Impediments to Coordination

Managers of the various subunits have different orientations, partly because they have different tasks. For example, production managers are typically concerned with production issues such as capacity utilization, cost control, and quality control, whereas marketing managers are concerned with marketing issues such as pricing, promotions, distribution, and market share. These differences can inhibit communication between the managers. These managers often do not even "speak the same language." There may also be a lack of respect between subunits (e.g., marketing managers "looking down on" production managers, and vice versa), which further inhibits the communication required to achieve cooperation and coordination.

Differences in subunits' orientations also arise from their differing goals. For example, worldwide product divisions of a multinational firm may be committed to cost goals that require global production of a standardized product, whereas a foreign subsidiary may be committed to increasing its market share in its country, which will require a nonstandard product. In this case, these different goals can lead to conflict.

Such impediments to coordination are not unusual in any firm, but they can be particularly problematic in the multinational enterprise with its profusion of subunits at home and abroad. Also, differences in subunit orientation are often reinforced in multinationals by the separations of time zone, distance, and nationality between managers of the subunits.

For example, until recently, the Dutch company Philips had an organization comprising worldwide product divisions and largely autonomous national organizations. The company has long had problems getting its product divisions and national organizations to cooperate on such things as new-product introductions. When Philips developed a VCR format, the V2000 system, it could not get its North American subsidiary to introduce the product. Rather, the North American unit adopted the rival VHS format produced by Philip's global competitor Matsushita. Unilever has experienced a similar problem in its detergents business. The company has found that the need to resolve disputes between its many national organizations and its product divisions can extend the time necessary for introducing a new product across Europe to four years. This denies Unilever the first-mover advantage crucial to building a strong market position.¹⁰

Formal Integrating Mechanisms

The formal mechanisms used to integrate subunits vary in complexity from simple direct contact and liaison roles, to teams, to a matrix structure (see Figure 13.8). In general, the greater the need for coordination, the more complex the formal integrating mechanisms need to be.¹¹

Direct contact between subunit managers is the simplest integrating mechanism. By this "mechanism," managers of the various subunits simply contact each other whenever they have a common concern. Direct contact may not be effective if the managers have differing orientations that act to impede coordination, as pointed out in the previous subsection.

Liaison roles are a bit more complex. When the volume of contacts between subunits increases, coordination can be improved by giving a person in each subunit responsibility for coordinating with another subunit on a regular basis. Through these roles, a permanent relationship is established between the people involved, which helps attenuate the impediments to coordination discussed in the previous subsection.

When the need for coordination is greater still, firms tend to use temporary or permanent teams composed of individuals from the subunits that need to achieve coordination. They are typically used to coordinate new-product development and introduction, but they are useful when any aspect of operations or strategy requires the cooperation of two or more subunits. New-product development and introduction teams are typically composed of personnel from R&D, production, and marketing. The resulting coordination aids the development of products that are tailored to consumer needs and that can be produced at a reasonable cost (design for manufacturing).

When the need for integration is very high, firms may institute some kind of matrix structure, in which all roles are viewed as integrating roles. The structure is designed to facilitate maximum integration among subunits. As explained earlier, the most common matrix in multinational firms is based on geographical areas and world-

Figure 13.8

Formal Integrating  Mechanisms

wide product divisions. This achieves a high level of integration between the product divisions and the areas so that, in theory, the firm can pay close attention to both local responsiveness and the pursuit of location and experience curve economies.

In some multinationals the matrix is more complex still, structuring the firm into geographical areas, worldwide product divisions, and functions, all of which report directly to headquarters. Thus, within a company such as Dow Chemical (see the Management Focus) each manager belongs to three hierarchies (e.g., a plastics marketing manager in Spain is a member of the Spanish subsidiary, the plastics product division, and the marketing function). In addition to facilitating local responsiveness and location and experience curve economies, such a matrix fosters the transfer of core competencies within the organization. This occurs because core competencies tend to reside in functions (e.g., R&D, marketing). A structure such as Dow's facilitates the transfer of competencies existing in functions from division to division and from area to area.

However, as discussed earlier, such matrix solutions can quickly become bogged down in a bureaucratic tangle that creates as many problems as it solves. Matrix structures tend to be bureaucratic, inflexible, and characterized by conflict rather than cooperation. As in the case of Dow Chemical, such a structure needs to be somewhat flexible and supported by informal integrating mechanisms.