IBM/U3 Topic 1 Structure of Global Organization
#1 Expo-documents against acceptancert Department:
Exports are often looked after by a company’s marketing or sales department in the initial stages when the volume of exports sales is low. However, with increase in exports turnover, an independent exports department is often setup and separated from domestic marketing, as shown in Fig. 17.2
Exports activities are controlled by a company’s home-based office through a designated head of export department, i.e. Vice President, Director, or Manager (Exports). The role of the HR department is primarily confined to planning and recruiting staff for exports, training and development, and compensation.
Sometimes, some HR activities, such as recruiting foreign sales or agency personnel are carried out by the exports or marketing department with or without consultation with the HR department.
#2 International Division Structure:
As the foreign operations of a company grow, businesses often realize the overseas growth opportunities and an independent international division is created which handles all of a company’s international operations (Fig. 17.3). The head of international division, who directly reports to the chief executive officer, coordinates and monitors all foreign activities.
The in-charge of subsidiaries reports to the head of the international division. Some parallel but less formal reporting also takes place directly to various functional heads at the corporate headquarters.
The corporate human resource department coordinates and implements staffing, expatriate management, and training and development at the corporate level for international assignments. Further, it also interacts with the HR divisions of individual subsidiaries.
The international structure ensures the attention of the top management towards developing a holistic and unified approach to international operations. Such a structure facilitates cross-product and cross-geographic co-ordination, and reduces resource duplication.
Although an international structure provides much greater autonomy in decision-making, it is often used during the early stages of internationalization with relatively low ratio of foreign to domestic sales, and limited foreign product and geographic diversity.
#3 Global Organizational Structures:
Rise in a company’s overseas operations necessitates integration of its activities across the world and building up a worldwide organizational structure.
While conceptualizing organizational structure, the internationalizing firm often has to resolve the following conflicting issues:
- Extent or type of control exerted by the parent company headquarters over subsidiaries
- Extent of autonomy in making key decisions to be provided by the parent company headquarters to subsidiaries (centralization vs. decentralization)
It leads to re-organization and amalgamation of hitherto fragmented organizational interests into a globally integrated organizational structure which may either be based on functional, geographic, or product divisions. Depending upon the firm strategy and demands of the external business environment, it may further be graduated to a global matrix or trans-national network structure.
Global Functional Division Structure:
It aims to focus the attention of key functions of a firm, as shown in Fig. 17.4, wherein each functional department or division is responsible for its activities around the world. For instance, the operations department controls and monitors all production and operational activities; similarly, marketing, finance, and human resource divisions co-ordinate and control their respective activities across the world.
Such an organizational structure takes advantage of the expertise of each functional division and facilitates centralized control. MNEs with narrow and integrated product lines, such as Caterpillar, usually adopt the functional organizational structure.
Such organizational structures were also adopted by automobile MNEs but have now been replaced by geographic and product structures during recent years due to their global expansion.
The Major Advantages of global functional division structure include:
- Greater emphasis on functional expertise
- Relatively lean managerial staff
- High level of centralized control
- Higher international orientation of all functional managers
The Disadvantages of such divisional structure include:
- Difficulty in cross-functional coordination
- Challenge in managing multiple product lines due to separation of operations and marketing in different departments
- Since only the chief executive officer is responsible for profits, such a structure is favoured only when centralized coordination and control of various activities is required.
Global product structure:
Under global product structure, the corporate product division, as depicted in Fig. 17.5, is given worldwide responsibility for the product growth.
The heads of product divisions do receive internal functional support associated with the product from all other divisions, such as operations, finance, marketing, and human resources. They also enjoy considerable autonomy with authority to take important decisions and operate as profit centres.
The global product structure is effective in managing diversified product lines.
Such a structure is extremely effective in carrying out product modifications so as to meet rapidly changing customer needs in diverse markets. It enables close coordination between the technological and marketing aspects of various markets in view of the differences in product life cycles in these markets, for instance, in case of consumer electronics, such as TV, music players, etc.
However, creating exclusive product divisions tends to replicate various functional activities and multiplicity of staff. Besides, little attention is paid to worldwide market demand and strategy. Lack of cooperation among various product lines may also result into sales loss. Product managers often pursue currently attractive markets neglecting those with better long-term potential.
Global Geographic Structure:
Under the global geographic structure, a firm’s global operations are organized on the basis of geographic regions, as depicted in Fig. 17.6. It is generally used by companies with mature businesses and narrow product lines. It allows the independent heads of various geographical subsidiaries to focus on the local market requirements, monitor environmental changes, and respond quickly and effectively.
The corporate headquarter is responsible for transferring excess resources from one country to another, as and when required. The corporate human resource division also coordinates and provides synergy to achieve company’s overall strategic goals between various subsidiaries based in different countries.
Such structure is effective when the product lines are not too diverse and resources can be shared. Under such organizational structure, subsidiaries in each country are deeply embedded with nationalistic biases that prohibit them from cooperating among each other.
Global Matrix Structure:
It is an integrated organizational structure, which super-imposes on each other more than one dimension. The global matrix structure might consist of product divisions intersecting with various geographical areas or functional divisions (Fig. 17.7). Unlike functional, geographical, or product division structures, the matrix structure shares joint control over firm’s various functional activities.
Such an integrated organizational structure facilitates greater interaction and flow of information throughout the organization. Since the matrix structure has an in-built concept of interaction between intersecting perspectives, it tends to balance the MNE’s prospective, taking cross-functional aspects into consideration.
It facilitates ease of technology transfer to foreign operations and of new products to different markets leading to higher economies of scale and better foreign sales performance. Matrix structure is used successfully by a large number of MNEs, such as Royal Dutch/Shell, Dow Chemical, etc.
In an effort to bring together divergent perspectives within the organization, the matrix structure may also lead to conflicting situations. It inhibits a firm’s ability to respond quickly to environmental changes in case an effective conflict resolution mechanism is not in place.
Since the structure requires most managers to report to two or multiple bosses, Fayol’s basic principle of unity of command is violated and conflicting directives from multiple authorities may compel employees to compromise with sub-optimal alternatives so as to avoid conflict which may not be the most appropriate strategy for an organization as a whole.
Transnational Network Structure:
Such a globally integrated structure represents the ultimate form of an earth-spanning organization, which eliminates the meaning of two or three matrix dimensions. It encompasses elements of function, product, and geographic designs while relying upon a network arrangement to link worldwide subsidiaries (Fig. 17.8).
This form of organization is not defined by its formal structure but by how its processes are linked with each other, which may be characterized by an overall integrated system of various inter-related sub-systems.
The trans-national network structure is designed around ‘nodes’, which are the units responsible for coordinating with product, functional and geographic aspects of an MNE. Thus, trans-national network structures build-up multidimensional organizations which are fully networked.
The conceptual framework of a trans-national network structure primarily consists of three components:
These are subsidiaries located anywhere in the world where they can benefit the organization either to take advantage of low-factor costs or provide information on new technologies or market trends
These are the activities carried out by sub-units focusing upon particular product lines, research areas, and marketing areas design to tap specialized expertise or other resources in the company’s worldwide subsidiaries.
It is used to share information and resources throughout the dispersed and specialized subsidiaries.
Organizational structure of N.V. Philips which operates in more than 50 countries with diverse range of product lines provides a good illustration of a trans-national network structure.
#4 Evolution of Global Organizational Structures:
Organizational structures often exhibit evolutionary patterns, as shown in Fig. 17.9, depending upon their strategic globalization. The historical evolution of organizational patterns indicates that in the early phase of internationalization, most firms separate their exports departments from domestic marketing or have separate international divisions.
Companies with emphasis on global business strategies move towards global product structures whereas those with emphasis on location base strategies move towards global geographic structures.
Subsequently, a large number of companies graduate to a matrix or trans-national network structure due to dual demands of local adaptations pressures and globalization. In practice, most companies hardly adopt either pure matrix or trans-national structures; rather they opt for hybrid structures incorporating both.