If a firm takes a decentralized, geography-based approach to organizing work, then its configuration is multi-domestic. The multi-domestic organization customizes operations to specific countries or regions, offering unique products or services to meet local preferences. The multi-domestic is like a divisional form. Work is organized to exploit local opportunities, especially the cultural, political, and geographic opportunities associated with a given locale. Div- isions or other operations are located in different locales to yield local respon- siveness to customers, not to yield optimal sourcing. The multi-domestic organizational design can be very effective for the firm that is entering markets which are very different from the home locale, where management has little experience in the new locale and wants to benefit from learning about
customer needs or possible ways of doing work in that locale. This type of organizational design is flat in shape rather than tall, meaning that work practices will vary as a function of locale. The locale could be a region or a country.
Consider the case of 3M in the US. As the firm entered Europe in the mid- twentieth century, it took a multi-domestic approach. At that time the com- pany was interested in acquiring research and development expertise in Europe and in generating new business there; however, the American management had relatively little knowledge about local ways of doing work, customer needs, and so on, across the European market. Further, the European market was fragmented, with language, currencies, employee work practices, and customer tastes all varying across countries. Given these environmental conditions, along with a strategy of exploration in the European market, 3M established country-based organizations, and gave each a high degree of autonomy to manage work and grow the business in these countries (INSEAD, 1994). By the end of the twentieth century, conditions were different. The EU was established, work practices were more similar across Western Europe, and, in general, the European market became more (though not entirely!) homogeneous. With this environmental change, 3M moved to a regional-centered design, consolidating the country operations. Locale remains a cornerstone of 3M’s organizational design today, with operations organized as a function of region, including the Americas, Western Europe, Eastern Europe, Russia, China, Japan, Southeast Asia, Africa, and the Middle East. Organizing by locale supports high local responsiveness. Products and services, as well as management of employees and work tasks, vary as a function of region to provide maximum local responsiveness.
Like the divisional configuration, the multi-domestic approach to structur- ing work supports growth via exploration of new products and services. The multi-domestic configuration is a good choice of organizational design if the source of growth is geographically based. Consider our example of the software development firm, headquartered in Arlington, Virginia. Suppose the firm seeks to grow the service side of its business, offering a variety of project management services to customers that use its project management software. If the firm assesses the environment and determines that service needs are quite different in, say, developed countries versus developing countries, and, further, that there are major differences in service needs in Asian countries versus Western countries, the firm could adopt a multi-domestic organizational design for management of its service business. The firm might establish
regional operations in Japan or Singapore to service the many developed economies of Asia. It might then establish a country-based operation in main- land China to explore the unique needs of that market. Similarly, it might locate an operation in London from which it would service the Western European market, with additional offices in Moscow and Budapest, to service the unique needs of these more volatile, growing economies. The multi-domestic approach involves significantly more investment for the otherwise corporate- centered firm. This approach to organizational design requires that the firm establish local presence, develop employees to manage in that locale, and so on. But the potential payoffs for growth are great, if the locales are selected and managed well. Over time, less successful local operations can be shut down, while those that are more successful can be allowed to grow.
Transnational
The transnational organization blends the international and multi-domestic structures to yield both the location advantages of regional or country-based design and the economic efficiencies of optimal sourcing. In the transnational design some operations are located close to needed resources; but location decisions also are made such that the firm has presence in all areas of the world that are of strategic importance. In this way, the organization develops cus- tomized offerings by region while at the same time gaining efficiencies through worldwide centers of operation. The transnational organization takes a sophis- ticated approach to locating its operations. Some are centralized in the home locale; some are optimally sourced, wherever those sources are located; and others are distributed among country or regional operations.
Unilever, Procter & Gamble, and NEC are examples of companies that have adopted transnational designs (Bartlett and Ghoshal, 1998). Consider the deter- gent business within Unilever. Research and product development activities are located based on optimal sourcing. Basic research facilities are located in the US and Europe, in centers close to universities and ample supplies of chemists and chemical engineers. Product development groups, on the other hand, are located close to the business units that they serve, wherever that may be in the world. There are manufacturing facilities in Asia and Latin America, where natural resources are available and labor costs are relatively low, but sales, distribution, and service operations are localized, in some cases by country, or even a region within a country, to reach and respond to the needs of particular customer groups.
Why choose a transnational design? This design makes sense if the organiza- tion has diverse and conflicting strategic needs and/or high variation in the business environments the firm confronts as it moves outside of its home country. Suppose you manage the software company described earlier, with corporate headquarters in Arlington, Virginia. You might take an optimal sourcing approach to locating a technical support or call center, perhaps placing both facilities in India despite the low presence of customers in that country. At the same time you might locate sales and service operations in London, Moscow, Budapest, Japan, and China, so that you reach your major strategic markets. These facilities might operate somewhat differently, depending on the needs of customers in the regions they serve and the degree of investment your company intends to make in the particular region. The transnational approach to your organizational design means that you disperse subunits, develop specialized centers of operation, and then link these through effective management of interdependent relationships (Cullen, 2002).
The transnational is the most complex distributed design to manage because some aspects of the firm’s work are region-centric whereas other aspects of the firm’s work are resource-centric. Like the matrix organization, management of the transnational organization requires a combination of centralized and decentralized decision-making. Managed well, the transnational design can bring the benefits of high efficiency and effectiveness to a firm. The corporate headquarters must be very adept at knowing what work is best located as a function of sourcing and what work is best located to yield local responsive- ness. Most important, once the location decisions have been made, manage- ment must be adept at coordinating among the firm’s distributed operations. This means that there must be structures to support the exchange of knowledge among the various geographic locales. We now turn to the possibilities for organization of knowledge exchange.