Organisational Structure Meaning and Types

Organisational Structure Meaning

Corporate strategy plays a pivotal role in shaping the organisational structure of multinational business ventures – structure aligns with strategy. The portion of the strategic plan related to international operations may range from simple exports to worldwide operations.

Organisations are economic and social entities in which several persons perform multi-furious tasks to attain common goals. Organizations are effective instruments as they assist individuals in achieving personal objectives that they cannot accomplish alone. Organization is only a means to an end. It takes certain inputs from the business environment and converts them into specified outputs desired by society.

Organisational structure is the formal arrangement of roles, responsibilities, duties and interpersonal relationships within an organisation. International companies specify the structure that groups individuals and operational units in ways that managers believe best support the strategy of the firm.

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For example, if an MNE is pursuing a multi-domestic strategy but designs a structure that delegates little responsibility to local subsidiaries, it will likely fail to implement its strategy.

The structure of an international company should have the flexibility to adapt and evolve. This adaptability allows the organization to effectively respond to changes and efficiently reconfigure the integration of its competencies and resources across different units of the enterprise. This is a major challenge for the management of international companies, especially as these companies’ activities are increasingly dispersed across the globe as well as subject to rapid and ongoing environmental and strategic change. Failure to successfully deal with this challenge threatens the organisation’s performance and indeed, its long-term survival.

Types of Organisational Structure

There are many types of organisational structures, that multinational companies can adopt in their international operations. Most companies use one of these organisational structure (note that no structure is without drawbacks):

Types of Organisational Structure

A list of the organisational structure is given below:

  1. International Divisions Structure
  2. Product Division Structure
  3. Functional Divisions Structure
  4. Geographic (Area) Division Structure
  5. Mixed Structure
  6. Matrix Division Structure

1) International Divisions Structure

Grouping each international business activity into its division puts internationally specialised personnel together to handle such diverse matters as export documentation, foreign exchange transactions, and relations with foreign governments. This strategy prevents duplication of these activities within multiple areas of the organization. It also creates a critical mass that is large enough to enable personnel within the division to wield power within the organisation so that they can push for international expansion.

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However, an international division might have to depend on the domestic divisions for products to sell, personnel, technology, and other resources. Since domestic division managers are typically assessed based on the performance of the divisions under their responsibility, they might choose to allocate their best resources to domestic divisions to enhance their evaluations, potentially withholding resources from the international division. Given the separation between domestic and foreign operations, this structure is probably best suited for multi-domestic strategies, those in which there is little integration and standardisation between domestic and foreign operations.

2) Functional Division Structure

The functional structure emphasises specific functions such as manufacturing, marketing, finance, and so on. It is more suitable where there is a limited number of products and customers, and when they share similar characteristics. Functional divisions like those shown in group personnel organised that marketing people report to others (marketing people, finance to other finance people, and so on.

Functional divisions are commonly adopted by companies that offer a limited range of products, particularly when the production and marketing methods are undifferentiated among them. The addition of new and distinct products renders this structure impractical. In a company such as General Electric (whose business spans thousands of products and services in such diverse areas as aircraft engines, a television network, plastics, home appliances, and insurance), it is hard to imagine that a head of production could understand how to produce all these products.

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3) Product Division Structure

Product structure is more common in international business and more suitable in the case of a multiple-brand system. In this case, their multiple product divisions exist. Within each division, there exist sub-divisions, with one sub-division looking after the manufacturing and sales at home and the other sub-divisions focusing on managing the sales of foreign subsidiaries.

The centralisation of manufacturing leads to economies of scale, while decentralization of marketing is often more effective. In this structure, product-specific attention is possible, which is a crucial aspect for effectively competing in diverse markets. The usefulness of this structure lies in its ability to effectively balance the diverse functional inputs required for a product. However, coordination among various product groups operating in the same market is essential to avoid duplication of the primary functions.

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4) Geographic (Area) Division Structure

The area structure organizes the organization based on geographic regions, such as Asia, Africa, and Latin America, dividing operations accordingly. The parent unit provides coordination support for worldwide planning. Similarly, as in product structure where product-specific attention is possible, area structure enables targeted attention on specific areas or markets.

When specific regions face distinctive challenges, they are provided with focused attention. This structure is more suitable where brands are few but the disparity in the host country market is quite large. However, it is essential to designate experts for each product category in all regions to prevent overlapping product management efforts.

5) Matrix Division Structure

The global matrix structure is more complex when it combines all three aspects, area, and function. This is found in multi-product firms where one group of products requires an area-based organisational structure, while the other group of products needs functional structure, and for yet another group, product structure is found more appropriate.

A firm reaches this particular stage when economies of scale in production reach a new high and the different subsidiaries can expand their market beyond their traditional domain. In this case, country-level managers report to both regional and product managers, as a result of which a balance is created between global/regional needs and local needs. The matrix structure encourages team response that is very pertinent in cases where no single person possesses all the information required.

6) Mixed Structure

Seldom will companies have all their activities organised on the structures described till now. Most firms allow the hybrid design that best suits their purpose as dictated by size, strategy technology, environment and culture. A company’s manager starts with the basic prototype discussed till now, merges them, eliminates some pieces, and creates new elements unique to their firm as they respond to changes in the organisation’s strategy and competitive environment.

The famous saying “structure follows strategy” has emerged for this reason. The primary advantage of the mixed structure is that it allows the firm to create the specific types of design that best meet its needs. Most MNCs are known to follow the hybrid structures. Philips, Sanyo, and Unilever are but only three instances.

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