Organisational Structures of Multinational Corporations

Organisational Structures of Multinational Corporations

Types of Organisational Structures

  • Necessity of Organisational Structures
    • Businesses begin as small enterprises with the founder managing all activities.
    • As a company expands, it becomes challenging for one person to coordinate all employees, which leads to the need for formal organisational structures.
    • Organisational structures define relationships among company parts, influence information flow, and help achieve organisational objectives.
Functional Organisational Structure

  • Basic Concept

    • A functional structure organizes departments based on main business functions (production, marketing, accounting).
    • As the company expands internationally, an export department may be added to handle international activities.
    • Simplified example of an international car manufacturer:
    • 1st Level: Corporate Management
    • 2nd Level: Exporting, Production, Marketing, Accounting
    • 3rd Level: Product-specific departments (e.g., types of cars produced)

  • Advantages

    • High degree of specialization and efficiency.
    • Economies of scale (e.g., bulk purchasing).
    • Clear departmental objectives (e.g., marketing maximizes sales, production minimizes costs).

  • Disadvantages

    • Potential for inter-departmental conflicts (e.g., production vs. marketing on special requests).
    • Coordination and communication issues requiring corporate management intervention.
Divisional Organisational Structure

  • Basic Concept

    • Division structure emerges as companies grow and find functional structures inadequate for coordination.
    • Organizes departments by product lines, regions, or customer types (e.g., corporate vs. consumer).
    • Example in car industry: Each product line has its own production, marketing, and accounting departments under corporate management.

  • Advantages

    • Focused approach enables specialization per product line (e.g., sports cars, SUVs).
    • Easier assessment of each division's contribution to company success.

  • Disadvantages

    • Inefficient resource usage due to duplication of departments.
    • Conflicts arise if divisions operate independently without coordination (e.g., marketing strategies).

Evaluating Organisational Structures of MNCs

  • Criteria for Evaluation:
    • Responsibilities: Managerial accountability at various hierarchy levels (centralized vs. decentralized).
    • Communication Channels:
    • Top-down decision-making (chain of command).
    • Reporting structures: Tall (many levels) vs. flat (few levels) hierarchies.
    • Coordination Effort: Necessary integration of activities across departments or divisions, affecting overall efficiency.
Responsibilities
  • Authority vs. Delegation:
    • Centralized structures concentrate decision-making power at the top level, while decentralized structures allow lower management levels to make decisions.
Communication and Reporting Channels
  • Importance of Communication:
    • Ensures efficient decision-making and departmental integration.
    • Tools include informative intranets, email, teleconferencing, and virtual teams, which enhance coordination across different locations.
Coordination Effort
  • Vertical Coordination: Management links higher and lower levels to achieve objectives.
  • Horizontal Coordination: Critical for inter-departmental activities at similar managerial levels, especially in larger MNCs.

In Summary:

  • Organisational structures define relationships, guide information flow, and affect overall efficiency.
  • Understanding advantages and disadvantages helps in adapting to international markets effectively.
  • Evaluating structures based on criteria like responsibilities, communication, and coordination is essential for organisational success in multinational companies.