Since this structure overcomes some of the coordination limitations of the international divisional structure, it is suitable for companies that offer a wide range of products and services. Since the basic focus is on products, both domestic and international managers in each product division must coordinate their activities so that there is no conflict within the system.
2.2.2.4. Global matrix structure
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The global matrix structure is an organizational structure that divides the chain of command between product divisions and regional divisions.
Asia Division
Americas Division
European Division
Figure 2.6: Global matrix structure
The figure above shows: Each manager reports to two bosses, who are the presidents of the geographical areas. The purpose of the matrix structure is to integrate the managers of the geographical areas and the managers of the product lines in decision making. In fact, combining experts from different parts of the organization creates a new type of organization, the work group. The popularity of the matrix structure has increased because companies are trying to increase accountability, reduce production costs, and coordinate activities worldwide.
The matrix structure avoids some of the disadvantages of other organizational structures, especially improving internal communication and increasing the efficiency of highly specialized workers. In particular, the matrix structure can increase coordination while increasing flexibility and points of responsibility.
However, the global matrix structure has two main disadvantages:
- First , the matrix form is cumbersome. Many meetings are held simply to coordinate the activities of different department managers, allowing them to operate independently in a given area. Then, the need for complex coordination tends to make decision making time-consuming and slow down the response from organizations.
- Second , individual accountability can become ambiguous in a maze structure.
Because responsibility is shared, these managers can blame other managers for poor performance. Furthermore, it is difficult to identify the source of problems in a matrix structure and so is taking corrective action.
There are many other ways in which international companies can improve accountability and efficiency. One increasingly popular way in international companies is to use task forces to achieve goals and resolve problems. We will examine the use of task forces in more detail later.
2.2.3. Coordination mechanisms
International business companies are often divided into different units. Now we need to consider some methods of coordination between these units. There needs to be some method of coordination between these units in their activities.
One way to achieve coordination is through centralization of authority. However, if coordination is complex, centralization of authority may not be effective. The higher-level managers responsible for coordination may be overwhelmed by the variety of activities that occur among these units, especially if the units are large, disparate, and geographically dispersed. In such cases, firms turn to formal and informal mechanisms to achieve coordination.
- Coordination strategy in international business companies
The need for coordination between different units depends on the company's strategy. The need for coordination is lowest for domestic companies, second for international companies, then for global companies, and highest for multinational companies. Domestic companies are primarily concerned with local pressures. These companies often operate in a worldwide geographic structure, with each region having considerable independence and its own value creation functions. Because each region is established as a relatively independent unit, the need for coordination between regions is lowest.
The need for coordination arises for firms pursuing international strategies and attempting to benefit from the transfer of key technologies between the home country and foreign operations. Coordination is necessary to encourage the transfer of skills and products from the home country to foreign operations. The need for coordination increases for firms attempting to exploit location economies and experience curve benefits, particularly those pursuing global strategies. To achieve location economies and experience curve benefits, firms must disperse value creation activities across different locations around the globe. Global networks of activities must be coordinated to ensure that inputs are fed into the value chain,
Semi-finished products flow through the value chain, and finished products are conveniently delivered to markets around the world.
The need for coordination is greatest in transnational firms. It is assumed that firms simultaneously pursue location economies and experience curve benefits, local adaptation, and multilateral transfer of key technologies among units within the firm (also known as global learning). In global firms, coordination is required to ensure the smooth flow of products through the value chain. In international firms, coordination is required to ensure the transfer of key technologies among units. However, the transnational goal of achieving multilateral transfer of key technologies requires closer coordination than in international firms. Furthermore, multinational corporations require coordination between foreign subsidiaries and the firm's globally distributed value-creating activities (e.g., manufacturing, research and development, marketing) to ensure that any product launch or marketing strategy is tailored to local conditions.
- Obstacles to coordination
Managers in different divisions have different orientations, partly because they have different responsibilities. For example, production managers are often concerned with production issues such as maximizing productivity, controlling costs, and controlling quality; while marketing managers are concerned with marketing issues such as pricing, promotion, distribution, and market share. These differences can limit communication between managers. Managers may not even “speak the same language.” Or there may be a lack of respect between departments (e.g., marketing managers “look down on” product managers, and vice versa), which further limits the communication needed to achieve coordination and cooperation.
Differences in the orientation of units also arise from their different objectives. For example, a multinational's worldwide product divisions may have cost objectives, which require global manufacturing to produce a standardized product worldwide, while a foreign subsidiary may operate with the objective of increasing market share in that country, which would necessitate a nonstandard product. In such cases, these different objectives may conflict.
These obstacles to coordination are common in any company, but they can become severe in multinational companies with many domestic and foreign subsidiaries. Furthermore, differences in orientation at
Branches of multinational corporations often make coordination more difficult because of differences in time, distance, and nationality between managers in each branch.
- Formal coordination mechanisms
Formal mechanisms used to coordinate diverse units range from direct linkages, periodic communications to teams, and matrix structures.
In general, as the need for coordination increases, formal coordination mechanisms must become more complex. Direct linkages between branch managers are the simplest coordination mechanism. With this “mechanism,” managers of different branches simply contact each other whenever they have a common interest. Direct linkages may not be effective if managers have different orientations that hinder coordination.
Direct Contact Periodic Contact Group
Matrix structure
Increasing complexity of coordination mechanisms
Figure 2.7: Formal coordination mechanisms
As the volume of inter-unit linkages increases, coordination can be further improved by assigning an individual in each unit to be responsible for coordinating with another unit on a regular basis. Through these roles, a lasting link is established between the people involved, and this helps to reduce the coordination barriers discussed in the previous section.
As the need for coordination increases, companies tend to use temporary or permanent teams, consisting of individuals from multiple units that need coordination. These teams are often used to coordinate new product introductions and development, but they are also useful when any aspect of an operation or strategy requires coordination from two or more units. New product introduction and development teams often include individuals from research and development, manufacturing, and marketing. The resulting coordination helps product development better meet consumer needs and can be produced at a reasonable cost (as required for manufacturing).
As the need for coordination increases, companies tend to use temporary or permanent teams, consisting of multiple individuals from the units that need coordination.
This team is often used to coordinate new product development and introduction, but is also useful when any aspect of an operation or strategy requires coordination from two or more units. New product development and introduction teams often include individuals from research and development, manufacturing, and marketing. The resulting coordination helps develop products that are more closely aligned with consumer needs and can be produced at a reasonable cost (as required for the manufacturing process).
When the need for coordination becomes urgent, companies may establish a form of matrix structure, in which all divisions are linked together. This structure is designed to maximize coordination between divisions. As explained above, the most common matrix in multinational companies is based on geographic regions and product divisions around the world. This helps achieve a high level of coordination between product divisions and regions, and therefore, the company can pay more attention to local pressures, cost targets, and experience curves.
In some multinationals, this matrix is more complex, but it is still structured geographically, with product divisions and functions reporting directly to headquarters. Thus, in a company like Dow Chemical, each manager belongs to three structures (for example, the plastics marketing manager in Spain is a member of the Spanish subsidiary, of the plastics division, and of the marketing function). In addition to promoting local pressures, exploiting location economies, and taking advantage of experience curves, this type of matrix promotes the transfer of core competencies within the organization. This is often the case because core competencies tend to reside in functional areas (such as research and development, marketing). A structure like Dow's encourages the transfer of competencies that exist within functions and across regions.
However, as discussed above, this matrix solution can become bogged down in bureaucracy that creates as many problems as the ones it solves. Matrix structures tend to be bureaucratic, inflexible, and conflict-oriented rather than collaborative. As in the case of Dow Chemical, such structures need to be flexible and supported by informal coordination mechanisms in their operations.
- Informal coordination mechanisms
In an attempt to solve or avoid the problems associated with formal coordination mechanisms in general and with matrix structures in particular, companies with high coordination needs have been experimenting with two informal coordination mechanisms: management networks and organizational cultures.
+ Management network:
A management network is a system of informal connections between managers within a company. For this network to exist, managers at different locations within the organization must be connected to each other, at least indirectly.
Companies are now using their computer systems and telecommunications networks to provide the physical basis for informal information networks. Electronic mail, video conferencing, and high-frequency data systems make it easier for managers around the world to get to know each other. However, without personal contact, these global information systems are difficult to meet the integration needs of the company. Companies are using management development programs to build informal networks. Strategies include helping managers from different units learn to build informal networks based on regular contact, and using management education programs to bring these managers together in one location so they can become closer to each other.
+ Organizational culture:
Organizational systems may not be sufficient to achieve coordination if managers of individual units are pursuing subgoals that are different from the overall goal. For an organizational system to function properly, and a matrix structure to function well, managers need to have a commitment to achieving the overall goal.
To overcome this error, the organization's managers must maintain a common set of standards and values, that is, a corporate culture that must override the different orientations of the units. When this happens, managers will be willing and able to set aside the interests of their own units to focus on the interests of the company.
The question then becomes: how does a company build a common culture? The ability to establish a common vision for the company is quite difficult. Top managers need to define the company's mission and reflect this mission through organizational standards and values. These tasks need to be disseminated through the system. With the informal system in place, this can be achieved through management education programs to "socialize" managers in a system of company standards and values. For example, leadership is another important tool for building a common culture. Human resource policies also seem to play an important role. Simply selecting managers who are "team players" is necessary. Rewards, punishments, and incentives also need to be put in place to encourage managers to work together for the common development of the company.
2.2.4. Control system
A basic task of corporate managers is to control the company's branch units to ensure that their operations are consistent with the company's strategy.
overall financial and strategic objectives of the company. Companies have achieved this through different control systems. This section will summarize the types of controls used, and then consider their relevance to international strategy.
There are four main types of control systems used by multinational companies: personnel controls, administrative controls, output controls, and cultural controls. In most cases, all four are used, but the level of emphasis on each type varies depending on the company's strategy.
- Personnel control
Personnel control is the control of personal contacts with subsidiaries. This type of control tends to be more common in small companies, because it involves direct supervision of subsidiary operations. However, it also creates additional contacts between senior managers in large multinationals. CEOs have used this form to influence the behavior of subsidiaries, such as heads of product divisions around the world or of major geographic regions. These managers can use personnel control systems to influence the behavior of subsidiaries and the organization. For example, Jack Welch, CEO of General Electric, held private meetings with the managers of GE's major business divisions (most of which were international). He used these meetings to probe managers about the company's strategy, structure, and financial performance. In doing so, he used human resource controls to review the managers and strategies the company wanted to implement.
- Administrative control
Administrative control is control through a system of rules and procedures that directly affect the operations of the units. The most important administrative control of the units in multinational corporations is the control of budget and capital use. Budget management is usually through a system of rules for allocating financial resources of the company. These rules will reveal how much the unit can spend. For example, the research and development budget usually specifies how much money the research and development department will invest in developing a new product. Research and development managers know that if they spend too much on one project, they will have less money to invest in other projects. Therefore, they will adjust their behavior to spend within the budget. Most budgets are determined through negotiations between headquarters management and the management of each unit. Headquarters management can encourage the growth of certain units and limit the growth of others by adjusting revenue and expenditure budgets.
Capital expenditure laws require headquarters management to delegate capital expenditures.
of the unit to some extent. The budget allows headquarters the amount of capital that a unit can spend in a given year. And the capital spending guidelines for headquarters are a second control tool - control of how spending is done. Top managers can disapprove capital spending needs that differ from the overall goals of the company and vice versa.
- Output control
Output control involves setting goals for units to achieve, expressing these goals in terms of such indicators as profit, productivity, growth, market share, and quality; and then evaluating the performance of unit managers in terms of their ability to achieve these goals. The types of unit goals depend on the role of the unit in the company. Independent production departments, or subsidiaries, often have goals such as profit, sales growth, and market share. Functional units often have goals related to their operations. For example, G&D will have new product development goals, the product department will have productivity and quality goals, and the marketing department will have market share goals.
Similar to budgetary control, targets are typically set by discussion between the units and headquarters. Headquarters typically sets challenging but realistic targets, and unit managers seek to improve performance without pressure, finding unusual ways to do so (e.g., maximizing short-term profits). Output control encourages a system of “management by exception.” Units are eliminated unless they meet their targets. If a unit fails to meet its targets, managers at headquarters ask tough questions. If they do not get satisfactory answers, they may intervene in the unit’s operations, replace the manager, and seek to improve its performance.
Output control is often reinforced by linking management to reward and punishment plans. For example, if a product division worldwide achieves a profit target, the manager of that product division might receive a bonus. The bonus might reflect the extent to which the unit exceeds its targets, so that unit managers have an incentive to maximize their performance.
- Cultural control
We mentioned cultural control in the previous section, when we discussed organizational culture as a means of encouraging coordination. Cultural control exists when employees are loyal to a system of corporate norms and values. When this is present, employees tend to control their own behavior, reducing the need for direct supervision. In a highly unified company