Integrated global structures

Senior management may choose to replace the international division with an integrated global structure. This is done in response to increased product diversity and to get as much benefit as possible from both domestic and foreign operations. This structure can be organized along functional, product, geographic or matrix lines.

Functional structures

The major concerns of managers adopting this model are the functions of their companies, including production, marketing, finance, work systems and the management of personnel. Overseas operations are integrated into these existing specialized functions in all departments to achieve economies of scale. Each function – such as marketing – is overseen by people at global headquarters.

This is an unusual set-up for general business enterprises, but it can be found in natural resource industries such as mining and oil. It is used also by small firms with highly centralized systems. It is particularly appropriate for product lines using similar technology and for businesses with a narrow spectrum of customers, resulting in plants that are highly integrated across product» and that serve single or similar markets.

Advantages:

· Small number of staff needed in global headquarters

· High level of centralization and coordination

· Integrated vision worldwide

· High level of functional expertise.

Disadvantages:

· Difficult to coordinate regional production and marketing

· Except for the chief executive, managers and staff have no responsibility for business achievement

· Probability of serious management problems due to the large number of production lines

· Many advantages from economies of scale and functional specialization may be lost if managers and work systems become too narrowly defined to have the necessary flexibility to respond to local environments.

Product structures

These arise when departments are set up with full responsibility for global products in marketing, financial management and production. The senior manager in charge of each global product department has similar authority to the subsidiary’s general manager. Each department is a profit center and has great flexibility' and independence.

Enterprise managers adopt this model when the operation is in an early development stage. The main objective is to raise the level of global coordination. A global product structure provides an integrated and centralized plan to increase each subsidiary’s efficiency in product promotion. It also provides the means of adjusting product specifications and characteristics to satisfy local market demands.

Advantages:

· All support functions based on product, not region

· Manufacturing based on customers' requirement

· Research and development directed to global customers' wants and needs

· Emphasis on world market and cross-border coordination

· Integrated and centralized world vision.

Disadvantages:

· Duplicates support functions within each global product department

· Senior manager of global product department normally comes from domestic marketing department, therefore may lack requisite experience

· Subsidiary management concentrates on maximum investment returns

· Coordination and corporate learning across product group* more difficult.

An example of how to overcome this last problem comes from the Japanese electronics industry. Formerly, the parent organization transferred knowledge and technology to the subsidiaries – often a difficult and complicated business. More recently, Matsushita and Murata changed their policies and upgraded the technologies in their subsidiaries in Singapore, Taiwan and Korea. By this means they differentiate product designs and supply them as needed to plants in East Asia. Any company might use this strategy towards reorganizing itself into an area or worldwide conglomerate.

Area designs

These are created to organize activities around specific areas, as part of polycentric or multi-domestic policies. They are most likely when products are not readily transferable, for market-driven strategies, or if a firm’s competitive strength is in its reputation for brand- name products. Cadbury Schweppes PLC, the British soft-drink and confectionary firm, is a good example.

Advantages:

· A geographic focus allows the development of local expertise.

Disadvantages:

· Lost cost-efficiencies (no global production);

· Slow diffusion of technology;

· Duplication of resources;

· High cost of coordination across areas;

· Discourages global product planning.

Grouping a number of countries under a region is an example of a global area strategy. Together, the various agencies provide services to brand owners such as BAT, P&G, Volkswagen, Microsoft, AXA and Nokia.

A domestic example of an area, or market-oriented, strategy is one that led to reform in the Australian electricity industry. From World War II until the early 1980s, electricity in Australia was provided by public monopolies owned primarily by state governments, and operated as statutory authorities. The reforms of the 1980s and 1990s were designed to change almost even aspect of these institutional frameworks. The integrated, state- owned and bureaucratically run electricity monopolies were replaced by a profit-oriented, privately owned industry operating in a competitive national market characterized by clear separation between activities of generation, transmission and distribution, and retailing. Though full privatization has been rejected in several states, for the most part consumers are free to choose their supplier in a competitive retail market.

Matrix structures

These are hybrids of overlapping responsibilities. One advocate of this structure is business journalist Darren Bagulf. In an article for the Australian Institute of Management in July 2006 he argued for 'the matrix' – that new styles and concepts of management arc making organizational hierarchies more horizontal and responsive to the needs of a fast-changing market.

Traditional vertical management structures are proving inadequate because it is easier to sell existing customers additional products or services than it is to get new customers.

Such structures are not new: they first came into vogue in the late 1980s, and are common in manufacturing as well as investment banks. The idea is simple enough: there are two different lines of authority that, in theory at least, work together to make a balanced decision. No one person has sole decisional power over any given situation. Effectively, this breaks down the traditional, vertical, hierarchical command-and-control style that emerged from die industrial revolution.

Another driving force behind the development of matrix structures is that many firms have centralized functions, globally supported by geographical business units.

While the idea behind the matrix' is simple, it is complicated in execution and most managers struggle to get it right. Nevertheless, companies – especially large ones – are perennially restructuring to adapt to new situations. Thus managers of firms in start­up mode will find a certain structure works well; but it may not be good for established businesses aggressively trying to grow market share; and needs are different again for market leaders frying to maintain their position. A matrix may be appropriate at one of these stages.

A major advantage of matrix structures is that, as well as aligning firms more closely with the needs of their customers, managers can also gain efficiencies by centralizing functions such as marketing, information technology', finance and human resources to support a range of business units. However, it may be that any efficiency gains will be offset by the fact that matrices by their very nature tend to create conflict and confusion. For example, employees have to talk to each other a great deal, hold more meetings and find it more difficult to identify who should make decisions.

On the other hand, introducing a matrix can promote cultural and leadership change by its absolute requirement for collaboration, but if that comes at too high a cost the structure is likely to revert fairly soon to a more traditional model. Moreover, power in any organization lies ultimately with whoever controls the budget. If real power is only vested in one person, then the other lines of reporting are merely those of influence.

When Suncorp Metway restructured in 2003, a traditional matrix structure was considered but ultimately senior managers chose to design a hybrid structure in an attempt to incorporate the strengths and minimize the weaknesses of a matrix. Basically, the result was a structure with clear lines of accountability and reporting lines for all concerned while making sure that it was still very much a collaborative cross-business approach.

The ramifications can be serious for companies with inappropriate structures. Not only will the bottom line suffer but also such firms will fall behind from the perspective of market share. They may find themselves mere followers in the market because their ability and agility to innovate is badly hampered. Twenty-first-century internationalization and new communication technologies have exposed many limitations in traditional forms. One solution may be to develop corporate designs that resemble a matrix with a horizontal form of authority superimposed over vertical levels – as well as reporting up the hierarchy, individuals will be responsible also for reporting across it.

For example, a product manager in the branch of a global company might be responsible to the global chief of a particular product line for matters related to that product, but the same manager may also report to the local sales manager for sales targets. As a result, decisions regarding the product would take into account the needs of both managers – although the weighting would usually not be 50-50 as this would tend to lead to conflict.