10-4a Functional Structure

companies have used the international division as a stepping stone in their worldwide expansions. If the international division is at the same organizational level as domestic operations, it signals to international customers their importance to the company. A third advantage of the international division is that it fosters a global mindset in the people working within the division, and facilitates the key process of designing products that cater to local tastes and cultures.

However, an international division can also have disadvantages. One major disadvantage is the potential conflict between domestic and international operations. That is, managers in the international division may feel like “second class” citizens if they are not at the same hierarchical level as managers in domestic operations. For example, in Exhibit 10.2, the manufacturing manager for Europe would be at the fourth tier in the organizational structure, while the manager for domestic manufacturing is at the second tier. This internal situation would contradict the importance of global business to the firm. Other disadvantages of the international division come from separating domestic and international operations, resulting in a lack of communication and coordination. Specific drawbacks of separating domestic and international operations may also include the following:

• preventing the design of products with both domestic and international appeal; • precluding the sharing of core competencies and knowledge; and • complicating the capture of learning-curve savings resulting from consolidating production in manufacturing plants around the world.

REALITY CHECK LO-3

Find a company with an export department and a company with an international division. How are these companies similar and how are they different?

LO-4

Define functional, divisional, hybrid, and matrix structures, and illustrate their advantages and disadvantages for global business.

functional structure

an organizational structure that groups people together because they hold similar positions in a company, perform similar tasks, or use the same kinds of skills

10-4 Four Organizational Structures for Global Business

When a company evolves beyond its need for an international division, it may be considered a global enterprise. At this stage in its development, it may have any of several organizational structures. Four common structures and their relative merits are examined next.

10-4a Functional Structure

Most domestic firms start with a functional organizational structure. When a company grows beyond the affairs that can be handled by a single group of people and one boss, it usually adopts a functional structure. This creates an initial division of labor with regard to the main activities that must be performed by the organization to continue conducting business. In a functional structure, activities are grouped by a common function, from the bottom to the top of the organization. All purchasing agents, for example, are part of the Purchasing function, and the purchasing manager is responsible for all purchasing activities. Employees are committed to achieving the goals of their respective functional areas. Planning and budgeting is conducted by function and reflects the cost of resources used in each functional area. Careers are normally defined on the basis of experience within the function.10 In short, a functional structure is an organizational structure that groups people together because they hold similar positions in a company, perform a similar set of tasks, or use the same kinds of skills. Exhibit 10.4 presents an example of a functional structure for a global business.