Management of Multinational Corporations ( MNCS )
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Chapter 6 : Organizational Structure of MNCs
Defining Organizational Structure
Arguments for Centralization
Arguments for Decentralization
Worldwide Area Structure
Strategic Business Unit
Product Division Structure
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
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.