International operations are an ever-evolving phenomenon. It is a dynamic world as the environment is volatile, uncertain, complex & ambiguous due to Political, Economic, Social, Technological, Environmental & Legal interplay. Also, the organization’s design must support the International Strategy a firm chooses to execute. The critical aspect is that one needs to take an informed view of how the operations would best suit the success in the Global Markets and then make the choice of design. But I must say that technology and virtualization of organizations have brought in an element of creativity in the organization design. Virtual organizations give shape to organization designs beyond the classical styles of organizational frameworks and take them into a creative space of design.
At the outset, It is essential to visit the principal types of organizations in International operations. Typically, we deal with the following three types though their boundaries of definition may overlap in terms of their formation & ownership:
- Inter-Governmental Organizations IGO’s: They are normally formed through treaties. United Nations is a key example. World Trade Organization also is another important example.
- International Non-Governmental Organizations NGO’s: They are formed under the charter of the United Nations and can have both government and non-government participation.
- Multinational Enterprise MNE: A corporate body that operates in multiple countries with FDI ownerships and controls as per local laws. They may not have internationally coordinated activities at all times and adapt to local markets. Governments also own certain MNE brands.
Global Businesses are corporations with facilities and distribution centers across the world. There is international participation in business GE being one such example. Some can also be transnational entities. Transnational Organizations are organizations spread across continents with their mix of cultures with a single sense of purpose with a stateless identity. These can be contacts, coalitions not controlled by governments like International Cartels & Body Corporates who do not consider their home country office as their only headquarter. Coca Cola is another transnational example. The key differentiation is National or Transnational identity.
Export & Import Oriented Units can operate in classically functional & divisional structures. Their control is completely centralized unless the operations are complex, requiring specialized strategic technology partners and vendors’ specialized networks. Their supply chains are mostly standardized and country-product specific.
Multinational, Global & Transnational Organizations tend to get complex owing to multiple facilities, product lines, markets & supply chains. Thus, they need to be designed to support their strategic objectives effectively. They also need to adapt to local conditions of operations. These companies used to follow mostly.
- Divisional structures based on geographies, products, and support centers.
- Strategic Business Units with independent RoI and Profitability reporting to Global or Regional Head Quarters.
- Matrix Structures with dual reporting inform of Administrative and Functional.
- Flat Structures: A lean structure with an increased span of control and decreases bureaucracy.
With the advent of collaborative technologies, these structures are now changing in terms of being lean. It is also enabling the right mix of centralization and decentralization. ERP systems are fostering global collaborations. It is also ensuring effective horizontal and vertical communication. This led to the creation of collaborative teams, which laid the basis of Neo-Classical structures, flexible team-based structures—a technology-enabled expert collaboration with effectiveness.
The world has changed now. Complex organizations are rigid and bureaucratic. Decision-making slows down, and thus the response to customers suffers. Innovation also takes a back seat both with products and processes. Also, silos and agency problem creates political dynamics. In an international setting, it also makes a cultural noise. These organizations were typically configured around the following approaches to support the design:
- Ethno-Centric: Key management structures and culture of the home country.
- Poly-Centric: Host country nationals manage local subsidiaries and adopt local cultures.
- Regio-Centric: Staffing is regional, and cultures evolve to commonalities of regions.
- Geo-Centric: Best suited professionals irrespective of Nationalities are chosen with a quest for an organization-wide common culture.
Again, there is no hard and fast rule as to which staffing & culture needs to be practice. It all depends on how the organization wishes to position itself for success. The ethnocentric approach may even succeed if a firm wants to provide a National touch and experience to the product or service they wish to engage their customers with.
Polycentric organizations may also succeed when a robust local trend is essential while technology and processes are controlled by the global headquarters. Most hotel chains tend to follow this as they do depend a lot on domestic travelers. Many manufacturing set-ups also implement this pattern; however, it does create a cultural disharmony when collaborating with other offices.
Regio-Centric promotes mobility within regions and is thus seen as much comfortable to build and manage. Inter-regional culture conflicts and silos remain the key risk.
Geocentric though takes time, but its own unique culture, which operates by integrating all cultures and evolving its own culture, works the best. It is a cultish behavior that most organizations “built to last” tend to demonstrate.
There is also another significant change that is setting into International Business. These are highly specialized partners with their core competence and cultures who partner and interface with multiple organizations and teams. There is also an evolution of specialized independent consultants who are Digital Nomads and offer very niche services. This has led to the creation of Network-Organization Designs operating in physical and virtual space. They have multiple cultures collaborating with a very high level of cross-functional collaboration on the technology backbone. These are very dynamic networks that are project-based. The borderless world is now gearing up on Network Designs, lean & agile with a high level of empowerment and creative freedom. Each cluster will have its own culture, and members are culturally sensitive to create inclusion.
With borderless business and digital economies, such multi-cultural cohesive partnerships will redefine the way businesses will operate. These designs need a creative approach, as they are not built on classical systems. Thus, we will have Neo-Classical-Virtual-Network Structures coming of age, which deemphasizes boundaries in an arrangement of relationships with the promotion of lateral communication and extensive cross-functional and outsourced collaboration. The pitfall being these are dynamic structures based on real-time scenarios and change as per needs—their advantage of being faster adaptability to market changes through self-organized groups.
Technology and complexity of International Business will consistently redefine organization structures to support the International Strategy of borderless expansion. The core determinants being the facilitation of economies of scale, customer responsiveness & Innovation.
Sooner or later, mindsets will have to move to Techno-Lattice structures of technology-based three-dimensional structures of collaboration between technology-internal teams-external partners supporting agile extended supply chains to ensure a strategic fit.
Copyright 2020 Niket Karajagi International Business Blogs Series.