Organizational StructuresOrganizational Structures

Learning ObjectivesLearning Objectives

factors that impact how global factors that impact how global organizations are structured and organizations are structured and managedmanaged

Types of organizational structuresTypes of organizational structures Controlling the global organizationControlling the global organization

Factors that impact structure and Factors that impact structure and decision makingdecision making

Degree of involvement in internationalDegree of involvement in international

operations.operations. Products that the firm markets.Products that the firm markets. Size and importance of the firm’s markets.Size and importance of the firm’s markets. Human resource capability of the firm.Human resource capability of the firm. Corporate goals, Strategies and objectives.Corporate goals, Strategies and objectives.

Organizational StructureOrganizational Structure Companies must change strategies as their Companies must change strategies as their

structures evolve from domestic to multinational. structures evolve from domestic to multinational.

The organizational structure, control systems, The organizational structure, control systems, culture, and human resource management culture, and human resource management systems that together determine how systems that together determine how efficiently and effectively organizational resources efficiently and effectively organizational resources are used.are used.

• All organizations require some form of All organizations require some form of organizational structure to implement and organizational structure to implement and manage their strategiesmanage their strategies

• Firms frequently alter their structure as they Firms frequently alter their structure as they grow in size and complexitygrow in size and complexity

Designing Organizational Designing Organizational StructureStructure

OrganizingOrganizing The process by which managers establish working The process by which managers establish working

relationships among employees to achieve goals.relationships among employees to achieve goals.

Organizational StructureOrganizational Structure Formal system of task and reporting relationships Formal system of task and reporting relationships

showing how workers use resources.showing how workers use resources.

Organizational designOrganizational design The process by which managers create a specific type of The process by which managers create a specific type of

organizational structure and culture so that a company organizational structure and culture so that a company can operate in the most efficient and effective waycan operate in the most efficient and effective way

Tall and Flat OrganizationsTall and Flat Organizations

Tall structures have many levels of authorityTall structures have many levels of authority As hierarchy levels increase, communication gets As hierarchy levels increase, communication gets

difficult creating delays in the time being taken to difficult creating delays in the time being taken to implement decisions.implement decisions.

Communications can also become distorted as it is Communications can also become distorted as it is repeated through the firm.repeated through the firm.

Can become expensiveCan become expensive

Flat structures have fewer levels and wide spans of control.Flat structures have fewer levels and wide spans of control. Structure results in quick communications but can lead Structure results in quick communications but can lead

to overworked managers.to overworked managers.

Tall and Flat OrganizationsTall and Flat Organizations

ProductStructure

Most often used by multinational corporations. Improved cost efficiency is a major benefit.

Geographic Structure

Second most used approach. Follows the marketing concept most closely.

Functional Structure

The simplest from the administrative viewpoint. A variation is one that uses processes as a basis for structure.

Market Structure

Especially used if customer groups are dramatically different.

Matrix Structure

Integrates the various approaches. Most companies find this arrangement problematic. Complexity of this structure may increase the reaction time of a company.

Types of Organizational StructuresTypes of Organizational Structures

Product StructureProduct Structure Allows functional managers to specialize in one product Allows functional managers to specialize in one product

areaarea Removes need for direct supervision of division by Removes need for direct supervision of division by

corporate managerscorporate managers Divisional managers have the responsibility for devising Divisional managers have the responsibility for devising

an appropriate business-level strategy to allow the an appropriate business-level strategy to allow the division to compete effectively in its industrydivision to compete effectively in its industry

Each product group is responsible for marketing, sales, Each product group is responsible for marketing, sales, planning, and (in some cases) production and research planning, and (in some cases) production and research and developmentand development

Product organizational structureProduct organizational structure

• Advantageous when product line constantly changes Advantageous when product line constantly changes with technological advanceswith technological advances

• Facilitates the development of global products and Facilitates the development of global products and global roll-outsglobal roll-outs

• Appropriate when perceived differences involved with Appropriate when perceived differences involved with marketing the various product lines are greater than marketing the various product lines are greater than perceived differences in geographic marketsperceived differences in geographic markets

• Knowledge of specific geographic areas can be limited Knowledge of specific geographic areas can be limited and sensitivity to local market conditions can be and sensitivity to local market conditions can be diminisheddiminished

Geographic organizational structuresGeographic organizational structures

Focus on regions of worldFocus on regions of world Allows company to locate marketing and manufacturing Allows company to locate marketing and manufacturing

efforts in such a way as to take advantage of regional efforts in such a way as to take advantage of regional benefitsbenefits

Puts company in closer contact with distributors, Puts company in closer contact with distributors, customers, and subsidiariescustomers, and subsidiaries

Managers locate different divisions in each of the world Managers locate different divisions in each of the world regions where the organization operates.regions where the organization operates.

Geographic organizational structuresGeographic organizational structures

• Separate unit for each GeographySeparate unit for each Geography Extremely sensitive to local customs, laws, and needsExtremely sensitive to local customs, laws, and needs Expensive!!!Expensive!!! Many companies are phasing out country-based Many companies are phasing out country-based

structures and are moving toward regional centersstructures and are moving toward regional centers

• Appropriate when company needs intimate knowledge Appropriate when company needs intimate knowledge of its customers and their environmentsof its customers and their environments

• Gives company opportunity to understand the local Gives company opportunity to understand the local culture, economy, politics, laws, and competitive culture, economy, politics, laws, and competitive situationsituation

Functional organizational structuresFunctional organizational structures

• Top executives in marketing, finance, Top executives in marketing, finance, production, accounting, and research and production, accounting, and research and development all have worldwide development all have worldwide responsibilitiesresponsibilities

• Best for narrow or homogeneous product Best for narrow or homogeneous product lines with little variation between products lines with little variation between products or geographic marketsor geographic markets

Market StructureMarket Structure

• Groups divisions according to the particular kinds of Groups divisions according to the particular kinds of customers they servecustomers they serve

• Allows managers to be responsive to the needs of their Allows managers to be responsive to the needs of their customers and act flexibly in making decisions in customers and act flexibly in making decisions in response to customers’ changing needsresponse to customers’ changing needs

Matrix StructureMatrix Structure

• An organizational structure that simultaneously groups An organizational structure that simultaneously groups people and resources by function and product.people and resources by function and product.

Results in a complex network of superior-subordinate Results in a complex network of superior-subordinate reporting relationships.reporting relationships.

The structure is very flexible and can respond rapidly The structure is very flexible and can respond rapidly to the need for change.to the need for change.

Each employee has two bosses (functional manager Each employee has two bosses (functional manager and product manager) and possibly cannot satisfy and product manager) and possibly cannot satisfy both.both.

• Developed to overcome drawbacks of geographic, Developed to overcome drawbacks of geographic, functional, and product organization structuresfunctional, and product organization structures

• Allows for two or more dimensions of theoretical weight, Allows for two or more dimensions of theoretical weight, e.g., importance to product and geographye.g., importance to product and geography

• Complexity can cause duplication of authority, confusion Complexity can cause duplication of authority, confusion of responsibility and power struggleof responsibility and power struggle

Matrix StructureMatrix Structure

Controlling the Global OrganizationControlling the Global Organization

1.1.Developing standardsDeveloping standards Behavioral standardsBehavioral standards Performance standardsPerformance standards

2.2.Measuring and evaluating performanceMeasuring and evaluating performance

3.3.Analyzing and correcting deviations from Analyzing and correcting deviations from the standardsthe standards

4. Effective communication systems 4. Effective communication systems facilitate controlfacilitate control

Post-ClassPost-Class ActivityActivity

Why organizational issues for born-global Why organizational issues for born-global firms differ from those for traditional firms differ from those for traditional multinational companies.multinational companies.

Give examples of how technology can be Give examples of how technology can be utilized to support internal global utilized to support internal global communications systems.communications systems.

Discuss the conflicts that can arise Discuss the conflicts that can arise between international headquarters and between international headquarters and national subsidiaries.national subsidiaries.

Global account management.Global account management. Transnational network structure.Transnational network structure.