What ‘Organizational Design’ in Multinationals Means



“Organizational design” is far more than a diagram of the managerial hierarchy of the company (the ‘organogram’) – this is “structure”, and structure is just one subset of “organization”.

Organizational design addresses the whole set of issues that dictate how the company operates: certainly it includes formal structure and reporting lines, but it also covers the roles and interrelationships of functions and geographic operations, the extent of central control versus local autonomy, the extent to which how things are done is consistent across the entire organisation – and most critically, it defines how control and decision-making are distributed – and ultimately, where power lies.

Most significant industrial and technology companies do business in numerous countries. Their largest customers are usually multinationals, but many more are national or regional players, and so must be dealt with at a local level – by local sales, technical and administrative staff, with sufficient authority to make certain decisions locally; moreover, despite all the hype about “globalisation”, a local, tailored approach is still essential for doing business with many multinational customers. Therefore a truly centralised, globally-homogeneous organisation is unworkable.

To complicate things further, many technology companies serve multiple market segments and/or multiple applications, which also require different organisational approaches. Organizational design must therefore accommodate variations, and also must be flexible to respond to changes.

Some companies, notably specialty chemicals, frequently customise products for individual customers, and so have extensive product ranges. Whilst they may claim a global product range, in fact many products within their ranges are market-, customer-, application- or geography-specific. This makes international coordination of product ranges and product development extremely difficult.

These strands of complexity underpin a perennial issue: how should the company be organised in order to exploit the synergies deriving from its size and geographic reach, but without stifling the entrepreneurialism and “closeness to the customer” ethic that is so critical in these product-markets?

Neither extreme of centralised or decentralised is the right answer, but defining, installing and stabilising an equilibrium between the extremes is probably one of the single most challenging tasks facing any management team. Moreover, it is an ongoing challenge, because changes in organisational design mean shifts in power around the organisation. “Stabilising” means eliminating ongoing internal squabbles and “turf wars” between internal groups, and halting the continuous and very disruptive power shifts that characterise multinational industrial companies.

See: Organisational Design: Our Services