THE ORGANISATION OF INTERNATIONAL BUSINESS

INTERNATIONAL
UNIT 3 SECTION
BUSINESS
2
Unit 3, section 2: The organisation of international business

In its simplest sense, the term organisation implies a formalised and

intentional structure of roles or positions of individuals working together in
a group to achieve a set goals or objectives. Management is the process of
designing and maintaining an environment in which individuals, working
together in groups, effectively and efficiently accomplish organisational
goals. Managers carry out the five main managerial functions of planning,
organising, staffing, leading, and controlling in any enterprise or
organisation.

By the end of this Section, you should be able to:

 describe what is meant by organisation structure
 distinguish between formal and informal organisation structures
 explain the different types of organisational structures
 distinguish between centralisation and decentralisation
 differentiate between vertical and horizontal differentiation

What is an Organisation Structure?

“Organisation” is a word that many people use loosely. In a simple sense, it
includes all the behaviour of all the participants within a particular group.
Organising implies:
 The identification and classification of the required activities;
 The grouping of activities necessary to attain objectives;
 The assignment of each grouping to a manager with the authority
[delegation] necessary to supervise it; and
 The provision for coordination horizontally [on the same or similar
organisational level], and vertically [ie. with corporate headquarters,
geographical zone, division, department, or product line] within the
organisation structure.

An organisation structure should be designed to clarify who is to do what
tasks and who is responsible for what results, to remove obstacles to
performance caused by confusion and uncertainty of assignment, and to
furnish decision-making and communication networks reflecting and
supporting enterprise objectives.

Many writers distinguish between formal and informal organisations. A

formal [bureaucratic] organisation means the intentional structure in a
formally organised enterprise. Despite its definition and long bureaucratic
processes, formal organisations must be flexible, make room for discretion,
for advantageous utilisation of creative talents, and for recognition of
individual likes and capacities.

An informal organisation may be described as any joint personal activity

without a conscious joint purpose, even though contributing to joint results.
A typical example will be a grouping of community farmers engaged in
voluntary weeding-cooperatives.

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The span of management is the extent or degree of influence or control

which a manager has over his subordinates. A wide span of management is
associated with few organisational levels. On the contrary, a narrow span
has to do with several layers or levels of management.

Types of Organisational Structures/Departmentalisation

One major aspect of organising is the establishment of departments. The
word department designates a distinct area, division, or branch of an
organisation over which a manager has authority for the performance of
specified activities. Below are some of the different types of organisational
structures or departmentalisation:
 Departmentalisation by numbers [tribes, clans, armies, groupings in the
church]
 Departmentalisation by time [working shifts in hospitals, mines, security
patrols]
 Departmentalisation by function [production, marketing, finance]
 Departmentalisation by territory, zone, or geographical area
 Departmentalisation by customer [wholesaler, retailer, agriculture,
transportation]
 Departmentalisation by process or equipment [fabrication, boiler,
engines, finishing]
 Departmentalisation by product [beverages, soaps, creams, meat, grains,
fruits]
 Matrix Organisations [ a combination of two or more of the above
structures]
 Strategic Business Units [semi-autonomous bodies within the entire
organisation]

All the above-stated departmentalisation of the organisation have their own
individual or separate advantages and disadvantage.

Centralization versus Decentralisation

There are four major arguments for centralization:
Centralization can facilitate coordination. There may be the need to
coordinate the activities of two operations to ensure a smooth flow of
products from the component operation to the assembly operation. This
might be achieved by centralizing production scheduling decisions at the
firm’s head office.

Centralization can ensure that decisions are consistent with organizational

objectives. When decisions are decentralized to lower-level managers, those
managers may make decisions at variance with top management’s goals.
Centralization of decision minimizes the chance of this occurring.

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By centralizing power and authority in one individual or top- management

team, centralization can give top-managers the means to bring about needed
majority organizational changes.

Centralization can avoid the duplication of activities that occurs when

similar activities are carried on by various submits within the organization.

There are five main arguments for decentralization:

Top-management can become overburdened when decision-making
authority is centralized, and this can result in poor decisions.
Decentralization gives top management the time to focus on critical issues
by delegating more routine issues to lower-level managers.

Motivational research favours decentralization. Behavioural scientists have

long argued that people are willing to give more to their jobs when they
have a greater degree of individual freedom and control over their work.

Decentralization permits greater flexibility more rapid response to

environmental changes because decisions do not have to be referred to the
hierarchy unless they are exceptional.

Decentralization can result in their better decisions making because

decisions are made closer to the spot by individuals who (presumably) have
better information that mangers several levels up in a hierarchy.

Decentralization can increase control. It can be used to establish relatively

autonomous, self-contained submits within the organization. Submits
managers can then be held accountable for their performance. The more
responsibility submits managers have for decisions that impact submits
performance, the fewer alibis they have for poor performance.

Vertical versus Horizontal Differentiation

Vertical differentiation is the distribution of decision-making authority
within an organisational hierarchy. Horizontal differentiation is the division
of one single organization into sub-units. The body of mechanisms that
coordinate and integrate the sub-units is known as integration.

Vertical differentiation deals with centralization or decentralization of

decision-making within the firm. Thus a firm’s vertical differentiation
determines where in its hierarchy the decision-making power is
concentrated. For an example, are production and marketing decisions
centralized in the offices of upper-level managers or are they decentralized
to lower-level managers?

Horizontal differentiation is basically concerned with how the firm decides

to divide itself into sub-units. The decision is typically made on the basis of:

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Unit 3, section 2: The organisation of international business BUSINESS

 Function
 Type of business
 Geographical area

In most domestic firms, just one of the above classifications predominates.

But on the international scene, more complex structures are required or
adopted. Thus, we have the following organizational structures at the
international scene:
 The international division
 Worldwide area structure
 Worldwide product division structure
 Global matrix structure

The decision-making structure in businesses operating on the international

scene is a very keen and challenging job. The merits and demerits of
centralization and decentralization of decision making should be carefully
considered before one is adopted.

Please, refer to other texts in the references provided for further information
on the meaning and importance of this topic. Put down any important notes
you come across in the blank sheet provided below for face-to-face
discussions with your course lecturer.

Now assess your understanding of this Section by answering the following

Self-Assessment Questions (SAQs). Good luck!

Activity 5.2
 What is meant by an organisation?
 What is an organisation structure?
 What is an organisational span?
 What is meant by a matrix structure?
 What is vertical differentiation?
 Define horizontal differentiation.
 Are there any advantages for centralization or decentralization?

Did you score all? That’s great! Keep it up.

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