Question

One of the most enduring ideas of organization theory is that an organization's structure and management must “fit” its environment in the same way that a particular horse might be more suited to one course than another. In the recent past, MNC managers have been at the receiving end of a diverse and often conflicting set of organizational structure prescriptions. On the one hand, influential academics and consultants have been urging them to abandon simplistic structures and processes and instead to build multidimensional network organizations with distributed management roles and tasks, overlapping responsibilities and relationships, and built in ambiguity and redundancy. On the other hand, equally strong voices have been arguing that the performance problems faced by many large corporations are often attributable to the complexities of their organizations and that managers must have the courage to reestablish organizational simplicity by reverting to direct decision making and unambiguous accountability. In your opinion given the complexity of the global environment, which course (or is it horse) is appropriate?

Answer 1

It is indeed true that an organization's structure must fit into the environment, and must be the optimal structure to run in the environment. The environment will always be a combination of global and local elements and either or both could assume critical importance. Large MNCs historically have had multidimensional networks and distributed management roles and assignments covering geographies, business lines and functions. This was usually done to ensure degrees of redundancy and improve overall reliability of decision making.

However over time it has been seen that such structures lead to increasing buereaucracies in the organization and slow down decision making at various levels. This can hurt the organizations ability to be agile, especially when decision making on local issues is affected. We have now moved to a world where business and macroeconomic factors affecting businesses are described as VUCA - Volatile, Uncertain, Complex and Ambiguous. Agility in decision making can come with an ability to deal with growing number of exceptional situations. The current worldwide crisis due to the Coronavirus is a classic example. Countries and Organizations which reacted with agitlity are the ones doing better in the battle - South Korea and Germany are instant examples. The same principle needs to be extended to Management organizations - changes in legal/regulatory and economic conditions of a country or wider geography may need fast, unconventional steps which can be taken only if direct decision making authority exists, along with clear accountabilities spelt out for the role. The onus is then on the manager to take the decision and move ahead rather than wait for direction from other functions or support teams. This is also facilitated by the fact that data and information is more freely available and in large quantities, so decision making need not be blind, and can be very scientific and evidence-based. It would appear that this latter approach is probably better suited for management and leadership in large organizations in the 21st century.