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Organizational issues of international business

1 Organization Structure 2 Organization Design - An organizational structure defines how activities such as task allocation, coordination and supervision are directed towards the achievement of organizational aims. It can also be considered as the viewing glass or perspective through which individuals see their organization and its environment.





An organizational structure defines how activities such as task allocation, coordination and supervision are directed towards the achievement of organizational aims. It can also be considered as the viewing glass or perspective through which individuals see their organization and its environment.


Organizations are a variant of clustered entities.


An organization can be structured in many different ways, depending on their objectives. The structure of an organization will determine the modes in which it operates and performs.


Organizational structure allows the expressed allocation of responsibilities for different functions and processes to different entities such as the branch, department, workgroup and individual. It affects organizational action in two big ways. First, it provides the foundation on which standard operating procedures and routines rest. Second, it determines which individuals get to participate in which decision-making processes, and thus to what extent their views shape the organization’s actions

Designing organizational structure: It includes an analysis of the following aspects;

External environment

Overall aims and purpose of the enterprise








Organization structure

Job structure

Organization climate

Management style

Human resource


Types of organizational structure


1) International division’s structure:


Grouping each international business activity into its own division, puts internationally specialized personnel together to handle such diverse matters as export documentation, foreign-exchange transactions and relations with foreign governments.


2) Functional division’s structure:


It emphasizes on specific functions such as manufacturing, marketing, finance and so on. It is more suitable where the products and customers are few and homogeneous.



3) Product division structure:


It is more common in international business and more suitable in case of a multiple brand system. In this case, there are different product divisions, in each division, there are sub-divisions.


4) Geographic (Area) division structure:


In case of area structure, organization is based on the geographic areas, namely, Asia, Africa, and Latin America and so on and the operation is divided accordingly.


5) Matrix division structure:


The global matrix structure is more complex when it combines all the three aspects – product, area, and function.


This is found in multi-product firms where one group of products needs area structure of organization, while the other group of products needs functional structure, and for yet another group, product structure is found more appropriate.


6) Mixed structure:


Most firms allow the hybrid design which best suits their purpose as dictated by size, strategy, and technology, environment and culture. This is the reason why the famous saying “structure follows strategy has emerged. Ex: Philips and Unilever


Controlling of international business


According to Child, “Control is essentially concerned with regulating the activities within an organization so that they are in accord with expectations established in policies, plans and practices.


Types/Methods of control systems:

Personal controls: It is control by personal contact with subordinates.


Bureaucratic controls: The control through a system of rules and procedures that directs the actions of sub-units.


Output controls: It involves setting goals for subsidiaries to achieve; expressing these goals in terms of relatively objective criteria such as profitability, productivity, growth, market share, and quality.



Cultural controls: It exists when employees “buy into” the norms and value systems of the firm.


Approaches to control:

Market approach

Rules approach

Corporate culture approach


Control mechanisms:


Visits to subsidiaries

Management performance evaluations

Cost and comparisons

Evaluative measurements

Information systems



Process of performance measurement

Establish standards of performance Measure actual performance


Analyze performance and compare it with standards Construct and implement an action plan


Review and revise standards


Performance evaluation system


It can be defined as, “the periodic review of operations to ensure that the objectives of the enterprise are being accomplished”.


Various performance indicators: 1) Financial measures

Return on investment(ROI)


Budget as a success indicator 2) Non-financial measures.


Types of performance evaluation system

Budget programming

Management audit

PERT(Program evaluation review technique)

Management information system




1. Meaning


Organizational design is a step-by-step methodology which identifies dysfunctional aspects of work flow, procedures, structures and systems, realigns them to fit current business realities/goals and then develops plans to implement the new changes. The process focuses on improving both the technical and people side of the business.


For most companies, the design process leads to a more effective organization design, significantly improved results (profitability, customer service, internal operations), and employees who are empowered and committed to the business. The hallmark of the design process is a comprehensive and holistic approach to organizational improvement that touches all aspects of organizational life, so you can achieve:


Excellent customer service Increased profitability

Reduced operating costs

Improved efficiency and cycle time

A culture of committed and engaged employees

A clear strategy for managing and growing your business

Five Approaches to Organizational Design


Managers must make choices about how to group people together to perform their work. Five common approaches - functional, divisional, matrix, team, and networking help managers determine departmental groupings (grouping of positions into departments). The five structures are basic organizational structures, which are then adapted to an organization's needs. All five approaches combine varying elements of mechanistic and organic structures.


For example, the organizational design trend today incorporates a minimum of bureaucratic features and displays more features of the organic design with a decentralized authority structure, fewer rules and procedures, and so on.


Functional structure


The functional structure group’s positions into work units based on similar activities, skills, expertise, and resources (see Figure 1 for a functional organizational chart). Production, marketing, finance, and human resources are common groupings within a functional structure.

Figure 1 The functional structure.


As the simplest approach, a functional structure features welldefined channels of communication and authority/responsibility relationships. Not only can this structure improve productivity by minimizing duplication of personnel and equipment, but it also makes employees comfortable and simplifies training as well.

But the functional structure has many downsides that may make it inappropriate for some organizations. Here are a few examples:


The functional structure can result in narrowed perspectives because of the separateness of different department work groups. Managers may have a hard time relating to marketing, for example, which is often in an entirely different grouping. As a result, anticipating or reacting to changing consumer needs may be difficult. In addition, reduced cooperation and communication may occur.


Decisions and communication are slow to take place because of the many layers of hierarchy. Authority is more centralized.


The functional structure gives managers experience in only one fields their own. Managers do not have the opportunity to see how all the firm's departments work together and understand their interrelationships and interdependence. In the long run, this specialization results in executives with narrow backgrounds and little training handling top management duties.





Divisional structure


Because managers in large companies may have difficulty keeping track of all their company's products and activities, specialized departments may develop. These departments are divided according to their organizational outputs. Examples include departments created to distinguish among production, customer service, and geographical categories. This grouping of departments is called divisional structure (see Figure 2). These departments allow managers to better focus their resources and results. Divisional structure also makes performance easier to monitor. As a result, this structure is flexible and responsive to change.



However, divisional structure does have its drawbacks. Because managers are so specialized, they may waste time duplicating each other's activities and resources. In addition, competition among divisions may develop due to limited resources.


Matrix structure


The matrix structure combines functional specialization with the focus of divisional structure. This structure uses permanent crossfunctional teams to integrate functional expertise with a divisional focus.


Employees in a matrix structure belong to at least two formal groups at the same time a functional group and a product, program, or project team. They also report to two bosses one within the functional group and the other within the team.


This structure not only increases employee motivation, but it also allows technical and general management training across functional areas as well. Potential advantages include


Better cooperation and problem solving. Increased flexibility.


Better customer service.


Better performance accountability. Improved strategic management.


Predictably, the matrix structure also has potential disadvantages. Here are a few of this structure's drawbacks:


The twoboss system is susceptible to power struggles, as functional supervisors and team leaders vie with one another to exercise authority.


Members of the matrix may suffer task confusion when taking orders from more than one boss.


Teams may develop strong team loyalties that cause a loss of focus on larger organization goals.


Adding the team leaders, a crucial component, to a matrix structure can result in increased costs.


Team structure:


Team structure organizes separate functions into a group based on one overall objective (see Figure 4). These crossfunctional teams are composed of members from different departments who work together as needed to solve problems and explore opportunities. The intent is to break down functional barriers among departments and create a more effective relationship for solving ongoing problems.


The team structure has many potential advantages, including the following:

Intradepartmental barriers break down.


Decisionmaking and response times speed up. Employees are motivated.


Levels of managers are eliminated. Administrative costs are lowered.


The disadvantages include:


Conflicting loyalties among team members. Timemanagement issues.


Increased time spent in meetings.


Managers must be aware that how well team members work together often depends on the quality of interpersonal relations, group dynamics, and their team management abilities.


Network structure


The network structure relies on other organizations to perform critical functions on a contractual basis (see Figure 5). In other words, managers can contract out specific work to specialists.

This approach provides flexibility and reduces overhead because the size of staff and operations can be reduced. On the other hand, the network structure may result in unpredictability of supply and lack of control because managers are relying on contractual workers to perform important work.


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