LA ÉTICA EN LA EVALUACIÓN INSTITUCIONAL

In a geographically organized company, the level below the CEO comprises executives who are responsible for various areas of the world. Each is responsible for maximizing financial results within that area, for all of the firm’s products. Nestlé’s manager for Germany, for example, is responsible for the total company results in the country, and it is up to him or her to decide how much attention is to be given, for example, to frozen foods, chocolate, coffee, or pet food, within that market.

Managers and employees at all levels in geographically based organizations get to know their area well. They know the politics, the changing tastes of consumers, the local com-petitors, the labour market, and so on. Thus, a geographically based organization is likely to be skilled at tailoring products and marketing approaches to local conditions. So, if your strategy is to adapt your product and marketing approach to local tastes (as is common in the food industry, for example) a geographically based structure may be the way to go.

A geographic structure may also help if you are trying to learn how to do business in areas of the world that are new to you. For example, in a geographically based organiza-tion there would likely be a general manager for China, to whom the heads of all the company’s businesses in the country would report. This would maximize the opportunity for learning among the businesses, and allow the company to have a “China strategy” that would not be possible if each business reported into a separate worldwide organization.

Any contact between the businesses within the country would be at their own initiative, and not naturally fostered by the organization structure.

The disadvantage of geographic structures is that they do not naturally lend them-selves to global efficiency. The management team in every country usually has a reason why its product, marketing approach, advertising copy, and so on, need to be different.

Some of these claims may be entirely justified, but others may just be a bid for local auton-omy, to keep decision making within the country unit and away from head office.

There has been a clear movement towards product structures, at the expense of the traditional geographic structure. Procter & Gamble (P&G) announced in mid-1998 that it would abandon its long standing regional structure of four geographic divisions, and cre-ate three new global product divisions: laundry detergents, diapers, and shampoos. Each global business unit would have full profit responsibility and “all the resources it needs to understand consumer needs in its product area and to develop innovative products to meet those needs.”¹³ The company judged that it needed to get new products to market in half the time that it currently took.

In its 2003 Annual Report P&G reported that

We have the resources to interact with customers on multiple levels including finance, logistics, marketing, shopper understanding and a wide range of services. We bring deep category understanding with global consumer research. We create greater value through the total supply chain by pooling knowledge, expertise and reach. We designed the new P&G organization with an eye toward these core capabilities, and are focused more explicitly than ever on getting the greatest value from them. The restructuring is complete and the new organization structure is fully implemented. We have created an organization unlike any other in the consumer products industry and it is producing significant competitive advantage.¹⁴

Indeed, in 2003—the last year in which a re-structuring charge appeared on the bal-ance sheet—P&G’s sales grew eight percent (all organic growth) to $43.4 billion with earnings climbing 19 percent, and continued revenue growth to $76.4 billion in 2007. In our terms, the new capability that P&G developed is clear, and the reorganization is one of the tools specifically designed to bring that about.

Matrix

Matrix structures are used by companies that do not want to put one element of organiza-tion, say product line or geography, in a superior position to others. Rather than having one primary organizing logic, they have two, or possibly more, which results in a number of managers reporting to multiple bosses, as illustrated in Figure 8.3. Thus, a marketing manager located in France may report to the president of the French subsidiary, and to a vice president of a worldwide marketing function for the product line that he or she is selling. Managed properly, such a structure encourages managers to pay attention to both local needs and worldwide product strategies.

One historically successful user of a worldwide matrix organization was Asea Brown Boveri (ABB). This Zurich-based multinational operated in 50 business areas and 1,100 local geographic regions. For ten years the company employed a matrix structure in which the presidents of the 1,100 companies reported to two bosses—to a business area boss and to the president of the national company. Percy Barnevik, former CEO of this 240,000 employee company, commented on the rationale for the firm’s matrix organization:

ABB is an organization with three internal contradictions. We want to be global and local, big and small, radically decentralized with centralized reporting and control . . . . That’s where the matrix comes in. It allows us to optimize our business globally and maximize performance in every country in which we operate.¹⁵

Offsetting these potential advantages, however, is the fact that matrix organizations are extremely complex, and tend to be slow moving. The major difficulty is the ambiguity that arises from managers reporting to multiple bosses. Responsibility and authority are

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diffused, and power balances are not as clear-cut as they are in straightforward hierar-chical organizations. Matrix organizations require matrix-minded managers in a “matrix culture”—both of which are rare and difficult to develop. One study concluded: “If you do not really need it, leave it alone. There are easier ways of managing companies.”¹⁶ Goran Lindahl, who took over as CEO from Barnevik, seemed to agree, and the company soon moved to a straightforward product-based organization. Lindahl described the change as

“an aggressive move aimed at greater speed and efficiency by further flattening and focus-ing the organization.”¹⁷ The age of the matrix organization may not be over, but it cer-tainly seems to be in decline.

Cellular

On the increase is a relatively new organizational structure called the cellular form.

Knowledge intensive industries such as biotechnology, information technology, medical instruments and devices, and software development companies for example, rely on R&D for discoveries and innovations that can be converted into new products. Given the ris-ing costs (and decreasris-ing returns) of “in-house” R&D investments, firms are findris-ing new ways to organize to take advantage of knowledge and expertise outside the boundaries of a traditionally structured organization. The cellular structure is one way that firms use structure to tackle issues of costs, changing markets, flexibility, and the advances of technology and knowledge. In the cellular form the organization is essentially a cluster of loosely linked “cells” that may or may not be linked with other cells in the organization (Figure 8.4 represents a stylized cellular structure). Each cell is led by a project manager and might have one or only a few other employees of the company, but would likely have

Figure 8.4 Cellular Structure

External Organization

Porous Boundary

Project Leader Employee Outside Expert

Customer

Strategic Alliance

Internal “alliance”

Organizational Core

External Organization (University) Cells

a larger number of contract employees, contract researchers, or “visiting” experts from external organizations.

An Australian information technology firm, TCG, has a cellular structure. When a new technology project starts up, it does so in the form of a self-directed cell under the leadership of a project manager who seeks the financing, human, knowledge, and other resources for the project. The cell might establish linkages with suppliers, and collabora-tive relationships with potential customers. The project leader may bring experts from industry or from universities into the cell on a contract, consulting, or other limited basis.

They may form strategic alliances to fill knowledge or resource gaps. The advantage of cellular forms is their flexibility generated through a focus on entrepreneurship, self-orga-nization and, usually, high degrees of ownership by the cell’s members. For many senior managers a cellular structure is an uncertain proposition. The model requires decentral-ization including lack of central direction, a belief or philosophy that assumes that great ideas can be generated elsewhere than within the organization, and a well managed trust in others and other organizations which may involve sharing intellectual property while developing and leveraging new knowledge—a complicated, and for many managers, a risky, way to run an organization.