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Factors Affecting Organizational Structure Selection In Multinational Companies

The organization structure of the business environment is an approach that helps and guides in organizing the employees of the organization into a structured and organized pattern for better coordination and communication. The structure in a multinational company defines the architecture of the business competence, functional relationship and management function. It helps in reducing confusion in the business environment and also supports in carrying out the business function smoothly and efficiently. The organization structure is affected by various internal and external factors which are also known as the organizational environment since organization works around these factors and the environment (Baumueller, 2007).

The organizational environment consists of all those factors that influences the organizational working and thus can also influence the organizational structure since in each country and geographical areas the organizational environment would change. The external organizational environment that would influence the organizational structure is the economic, political and legal, socio-economic, technological and natural factors. All these factors of organizational external environment affects the selection of organizational structure since organizational structure which the organization chooses directly or indirectly would be affected by the changes in these factors (Baumueller, 2007).

The external factors that affect the organization structure are the economic factor which provides information about the market size and the competitor’s strategy and the manner in which the organization should be structured to meet the company’s objectives. The demand and supply for the product or service along with the wages and salary structure have an impact on the organizational structure of the company. The organization structure is also affected by various political and legal factors and should be in accordance with the norms and policies of the government. The company should plan the organizational structure in accordance with the rules and policies of the country and should not avoid the rules as it might create consequences in the future.

The company also has to pay due importance to the various socio-economic factors and the psychographic and demographic factors as all the factors have direct impact on the organizational structure. The company should keep into consideration the culture, values and beliefs of the society and accordingly plan for the structure in order to meet out the objectives. Technological factor is again one of the influential factors while selecting the organizational structure for a multinational organization.

Technology has quickened the communication flow from one level of organizational structure to another which has influenced the organizational structure in a large way. Technology has also reduced the human resource requirements in multinational companies which has thus, directly affected the organizational structure since how many numbers of employees required or hierarchy required is based on the amount of work and the task that would be performed by those employees. Technology has increased the efficiency of the organization by helping the organization to more accurately and easily (Jeannet & Hennessey, 2005).

The natural environment by which the multinational companies surround also influence their organizational structure since multinational companies operates at different geographical locations which have differences in the timings, whether conditions and does not match with the subsidiary operating in another country which thus, becomes a crucial point at the time of selection of organizational structure (Baumueller, 2007).

The employee’s culture, environment, language, values, etc should be considered, so as to avoid the impact on the organizational structure. The organizational structure is further affected by the size and the nature of the company. The internal factors also play a very important role and affect the organizational structure (Moran, Harris & Moran, 2007).

The internal factors like the size of the company have a great impact on choosing and selecting the organizational structure. The size of the company can be defined by the geographic and product range of the company. The company size can be defined as the area of operation that is the region covered by the company. The size helps the company in choosing the optimum organizational structure in order to conduct the business operations effectively and efficiently. The company needs to go for an effective organizational structure to reach its desired goals and objectives (Moran, Harris & Moran, 2007).

The company’s product range and services also has a direct impact on the organizational structure of the company. The company has to select the best organizational structure to handle the operations related to the products and its range as well as the services properly. The company has to plan for various departments and units in order to carry out the business operations in an appropriate manner and has to select the best organizational structure for proper coordination and communication among the various branches (Moran, Harris & Moran, 2007).

Apart from these factors one of the factors that influence the selection of organizational structure by Multinational Companies is there strategy. The strategy that the company is using should be an indicator of which organizational structure to adopt since with each of the different strategies there is a specific organizational structure that should be followed to accomplish the task with more efficiency. There are different types of strategies that multinational companies can adopt while launching the product in the new or the old market that includes the differentiation strategy, cost leadership strategy, focus strategy etc. It is quite a fact that each of these strategies could influence the organizational structure of the organization since the implementation of these strategies would be done in different manner. As per their plans, company could use any of the strategies to achieve its goals (Baumueller, 2007).

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