14.7 Organizational structure and human resource management  (Page 2/6)

Advantages : The international division is effective in consolidating international activity under one area of responsibility. Such a division develops international expertise that can serve all areas of the organization. This eliminates the need for every part of the organization to master the ins and outs of doing business overseas (this can sometimes be quite complex).

Disadvantages : On the other hand, the existence of an international division encourages the organization to approach their business in an artificially dichotomous manner. Part of the business organization focuses primarily on the home country market, while the international division serves “the rest of the world”. In most organizations such a structure lends itself to a continuing preoccupation with the home country market.

As a company becomes more serious about overseas business, it often finds it useful to adopt a more sophisticated global structure. Four examples of such organizations are included below.

Global functional structure

A global functional structure is often adopted by companies with a very limited product scope. A CEO will oversee a number of business functions that have been identified as critical to business operations. Because the product mix is singular or limited, the CEO can coordinate the work of the functions and bring the resources of each to bear on the product line. In this case, the CEO serves as the common denominator between the functions.

Advantages : In many organizations, the primary sources of expertise are functionally based. Therefore, economies of scale can be achieved by grouping these resources by function. In the case of human resources, for instance, a central human resources function can serve as a consultant to all parts of the organization on issues such as pay and performance evaluation. This eliminates the redundancy occurring when multiple parts of the organization attempt to develop such programs on their own. A functional organization also enables the organization to standardize policies, practices and procedures that can be carried out throughout the organization.

Disadvantages : The primary focus on business functional activity, often distracts organizations from specific product requirements, customer needs, and geographic idiosyncrasies. With the top of the organization serving as common denominator and arbiter between the functions, strategies may not reflect realities on the ground as decisions are made without the benefit of close interaction with customers and deep understanding of local circumstances.

Exhibit

Product structure

A global product structure is often chosen in companies with an array of diverse product lines. Each product line is assigned to its own organization unit so that decision-making is focused on the product characteristic and the customers who will be targeted. In many cases, the product unit will have its own functional organization—in essence, operating as a stand alone business in the context of the larger organization. In many cases, a product unit will be managed with full profit and loss responsibility.