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IIBMS-Structuring global companies

Case Study 1 :

IIBMS-Structuring global companies


As the chapter illustrates, to carry out their activities in pursuit of their objectives, virtually all organisations adopt some form of organisational structure. One traditional method of organisation is to group individuals by function or purpose, using a departmental structure to allocate individuals to their specialist areas (e.g. Marketing, HRM and so on ). Another is to group activities by product or service, with each product group normally responsible for providing its own functional requirements. A third is to combine the two in the form of a matrix structure with its vertical and horizontal flows of responsibility and authority, a method of organisation much favoured in university Business Schools.

What of companies with a global reach: how do they usually organise them- selves?

Writing in the Financial Times in November 2000 Julian Birkinshaw, Associate Professor of Strategic and International Management at London Business School, identifies four basic models of global company structure:

  • The International Division – an arrangement in which the company establishes a separate division to  deal  with  business  outside  its own  country.  The  International Division would typically be concerned with tariff and trade issues, foreign agents/partners and other aspects involved in selling overseas. Normally the division does not make anything itself, it is simply responsible for interna- tional sales. This arrangement tends to be found in medium-sized companies with limited international sales.

The Global Product Division – a product-based structure with managers responsible for their product line globally. The company is split into a number of global busi- nesses arranged by product (or service) and usually overseen by their own president. It has been a favoured structure among large global companies such as BP, Siemens and 3M.

  • The Area Division – a geographically based structure in which the major line of authority lies with the country (e.g. Germany) or regional (e.g. Europe) manager who is responsible for the different product offerings within her/his geographical area.
    ● The Global Matrix – as the name suggests a hybrid of the two previous structural types. In the global matrix each business manager reports to two bosses, one responsible for the global product and one for the country/region. As we indi- cated in the previous edition of this book, this type of structure tends to come into and go out of fashion. Ford, for example, adopted a matrix structure in the later 1990s, while a number of other global companies were either streamlining or dismantling theirs (e.g. Shell, BP, IBM).

As Professor Birkinshaw indicates, ultimately there is no perfect structure and organisations tend to change their approach over time according to changing circumstances,  fads,  the  perceived  needs  of  the  senior  executives  or  the predispositions of powerful individuals. This observation is no less true of universities than it is of traditional businesses.

Case study questions

  1. Professor Birkinshaw’s article identifies the advantages and disadvantages of being a global business. What are his major arguments?
  2. In your opinion what are likely to be the key factors determining how a global company will organise itself?

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