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Factors affecting organizational structure selection in multinational companies

When a work group is very small and face-to-face communication is frequent, formal structure may be unnecessary, but in a larger organization decisions have to be made about the delegation of various tasks.

Thus, procedures are established that assign responsibilities for various functions. It is these decisions that determine the organizational structure. In an organization of any size or complexity, employees' responsibilities typically are defined by what they do, who they report to, and for managers, who reports to them. Over time these definitions are assigned to positions in the organization rather than to specific individuals.

The relationships among these positions are illustrated graphically in an organizational chart see Figures 1a and 1b. The best organizational structure for any organization depends on many factors including the work it does; its size in terms of employees, revenue, and the geographic dispersion of its facilities; and the range of its businesses the degree to which it is diversified across markets.

There are multiple structural variations that organizations can take on, but there are a few basic principles that apply and a small number of common patterns. The following factors affecting organizational structure selection in multinational companies explain these patterns and provide the historical context from which some of them arose.

The first section addresses organizational structure in the twentieth century. The second section provides additional details of traditional, vertically-arranged organizational structures.

This is followed by descriptions of several alternate organizational structures including those arranged by product, function, and geographical or product markets. Next is a discussion of combination structures, or matrix organizations. The discussion concludes by addressing emerging and potential future organizational structures. For instance, why are the old, but still operational steel mills such as U. Steel and Bethlehem Steel structured using vertical hierarchies? Why are newer steel mini-mills such as Chaparral Steel structured more horizontally, capitalizing on the innovativeness of their employees?

Part of the reason, as this section discusses, is that organizational structure has a certain inertia—the idea borrowed from physics and chemistry that something in motion tends to continue on that same path. Changing an organization's structure is a daunting managerial task, and the immensity of such a project is at least partly responsible for why organizational structures change infrequently. At the beginning of the twentieth century the United States business sector was thriving.

Industry was shifting from job-shop manufacturing to mass production, and thinkers like Frederick Taylor in the United States and Henri Fayol in France studied the new systems and developed principles to determine how to structure organizations for the greatest efficiency and productivity, which in their view was very much like a machine.

Even before this, German sociologist and engineer Max Weber had concluded that when societies embrace capitalism, bureaucracy is the inevitable result. Yet, because his writings were not translated into English factors affecting organizational structure selection in multinational companies 1949, Weber's work had little influence on American management practice until the middle of the twentieth century. Management thought during this period was influenced by Weber's ideas of bureaucracy, where power is ascribed to positions rather than to the individuals holding those positions.

It also was influenced by Taylor's scientific management, or the "one best way" to accomplish a task using scientifically-determined studies of time and motion. Also influential were Fayol's ideas of invoking unity within the chain-of-command, authority, discipline, task specialization, and other aspects of organizational power and job separation.

This created the context for vertically-structured organizations characterized by distinct job classifications and top-down authority structures, or what became known as the traditional or classical organizational structure. Job specialization, a hierarchical reporting structure through a tightly-knit chain-of-command, and the subordination of individual interests to the superordinate goals of the organization combined to result in organizations arranged by functional departments with order and discipline maintained by rules, regulations, and standard operating procedures.

This classical view, or bureaucratic structure, of organizations was the dominant pattern as small organizations grew increasingly larger during the economic boom that occurred from the 1900s until the Great Depression of the 1930s. The Great Depression temporarily stifled U. Postwar rebuilding reignited economic growth, powering organizations that survived the Great Depression toward increasing size in terms of sales revenue, employees, and geographic dispersion.

Along with increasing growth, however, came increasing complexity. Studies of employee motivation raised questions about the traditional model. The "one best way" to do a job gradually disappeared as the dominant logic.

It was replaced by concerns that traditional organizational structures might prevent, rather than help, promote creativity and innovation—both of which were necessary as the century wore on and pressures to compete globally mounted. The structure of every organization is unique in some respects, but all organizational structures develop or are consciously designed to enable the organization to accomplish its work. Typically, the structure of an organization evolves as the organization grows and changes over time.

Factors That Affect a Multinational Corporation

Researchers generally identify four basic decisions that managers have to make as they develop an organizational structure, although they may not be explicitly aware of these decisions. First, the organization's work must be divided into specific jobs. This is referred to as the division of labor. Second, unless the organization is very small, the jobs must be grouped in some way, which is called departmentalization. Third, the number of people and jobs that are to be grouped together must be decided.

This is related to the number of people that are to be managed by one person, or the span of control—the number of employees reporting to a single manager. Fourth, the way decision-making authority is to be distributed must be determined. In making each of these design decisions, a range of choices are possible.

At one end of the spectrum, jobs are highly specialized with employees performing a narrow range of activities, while at the other end of the spectrum employees perform a variety of tasks. In Figure 1b Organizational Structure traditional bureaucratic structures, there is a tendency to increase task specialization as the organization grows larger.

BASIS FOR DEPARTMENTALIZATION

In grouping jobs into departments, the manager must decide the basis on which to group them. The most common basis, at least until the last few decades, was by function. For example, all accounting jobs in the organization can be grouped into an accounting department, all engineers can be grouped into an engineering department, and so on. The size of the groupings also can range from small to large depending on the number of people the managers supervise.

The degree to which authority is distributed throughout the organization can vary as well, but traditionally structured organizations typically vest final decision-making authority by those highest in the vertically structured hierarchy. Even as pressures to include employees in decision-making increased during the 1950s and 1960s, final decisions usually were made by top management.

The traditional model of organizational structure is thus characterized by high job specialization, functional departments, narrow spans of control, and centralized authority. Such a structure has been referred to as traditional, classical, bureaucratic, formal, mechanistic, or command and control. Factors affecting organizational structure selection in multinational companies structure formed by choices at the opposite end of the spectrum for each design decision is called unstructured, informal, or organic.

The traditional model of organizational structure is easily represented in a graphical form by an organizational chart. It is a hierarchical or pyramidal structure with a president or other executive at the top, a small number of vice presidents or senior managers under the president, and several layers of management below this, with the majority of employees at the bottom of the pyramid.

The number of management layers depends largely on the size of the organization. The jobs in the traditional organizational structure usually are grouped by function into departments such as accounting, sales, human resources, and so. Figures 1a and 1b illustrate such an organization grouped by functional areas of operations, marketing and finance.

There are four commonly used bases. Every organization of a given type must perform certain jobs in order do its work. For example, key functions of a manufacturing company include production, purchasing, marketing, accounting, and personnel. The functions of a hospital include surgery, psychiatry, nursing, housekeeping, and billing. Using such functions as the basis for structuring the organization may, in some instances, have the advantage of efficiency. Grouping jobs that require the same knowledge, skills, and resources allows them to be done efficiently and promotes the development of greater expertise.

A disadvantage of functional groupings is that people with the same skills and knowledge may factors affecting organizational structure selection in multinational companies a narrow departmental focus and have difficulty appreciating any other view of what is important to the organization; in this case, organizational goals may be sacrificed in favor of departmental goals.

In addition, coordination of work across functional boundaries can become a difficult management challenge, especially as the organization grows in size and spreads to multiple geographical locations.

Organizations that are spread over a wide area may find advantages in organizing along geographic lines so that all the activities performed in a region are managed together. In a large organization, simple physical separation makes centralized coordination more difficult. Also, important characteristics of a region may make it advantageous to promote a local focus. For example, marketing a product in Western Europe may have different requirements than marketing the same product in Southeast Asia.

Companies that market products globally sometimes adopt a geographic structure. In addition, experience gained in a regional division is often excellent training for management at higher levels.

Large, diversified companies are often organized according to product.

ORGANIZATIONAL STRUCTURE

All the activities necessary to produce and market a product or group of similar products are grouped together.

In such an arrangement, the top manager of the product group typically has considerable autonomy over the operation. The advantage of this type of structure is that the personnel in the group can focus on the particular needs of their product line and become experts in its development, production, and distribution.

  1. The relationships among these positions are illustrated graphically in an organizational chart see Figures 1a and 1b.
  2. Grouping jobs that require the same knowledge, skills, and resources allows them to be done efficiently and promotes the development of greater expertise. There are also some big differences between them.
  3. This created the context for vertically-structured organizations characterized by distinct job classifications and top-down authority structures, or what became known as the traditional or classical organizational structure.

A disadvantage, at least in terms of larger organizations, is the duplication of resources. Each product group requires most of the functional areas such as finance, marketing, production, and other functions. The top leadership of the organization must decide how much redundancy it can afford. An organization may find it advantageous to organize according to the types of customers it serves. For example, a distribution company that sells to consumers, government clients, large businesses, and small businesses may decide to base its primary divisions on these different markets.

Its personnel can then become proficient in meeting the needs of these different customers. In the same way, an organization that provides services such as accounting or consulting may group its personnel according to these types of customers. Figure 2 depicts an organization grouped by customers and markets.