Management of Multinational Corporations ( MNCS )

Chapter 6 : Organizational Structure of MNCs

Defining Organizational Structure

Vertical Differentiation

Arguments for Centralization
Arguments for Decentralization

Horizontal Differentiation

International Division

Worldwide Area Structure
Strategic Business Unit
Product Division Structure
Matrix Structure

Network Structure.

Chapter Summary

Organizational structure is a representation of the formal reporting relationships within an organization. Span of control refers to the maximum number of subordinates a manager can effectively supervise. A narrow span of control means fewer number of people reporting to a manager and a wide span means more subordinates reporting to one manager.

While a narrow span of control creates a tall organization with many managers and centralized decision making, wide span creates a flat organization with fewer managers and more delegation of authority. The degree to which authority is delegated determines centralization and decentralization.

Though centralization helps avoid conflict of interest that could arise in a decentralized environment, it generally leads to slower, ineffective and inefficient decision-making. Horizontal differentiation is concerned with how the departments in an organization function together. An organization based on functions is the traditional and the most logical.

But a firm offering many product lines, will find this structure less successful. In a product division based organizational structure, product heads are responsible for all functions relating to a product. This enables the managers to gain expertise of various functions relating to the product. Marketing plans can vary among product groups and need not be tied up with the overall organizational marketing plan.

Most MNCs in their initial stages of globalization employed an international division covering certain regions of the world to supervise the functions in those regions. But conflicts could arise between the functional heads and the heads of the international division.

WorldWide Area Structure and Strategic Business Units (SBU) are more popular forms of organizational structure in big corporations. SBUs function as independent organizations with a separate income statement and balance sheet. But the challenge of globalization and the growth in technology have brought about more complex organizational structures like the Matrix structure and the management networks.

Matrix organizations are a hybrid of the functional and divisional structures. Normally, this results in a subordinate having to report to two bosses. But matrix structures can prove very effective without any conflict in the reporting relationships, if they are well chalked out. Network or virtual organizations use technology to collect and disseminate information. They identify customer requirements and deliver products and services through a network of specialists.

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