Global Economy Impact Global Environment

Global Economy

Impact Global Environment of Business Has on Organizational Structure

In the last decade or so business engagements and operations have become increasingly global in nature. More and more businesses large and small in all industries are augmenting business processes and expanding their services to include international alliances. The global marketplace is providing organizations new avenues of growth and expansion and encouraging organizations to take advantage of technological advances that are streamlining business processes.

As this pattern of international partnerships and business services has continued to flourish and grow, many organizations have transformed their organizational structure to accommodate the needs of a global business environment. The changes occurring within organizations will likely continue as organizations grow and adapt to an international climate. While there is not yet agreement on the best organizational structure in an international business environment, much of the research available suggests that organizations need to engage in more knowledge sharing even among competitors and hence adopt a less hierarchical and more horizontal organizational structure.

This paper discusses the organizational changes that are occurring within modern enterprises to accommodate the needs of a diverse and international business environment. Specifically the paper will focus on changes occurring within organizational structure among corporations large and small.

Changes in Business Structure

As more and more businesses enter the global marketplace the international environment over the last decade or so has become more competitive than ever (Prasad & Tata, 1999). Despite this competition an even larger number of organizations are working together than ever before. Organizations are not attempting to keep up with rapid advances in technology and new markets while meeting the demands of a globally expanding market base and demand for better quality and more diverse products (Prasad & Tata, 1999). To compete in this new global business environment many organizations are implementing programs including Total Quality Management programs and re-evaluating traditional organizational structures (Prasad & Tata, 1999).

Strategically speaking more and more multinational corporations are shifting their approach to business, adopting new and flexible approaches "for achieving sustainable competitive advantages" (Culpan, 2002:1). Such changes include a shift in business strategies, alliances and organizational structure. Many companies have begun forming business alliances with competitors as part of their strategic "repertoire" (Culpan, 2002:1). Companies are now creating global ventures and working together to take advantage of opportunities presented by new technology. This has changed the way that businesses operate and function strategically and organizationally.

Centralization and International Business

Thanks to globalization more companies are forming organizational structures that include central coordination and control of integrated subsidiaries (Culpan, 2002: 59). Organizations operating on the domestic front are also changing their structure by clustering autonomous subsidiaries together to enable central coordination (Culpan, 2002). Central management has enabled better efficiency among selected production locations and enabled the organization to expand its market focus to global consumers with similar market demands and preferences (Culpan, 2002).

Traditional characteristics of organizational structure have included teams and empowering employees (Culpan, 2002). While these characteristics are still important global businesses are also now focusing more on equal participation and knowledge sharing even among competitors.

Organizational structure is as much the product of policies, hierarchies of responsibility and "prescriptions of authority" as much as it is administrative mechanisms in place that allow an entity to conduct, coordinate and control work activities (Rapert & Wren, 1998: 287). Organizations are now structuring themselves in a manner that allows optimal communication. Communication is in fact considered the "social glue" for organizations operating in the global marketplace, tying together members, subunits and competing organizations (Euske & Robert, 1987; Rapert & Wren, 1998: 287).

Not all researchers however agree that centralization or formalization of business processes will offer gains in the international work environment (Rapert & Wren, 1998)> many note that in an ever changing work environment firms need to grow to be more flexible and adaptable to changing environmental conditions (Rapert & Wren, 199*)> Centralization and formalization often "undermine organizational performance" because hey limit and organization's adaptability and innovativeness, key foundations of conducting successful business in an international environment (Rapert & Wren, 1998).

Participative and Democratic Organizational Structures more logical approach may include operating in a more participative or democratic environment. Decision making processes can be less formalized and centralized facilitating greater flexibility and adaptability in the work environment. This in turn will help minimize the "routinization" of activities enabling corporations to respond to every changing needs and increasing volatile work environments within an international business environment (Rapert & Wren, 1998).

Studies suggest that organizations engaging in participative organizational structure tend to achieve higher performance and adopt more holistic approaches to operating in a global business environment (Rapert & Wren, 1998).

Studies suggest that the business environment created in the global marketplace requires greater attention to quality management. Many organization have thus attempted to implemented TQM or total quality management programs to ensure they maintain a competitive status in the global marketplace (Prasad & Tata, 1999). Along with this interest in TQM has come changes in organizational structure and design, necessary to facilitate the TQM process (Dean & Bowen, 1994).

Organizational structure relates primarily to the ways in which people interact with one another in an organizational context, how people communicate with one another and among different groups and how power relationships within the organization are sustained and defined (Prasad & Tata, 1999).

The structure of an organization often reflects the values and objectives held within a particularly organization. Many organizations attempt control flexibility by centralizing decision making among a few select members of the organization (Prasad & Tata, 1999). Many organizations in the global environment have moved toward this centralized form of management. This does not however as pointed out promote employee discretion or corporate flexibility and often results in more rigidity of services and "mechanistic" type structure that emphasizes higher levels of production and efficiency (Prasad & Tata, 1999).

This is typically achieved through complex processes, formal procedures, central authority and direct supervision (Prasad & Tata, 1999). Most organizational processes within this environment are centralized and hierarchical in nature, requiring coordination and vertical dependency by supervisors (Prasad & Tata, 1999).

Decentralization in Organizational Structure

Other organizations are aspiring to become more flexible and adaptable in light of an increasingly global economy. These organizations promote problem solving at the point at which problems occur. Workflow and processes dictate subunits rather than function; this often results in a more holistic approach to management where employees posses multiple skills and are trained in a variety of complex tasks and decisions (Prasad, Tata & Thorn, 1999). In this type of environment cross-functional teams arise and employees are afforded more decision making authority to help implement solutions at all levels of the hierarchical train (Prasad, Tata & Thorn, 1999). This structure also relies on horizontal rather than vertical dependency to achieve and helps an organization establish common values, support, training and norms (Prasad, Tata & Thorn, 1999).

As mentioned previous TQM often succeeds when employees are empowered to make decisions and horizontal rather than vertical structures of management are in place. This suggests a less centralized and less formal business structure is necessary to facilitate better communication across departments in organizations and to facilitate better communication among all organizational levels. Open and informal lines of communication are conducive to problem solving and rapid implementation of change, a key factor predicting organizational success in the global business environment (Prasad, Tata & Thorn, 1999).

Future Trends in Organizational Structure

As more and more businesses continue the path toward globalization it is likely that organizational structure will continue to change, adapt and grow as well. Clearly some organizations are still uncertain whether a decentralized or centralized organizational structure will best meet the needs of the new international business environment. Studies however support movement toward more adaptable and flexible business structures such as those evidenced in more participative and horizontally structured organizations (Mccann, 2004).

One way that organizations will decide what changes need to be made as they move into the future will include measurements of organizational effectiveness. Organizational effectiveness provides a unique tool for measuring how well organizations are capable of achieving organizational objectives through core strategies and business processes and through organizational structure (Mccann, 2004). Modern global business enterprises are quickly realizing the need to be more adaptable and operate under increasingly turbulent environments where the global pace of business, technological change and interdependence among enterprises is rapidly increasing at dizzying speeds (Mccann, 2004). Within this structure organizations are realizing the need to structure business around sustained performance while maintaining a competitive advantage.

Organizations are now working to become more interdependent but also create an organizational management system that enables managers to mange intermittent or episodic change, and by allowing management systems to facilitate and manage continuous change associated with continuous technological advances and innovations (Mccann, 2004). Studies suggest that organizations must adopt dynamic new capabilities to transform themselves and their structure quickly in order to perform well in a rapidly evolving environment. This suggests that sophisticated controls including hierarchies that address internal interdependencies may not work well when continues monitoring and renegotiation are necessary (Mccann, 2004).

Rather, the organizations or the future will have to create mutual dependencies and new organizations structures that enable networks of management and "virtual" or "boundary less" organizational structures that facilitate organizational effectiveness in the "turbulent" business environment (Mccann, 2004: 42). This means that organizations must become more agile to act more decisively, cultivating and aligning resources more quickly and creating and transforming as well as sharing knowledge more efficiently (Mccann, 2004). One way that organizations can do this is by eliminating the traditional barriers that exist between management and other levels of the organization. This suggests a greater emphasis on decentralization and more emphasis or streamlining operations through participative management.