Organizational location comes in many flavors. One of the most widely used among larger organizations is a geographic organizational location. A form of top-down organizational location, a single executive division may preside over manufacturing, sales and service divisions located all over the world.
There is no single “best” organizational location for business organizations, although there’s almost certainly one or more location that will work well for your business, as well as others that aren’t a good fit.
Also, as communication has sped up, with the advent of digital communication, the location that might have worked best 20 or 30 years ago, may no longer be the best location for your organization today. In response to these changes, some firms now have multi-layered structural organizations: a geographical organizational location overall, with matrix organizational location within each division.
Geographic organizational location are often well-suited for very large entities, such as automobile manufacturers, who need to locate production facilities in which labor costs are favorable and supplies readily available, but also need support organizations for dealerships that are located everywhere the company’s autos are sold.
In some instances, smaller organizations can benefit from geographic organizational structuring: a small surfboard manufacturer, for example, might have its manufacturing facility in one beach town – perhaps the hometown of the founder – but retail stores in areas where there’s a lot of surfboarding, such as Hawaii, Southern California and Australia.
The Advantages of Geographic Organizational Location
In both of the above examples, a geographic organizational location was necessary in order to meet each company’s need for one or more manufacturing facilities, and also to service far-flung divisions, territories, regions or (in the case of the surf shop) surfing enthusiasts in different parts of the world.
With geographic organizational location, it’s usually not so much that the company has chosen this location over other possible choices because of its inherent advantages. It’s more likely that it’s the only location that fulfills the company’s basic needs. Some disadvantages inherent in the location may remain, and will have to be dealt with.
The Disadvantages of Geographic Organizational Location
Geographic organizational location work best with strong leadership in a company, in which management and employees share a vision. Daimler AG, for instance, has its headquarters in Stuttgart, Germany, and has manufacturing facilities in several European locations, and has sales divisions all over the world. Nevertheless, despite the enterprise being broadly distributed, the strength of the brand, which originates with Mercedes-Benz and its commitment to quality and luxury products, has enabled the company to operate these far-flung divisions, with relative consensus and a shared sense of mission.
If these qualities – strong leadership, brand identification and a well-understood mission – aren’t predominant, a geographically organized company can suffer. When Chrysler and Fiat merged, for example, the problems with geographical location became apparent. The merged company has its headquarters in London for tax purposes; it has manufacturing in several countries; and, it has internal disagreement between Italian leadership and American sales divisions. There is little sense of a shared mission.
The Chrysler Fiat Example
In several American cities, Fiat and Alpha Romeo sales have little connection with one another, physically or psychologically, and both are located blocks away from Dodge Jeep Chrysler sales. Although the formal organizational location requires American middle-management to oversee all three divisions, long-time Dodge Jeep Chrysler employees, who are used to selling Dodge Ram trucks, macho-looking Jeeps and other larger vehicles, are generally uninterested in Fiats and Alphas.
As a result, although on paper it would seem that the Fiat 500e, a sassy little all-electric vehicle, is highly salable, sales have been dismal. In a month when the company sold 27,000 cars with the Dodge brand, they sold far less than 1,000 Fiats in the U.S. and just a handful in Canada. It’s rumored that the Fiat 500e will be discontinued in North America. The Alpha is sometimes paired with a Fiat dealership, but it is often offered as a choice in a luxury car dealership that has no organizational connection to Dodge Jeep Chrysler. At times, as in Pasadena, California, the two organizations are competing for the same customer in the same geographic area.