Your firm organized its foreign operations in an international division. With foreign markets growing fast, the firm considers changing its organizational structure. What options does it have? What are the pros and cons of each option?
Figure 1 illustrates the relationship between each elements of organizational architecture. Hill et.al (2012) identifies these elements one by one. Organization structure means three points. First, the formal division of the organization into subunits, such as product divisions, national operations and functions; second, the location of decision making responsibilities within that structure; third, the establishment of integrating mechanism to coordinate the activities of subunits including cross functional team and pan regional committees. Control system is the method to measure the performance of subunits and to judge the managers when running those subunits. Incentives are used to reward appropriate managerial behavior. It is close connected with the performance. Processes refers to the manner in which decisions are made and work is performed within the organization. Organizational culture refers to the norms and value systems that the employees of an organization share. People here means both the employees of the organization and the strategy used to recruit, compensate and retain those individual and type of people with skills, values and orientations. Organizational structure
The organizational structure has three dimensions: vertical differentiation, horizontal differentiation and the integrating mechanisms. Each dimension will be explained below. Vertical differentiation
The vertical differentiation indicated the location of decision making responsibilities within a structure. The vertical differentiation has two types of arguments: centralization and decentralization. There are four main arguments for centralization. First, centralization can facilitate coordination. An example might be a company have several different components manufactured in different countries which need coordinated. It can be achieved by centralizing production scheduling by managers. Second, centralization can help ensure that decisions are consistent with organizational objectives. Third, concentrating power and authority in one individual or a management team can assist the top level managers to bring about needed major organizational changes. Fourth, centralization can avoid the duplication of activities by several subunits with similar activities, which can improve the efficiency. There are also five arguments for decentralization. First, the top level manager may get overburdened, which may result poor decisions. Decentralization can solve this problem. Second, researches show that people are willing to give more to their jobs when they have a greater degree of individual freedom and control. Third, more rapid response to environmental change with greater flexibility is provided by decentralization. Fourth, decentralization can result in better decisions. This is because in a decentralization structure, the decisions can be made by person with better understanding and more information than managers. Fifth, decentralization can increase control by establish relatively autonomous, self-contained subunits within an organization. The responsibility of subunit managers are closely connected with the subunit performance. Therefore, centralize some core decisions and decentralize some operating decisions may be worth trying. Horizontal differentiation
The horizontal differentiation is concerned with how the firm decides to divide itself into subunits. The decision is usually based on the firm’s function, type of business and geographical area. Domestic
According to Hill et. al (2012), many firms begin with no formal structure and are run by a small group of people. When the firms grow, the organization is split into functions reflecting the firm’s value creation activities because...