Issues and challenges with regard to the organizational policies is inevitable for any international business. To keep the business profitable, these issues and channels have to be solved and addressed very carefully. Some of the major issues regard to organizational policies are as follows -
Centralization vs. Decentralization
When the authority of the organization is concentrated only at few central points, it is known as centralization. Only selected people involve in decision-making process. The process of centralization involves the following aspects -
- Only the top level management are involved in decision-making
- The operations are carried by the mid-level managers
- The top level management directs the operations of the subordinates.
The top level management take decisions regarding the operational activities of the lower management.
When the authority of the organization is distributed among all the levels of management, it is known as decentralization. The important decisions regarding the policies of the organization are mostly taken by the top level management. The rest is distributed among the mid and lower-level management.
What is the use of Subsidiary Board of Directors?
The top level management of the international business is being monitored and directed by a board of directors. This board of director have assigned certain responsibilities. They are -
- The board of directors have to advice, appraise and approve the decisions relating to the local management.
- Assist the management in facing the local challenges and solving the local issues
- Assist top management in strategic planning
- The ethical issues of the company have to be supervised.
What are the different organizational Structures?
An organizational structure is followed by all the international business organizations. The main responsibility of following an organizational structure is to set right all the processes of the organization. There are different types of organizational structures and the type of organizational structure adopted by the business depends on the business requirements and operations.
Initial Division Structures
Some of the business which is into on-site manufacturing, the firms involved in export usually adopts this Initial Division Structure. Some of the illustrations are the consulting and financial firms usually follow Initial Division Structure. Some of the export firms that adopt this type of organization structure include the firms with technological advanced products.
International Division Structure
In order to take care of the international operations of the business, a specific international division structure is being built. All the business which are still developing for setting up the business operations internationally, this structure is being adopted.
Advantages
- The top management is exposed to the knowledge about the attitude of the foreign market.
- The international operations are performed united.
Disadvantages
- It requires separate managers locally for managing the international counterparts.
- Global allocation of resources turns out to be very difficult.
Global Product Division
In accordance with the groups of the product, the structure is divided such that the specific product groups are taken care by the divisions. Each of the division is considered as a profit center.
Advantages
- Product, technology and customer diversity is managed
- All the local needs are catered
- This model facilitates in coordination of all the different departments such as marketing, production and finance.
Disadvantages
- There is a possibility of existence of duplication of the staff.
- Usually the managers get deviated from concentrating on the long-term goals.
- Only the local market is concentrated by the division managers.
Global Area Division
When the operations of a business are controlled on the basis of geographical location rather than the type of product, it is known as Global Area Division. Many companies that are usually in the business which has only selected products adopt this global area division.
Advantages
- The operations at domestic and international level remain to be the same.
- The operations of the specific geographical area are being managed by the global managers
- The unit cost can be reduced.
Disadvantages
- According to the geographic locations, it is very difficult to align the product
- No efforts are being out on R&D.
Global Functional Division
On the basis of different functions, the global operations are organized by this global functional division.
Advantages
- More emphasis is given to functional leadership, leaner managerial staff and centralized control.
- The businesses that require control on the integrated production mechanisms adopt this practice of Global Functional Division.
- This models is best suitable for the business which involve in transportation of goods and raw materials.
Disadvantages
- This model is not suitable for all business types. This model best suits only to oil and mining firms.
- The coordination of the different processes becomes difficult.
- Since the different processes are not integrated, management of all the processes turns out to be difficult.
Mixed Matrix
Mixed Matrix is a combination of global product, area, and functional structures.
Advantages
- All the individual needs of the business are met.
- In accordance with the local needs ad priorities, the approach is tailored-made.
Disadvantages
- The structure is very complex and it is a combination of one or more models.
- The structure involves too many independent groups.
An organizational structure is a system that outlines how certain activities are directed in order to achieve the goals of an organization. These activities can include rules, roles, and responsibilities.
The organizational structure also determines how information flows between levels within the company. For example, in a centralized structure, decisions flow from the top down, while in a decentralized structure, decision-making power is distributed among various levels of the organization. Having an organizational structure in place allows companies to remain efficient and focused.
- An organizational structure outlines how certain activities are directed to achieve the goals of an organization.
- Successful organizational structures define each employee's job and how it fits within the overall system.
- A centralized structure has a defined chain of command, while decentralized structures give almost every employee receiving a high level of personal agency.
- Types of organizational structures include functional, divisional, flatarchy, and matrix structures.
- Senior leaders should consider a variety of factors before deciding which type of organization is best for their business, including the business goals, industry, and culture of the company.
Businesses of all shapes and sizes use organizational structures heavily. They define a specific hierarchy within an organization. A successful organizational structure defines each employee's job and how it fits within the overall system. Put simply, the organizational structure lays out who does what so the company can meet its objectives.
This structuring provides a company with a visual representation of how it is shaped and how it can best move forward in achieving its goals. Organizational structures are normally illustrated in some sort of chart or diagram like a pyramid, where the most powerful members of the organization sit at the top, while those with the least amount of power are at the bottom.
Not having a formal structure in place may prove difficult for certain organizations. For instance, employees may have difficulty knowing to whom they should report. That can lead to uncertainty as to who is responsible for what in the organization.
Having a structure in place can help with efficiency and provide clarity for everyone at every level. That also means each and every department can be more productive, as they are likely to be more focused on energy and time.
An organizational structure is either centralized or decentralized. Traditionally, organizations have been structured with centralized leadership and a defined chain of command. The military is an organization famous for its highly centralized structure, with a long and specific hierarchy of superiors and subordinates. In a centralized organizational system, there are very clear responsibilities for each role, with subordinate roles defaulting to the guidance of their superiors.
There has been a rise in decentralized organizations, as is the case with many technology startups. This allows companies to remain fast, agile, and adaptable, with almost every employee receiving a high level of personal agency. For example, Johnson & Johnson is a company that's known for its decentralized structure.
As a large company with over 200 business units and brands that function in sometimes very different industries, each operates autonomously. Even in decentralized companies, there are still usually built-in hierarchies (such as the chief operating officer operating at a higher level than an entry-level associate). However, teams are empowered to make their own decisions and come to the best conclusion without necessarily getting "approval" from up top.
Four types of common organizational structures are implemented in the real world. The first and most common is a functional structure. This is also referred to as a bureaucratic organizational structure and breaks up a company based on the specialization of its workforce. Most small-to-medium-sized businesses implement a functional structure. Dividing the firm into departments consisting of marketing, sales, and operations is the act of using a bureaucratic organizational structure.
The second type is common among large companies with many business units. Called the divisional or multidivisional (M-Form) structure, a company that uses this method structures its leadership team based on the products, projects, or subsidiaries they operate. A good example of this structure is Johnson & Johnson. With thousands of products and lines of business, the company structures itself so each business unit operates as its own company with its own president.
Divisions may also be designated geographically in addition to specialization. For instance, a global corporation may have a North American Division and a European Division.
Similar to divisional or functional structures, team-based organizations segregate into close-knit teams of employees that serve particular goals and functions, but where each team is a unit that contains both leaders and workers.
Flatarchy, also known as a horizontal structure, is relatively newer, and is used among many startups. As the name alludes, it flattens the hierarchy and chain of command and gives its employees a lot of autonomy. Companies that use this type of structure have a high speed of implementation.
Firms can also have a matrix structure. It is also the most confusing and the least used. This structure matrixes employees across different superiors, divisions, or departments. An employee working for a matrixed company, for example, may have duties in both sales and customer service.
Circular structures are hierarchical, but they are said to be circular as it places higher-level employees and managers at the center of the organization with concentric rings expanding outward, which contain lower-level employees and staff. This way of organizing is intended to encourage open communication and collaboration among the different ranks.
The network structure organizes contractors and third-party vendors to carry out certain key functions. It features a relatively small headquarters with geographically-dispersed satellite offices, along with key functions outsourced to other firms and consultants.
Putting an organizational structure in place can be very beneficial to a company. The structure not only defines a company's hierarchy but also allows the firm to lay out the pay structure for its employees. By putting the organizational structure in place, the firm can decide salary grades and ranges for each position.
The structure also makes operations more efficient and much more effective. By separating employees and functions into different departments, the company can perform different operations at once seamlessly.
In addition, a very clear organizational structure informs employees on how best to get their jobs done. For example, in a hierarchical organization, employees will have to work harder at buying favor or courting those with decision-making power. In a decentralized organization, employees must take on more initiative and bring creative problem solving to the table. This can also help set expectations for how employees can track their own growth within a company and emphasize a certain set of skills—as well as for potential employees to gauge if such a company would be a good fit with their own interests and work styles.
The four types of organizational structures are functional, multi-divisional, flat, and matrix structures. Others include circular, team-based, and network structures.
Key elements of an organizational structure include how certain activities are directed in order to achieve the goals of an organization, such as rules, roles, responsibilities, and how information flows between levels within the company.
An example of an organizational structure is a decentralized structure, which gives individuals and teams high degrees of autonomy without needing a core team to regularly approve business decisions. A good example of this decentralized structure is Johnson & Johnson. With thousands of products and lines of business, the company structures itself so each business unit operates as its own company with its own president.
Organizational structures are normally illustrated in some sort of chart or diagram like a pyramid, where the most powerful members of the organization sit at the top, while those with the least amount of power are at the bottom.
There is no one best organizational structure, as it depends on the nature of the company and the industry it operates in.
There are entire fields of study based on how to optimize and best structure organizations to be the most effective and productive. Senior leaders should consider a variety of factors before deciding which type of organization is best for their business, including the business goals, industry, and culture of the company.