HARNEADO

According to Bartlett and Ghoshal, MNEs are represented by units spread throughout the world that need to be coordinated or integrated in some form and to some degree. The differentiation and integration of units needs to be done with some attention paid to being globally competitive, efficient, responsive and flexible to local needs and conditions and being able to transfer their learning across units. In essence, MNEs are firms that need to be global and local (multi-domestic) at the same time. There are, however, varying levels of ‘globalness’ and

‘localness’ that MNEs need to achieve through appropriate organization structure.

Organizational structure is a representation of the formal reporting relationships within an organization and its affiliating entities. Organizational structure refers to the way that an organization arranges people and jobs so that its work can be performed and its goals can be met Organizational structure, according to Stephen P.

Robbins is a composite term covering three important aspects namely, differentiation, formalization and centralization.

Differentiation: If we take differentiation alone, there are three dimensions, the horizontal, the vertical and the spatial. Horizontal differentiation arises due to differences in orientation, nature, tasks, skills of the organizational constituents. Vertical differentiation refers to the depth of the structure and the number of hierarchal levels.

Spatial differentiation refers to the geographical spread of an organization. A multi-location, multi-nation organization like an MNE has all the three differentiation. With more locations and distances among them, spatial differentiation increases. Whatever the type of differentiation be, differentiation as a structural factor influences organizational style, culture, climate, decision orientation, etc. Greater the differentiation, greater is the complexity – complexity in communication, conduct, coordination and control of organizational functions.

This complexity complicates flow of work and relationships. Size and differentiation go together; Task variety and differentiation go together; so do differentiation and complexity.

Is there a way out? Matrix organization is suggested. But it is branded as ‘logicalness’ by Thomas J Peters and Robert H Waterman Jr., as everything is hooked to everything else. These authors quote from the experiences of best-run companies in America that simple form is the one that avoids complexity and hence positively contributes to organizational functioning. It is a matter of conventional wisdom that simplicity gets off well whatever the situation is. The MNE, Johnson & Johnson, USA has proved to the world that size is not the factor that needs extremely differentiated structure. Have autonomous units. Instill the value you cherish among those units and let them have operational freedom. This results in amicable relations and a good performance too.

Complex structures, matrix or otherwise, charges the climate with more heat, than light.

Formalization: The second structural aspect is formalization which refers to the adherence to set rules and procedures. Actually, formalization tries to reduce the complexity and confusion resulting from differentiation referred to above, by prescribing intended behaviour on the part of constituents. This helps in knowing and foreseeing behaviour of each by all and thereby helps to toning up one’s own behaviour. So, formalization brings about understanding, a factor that positively affects organizational functioning. But, the point is that all organizational functions cannot be formalized; nor such formalization is desirable. Over-done formalization

makes the organization more mechanic/ compartmentalized and less organic or social. So, greater the dose of formalization, lesser the degree of adaptability to the emerging business order of extended competition.

Organizational events are diverse and therefore require varying authority, practice, procedure and all, whereas formalization deprives all these and forces only rigidity. Is there a solution? Yes. Instead of specific rules and procedures, the structure should develop alternative approaches from which one can choose the right one or develop a mix as circumstances warrant. This sort of structural pattern gives both direction and freedom and thus creates a congenial climate for the functionaries.

Centralization: Centralization, namely the degree to which decision making is concentrated at a single or relatively a few points, is another aspect of structure. In a tight-centralized organization more is the degree of concentration of decision-making authority. What is the effect of this? Decisions are taken at points remote to their points of execution. The executives at the task points have to look up for orders and directions. In this sort of situations, the functionaries are reduced to mere media to carryout things, they having nothing to do with any aspect of the things carried out. A situational adaptation may be needed, but there is no way. A kind of

‘militarization or regimental syndrome’ results eventually. In course of time, a detachment sense would prevail in the whole of organization. Tom Peters and Waterman Jr. in their celebrated book, ‘In search of Excellence’, point out that most of the best companies really do view themselves as an extended family.

Family means attachment, equity etc. Centralization spells detachment and hierarchy. The former breeds love, belongingness and an enduring congenial relationship, while the latter leads to distrust or bureaucracy or apathy. Alvin Toffler also rightly writes in his book, ‘Third Wave’, break the codes of which one is

‘centralization’. Can we do away with centralization altogether? But that is not the solution or intention. We have to use it in appropriate measures.

Differentiation, formalization and centralization all no doubt give shape, orderliness and uniformity to organizations. But these are not all that always wanted. An over dose of any or all of these structural factors make the structure rigid, mere physical creations devoid of dynamism. If that results, organizations lose their charm, their synergistic effect and their human side. What can managers do about this? Managers generally inherit a certain structure from predecessors. If they find that the structure is rigid the same has to be loosened and if it is too loose it must be tightened a little. So, there is no either or dictum; nor De-structuralization; it is a question of how much differentiation, formalization and centralization.

Specialty of MNEs: MNEs have all the varieties in the world. They can adopt varied patterns; but beware of faltering on the performance benchmarks or intended level of control. MNEs try to set up organizational structures with strategic intent in mind. The strategic intent is effective alliance with the environment or unfolding situations. The structure depends on many factors, including

The degree of multi-domestic, global & transnational policies employed, location & type of foreign facilities and extent of intended impact of global operations on total corporate performance influence structural diversities, uniqueness and nuances. The form of operation (out-sourcing or off-sourcing or otherwise), structure (wholly owned / JV / strategic alliance or otherwise), and location of operational units in specific locations at home and abroad will affect top-line, bottom-line, mid-lines like taxes and expenses and control thereon.

Hence, the significance of organizational structure on the fulfillment of corporate objectives of MNEs in particular. Now certain major traditional and emerging organizational structural patterns of global operations of MNEs may be dealt.

Traditionally, organizations are structured along many factors, including history, organic growth, strategy, operational design, product diversity, logistics, marketing, client base, supplier base and so forth. Even these are classified as: Mechanistic and Organic structures.

Mechanistic structures include centralized control and authority, clearly defined tasks, vertical communication links, obedience to supervisors, rigidity and inflexibility. The structures vary from vertical or tall structures with multiple hierarchies to flat structures with few layers. Organic structures involve decentralization of authority, tasks loosely defined, horizontal communications, greater individual authority, flexibility and adaptability. The structures vary from loose structures to structure-free forms as well. Structure apart, essentially what is important is lines of communication, systems of coordination mechanisms of control and schemes of evaluation which facilitate tangible progression of ideas from problem to solution in every domain. There must be schemes of permeability facilitating flow of creative ideas from teams working outside but linked into the organization.

Basic structural options

Between centralization and decentralization, between differentiation and unification and between formalization and in-formalization, we have certain broad choices. At one end of the continuum you have centralization, unification and formalization (total structured form) and the on the other you have decentralization, differentiation and in-formalization (total de-structured form). In between these polar versions, we have more structured forms, moderately structured forms and less structured forms. Table 3.1 below gives the features of the different patterns.

Table 3.1: Patterns of Organization of MNE’s