Academic journal article Management International Review

The Influence of Organizational Structure on the Information Received by Corporate Strategists of Multinational Enterprises

Academic journal article Management International Review

The Influence of Organizational Structure on the Information Received by Corporate Strategists of Multinational Enterprises

Article excerpt

Abstract

* This study examined the extent to which formal structure actually affects the information flows from divisions to corporate strategists in multinational enterprises (MNEs).

* The effects of divisional structure on the volume of information corporate strategists receive from various sources about country and product matters and the level of importance they attach to different sources were studied.

Key Results

* Provides empirical evidence consistent with the long-held assumption that divisional structure facilitates and impedes the vertical flow of information from divisions to corporate executives in multinational enterprises.

* The findings suggest top managers may use alternative information sources to supplement the distinctive information processing capabilities of their organizations' structures.

Introduction

A long line of research has sought to identify appropriate structures for implementing global expansion strategies (e.g., Egelhoff 1982, 1988, Fouraker/Stopford 1968, Franko 1976, Habib/Victor 1991, Stopford/Wells 1972). The cumulative findings indicate that different levels of foreign involvement and foreign product diversity require different formal structures (e.g., worldwide product vs. worldwide area divisions) for effectively organizing and managing foreign operations (Galbraith/Kazanjian 1986, Herbert 1984). Much of this work rests on the assumption that different structures facilitate and constrain certain vertical information flows between foreign subsidiaries and corporate decision-makers. Researchers argue that different structures systematically affect both the volume and utility of the information corporate strategists receive and transmit about country and product matters (e.g., Egelhoff 1982, 1988, Habib/Victor 1991). For example, a worldwide product division structure, where the responsibilities of the domestic product division are extended to a worldwide basis, is posited to permit a high volume of strategically important information about various product matters at a cost to information on country-related matters (Egelhoff 1982).

Divisional structures mold the flow of information between foreign subsidiaries and corporate headquarters (HQ) because the flows are bi-directional and typically indirect (Egelhoff 1982, Stopford/Wells 1972). Divisional HQ personnel typically are the conduits of information between the subsidiaries and the parent. That is, information conveyed to foreign subsidiary managers and personnel from corporate HQ, as well as the information received by corporate strategists at HQ from foreign subsidiaries, is commonly communicated through division HQ personnel. Therefore, existing theory on the effects of formal structure on the vertical information flows in MNEs describes four conceptually distinct flows of product and country information molded by divisional structure: the information received by corporate HQ from division HQ, the information sent by corporate HQ to division HQ, the information received by division HQ from the foreign subsidiaries, and the information sent by division HQ to the foreign subsidiaries.

Despite the criticality of the information processing assumption in structuring organizations, we are not aware of any study to date that has examined the extent to which formal structure actually affects the information flows between foreign subsidiaries, divisions, and corporate HQ in multinational enterprises (MNEs). It is important to test the validity of this assumption (Egelhoff 1982). Corporate, division, and subsidiary managers have access to information from numerous sources. For example, informal networks (D'Aveni/Kesner 1993, Kotter 1982) and corporate information systems (Galbraith 1977) involving internal or external sources of information may be as important as the vertical flows of the structural hierarchy. If empirical evidence were available to corroborate the assertion that divisional structure importantly affects information flows in MNEs, it would provide additional credence to the findings of previous research on strategy and structure. …

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