Advantages
CHAPTER 3: THE ORGANIZATIONAL CONTEXT
an increase in the number of employees needed to oversee the activities between the parent firm and its foreign affiliates. W i t h i n the human resource function, the development of managers able to operate in international environments generally becomes a new imperative.^’^
As the M N E grows and the trend t o w a r d a global perspective accelerates, it increasingly con-fronts the ‘think global, act local’ p a r a d o x . T h e increasingly complex international environ-ment – characterized by global competitors, global customers, universal products, rapid technological change and world-scale factories – push the multinational t o w a r d global integra-tion while, at the same time, host governments and other stakeholders (such as customers, sup-pliers and employees) push for local responsiveness. T o facilitate the challenge of meeting these conflicting demands, the multinational w i l l typically need to consider a more appropriate strucr rure, and the choice appears to be either: the matrix; the mixed structure; the heterarchy; the transnational; or the multinational network . These options are n o w described and discussed.
The matrix
In the m a t r i x structure, the M N E is attempting to integrate its operations across more than one dimension . As shown in Figure 3.9, the international or geographical division and the product division share j o i n t authority . Advocates of this structural f o r m see, as its advantages, that con-flicts of interest are brought out into the open, and that each issue w i t h p r i o r i t y in decision-mak-ing has an executive champion to ensure it is not neglected. In other w o r d s , the m a t r i x is considered to bring into the management system a philosophy of matching the structure to the decision-making process. Research on the matrix structure” indicates that the m a t r i x ; ‘contin-ues to be the only organizational f o r m which fits the strategy of simultaneous pursuit of multiple business dimensions, w i t h each given equal priority … [The] structural f o r m succeeds because it fits the situation’ . I n practice, firms that have adopted the matrix structure have met w i t h mixed success. One reason is that i t is an expensive structural f o r m in that it requires careful implemen-tation and commitment (and often a great deal of time) on the part of top management to be successful.
FIGURE 3,9 Global matrix structure
Area 1
Area 2
Area 3
Product division A
Product division I
>
Manager
here
belongs to division
B and area 2
Product division C
Source: Adapted from C. Hill, International Business: Competing in the Global Marketplace, 2nd edn (MoGraw Hill, Newark, 1997) © The McGraw-Hill Companies, Inc. Reproduced with permission.
In Figure 3.9, area managers are responsible for the performance of all products w i t h i n the various countries chat comprise their regions, while product managers are responsible for sales of their specific product ranges across the areas. For example. Product A Manager may be
CHAPTER 3 THE ORGANIZATIONAL CONTEXT
concerned w i t h sales of Product A in Europe, the Americas and in the Asia-Pacific area. Product managers typically report to a Vice President Global Products (or similar title) for matters per-taining to product and to another Vice President (perhaps a VP International) w h o is responsible for geographical matters. There is a similar dual reporting line for functional staff, including H R staff. Country/Area H R managers may also be involved in staffing issues involving product division staff (reporting indirectly to Vice President Global Products). There may be additional reporting requirements to corporate H R at headquarters. One early and public supporter of the m a t r i x organization was Percy Barnevik, former chief executive officer of Asea B r o w n Boveri (ABB), the European electrical systems and equipment manufacturer. The decade-long efforts by ABB at m a t r i x control were very influential in the popular and academic press, intriguing executives at a number of global firms .
Overall, efforts to successfully implement the m a t r i x solution have been problematic . Bartlett and G h o s h a F ‘ comment that, in practice, particularly in the international context, the m a t r i x has proven to be all but unmanageable. They isolate four contributing factors:
Dual reporting, which leads to confiict and confusion.
- The proliferation of communication channels which creates informational logjams.
- Overlapping responsibilities, which produce turf battles and a loss of accountability
-
- The barriers of distance, language, time and culture, which often make it very difficult for managers to resolve conflicts and clarify confusion.
Bartlett and Ghoshal conclude that the most successful M N E s focus less o n searching for the ideal structure and more on developing the abilities, behavior and performance of individual managers. This assists in creating ‘a m a t r i x in the minds of managers’, where individual capabil-ities are captured and the entire firm is motivated to respond cooperatively to a complicated and dynamic environment . I t seems clear that if the M N E opts for a m a t r i x structure, particular care must be taken w i t h staffing. As Ronen^’* notes:
It requires managers who know the business in general, who have good interpersonal skills, and who can deal with the ambiguities of responsibility and authority Inherent in the matrix system. Training In such skills as planning procedures, the kinds of Interpersonal skills necessary for the matrix, and the kind of analysis and orderly presentation of ideas essential to planning within a group Is most Impor-tant for supporting the matrix approach. Moreover, management development and human resource planning are even more necessary In the volatile environment of the matrix than In the traditional organizations.
Mixed Structure
In an attempt to manage the g r o w t h of diverse operations, or because attempts to implement a m a t r i x structure have been unsuccessful, some firms have opted for w h a t can only be described as a mixed f o r m . In an early survey conducted by Dovvling ” o n this issue, more than one – third (35 per cent) of respondents indicated that they had mixed forms, and around 18 per cent had product or m a t r i x structures. Galbraith and Kazanjian”* also identify mixed structures that seem to have emerged in response to global pressures and trade-offs:
For example, organizations that pursued area structures kept these geographical profit centers, but added worldwide product managers. Colgate-Palmolive has always had strong country managers. But, as they doubled the funding for product research, and as Colgate Dental Cream became a uni-versal product, product managers were added at the corporate office to direct the R&D funding and coordinate marketing programs worldwide. Similarly the product-divisionalized firms have been
64 CHAPTER 3 THE ORGANIZATIONAL CONTEXT
reintroducing the international division. At Motorola, the product groups had worldwide responsibility for their product lines. As they compete with the Japanese In Japan, an international group has been Introduced to help coordinate across product lines.
A l t h o u g h all structural forms that result f r o m the evolutionary development of international business are complex and difficult to manage effectively, given an M N E ‘ s developing capabil-ities and experience at each new stage, mixed structures appear even more complex and harder to explain and implement, as well as control . Thus, as our discussion of the m a t r i x structure emphasized, it is important that all employees understand the mixed f r a m e w o r k and that attention is also given to supporting mechanisms, such as corporate identity, interperso-” nal relationships, management attitudes and H R systems, particularly p r o m o t i o n and r e w a r d policies.
Beyond the matrix
Early studies of headquarter-subsidiary relationships tended to stress resources, people and i n f o r m a t i o n flows f r o m headquarters to subsidiary, examining these relationships mainly in the context of control and c o o r d i n a t i o n . H o w e v e r , in the large, mature, m u l t i n a t i o n a l , these flows are multidirectional: f r o m headquarters to subsidiary; f r o m subsidiary to subsidiary; and between subsidiaries. The result can be a complex n e t w o r k of inter-related activities and relationships and the m u l t i n a t i o n a l management literature identifies three descriptions of organizational structures – the heterarchy, the transnational and the n e t w o r k f i r m . While they have been given different terms, each f o r m recognizes that, at this stage of international – ization, the concept of a superior structure that neatly fits the corporate strategy becomes inappropriate . The proponents of these forms are in agreement that multinationals at this
stage become less hierarchical . W e shall take a brief look at each of these more decentralized, The t f c organic forms .
The heterarchy
This structural f o r m was proposed by H e d l u n d , ” a distinguished Swedish international man-agement researcher, and recognizes that a M N E may have a number of different kinds of centers apart f r o m that traditionally referred to as ‘headquarters’. H e d l u n d argued that competitive advantage does not necessarily reside in any one country (the parent country, for example). Rather, it may be found in many, so that each subsidiary center may be simultaneously a center and a global coordinator of discrete activities, thus performing a strategic role not just for itself, but for the M N E as a whole (the subsidiary labeled ‘center” in Figure 3.10). For example, some multinationals may centralize research and development in a particular subsidiary. In a heter-archical M N E , control is less reliant on the top – to – bottom mechanisms of previous hierarchical modes and more on normative mechanisms, such as the corporate culture and a widely shared awareness of central goals and strategies.
From a H R M perspective, the heterarchy is interesting in that its success appears to rest solely on the ability of the multinational to formulate, implement and reinforce the required human resource elements. H e d l u n d recognized that the heterarchy demands skillful and experienced personnel as well as sophisticated reward and punishment systems in order to develop the nor-mative control mechanisms necessary for effective performance. The use of staff as an i n f o r m a l control mechanism is important, which we shall explore later in this chapter.
In a later article, H e d l u n d proposed a structural model he termed the N-form. This model builds upon his heterarchy concept and integrates w o r k f r o m knowledge organization scholars. H e d l u n d argued that a new structural f o r m is required to allow for knowledge management. H i s N – f o r m takes away divisions, allows for temporary constellations and the use of project
CHAPTER 3 THE ORGANIZATIONAL OONTEXL
FIGURE 3.10 The networked organization
teams and places stress on
lateral communication and dialogue between
units and individuals .
The top management role was presented
as that of a catalyst, architect and protector of k n o w l –
edge rather than a monitor and resource a l l o c a t o r . ” The
use of mechanisms, such as cross-func-
tional teams and empowerment of lower level employees
was advocated
to further support the
N – f o r m .
.
,
The transnational
The term transnationai has been coined to describe an organizational f o r m that is characterized by an interdependence of resources and responsibilities across all business units regardless of national boundaries. The term has also become a descriptor of a particular type of multina-tional, one that tries to cope w i t h the large flows of components, products, resources, people and information among its subsidiaries, while simultaneously recognizing distributed specialized resources and capabilities. As such, the transnational demands a complex process of coordina-tion and cooperation involving strong cross-unit integrating devices, a strong corporate identity, and a well-developed w o r l d w i d e management perspective. I n their study, Bartlett and GhoshaF^ noted:
Among the companies we studied, there were several that were In the process of developing such organizational capabilities. They had surpassed the classic capabilities of the multinational company that operates as decentralized federations of units able to sense and respond to diverse Interna-tional needs and opportunities; and they had evolved beyond the abilities of the global company with Its facility for managing operations on a tightly controlled worldwide basis through its centralized hub structure. They had developed what we termed transnational capabilities – the ability to manage across national boundaries, retaining local flexibility while achieving global Integration. More than any-thing else this Involved the ability to link local operations to each other and to the center In a flexible way. and In so doing, to leverage those local and central capabilities.
I n fact, the m a t r i x , the heterarchy and the transnational share a c o m m o n theme regarding the human resource factor. Therefore, developing transnational managers or global leaders w h o can think and act across national and subsidiary boundaries emerges as an i m p o r t a n t task for top management introducing these complex organizational forms . Staff transfers play a critical role in integration and coordination.*^”
