ORGANIZATIONAL DESIGN
How organizations structure
subunits and coordination and
control mechanisms to achieve
their strategic goals.
BASIC QUESTIONS OF
ORGANIZATION DESIGN
1. How to divide work among the
organization's subunits?
2. How to coordinate and control
the efforts of the units created?
EXHIBIT 7.1 FUNCTIONAL
STRUCTURE
Headquarters
Research &
Development
Production
Marketing
Accounting &
Finance
THE FUNCTIONAL
STRUCTURE
Works Best
when organization has:
Few
products
Few locations
Few types of customers
A stable environment
Routine technology
PRODUCT AND GEOGRAPHIC
STRUCTURES
Usually
less efficient than the
functional organization
Allow a company to serve
customer needs that vary by
region or product
EXHIBIT 7.2 PRODUCT
STRUCTURE
HQ
Product
Group A
Product
Group B
Product
Group C
Product
Group A
R&D
R&D
R&D
R&D
Mft
Mft
Mft
Mft
Marketing
Marketing
Marketing
Marketing
Acct &
Finance
Acct &
Finance
Acct &
Finance
Acct &
Finance
EXHIBIT 7.3 GEOGRAPHIC
STRUCTURE
Headquarters
North
Area
South
Area
East Area
West Area
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Marketing
Marketing
Marketing
Marketing
Acct. &
Finance
R&D
Acct. &
Finance
R&D
Acct. &
Finance
R&D
Acct. &
Finance
R&D
WHEN?
Product
or an area sufficiently
unique to require focused
functional efforts on one type of
product or service
PRACTICALITIES
Organizations
mix structures to
best implement strategies
Mixed form organizations called
hybrid structures
ORGANIZATIONAL
STRUCTURES FOR
MULTINATIONAL
STRATEGIES
EXPORT DEPARTMENT
Created
when:
– exports become significant
– a company wishes greater
control over export operations
Deals with international sales of
all products
EXHIBIT 7.4 AN EXPORT DEPARTMENT
Headquarters
R&D
Production
Marketing
Export
Department
Overseas
Sales Force
Accounting
& Finance
INTERNATIONAL DIVISION
Usual
step after export
department
Deals with all products
Manages overseas sales force and
manufacturing sites
EXHIBIT 7.5 INTERNATIONAL
DIVISION
Staff with Country or
Region Expertise
Domestic
Division Product A
Headquarters
Domestic
Division Product B
Domestic
Division Product C
Domestic
Division Product D
International
Division All Products
Foreign SubsidiariesEurope
Foreign SubsidiariesJapan
Foreign SubsidiariesSales in Asia
PRESSURES TO ABANDON
THE INTERNATIONAL
DIVISION
Diverse
products too complex
Not close enough to local markets
Cannot take advantage of global
economies of scale or global
sources of knowledge
TWO SOLUTIONS
Worldwide
Geographic Structure
Worldwide Product Structure
WORLDWIDE GEOGRAPHIC
STRUCTURE
Implements
a multilocal or
regional strategy
Country-level divisions
Separate divisions for large
market countries
WORLDWIDE PRODUCT
STRUCTURE
Implements
strategies that
emphasize global products
Each product division assumes
responsibility to produce and sell
its products or services though
out the world
EXHIBIT 7.6 APPLE’S GEOGRAPHIC
STRUCTURE
Global
Headquarters
APPLE
PRODUCTS
Hardware Eng.
APPLE
AMERICAS
APPLE
EUROPE
APPLE ASIAPACIFIC
Software Eng.
APPLE
North America
France
Australia
PRODUCTION
SITES
South America
Europe West
Far East
Europe North
U.S. - California
Singapore
Ireland
Contract
Manufacturing
Taiwan
Korea
Mexico
U.K.
Europe South
Middle East
Africa
APPLE
JAPAN
EXHIBIT 7.7 WORLDWIDE PRODUCT
STRUCTURE
Headquarters
Worldwide
Product
Group A
Worldwide
Product
Group B
Worldwide
Product
Group C
R&D
R&D
R&D
Finance &
Accounting
Domestic and
World Production
Domestic Sales
Finance &
Accounting
Domestic and
World Production
Domestic Sales
Finance &
Accounting
Domestic and
World Production
Domestic Sales
Foreign Subsidiaries
for Sales, Production,
or Raw Material
Sourcing
Foreign Subsidiaries
for Sales, Production,
or Raw Material
Sourcing
Foreign Subsidiarie
for Sales, Productio
or Raw Material
Sourcing
HYBRIDS AND WORLDWIDE
MATRIX STRUCTURE
Support
strategies that include
local adaptation and concern for
globalization.
Mix geographic units with
product or function units
THE MATRIX STRUCTURE
Balances
the benefits produced
by area and product structures
Creates lines of authority for
products and areas
Works best with near equal
demands from both sides
The Matrix Structure, continued
Requires
extensive resources for
communication and coordination
Requires middle and upper level
managers with good human
relations skills
THE TRANSNATIONAL
NETWORK STRUCTURE
Implements
the transnational
strategy
Networks functional, product,
and geographic subunits
– dispersed subunits
– specialized operations
– interdependent relationships
The transnational network
structure, continued
Has
no symmetry or balance in its
structural form
Resources, people, and ideas flow
in all directions
Nodes or centers in the network
coordinate product, functional,
and geographic information
Exhibit 7.9 (next) shows
example geographic links in the
Philips transnational structure
Exhibit 7.10 shows the product
links in the same organization
Portugal
El
Salvador
Nordic
Austria
Ecuador
Canada
Peru
Chile
Brazil
Switzerland
U.S.A.
Bolivia
Belgium
Venezu
ela-la
Mexico
U.K.
Greece
Argentina
Holland
Columbia
Uruguay
Ireland
Spain
South
Africa
Kenya
Egypt
France
Zaire
Tunisia
Luxemburg
Zimbabwe
Germany
Zambia
Morocco
Nigeria
Tanzania
Italy
Japan
Indonesia
Bangladesh
Pakistan
Turkey
Taiwan
Philippines
India
Israel
Australia
Korea
Malaysi
a
Iran
Syria
Thailand
New
Zealand
Singapore
Hong
Kong
Iraq
Lebanon
Source: Sumantra Ghoshal & Christopher A. Bartlett, "The multinational corporation as
an international network," Academy of Management Review, 15, 1990, 605.
Board of
Management
DOMESTIC
APPLIANCES
PERSONAL
CARE
CONSUMER
ELECTRON ICS
United States,
United Kingdom,
Netherlands,
France, Italy,
Germany, Japan
"Key Countries"
Local
manufacturing
and Sales
World Wide
Production
MEDICAL
SYSTEMS
BUSINESS
ELECTRONICS
e.g., Nigeria,
Tunisia,
Peru
Products
ORIGIN
(SUPPLY ,
TECHNOLOGY , ECOMMERCE )
"Local
Business
Countries"
Sales
Products
SEMICON-
COMPON-
DUCTORS
ENTS
Austria,
Belgium,
Brazil, Canada,
Mexico, Nordic,
Spain
Switzerland,
Taiwan
Products
"Large
Countries"
Local Sales
Some
Manufacturing
Some World
Wide Production
LIGHTING
EMPHASIS ON GLOBAL STRATEGIES
EXHIBIT 7.11 STRATEGY AND
STRUCTURE
WORLDWIDE
PRODUCT
STRUCTURE
Common paths of
historical
evolution
TRANSNATIONAL
NETWORK
STRUCTURE
WORLDWIDE
MATRIX
STRUCTURE
EXPORT
DEPARTMENT OR
INTERNATIONAL
DIVISION
WORLDWIDE
GEOGRAPHIC
STRUCTURE
EMPHASIS ON LOCATION BASED STRATEGIES
CONTROL AND
COORDINATION SYSTEMS
Top
managers must design
organizational systems to control
and coordinate the activities of
their subunits.
BASIC FUNCTIONS OF
CONTROL
Measure
or monitor the
performances of subunits
Provide feedback to subunit
managers regarding the
effectiveness of their units
COORDINATION SYSTEMS
Provide
information flows among
subsidiaries
Link the organization horizontally
CONTROL SYSTEMS
Output
Bureaucratic
Decision
Cultural
making
Exhibit 7.12 shows the
relationship between the
control mechanisms and basic
multinational organizational
structures.
Multinationa
l Structures
International
Division
Structure
Worldwide
Geographic
Structure
Worldwide
Product
Structure
Matrix
Structure
Transnation
al Network
Structure
Output
Control
Most likely
profit control
Profit center
most common
Unit output for
supply; Sales
volume for
sales
Shared profit
responsibility
Used for
supplier units
and some
independent
Control Systems
Bureaucratic
Decision
Control
Making Control
Must follow
Some
company
centralization
policies
possible
Some policies Local units
and
have autonomy
procedures
Tight process Centralized at
controls
product
division
Cultural
Control
Treated like
other divisions
Local
subsidiary
culture
Possible for
some
companies
Less important Balanced
Culture must
support
sharing
Less important Decisions
centralized in
key network
nodes
Organizational
culture
transcends
national
COORDINATION SYSTEMS
Paperwork
(memos, reports)
Direct contact
Liaison roles
Task forces
Full-time integrator
Teams
CONCLUSIONS
Strategy+Organizational
Design =
Effectiveness
Basic Structures
Structures for multinational
operations
Coordination and control