A multinational firm’s organizational structure that reflects the “global” philosophy that the world is basically one homogeneous market is called a “global structure.” For example, by this philosophy, many large electronics and consulting firms, while allowing for minor local adjustments to packaging and language, basically project the same kinds of products and services around the world. However, there are several differences in terminology and philosophy in this field.
First, a “global” philosophy is characterized by seeing the world as one more-or-less monolithic market with similar tastes and preferences. In contemporary parlance this is opposite to a “multidomestic” (or multinational or multilocal) philosophy by which one sees the world as made up of many more-or-less unique markets, each with its distinct tastes and preferences. A position between these two extremes is called regionalism, whereby one sees the world as being made up of a small number of quite homogenous regions.
These constructs can be applied to industries, firms, and organizational structures, and it is informative to understand how global thinking at industry and strategic levels apply. For example, George Yip sees globalization as a function of the degrees to which the global marketplace is fragmented, local customer needs are distinct, local sourcing imperatives exist, costs are heterogeneous, and trade barriers are significant to cross-border commerce. Thus Randall Schuler, Peter Dowling, and Helen De Cieri and other scholars refer to some industries—like commercial aircraft, copiers, generic drugs, most electronics and computer hardware—as global industries; while retail, the food industry, and most services are considered substantially multidomestic.
Multinationals—and other large firms, for that matter—generally are divided into several parts, units, or divisions that reflect some aspect of their strategy. This link between structure and strategy was made famous in the classic book Strategy and Structure by Alfred DuPont Chandler. For example, a firm with five product categories may have been structured into five divisions, each division mandated to manage one of the product categories.
Chris Bartlett and Sumantra Ghoshal build on this logic as they focus on organizational responses to global and local forces; and they describe four organizational types (or mentalities) for the global organization that represent organizational and strategic responses to various industry contingencies. For example, they describe the global firm that views the world as its market, assumes that national tastes are more similar than different, and that believes in standardized products; and these strategic approaches require structural integrative mechanisms that are to coordinate worldwide activities, production, marketing, research and development (R&D), and planning. Thus, it is these structural processes that are implied by the term global structure.
All large organizations need some structures that coordinate and integrate to some degree. However, the global strategy relies on these structures for implementation There are three major aspects to this kind of structure. The first is the locus of strategic responsibility. Second, the way the structure separates reporting relationships and dictates how the firm is divided. This aspect of structure may be called structuring. The final aspect is the kinds of coordination and integration systems—these may be called processes.
Locus of strategic responsibility: A crucial aspect of organization structure is the extent to which decision-making autonomy is delegated from corporate headquarters to parts of the business. In the global firm there is a strategic imperative to centralize important strategic decisions. For example, decisions on product range, research and development, branding, and human resource management tend to be made at corporate rather than subsidiary level. Even customer service, which is the function most likely to be located closer to the customer, may have its major policies and standards set at corporate level.
Structuring: A characteristic of the global structure is that it is relatively blind to geographic distance and instead focuses on one or more other strategic dimensions—like products or markets—that it considers more important (than geography) to its success at implementing a global strategy. Thus a global structure commonly has a major top-level division into product categories (generally called a global product structure), markets (global market structure), or some matrix (global matrix structure). As an example of a global product structure, Procter & Gamble (P&G) has three global product divisions, namely Global Beauty, Global Household Care, and Global Health & Well-being.
However, the distinction between product and market structures is likely to be blurred—for example, Boeing’s business units seem like different product divisions (commercial airplanes, integrated defense systems, and Boeing capital corporation), but in effect all three have the aim of marketing various aircraft and aerospace products and services to different market groups—in this case commercial airlines, governments, and financial intermediaries. The global matrix structure attempts to organize activities by two (or more) managerial dimensions—like product, geography, and/or market. For example H. J. Heinz has simultaneously geographic divisions in North America, Europe, Australia/New Zealand, and emerging markets (selected countries in Asia and eastern Europe); several product categories, namely ketchup/ condiments/sauces, meals and snacks (including frozen foods), soups/beans and pasta, and infant feeding; and separate operations for retail and food service channels. In a global structure these various departmental and business divisions may have necessary aspects of local focus, but essentially they work together for implementing the firm’s global strategy.
Processes: Finally, and very importantly, structure implies processes such as coordination, integration, and information systems. These processes tend to be pronounced in the global structure, and generally very common in contemporary organizations. Kwangsoo Kim and Jong-Hun Park identify four generic integrating mechanisms: (1) people-based integrating mechanisms that use people to coordinate business operations across borders, involving the transfer of managers, meetings, teams, committees, and integrators; (2) information-based integrating mechanisms use information systems such as databases, electronic mail, Internet, intranet, and electronic data interchanges to integrate business operations across borders; (3) formalization-based integrating mechanisms rely on the use of standardized or common work procedures, rules, policies, and manuals across units; and (4) centralization-based integrating mechanisms retain decision-making authority at the corporate headquarters—a similar concept to that in the “locus of strategic responsibility” section above.
The more global the firm, the more it uses these processes. Intel, for example, uses relatively few formal structural mechanisms, but several cross functional teams—including information technology (IT), knowledge management, human resources, finance, legal, change control, data warehousing, common directory information management, and cost reduction teams—as integrating processes that allow them rapid adaptation to changing conditions. Integrating mechanisms can also have negative effects—perhaps tying the hands of local managers, imposing compliance costs (both time and other resources), and creating unintended bureaucratic barriers to efficient decision making. A study by David Brock and Ilene Siscovick, for example, found effects of integrative factors at subsidiary level were often negative.
- Klaus E. Agthe, “Managing the Mixed Marriage—Multinational Corporations,” Business Horizons (January–February 1990);
- Christopher A. Bartlett, Sumantra Ghoshal and Paul W. Beamish, Transnational Management: Text, Cases and Readings in Cross-Border Management, 5th ed. (McGraw Hill, 2007);
- Julian Birkinshaw, Entrepreneurship in the Global Firm (Sage, 2000);
- David M. Brock, “Autonomy of Individuals and Organizations: Towards a Strategy Research Agenda,” International Journal of Business and Economics (v.2/1, 2003);
- David M. Brock and Ilene Siscovick, “Global Integration and Local Responsiveness in Multinational Subsidiaries: Some Strategy, Structure, and Human Resource Contingencies,” AsiaPacific Journal of Human Resources (v.45/3, 2007);
- Alfred D. Chandler, Strategy and Structure: Chapters in the History of the Industrial Enterprise (MIT Press, 1962);
- Stephanie A. Fernhaber, Patricia P. McDougall, and Benjamin M. Oviatt, “Exploring the Role of Industry Structure in New Venture Internationalization,” Entrepreneurship Theory and Practice (v.31/4, 2007);
- Michael Porter, Competition in Global Industries (Harvard Business School Press, 1986);
- K. Prahalad and Gary Hamel, “The Core Competence of the Corporation,” Harvard Business Review (May–June 1990);
- Charles Wankel, 21st Century Management: A Reference Handbook (Sage, 2008).
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