Multinational firms must operate with some degree of independence in the different corners of the world, if only for practical reasons such as input procurement and the development of distribution channels. Political considerations have long had an impact on organizational structure decisions. In many nations, subsidiaries of multinationals must be joint ventures with local firms, or the multinational may find that business is difficult to conduct as the result of all manner of cultural differences, corruption and bureaucracy.
The matrix structure was developed as a direct response to changes in the external environment. Firms that moved overseas with multiple product lines found that managing these lines in different countries required both a product-based perspective and a geographical perspective. When considering the geographic perspective, one can see that economic considerations play a significant role as well — when China and Southeast Asia began to boom, “Asia” became its own reporting unit within the structure of many multinationals.
For managers, however, the implications are clear. While there may be temptation to make adjustments to the structure of the organization, the pace of change is such that multiple, rapid organizational structure changes are precluded.
As organizational structure change is difficult to execute and creates its own problems, it should not be conducted as a knee-jerk response to shifts in the environment nor should it be implemented in a time of crisis unless absolutely necessary. Organizational structure change should be made more in line with the companys own competitive strategy and corporate objectives.
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