The organizational structures of companies generally fall into two categories: centralized and decentralized. Centralized organizations tend to concentrate decision-making at the highest levels. These companies develop plans at the headquarters and push those plans out to subordinate organizations. Decentralized organizations allow their subordinate organizations to enjoy a relatively high-level of autonomy. Although these companies still make major strategy decisions at the headquarter level, day-to-day operations are left up to subordinate organizations to derive and implement (Wild, Wild, & Han, 2008).
Although centralized and decentralized organizational structures give a high-level overview of how companies organize, four specific organizational structures go further in their description of a company’s specific implementation. The international division structure separates domestic management from international management. The international area structure divides the entire company based on the areas it serves. The global product structure divides the company based on the products it produces. Finally, the global matrix structure divides the company both by the products it makes and the areas it serves. This structure can be problematic since each manager effectively has two managers: one area manager and one product manager (Wild, Wild, & Han, 2008).
When it first began international operations, Company X divided the organization into two parts: domestic and international. This is an example of international division structure. This has the benefit of building international expertise in one division of the organization. Other structures such as global product structure require members of multiple divisions to be experts in the various aspects of foreign trade. Unfortunately, this structure often leads to dependence on the financial and technical expertise of the domestic division. Additionally, although international expertise is concentrated in the international division, the breadth of knowledge required to operate in all international markets can be taxing on the international division leadership (Wild, Wild, & Han, 2008).
If Company X continues in their current structure, they will begin to create sub-divisions within the international division based on each international market the enter. Company X will need to develop strong international leadership in order to effectively manage disparate groups of foreign workers. International companies like Nestle have strong leadership development programs specifically targeted at putting high potential managers in positions that give them a high probability of success.
As the company continues to grow, it might find the international division has outgrown its usefulness as a single division. At this point, it would make sense for the company to reorganize under an international area structure. This would create new divisions based on large geographic areas rather than just dividing the company into domestic and international divisions. This structure has the advantage of allowing each region to run itself. Rather than concentrating leadership at the top level, each region enjoys a certain measure of autonomy. For example, each region would have its own research and development group. This R&D group would be able to focus on product development that specifically benefits the local market (Wild, Wild, & Han, 2008). Obviously, the benefits from local R&D are shared throughout the company.
If Company X plans to reorganize in the future, it needs to begin implementing leadership programs now. Company X should look to the example of Nestle in designing its own leadership building programs. Nestle has two policies specifically designed to find the best management candidate. First, it has an extensive internal training program. Nestle’s premier management candidates receive a month long management training at Nestle’s headquarters. Additionally, Nestle partners with the International Institute for Management Development (IMD) to provide additional education resources. Finally, Nestle prefers to promote from within rather than use headhunters to find managers. This has the benefit of ensuring that all Nestle divisions are run with the same corporate principles (Reichlin, 2004).
Reichlin, I. (2004). Getting the global view: Nestle, led by Peter Brabeck-Letmathe, climbs to the #1 spot in this year’s Best Companies for Leaders. The Chief Executive. Retrieved January 12, 2009, from http://findarticles.com
Wild, J. J., Wild, K. L., & Han, J. C. (2008). International business: The challenges of globalization. (4th ed.). Upper Saddle River, NJ: Pearson.