Topic 3
Organizational Structure,
Design, and Culture in
International Firms
Learning Objectives
 LO3.1: Describe the basic Organizational
Structures in international firms.
 LO3.2: Distinguish between organic and
mechanistic structure of designs.
 LO3.3: Define organizational culture and
discuss the importance of acknowledging
cultural diversity in national and global firms.
Organizational Roles
 Set of task-related behaviors required of a
person by his or her position in an
organization
As the division of labor increases, managers
specialize in some roles and hire people to
specialize in others
 Specialization allows people to develop their
individual abilities and knowledge within their
specific role

 Organizational structure is based on a
system of interlocking roles.

How a firm organizes its activities and
personnel to achieve its goals.
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Designing Organizational Structure
 Organizational structure: formal system of task
and job reporting relationships that determines how
employees use resources to achieve an
organization’s goals.
 Organizational design: process by which
managers create a specific type of organizational
structure and culture so a company can operate in
the most efficient and effective way.
Designing Organizational Structure
Basic Organizational Structures
 MNCs are dramatically reorganizing operations to
compete effectively internationally.
•
The overall goal is to meet the needs of both the local
market and the home-office strategy of globalization.
 As an MNC balances the pressures for global
integration with pressures for local
responsiveness, an if-then approach can be used.
•
If the strategy needed to respond quickly to the local
market changes, then there will be accompanying
change in the organizational structure.
 Despite the need for such a flexible, fastchanging, contingency-based approach, most
MNCs still slowly evolve through certain basic
structural arrangements in international
operations.
Organizational Expectations of Internationalization

Source: Beamish, Paul W., J. Peter Killing, Donald J. LeCraw, and Harold Crookell. International Management: Text and Cases. Homewood, IL:
Irwin, 1991: 99.
Organizational Structures
 Initial division
structure.
 International
division structure.
 Global structural
arrangements:
product, area,
functional, and
mixed.
 Transnational network
structures.
Initial Division Structure
Many firms make their initial entry
into international markets by
setting up a subsidiary or by
exporting locally produced
goods or services.
Figure 9-2: Use of Subsidiaries during the Early Stage of
Internationalization
Each subsidiary is responsible for
operations within its geographic area.

Source: Original graphic by Professor Jonathan Doh.
International Division Structure
 If international operations continue to grow
and require more control, subsidiaries are
grouped into an international division
structure.
•
A unit is added, while the original organizational
structure is left intact.
Figure 9-3: An International Division Structure
Global Structural Arrangements
 Global structural arrangements differ from international
division structure because the former focuses on expansion
and integration among international operations.
 This international perspective signifies a major change in
management strategy, and it is supported by the
requisite changes in organization structure.
 Global structures come in three common types:
product, area, and functional.
Figure 9-4: A Global Product Division Structure
The global product
division is a
structural
arrangement in which
domestic divisions are
given worldwide
responsibility for
product groups.
Some MNCs prefer to use
Figure 9-5: A Global Area Division Structure a global area division.
• Under this
arrangement, global
division managers are
responsible for all
business operations in
their designated
geographic area.
Figure 9-6: A Global Functional Structure
The global
functional
division organizes
worldwide
operations primarily
based on function
and secondarily on
product.

Access the text alternative for this
image.
Figure 9-7: A Multinational Matrix Structure

Access the text alternative for this
image.
Transnational Network Structures
 Another alternative international organizational design to
emerge is the transnational network structure.
 The basic structural framework consists of three components:
dispersed subunits, specialized operations, and interdependent
relationships.
• Dispersed subunits are subsidiaries located anywhere in the
world.
• Specialized operations are activities carried out by subunits.
• Interdependent relationships are used to share information and
resources throughout the dispersed and specialized subunits.
Figure 9-8: The Network Structure of N.V. Philips

Access the text alternative for this
image.
Organizational Characteristics of MNCs
 Although MNCs have similar organizational
structures, they do not all operate in the
same way.
 Factors that help explain the differences
include overall strategy, employee
attitudes, and local conditions.
 Of particular significance to this discussion
are the organizational characteristics
of formalization, specialization, and
centralization.
Organizational Structure —Formalization
Formalization is the use of defined
structures and systems in decision
making, communicating, and
controlling.
• Some countries make greater use of
formalization than others.
Organizational Characteristics—Specialization
 As an organizational characteristic,
specialization is the assigning of
individuals to specific, well-defined tasks.
•
•
Horizontal specialization assigns jobs so
individuals are given a particular function to
perform and stay within the confines of this
area.
Vertical specialization assigns work to groups
or departments where individuals are collectively
responsible for performance.
Organizational Characteristics—Centralization
Centralization is a management
system in which important decisions
are made at the top.
• Many U.S. firms tend toward
decentralization, pushing decision
making down the line and getting the
lower-level personnel involved.
Organizational Design
The process of shaping an
organisation's structure to align with its
goals, strategy, and environmental
changes.

It involves creating, evaluating, and
refining the structure.
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Mechanistic and Organic Design
Mechanistic structures: designed to
induce people to behave in predictable,
accountable ways
Decision-making authority is centralized
 Subordinates are closely supervised
 Information flows mainly in a vertical direction along a
clearly defined path
 Hierarchy principal integrating mechanism
 Tasks and roles coordinated primarily through
standardization and formal written rules


Best suited to organizations that face stable,
unchanging environments
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Mechanistic and Organic
Organizational Structures (cont.)
Organic structures: structures that
promote flexibility, so people initiate
change and can adapt quickly to
changing conditions
Decision making distributed throughout the
hierarchy
 Coordination is achieved through mutual
adjustments
 Status conferred by ability to provide creative
leadership
 Encourages innovative behavior


Suited to dynamic environments
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Figure: How the Design Challenges Result in
Mechanistic and Organic Structures
Source: Jones (2010)
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Task and Role Relationships
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Contingency Approach
A management approach in which the
design of an organization’s structure is
tailored to the sources of uncertainty
facing an organization
Organization should design its
structure to fit its environment.
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Relationship Between Environmental
Uncertainty and Structure
Source: Jones (2010)
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Organizational culture
 Shared values and beliefs that enable members to understand
their roles and the norms of the organization.
 May include:






Observed behavioral regularities, as typified by common language,
terminology, and rituals.
Norms, as reflected by things such as the amount of work to be done
and the degree of cooperation between management and employees.
Dominant values that the organization advocates and expects
participants to share, such as high product and service quality, low
absenteeism, and high efficiency.
A philosophy that is set forth in the MNC’s beliefs regarding how
employees and customers should be treated.
Rules that dictate the dos and don’ts of employee behavior relating to
areas such as productivity, customer relations, and intergroup
cooperation.
Organizational climate, or the overall atmosphere of the enterprise, as
reflected by the way that participants interact with each other, conduct
themselves with 20 customers, and feel about the way they are treated
by higher-level management.
Organizational culture
Organizational culture
 There are three aspects of organizational
functioning in determining MNC
organizational culture:
 (1) the general relationship between the
employees and their organization;
 (2) the hierarchical system of authority
that defines the roles of managers and
subordinates;
 (3) the employees’ perceptions of the
MNC’s purpose, destiny, goals, and their
place in them.
Organizational culture
Organizational culture
Organizational culture
Importance of Cultural diversity
 Cultural diversity can positively contribute to
people’s professional and personal enjoyment of the
project, as well as a project’s outcome.
 Cultural diversity can indirectly encourage project
members to rethink their usual working habits and
expectations, behave with fewer assumptions about
the ‘right’ way to address an issue and promote
linguistic clarity.
 The dominance of cultural diversity amongst team
members reduces the bias to interact with people
who have common characteristics and create a
unique bond.