THE ORGANIZATIONAL STRUCTURE OF A MULTINATIONAL
FIRM
A "global structure" is the organizational structure of a multinational
company that embodies the "global" philosophy, according to which the
world is essentially one homogeneous market. For instance, many large
electronics and consulting firms, with the exception of small local
language and packaging changes, essentially project the same kinds of
goods and services globally. There are, nonetheless, a number of
philosophies and terminologies used differently in this discipline.
First, seeing the whole globe as a single, essentially homogeneous market
with shared interests and preferences is a hallmark of a "global" mentality.
This is the antithesis of the "multi-domestic" (also known as multi-
national, multi-local, or multi-national) ideology, which holds that there
are several, essentially separate marketplaces in the globe, each with its
own preferences and tastes. A place in between The belief that the globe
is composed of a limited number of relatively homogeneous areas is
known as regionalism, and it lies between these two extremes. These
concepts are applicable to businesses, organizations, and industries; it is
useful to know how they function at the strategic and industry levels of
global thinking.
George Yip, for instance, believes that the degree to which the global
marketplace is fragmented, local consumer wants are unique, local
sourcing imperatives exist, prices are diverse, and trade restrictions are
important for cross-border commerce, all contribute to the phenomenon of
globalization. Thus, while retail, the food industry, and the majority of
services are regarded as largely multidomestic, Randall Schuler, Peter
Dowling, Helen De Cieri, and other academics refer to certain industries—
such as commercial aircraft, copiers, generic drugs, most electronics, and
computer hardware—as global industries.
Multinational corporations, as well as other large businesses, often have
many departments, divisions, or units that each represent a different facet
of their business strategy. Alfred DuPont Chandler's seminal work,
Strategy and Structure, established the renowned connection between
structure and strategy. For instance, a company with five product
categories may have been divided into five divisions, each of which would
have been responsible for overseeing a different category. Based on this
logic, Chris Bartlett and Sumantra Ghoshal describe four organizational
types (or mentalities) for the global organization that represent
organizational and strategic responses to various industry contingencies.
Their focus is on organizational responses to both local and global forces.
They explain, for instance, the global company that sees the entire world
as its market, presumes that national preferences are more alike than
different, and believes in standardized goods. These strategic approaches
necessitate the use of structural integrative mechanisms to coordinate
global operations, marketing, production, R&D, and planning.
Therefore, the phrase "global structure" implies various structural
processes. Mechanisms: Every major organization need some kind of
coordination and integration structure. There are three main components
to this kind of organization, however, since the global strategy depends on
them for execution. The strategic responsibility locus is the first. Secondly,
the way the structure divides the company and establishes reporting ties.
We might refer to this component of structure as structuring. The last
factor to consider is the various forms of integration and coordination
systems, often referred to as processes.
Locus of strategic responsibility: The degree to which decision-making
authority is transferred from corporate headquarters to various business
divisions is a critical component of organizational structure. Centralizing
key strategic decisions is a strategic need for multinational firms.
Examples of choices that are often taken at the corporate level as
opposed to subsidiary level are those on product range, R&D, branding,
and human resource management. Major company rules and standards
may even apply to customer service, the department most likely to be
placed closest to the consumer. Structuring: The global structure is
characterized by its relative blindness to physical distance, focusing
instead on one or more other strategic aspects, such as markets or goods,
that it deems more crucial to its ability to successfully execute a global
strategy than geography.
As a result, a global structure often consists of a significant top-level
divide into markets (referred to as a worldwide market structure), product
categories (referred to as a global product structure), or some kind of
matrix (global matrix structure). Procter & Gamble (P and G) has three
global product divisions: Global Beauty, Global Household Care, and
Global Health and Well-Being. These divisions provide as an example of a
global product structure. The line between product and market structures,
however, is likely to become more hazy. For instance, although Boeing's
business units—commercial airplanes, integrated defense systems, and
Boeing Capital Corporation—seem to be distinct product divisions, all
three actually aim to market different aircraft and aerospace products and
services to distinct market groups—commercial airlines, governments, and
financial intermediaries, in this case.
The global matrix structure makes an effort to group operations according
to two or more management factors, such as market, location, or product.
Take H. as an example. In addition to having distinct operations for retail
and food service channels, J. Heinz has multiple product categories,
including ketchup/condiments/sauces, meals and snacks (including frozen
foods), soups/beans and pasta, and infant feeding. Geographic divisions
include North America, Europe, Australia/New Zealand, and emerging
markets (selected countries in Asia and Eastern Europe). Although these
different departmental and corporate divisions in a global organization
may have critical local emphasis points, their primary function is to
collaborate in executing the company's global plan.
Processes: Lastly, and maybe most significantly, structure involves
processes like information systems, integration, and coordination. These
procedures are often very prevalent in modern businesses and have a
tendency to be prominent in the global structure. Four generic integrating
mechanisms are identified by Kwangsoo Kim and Jong-Hun Park: (1)
people-based integrating mechanisms, which employ people to coordinate
business operations across borders through the transfer of managers,
meetings, teams, committees, and integrators; (2) information-based
integrating mechanisms, which use information systems like databases,
email, the Internet, intranet, and electronic data interchanges to integrate
business operations across borders; (3) formalization-based integrating
mechanisms, which depend on the application of uniform or standardized
work procedures, rules, policies, and manuals across units; and (4)
centralization-based integrating mechanisms, which maintain decision-
making authority at corporate headquarters—a notion akin to that in the
"locus of strategic responsibility."
The more these procedures are used by the company, the more global it
is. For instance, Intel uses a number of cross-functional teams, such as
those for information technology (IT), knowledge management, human
resources, finance, legal, change control, data warehousing, common
directory information management, and cost reduction teams, as well as a
relatively small number of formal structural mechanisms. These teams
enable Intel to quickly adapt to changing conditions. Additionally,
integrating methods may have unanticipated regulatory hurdles that
impede effective decision-making, tie local managers' hands, and impose
compliance costs in the form of time and other resources. For instance, a
research by David Brock and Ilene Siscovick discovered that integrative
variables often had detrimental impacts at the subsidiary level.
UPDATED INTERNATIONAL MNE STRUCTURE
A person with a sluggish, slow-moving stride usually strikes others as less
confident and authoritative than someone who walks with proper posture.
Similarly, the organisational structure of the firm might influence its future
development prospects.
The globe has undergone significant transformation. These days, the key
to success is being globally competitive. Many businesses have undergone
a continuum of transition as a result of the collapse of international trade
barriers and the emergence of a new global economy: from being
international, which emphasizes an export-import orientation, to being
multinational, which has significant operations abroad focused on
particular, relatively protected markets, to being global, which views the
entire world as a market. The era of the new, integrated global economy
has arrived.
Three organizational frameworks exist.
1.Multi-local: There is little intervention from the headquarters and
complete autonomy granted to the abroad affiliates. Organizations that
need to adapt quickly to market changes, have high levels of
customization, and flexibility should choose this structure. Retail, auditing,
consultancy, and other related sectors are a few examples of companies
that need these kinds of organizations. The drawbacks include poor cost
efficiency and needless duplications. However, speed and flexibility are
traded off for economies of scale and duplications in businesses that need
ground knowledge.
2.Global: Not much autonomy is granted to the affiliates abroad. All of
the important choices are made at headquarters. The heads of the finance
and sales departments of the subsidiaries report to the functional heads at
headquarters, and the organizational structure is based on functions.
Product lines and large customer accounts that report to the heads of the
respective product lines and multinational accounts are used in certain
organizations to organize activities. If global efficiency is needed, this
structure is better suited. Industries that need this kind of organization
include consumer electronics and electronic chips, among others. Due to
its highly centralized management, this organization has the drawback of
eroding local responsiveness.
3.Transnational: The transnational structure could be suitable in
particular situations when both local and global know-how are crucial. The
accomplishment of agreement serves as the primary motivator for the
matrix-based organizational structure, which is based on dual reporting.
Depending on your company's needs, you should choose an organizational
structure that will allow you to achieve your goals while also allowing for
future expansion and flexibility. The idea of "flat organization" unites the
three systems mentioned above. These days, the term "flat organization"
is overused and misinterpreted. It is a contradiction in language, an
oxymoron. Every organization with a goal must have a core of decision-
making responsibility. This is true for cooperatives, governmental
institutions, commercial businesses, and volunteer groups.
A well-designed organizational structure has the ideal number of tiers of
leadership, each of which clearly enhances the output of the others. This
covers the creation and implementation of the mission and strategy. It
gives people the room and challenge they need to succeed, keep learning,
develop, and like what they do while being paid fairly for it.
The theory makes sense. The challenge for managers is in the practical
design. What is the optimal number of vertebrae in this accountability
spine? Which are the main roles?
How are they recognized? What effect does this spine's loss of function
have? What effect will this have on the current employees' growth and
motivation? Interestingly, most firms still rely on guesswork and fashion in
this area at the start of the twenty-first century.
1.Explain what is meant by "international division."
2.By "global product/area division," what do you mean?
3.Talk in-depth about the various MNC structure kinds.
4.Compose a brief letter on:
(a) Multiple local
(b) International
(c) The structure of translation.
Overview of the Chapter
After reviewing popular methods to strategy and strategic management,
the chapter addresses various viewpoints on strategy and the crucial role
that IHRM and SHRM play in it. Three main IHRM problems are left, and
they will be important strategic considerations for the majority of
enterprises going forward.
OVERVIEW: CREATING VALUE THROUGH STRATEGIC MANAGEMENT
Organizations operating in a competitive market will always under
pressure to develop and execute strategies that provide value. The public
and not-for-profit sectors may benefit from strategic management as well
as they operate in quasi-markets, cooperate with private sector entities,
compete for resources, and are assessed based on corporate policies and
management practices. These organizations' ability to endure, develop,
and flourish is often significantly impacted by the tactics that make them
successful.
Ever since the publication of Michael Porter's seminal writings on
competitive strategy thirty years ago (1980, 1985, 1990), managers and
executives have been urged to determine how their companies may get a
competitive edge. When a company employs a value-creating strategy
that other businesses cannot match or find too expensive to replicate, it
creates a prolonged or sustainable competitive advantage. According to
Johnson et al. (2010), "maximizing the long-term cash-generating
capability of an organization" is what is meant by "managing value"
(Hanson et al., 2002). Increasing sales volume and pricing; getting rid of
unneeded assets; managing stock, debtors, and creditors effectively; and
successfully financing the company with a suitable mix of capital (debt
and equity) are the primary strategies for boosting shareholder value.
Porter (1985) listed marketing and sales, operations, outward logistics,
inbound logistics, and service as an organization's main value-creating
activities when producing any kind of product or service. His primary
theory of the value chain is that each operation should have value added
to it, or the business should think about outsourcing it to another firm that
can do it better or more efficiently.
may increase worth. HRM is reduced to supporting value-creating
activities, which Porter also classified as company infrastructure,
technological development, and procurement. His approach is sometimes
criticized for being less appropriate to the knowledge and services sectors
of the economy and more relevant to the industrial sector. Nonetheless,
the value chain and value network—inter-organizational linkages to
develop products/services—remain popular notions in the context of
competitive strategy today.
Competitive advantage and strategy, however, might present issues in
some situations where a company does not always want to succeed at the
expense of others. Because of this, achieving a distinct edge over
competitors may not be a relevant aim, even while value creation and
superior performance are important goals. This complicates strategic
management. This equivocal relationship between competitive strategy
and public-funded projects, which often benefit many stakeholders, as well
as cooperative partnerships and alliance network partners, are
widespread (Skoufa, 2004). Major stakeholders Despite these intricacies,
people matter morally. This is evident when managers act as if workers
and subcontractors are just a cost to their company. This is true regardless
of the school of strategic management one follows. Major stakeholders
include the organization and its workers, however there is disagreement
on how much their interests should be taken into account when
determining how much profit is distributed to shareholders. Through the
purchase and sale of firm shares that are traded on open stock markets,
they effectively underwrite a large portion of the risk capital of the
business. It is common knowledge that the capital markets, product
markets, and organizations comprise the three main stakeholder groups.
Lenders like banks and stockholders make up the capital markets. Primary
customers, suppliers, host communities, and unions make up product
marketplaces. Managers, staff members, and other organization members
are examples of organizational stakeholders. There are supporters and
opponents of stakeholder theory. Its supporters may be generally
categorized into two groups: those who focus on making many economic
claims, and others who go beyond and make arguments based on various
moral claims and expectations to be involved in significant choices. The
foundation of stakeholder theory is two concepts that strike a balance
between the effects of the corporate structure and the claimants' rights
inside the organization.
According to Evan and Freeman (2004), the first principle, known as
corporate effects, is that "the corporation and its managers are
responsible for the effects of their actions on others." According to Evan
and Freeman (2004), "the corporation and its managers may not violate
the legitimate rights of others to determine their own future" is the second
principle, or the concept of corporate rights (p. 79). (De Cieri and
Greenwood, 2007: 122-223)
Opponents of the idea contend that it is problematic since it is sometimes
unclear who the legitimate stakeholders are. Some even go so far as to
say that the theory detracts from the important rights and obligations that
businesses and shareholders have. The ethically exclusive nature of this
unitarist shareholder-dominated perspective ignores society's and
business's fundamental pluralist character, according to Campbell et al.
(2007), who also argue that "any intellectually and morally acceptable
approach to HRM must take account of a pluralism of partially conflicting
interests."
Figure. 8.1: The value chain of Porter
POSSIBLE MANAGEMENT
If the process is broken down into an iterative cycle of phases that are
also interactive and incorporate feedback loops, according to the "design
school" (An off, 1991) approach to strategy. These steps might be thought
of as repeating themselves in order to make things easier to grasp. For
instance, concepts about the mission, vision, intent, purpose, goals, and
objectives are the first things considered in the strategic management
process. Over time, these strategic intentions will be altered, either
completely or in part, by processes of introspection, discussion, and
analysis as well as by firsthand experience in the field and, of course, by
the outcomes of execution. During the analysis phase, these concepts are
expanded upon, revised, and refined.
After taking into account the organization's internal and external
surroundings (such as SWOT, or strengths, weaknesses, opportunities, and
threats), the strategic analysis formulates a plan of action, such as a
corporate-level, international, business-level, or cooperative strategy.
- collaborations and alliances, purchasing and restructuring). Lastly, the
plan must be put into practice (e.g., Corporate Governance,
Organizational Structure, Leadership, Coordination and Control,
Innovation, Change and Sustainability).
The goals and procedures of strategic management are often convoluted,
disorganized, and difficult in reality. Additionally interacting, these
strategy processes are conflicting and reinforce one another at the same
time. Nobody can ever accurately forecast the future, and in many cases,
individuals don't even know why they are doing the way they are or what
unexpected repercussions could arise. The messiness and unpredictability
of planning and action are addressed in Henry Mintzberg's (1990) criticism
of the design school and his suggested theory of emergent strategy. In
addition to pointing out how action and learning are often ad hoc and
even unexpected, Mintzberg offers a helpful criticism of the propensity for
strategy education to be overly
ORGANIZATIONAL, COMPARATIVE, AND STRATEGIC VIEWS OF IHRM
Both too idealistic and rationalist in its underlying presumptions.
Therefore, it's important to use strategic management tools and processes
with flexibility and avoid using them in place of learning by doing and from
others. For this reason, organizations need to promote improvisation and
experimentation (Pinnington et al., 2003). The process of scanning,
assessing, and evaluating the environment for possibilities and dangers is
known as external analysis. Tools that help comprehend various levels of
analysis are often used in this process. These may be separated into three
categories: mega, mesa, and micro. Surveys of the macroenvironment
often make use of PESTEL (Political, Economic, Social, Technological,
Environmental, and Legislative) techniques. Next, there are tools for the
corporate level, which are usually frameworks like Porter's (1985) Five
Forces analysis (Threat of New Entrants, Power of Buyers, Power of
Suppliers, Threat of Substitutes, Competitive Rivalry within the Industry)
to evaluate industry rivalry. Lastly, there are micro-level factors that
pertain to the nearby surroundings and ongoing business contacts with
rival companies (evaluated using competitor analysis tools).
An internal analysis looks at the organization's strengths and
shortcomings in comparison to its real and prospective rivals, both present
and future. It also scans, assesses, and evaluates the surroundings. The
idea of internal resources (Penrose, 1959) attracted more attention in the
1980s and 1990s, which aided in the creation of the Resource Based View
of the Firm (Barney, 1991). As a result, academics and practitioners have
access to a greater variety of tools and frameworks. Evaluating the
organization's internal environment in terms of its resources,
competencies, and core competencies is a common method (Kamoche,
1996; Hamel and Prahalad, 1994).
Financial, physical, human, organizational, and reputational components
are all included in an audit of resources. In some industries, like the
automobile assembly industry, the cost of human resources accounts for a
small portion of total costs when compared to physical plant, machinery,
and parts. In contrast, even though information technology budgets can
reach the millions, human resources constitute a major cost in knowledge-
intensive businesses like consultancies and law firms. The possibility of
the firm's resources for competitive advantage has gained recognition
among strategy practitioners and scholars in the wake of the services and
knowledge sectors' increasing importance in relation to the primary
(agricultural, mining, etc.) and secondary (manufacturing, etc.) sectors of
the economy.
The domains of strategy and innovation were really the first in business
and management study to acknowledge the significance of knowledge
management strategies and tactics for firms. Scholars with an interest in
strategic management have written on the value of allocating resources to
teams so they may be productive and about the firm's capabilities (Grant,
1991: 118–19). According to Wernerfelt (1984), they placed more focus on
knowledge resources that provide value than on knowledge for its own
sake. By focusing on how resources can be strategically managed to
create uniqueness and competitive advantage through attributes like
producing economic value, having some rarity, being difficult to copy, and
being difficult to substitute, the resource-based view of the firm helped to
focus attention on these strategies (Barney, 1991).
In conclusion, which of the assets and competencies of the company are:
• Worthwhile?
• Seldom found?
• Difficult to duplicate?
• Challenging to substitute?
Spender (1996) established the knowledge-based theory of the company,
which highlighted how crucial it is for managers to actively manage
information and gain knowledge from it by:
(a) thinking and understanding a variety of events while demonstrating a
high level of adaptability,
(b) overseeing the organization's borders, including its interactions with
suppliers and consumers,
(c) recognizing the implications and consequences of institutions on
knowledge and the strategic management of it
(d) Making a distinction between the parts and components of knowledge,
systems, and technologies, as well as the impact of larger systems.
Strategic management based on an internal analysis of the organization's
strengths and weaknesses, the capabilities of its internal resources
(physical, human, and organizational), its management of the value chain
(primary and support activities), and the development of a sustained
competitive advantage has gained more attention since the advent of the
resource-based view of the firm (Barney, 1991; Grant, 1991). Following
the analysis of the strategy, a decision must be made regarding the
available strategic options. The resource-based approach has encouraged
more reflection on how HR practitioners can be better included in
processes of strategic management (Grant, 1996a,b). As a result, HRM
can now be more proactive in incorporating ideas on how to DO this.
Examining each planned and stated alternative for appropriateness,
acceptability, and feasibility is a regular procedure.
• Suitability: Does the plan take into account the most important factors
affecting the organization's ability to compete?
• Acceptability: Will the approach provide a return that is reasonable, carry
a fair amount of risk, and be likely to be approved by stakeholders?
• Feasibility: Is it possible to implement the plan given the organization's
resources, competencies, and abilities?
Porter's three basic strategies still serve as the foundation for the
business-level strategy, but with somewhat smaller modifications. "An
integrated and coordinated set of commitments and actions designed to
provide value to customers and gain a competitive advantage by
exploiting core competencies in specific, individual product markets" is
how Hanson et al. (2002: 129) helpfully describe it. A business-level
strategy with a particular competitive scope (wide, limited) and approach
to competitive advantage (cost, uniqueness) may be formulated and
implemented by the company. As seen in Figure 8.2
The diagram below demonstrates how this generates four options:
differentiation, cost leadership, cost focus, and differentiation emphasis.
All businesses are required to have a business-level plan, but only those
with several goods and services that are offered in various markets and
geographical areas are probably sophisticated enough to need a corporate
strategy. "An action taken to gain a competitive advantage through the
selection and management of a mix of businesses competing in several
industries or product markets" is the definition of a corporate-level
strategy (Hanson et al., 2002: 196). The kind and degree of the company's
diversification are addressed in the business strategy. The corporation
must decide via value-creating initiatives how much it encourages sharing
throughout its various business units (a practice known as operational
relatedness) and to what degree Corporate relatedness, or the transfer of
information and skills into enterprises, is how corporate headquarters
takes the lead. The corporate strategy is important for HRM because it
establishes organizational norms, processes, and procedures for how
much knowledge and skill sharing between business units is expected, as
well as how much proactive management and support from corporate
headquarters is expected of the business units.
International corporate-level strategy differs in that it focuses on the
organization's planned breadth and reach in terms of both local
responsiveness and global integration. Typically, three different
approaches are stated:
• Multi-domestic strategy: Decisions about strategy and operations are left
to the management and distinct business units in each nation. This was
the method that made Philips famous in the past.
• Global strategy: Corporate headquarters develops the plan, oversees
and incentivizes operational adherence to international standards for
goods and services, and standardizes operations. Japanese companies
with a great track record of accomplishment in this field include Sony and
Komatsu.
• Transnational strategy: The concurrent use of global efficiency and local
responsiveness techniques. One of the MNCs that promotes and employs
transnational tactics the most often is ABB.
A wide range of intricate and conflicting theories exist in the subject of
strategic management, with the primary unit of study being either the
company, the industry, or the country. Many different perspectives exist
on the topic, with some conceptualizing strategy as either emergent
change or an evolutionary path. Its fundamental components also differ
greatly, with some scholars conceptualizing strategy as assets or
resources and others as processes of strategic management (Whittington,
2001).
The nature of the specialized expertise in the field of strategy, however, is
slightly more unexpected. On the one hand, the method is quite broad-
based, using concepts from several fields such as information sciences,
evolutionary ecology, game theory, simulation, and economics (Hoskisson
et al., 1999). Whittington (2001) separated the field into four schools of
thought: classical, evolutionary, processual, and systemic. She also
named a number of important disciplines, including economics and
military studies (classical), economics and biology (evolutionary),
psychology (processual), and sociology (systemic).
The implementation issues related to people, however, appear to be
almost ignored and overshadowed by a greater focus on other functional
areas of management, such as finance, accounting, sales, marketing,
public relations, operations, logistics, and information technology, based
on how it is typically taught in business schools and corporate training
events. The dearth of focus on people concerns in the context of strategy
implementation is particularly relevant since it is evident in some of the
popular textbooks that training and education practitioners often refer to.
For instance, the organization's human issues are not so much mentioned
explicitly as they are left fairly implied in some of these textbooks and
training manuals.
