Though global organizational structures tend to depict certain kind of rigidity, structure tends to change and new trends emerge.
Mixed Nature of Structures
Because of growth dynamics, companies change their organizational structures. Simplified organizational structures get replaced by complex or mixed structures. Until organizational re-structuring is made, new acquisitions might report to headquarters. Circumstances prevailing in a particular country, product, or function might necessitate separate handling until a re-structuring is effected, apart from the overall structure. The structure of 100% subsidiaries is different from that of JVs. 100% subsidiaries enable a deeper network of communications. Overall structure may be incomplete and less revealing. PepsiCo is organized by product lines, namely soft drinks and snacks. This would seem to imply that each product line is integrated globally. However, each line has its own global division, which separates it from domestic operations.
Structures Evolve to Suit Growth and Need
A company that only exports can afford just with an export department attached to a product or functional division. You may note departments are sub-divisional. But if global operations continue to grow and off-shore production is felt needed export department may no longer be sufficient. A global division replaces the department. In due course global division gives way for geographic divisions. Later with sustained growth, geographic divisions goes off, matrix structures come up.
Above figure gives the change from global division to other forms as MNEs grow in size, stature, complexity and the like. The need and opportunities for being globalized and localized are the two opposite forces. Ultimately a matured Multinational Enterprise (MNE) will blossom into a Transnational Corporation (TNC). There are two alternative routes. From overtly localized structures it may pull itself up to become a TNC structured. Else, from an overtly globalized structure it may bend itself down a little to become a TNC structured as depicted in the figure. There is the golden mean route that traverses in upward slope diagonally taking Matrix structure, MNC structure, Global company structure and finally TNC structure.
How to Design the Structure Fit to Globalization?
To meet the need of globalization, the top managers must design the organization’s structure which is adaptive with the changing environment. Firstly, we should understand the meaning and purpose of organizational structure which formally determines the hierarchy within an organization. There are three most common structural types among global organizations are: Functional structure, Divisional structure and Global matrix structures.
Functional structure groups people together into functional departments such as marketing, finance, R&D, operations etc. Functional structures are the most common organizational model are used domestically.
Divisional Structure is broken down into some sub-types: global product division structure and global geographic division structure.
The product division takes responsibility for global operations in their specific product area in global product structure. It provides a fairly straightforward way to effectively manage a variety of businesses and products around the world. And each division’s manager is responsible for planning, organizing, and controlling all functions for the production and distribution of its products for any market in the world. The global product structure is great for standardizing production and sales but it also has some problems such as the product divisions do not work well together, competing instead of cooperating in some countries; and some countries may be ignored by product managers.
The global geographic structure groups people together based on specific geographic location. Each geographic division reports to the CEO and has full control of functional activities within its geographic area. To apply geographic structure, the organization must be large with mature product lines and stable technologies. This structure suits to organizations that use multi-domestic strategy. This means that products and services will be successful if they are tailored to local needs and cultures. For example, Nestle uses a geographic structure to focus on the local needs and competition in each country. Other example is IBM; they are creating new regional division for developing markets such as the Middle East, Asia, the Americas, Africa, and Eastern Europe. IBM tailors software and services to meet the needs of these emerging and fast-growing information technology markets.
The global matrix structure groups people by both of product division and geographic division. This structure works best when the pressure for decision making balances the interests of both product standardization and geographic localization and when coordination to share resources is important. Global matrix structure is the most complex of the different organizational structures. There are many international firms such as ABB, Colgate, IBM and Nestle which are using a global hybrid or mixed structure.
Finding the right structure for organization that works best for particular company is very important. If using the wrong structure, organization will have the poor communication, poor product development, poor customer service and a lot of other problems.