierarchical coordination

Clan culture

traditional, loyalty, personal commitment, teamwork, selfmanagement, and social influence

Entrepreneurial culture

high levels of risk taking and creativity

Market culture

achievements of measurable and demanding goals especially in finance and market based

3. Ethical behavior and organizational culture a) Impact of culture: Organizational culture has a complex interplay of formal and informal systems that may support either ethical or unethical behavior.

Formal systems
leadership structure reward systems orientation and training programs decision making processes

Informal systems
norms heroes rituals language stories

b) Whistle Blowing is the disclosure by employees of illegal, immoral, or illegitimate organizational practices organizations that may be able to change the practice. 4. Fostering cultural diversity Diversity represents individual differences and similarities among people. There are 3 important issues about diversity:

many different dimensions

not synonymous with differences

includes all differences and similarities


However, with its benefits, cultural diversity also brings costs and concerns, including communication difficulties, intraorganizational conflict, and turnover.
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5. Socialization of new employees Organizational socialization is the process which the managers or senior employees transfers the organizations cultural values (the social knowledge and skills needed to perform organizational roles and task successfully) to the new employees. There are seven steps in socialization process:

selecting new candidate carefully

challenging early work assignments

training to develop capabilities consistent with culture

reinforcing folkore

adoption of cultural value policies

rewarding good performance

consisting role models and traits

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THE HENKEL VIETNAM PROBLEM

The company background Founded in 1876, Henkel Group takes their lead in both consumer and industrial businesses, majority in three different areas: Laundry & Home Care,

Cosmetics/Toiletries and Adhesive Technologies including well-known brands such as Persil, Schwarzkopf and Loctite.

Locations Henkel headquarter is in Dsseldorf, Germany and its subsidiaries take place more than 75 different countries throughout the world.

Europe North America Latin America Asia-Pacific Africa & Middle East

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Henkel in Vietnam National Starch brand was completely changed into Henkel throughout the world in late April 2008. Henkel Dongsung Vietnam Co. Ltd., Dong Nai | Adhesives and National Starch & Chemical Vietnam Co. Ltd., Binh Duong | Adhesives are two of those companies which had changed from ICI to Henkel, placed in Vietnam. In addition with the time pressure pushing the change in structure from ICI Group to Henkel Group, the Globalize structure of Henkel seem has some problems when applying in Vietnam, especially for Henkel Dongsung Vietnam Co. Ltd., The Organization Chart of ICI as follow:

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And the standard structure of Henkel Group in Head office and other majority subsidies as follow:

These charts take the same standard structure as a pyramid with Board of Management will the one who control over the structure. For this reason, the merging process of ICI and Henkel will have no further obstacles in structuring as well as humanity, in theory. But in reality, many problems occur related to structure changing and humanity difficulties.

Lets go for the detail of Henkel Dongsung Vietnam Co. Ltd., which placed in Bien Hoa, Dong Nai province. As every subsidiaries of Henkel around the world, when merging to Henkel Group, most of the old staff in Dongsung was kept and play another position due to the changing in organization chart because of the tide time line of merging (in reality just takes around 1 year to complete the process), that cause many problems due to the changing in company culture will effect a lot to the old staff who already get used to ICI culture for a long time. They may not adapt to the new requirement of Henkel just in a short period of time and finish their new task in new way of reporting.
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In addition, the chart of small subsidiaries will follow the straight-structure, which was set up to supporting for reporting task (that can be seen as a majority task of small subsidiaries) shows the huge dependent on humanity. There are five main

departments in Dongsung Vietnam: Finance, IT, HR, Manufacturing and Sales Department. Each department was set with the main purpose is directly report their required information to their own department in overseas. The structure can be illustrated by this chart in every department:

Staff in Finance

Supervisor of Finance Dept

Finance Manager

Finance Regional Manager

Headquarter

The fact shows that this kind of organization chart gives Henkel success in many countries such as European countries and other developed countries. The big question was raised, why this chart is not work in Vietnam?

Besides of the rushing in merging process, the answers include two parts: human difficulties and management difficulties.

What is the role of employee in this structure? Straight-structure relies mostly on the individuals who have full awareness and responsibility of their work. The reporting systems in Henkel require a lot of information, figures, forecasting and analysis, which require a lot from the employees who not only have an ability to work as an individual but also a skill to work as a team, to cooperate with others in company. As soon as all the staffs had a same goal as their company, this structure is the best structure that the Headquarter can apply to their subsidiaries overseas.

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Back to Dongsung Vietnams case. Vietnam is a developing country; the main purpose of what people works for is to earn money for their basic needs like foods, water, clothes, houses, etc. So the awareness of Vietnamese employee is not as high as European countries or others developed countries. Furthermore, the culture of Vietnamese people, that extremely different from Western style, has to be considered in this structure. Vietnamese team seems very close to each other in one group but not connect with others groups, although they are in one company. This structure requires a lot from individuals in each department have ability to work separately because the reports have directly send to their Regional Manager overseas, but they also have to connect with others departments not only for their reports but also for achieving the companys goal. The first problem occur when many reports require information from others departments such as sales reports need forecast information in finance team, HR team; or finance reports need supporting figures from manufacturing team, etc. but because of each head of department has same position in company so that their staff will follow the same idea, in their mind they think their position is the same with others department staff, as the result, every staff in different department refuse to cooperate with each other, leading to miss the reports deadline or wrong forecasting in figures.

The rest of the question is what is the role of the manager who directly supporting their staff to meet the company goal? On straight-structure, there is no General Director as subsidiary level, the one that is the head of the subsidiary and guides the company in general and connects all the departments together, because this kind of structure relies on individuals so that every employee has his or her own responsibility, no need any one for reviewing or pushing behind. But this not works for Vietnameses culture. Vietnameses staff still works for their basic needs so they may not have enough skill to work for the company as a responsible individual without guiding and reviewing of another person. The fact in Dongsung Vietnam shows that most of the time department manager has to handle his or her staff and completes his or her own task, so he or she has no time for connecting with others departments for company goals.

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Furthermore, straight-structure locates managers of each department through the same scale of level, so no one would get the full responsibility when things happen to the company. A real case happened in Dongsung Vietnam in year 2009, when the company had a full stock take in December 2009 with Auditor, they find out the big lost in inventory. Finance was the one who reconcile the stock take figures with the system and found out the lost, they raised the question to manufacturing department, who take responsibility of the inventory in warehouse. Manufacturing manager claimed that the old warehouse keeper was the one who take this responsibility but he resigned last 2 months and now no one can contact with him. He also claimed the purchasing department about the daily stock in and out report and finance department for the reconciling the different between real stocks and accounting system. Purchasing department give their argument about the wrongly counted of warehouse when goods delivered. No one takes full responsibility but claimed other departments and nothing was done during 6 more months. In the end, after getting lot meetings with others parties overseas, the internal auditors of Headquarter were involved to investigate the case and find out the solution.

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ANALYSIS AND SOLUTION

We will look at Henkel Vietnam side-by-side with a Vietnamese company, CNC APTECH. It is doing business in education and training industry and has three training centers. By doing so, we will understand how Vietnamese doing business in Vietnamese way. And that helps us somewhat understand the Vietnamese culture in working place. The comparison is meant to shed some light to our analysis and generate alternatives rather than judge which one is better. A good start is half success Apparently, the problem, if any, could be attributable to both the event of merging and culture differences. On the one hand, the hasty merge created discrepancy between the organizations and employees expectations. The company expects its new employees to adapt smoothly to the new structure while the employees expect their new employer to keep the same structure or change just a little bit. On the other hand, the differences between Vietnamese and European, in particular German, cultures contribute vastly to the problem. As a matter of fact, both ICI (the former owner) and Henkel (the new owner) have somewhat the same kind of structure, i.e. the product-based division. However, the cultural aspect could pose a serious resistance. In this case, the company may need to give some orientation training to the employees, who could be seen as newlyrecruited employees. This kind of training will give the employees a clear view of the companys expectations, organizational structure as well as management style. When employees are fully aware of what and how they are expected to perform and what kind of working environment they are in, they would adapt much better. This orientation process cannot be overestimated. In CNC APTECH, for every new employee, the CEO spends lots of time talking to him/her about the company, both in and after the selection process. Because he also is the founder of the company, the conversation could be quite personal but the new people can comprehend the true soul of the company. His ambition is the companys vision; his personality dictates how things should be done. Officially, there is no such thing as orientation training in CNC APTECH, but in every sense it does exist. That is an invaluable practice that
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almost applicable only to SMBs. The process requires a true leader, not just a manager, to guide people through the core values of the company. It may sound ambiguous but the result would be a clear understanding of what the company expects from the employees. Unless all or most of these expectations are made clear, it is pretty hard for employees to perform at their best regardless organizational structure, culture, etc. For such a large corporation as Henkel, although it is impossible for new people to have a personal guidance from the very top positions, it has advantage of a wellorganized, full-fledged HR department. Hence instead of an informal, personal guidance, a systematic, well-prepared process could be used to help new employees have an internal look of the organization. It is quite ironic that CNC APTECH does not even have a dedicated HR unit. Actually, it is a common practice for Vietnamese SMB. In CNC APTECH, the head of each center takes the main responsibility in the recruitment process. However, the CEO himself involves deeply in the process to make sure the new people are his type. Henkel Vietnam did not have such luxury because it took over the whole workforce of ICI. Therefore, the Vietnamese HR team should have worked closely with their counterparts from Henkel global to make sure those people fit well into their new organization. A good start is half success. Regardless its structure or culture, an organization should always give its new employees appropriate orientation training. In fact, this aspect could also be seen in the light of cultural differences. Most Vietnamese employees are used to autocratic management style and therefore are unlikely to change the way they do things unless instructed to do so. In other word, they find it hard to self-adapt. A strong leadership and significant involvement of the Henkels international HR team are essential. Mutually destructive assurance One thing stands out clearly when we look at Henkel Vietnam. That is its functional departmentalization. This kind of structure probably is one of the very first kinds of departmentalization, and it is still very popular in Vietnam. Vietnamese employees are used to it, and they stick to it very well. The problem is functional division is also
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notorious for creating oases within the company. One may argue that other kinds of division were born only because someone tried to bring down the invisible walls among specialized departments. The negative side of functional division is magnified in Vietnam. One can see that while German value discipline, personal responsibility, and end results, Vietnamese value just-doing-my-work mentality. This attitude could be traced back to a long period of centralized and planned economy, where the quality of the final result is not a concern, everyone were just trying to finish the planned tasked, quantity ruled and quality suffered. In addition, Vietnamese usually are not expected and encouraged to break away from the assigned duty. Hence, there is no need to concern about others work and result. Furthermore, Vietnamese culture is heavily influenced by clan and tribe mentality although it may not be very visible. Throughout her history, unless there were imminent and prominent danger of invasion and extinction (as a nation) from outsiders, Vietnam in general has suffered from fragmentation and struggling among groups of different areas, families, classes and so on. This applies to working places also, and it makes the matter of functional division even worse. Somehow the negative aspects of functional division and Vietnamese culture fit perfectly. This mutual interaction is proved to be so much destructive to Henkel Vietnam. In CNC APTECH, the structure is basically geographic. The three centers compose the backbone of its organizational structure. Each one has its functional staff and the center head is only second to the CEO. In addition, the company culture is highly sales-oriented. Each center has a clear and strict sales target, and everyone has his/her target also. That forces each individual do whatever it may take to achieve the assigned targets. Each employee is responsible for their result to the center heads, and center heads, in turn, take full responsibility to the CEO. Headless Chicken Little A common goal for everyone, or lack of it, is a serious problem for Henkel Vietnam when there is no one to be in charge of the whole organization here. It is not a problem of management but leadership. It is because assigning targets is easy; the oversea Regional manager could do that without much difficulty. On the other hand,
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keeping them from losing sights of the targets, and pushing them toward targets are hard. It requires strong leadership. It is easy to see the lack of a top manager in Henkel Vietnam who looks after all units in the company. But more than that is the lack of true leadership. While it is obvious that leadership is essential anywhere, it is especially indispensable in such country as Vietnam, where collectivism rules. People are basically afraid of taking personal responsibility and require a very strong leader to keep everything from losing track and falling apart. It may sound contradictory, but collectivism leads to dire need of a leading individual; and its highest form is personality cult, which is common throughout the history of countries with collectivism. Hence the thorough cure for the problem is to get rid of the current structure completely. A product-based structure should be adopted. Of course it would not be easy. Another way around is to make the structure less rigid using job rotation, job enrichment, mutual training, enhancing communication. However, regardless of what is done to the structure, there must be a top executive for the whole nationwide operation. And the head of each department must be responsible to that person, more than to the over functional managers. The basic problem here is leadership and common goal, or lack of them. Dual-boss is better than no boss at all. In sum, there are three problems that keep haunting Henkel Vietnam. The first is the absence of orientation training and all the haste from the merging process. The second one has to do with the fact that the negative aspects of the functional division match pretty well with some Vietnamese cultural values. And finally, the biggest problem is the lack of true leadership. In order to solve the problem, we should set the courses of action that have the priorities in reversed order of that list above, i.e. solving the leadership problem first, then the structure, and so on.

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CONCLUSION

To find out carefully about the company culture is very important in organize its structural model, especially when it is set up overseas. As we had known, company culture evolves and changes over time. When employees leave the company and replacements are hired, the company culture will change. Or when the environment in which the company operates (the laws, regulations, business climate, etc.) changes, the company culture will also change. These changes may be positive, or they may not. So how can you know these changes are good or bad? It also depends on the way how the executive managers manage their company. Besides knowing culture of the country where you establish the company, you have to know inside your internal structure and what happen around like listen to your employees, your suppliers, and your customer. Decide what you want the company culture look like in the future by set up its own strategic goals, which model should apply best to your company structure.

Having said that, one must not forget that human factor still is the decisive one. In this case, it is the leadership. At the end of the day, structure is just a product of human beings. The mutual interaction among structure, culture and leadership must be understood clearly in order to ensure the success of one business.

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