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Conventional Organizational Structures of Global Organizations

Conventional Organizational Structures of Global Organizations

Three varieties of structure are commonly used by global organizations. These are the global product division structure, the global area division structure, and the global functional division structure.

The global product division

When an organization adopts the global product division mode, it manages its product lines from around the world from home-country-based product divisions. Suppose the organization has five products, A, B, C, D and E. It will have a product division to manage the production and sale of A, another product division to manage the production and sale of B, and so on. Product division A will have worldwide responsibility for A. It will also have functional support from the marketing, finance, production and other personnel concerned with product A.

The advantage of the global product division is that it can use to advantage economies of scale. These economies of scale are particularly noticeable in production/manufacturing, where vertically integrated technological and distribution systems are used. Companies that have a diversified portfolio of products opt for this structural mode. The product groups may be so different from each other that they can operate independently of each other. The product division can synergistically use the resources of its operations in various locations. At first glance it might appear as if an organization with a global product division is engaging in avoidable duplication of effort. Its product A division might have its own marketing personnel in Australia, and so might its product B division. However, the companies that opt for a global product division are usually concerned with products that are unique and distinctive, each of which requires its own specialized marketing force. Each specialized marketing force can then sharpen its skills and keep itself up to date. IBM is an example of a company with distinctive product groups, so the functional group attached to one product may lack the specialized expertise to handle other products. However, the more a company requires specialized personnel to handle its products, the more expense it adds to its operations.

Sometimes there is some duplication of effort. Each division might have its own section for liaison with the government, for instance. At the same time, the divisions might operate so independently that there is not much communication between them, and consequently be unable to learn from each other's failures and successes. To quote Daniels and Radebaugh (1998), 'For example, at one time in Westinghouse, one subsidiary was borrowing funds locally at an exorbitant rate, while another in the same country had excess cash.'

The global functional division

When an organization has a global functional division mode, operations are arranged so that the production division oversees all its production activities worldwide, the marketing division oversees all its marketing activities worldwide, and so on. Companies with a narrow range of similar products might prefer this type of structure, especially if similar production, marketing and other functional methods are used for the entire product range. This structure is found, for example, in mining and extraction companies such as Royal Dutch/Shell.

As an organization grows, the global functional division structure becomes unwieldy and difficult to maintain efficiently. Sometimes a local branch may start to maintain its own functional staff. For instance, although marketing activities are planned and undertaken globally by a Swiss organization's marketing group, it might still have marketing personnel in Canada who tap the distribution channels of that country in a locally responsive manner. This could lead to a duplication of efforts, or a conflict of interests, if the central marketing group strategizes differently from the Canadian marketing personnel.

This type of a structure is relevant when, for example, an organization is trying to optimize its use of manufacturing technology.

Bartlett and Ghoshal's model (see box) is based on the view that the best management practices, concepts, ideas, capabilities and knowledge are transferable. This can be the case with transnational companies employing global managers. Most such managers have roots in more than one culture and have experienced three or four at firsthand. The mind-sets they have developed enable them to learn and accept new ideas. These companies are not likely to exhibit a preference for only a fixed structural form; a preference that is conditioned by their cultural origins. This is counter to the argument of Schneider and Barsoux (1997) that cultural differences can prevent the transfer of best practices.

Thus the corporate culture, core values, and mind-sets of the managers of a global organization all contribute to making it capable of operationalizing Bartlett and Ghoshal's integrated network configuration. To quote David Holt (1998), here, 'as a transnational corporation evolves, [its] diverse systems may blend, each contributing to the new organization until the management process itself no longer reflects any particular cultural perspective, but instead, develops an identity of its own'.

When a network arrangement connects all the branches of a transnational organization, the organization is able to constitute a common pool for its resources. Thus, the design of a transnational organization is all-important and cannot be allowed to evolve by mere chance or accident. It must be carefully and deliberately constructed and dynamically altered on a continuous basis. In an intercultural world, structure does not follow strategy or any other organizational variable. It accompanies all these other variables.

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