L. E. Fouraker & J. M. Stopford Organizational Structure and the Multinational Strategy Essay

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Organizations constitute an important part of society. Parsons (1960) said that with organizations it is possible to get things done, and achieve goals beyond the reach of the individual. However, organizations may face continuous structural change, as A. D. Chandlers Strategy and Structure (1966) suggest. Lawrence E. Fouraker, a Business Administration lecturer, and John M. Stopford, a research associate at the Harvard Graduate School of Business Administration analyze this work in their paper titled Organizational Structure and the Multinational Strategy. The following is a brief synopsis of the same.

To begin with, a historical outline is given of how company resources were acquired and used. According to Chandler, there was an initial expansion and accumulation of resources (qtd. in Fouraker and Stopford 1968: 48), then followed by a reduction of these utilized resources, an opening out into new markets, and eventually the development of an entirely new structure. These four stages in time, according to Fouraker and Stopford lead to distinctive organizational structures. The so called Type I organization is a basic organization that is seen to be the extension of the head of the company, and hence reflects the same interests, abilities, and limitations (qtd. in Fouraker and Stopford 1968: 48) of the chief and/or founder. It is characterized by its focus on the production of a single product only, and furthermore, stresses a single task, leaving little or no flexibility in terms of adaptation to new market developments. The problem solving or decision-making always leads to one individual who carries all burdens. This might also be explained by the philosophy or mind-set of the management (command and control).

Having a very basic organizational design, the marketing orientation (as per Kotler and Armstrong 2006) that describes the Type I organization best, may be the product concept. Although no actual product innovations are implemented, it does apply to a certain extent since this model assumes that the organizations core business is to target a high sale in volumes of the product that is marked by its quality, and that is manufactured by the smaller-sized company. A simple example for such an organizational type may be a company that produces plain mousetraps. Since a Type I organization would believe in its single product most intensively, it is important that the organization does not get trapped in marketing myopia, i.e. by thinking that their product (the mousetrap) is the only and best built product, ignoring better solutions (for instance chemical spray or exterminating services) (Kotler and Armstrong 2006: 10).

The Type II organization on the other hand is defined by efficiency and the rational use of resources (qtd. in Fouraker and Stopford 1968: 49). Being based on the structure of a Type I organization, one still stays within a single functional activity (qtd. in Fouraker and Stopford 1968: 49), but simultaneously expands to a few more related products, or diversified product-lines. This development mainly took place, according to Fouraker and Stopford, in order to avoid risks, ensure that the organization continues to function once the core product has reached its expiration, and to make an efficient use of the equipment and plant (i.e. to use it to its full capacity). One now also has a vertically integrated style of management, which, however, still excludes research and development. It is further highlighted by Fouraker and Stopford, that although various products are being produced efficiently, so far no actual management or professional administration is applied.

On the contrary, the same type of management philosophy predominates. However, the better co-ordination in functions allows for the move within the marketing framework; One shifted to the production concept. This becomes obvious since, according to Kotler and Armstrong (2006: 9), consumers are in need of affordable and available products, which on the other hand makes more efficiency in the production-process necessary. An historical example is given by Henry Ford and his development of the Model T car. It had been his aim that every family could afford such a car, hence he efficiently reduced the production time from 12 hours to 96 minutes by means of the moving assembly line (Ali and Gomez 2006: 14). The subsequently developing organization, Type III, builds up in its complexity, which also brings about the need for professional management and a general change in managements approach towards the components within the value chain.

It allows for general managers to be trained and tested and also to be instituted in unrelated divisions (which are separated on the basis of the nature of the products). Specifically, one now has a multi-divisional product structure (i.e. the divisions are separated on the product basis) with more functional responsibility being delegated to the division general managers. For the first time, organizations now also carry out research and development to a large degree. Product innovation hence plays a role, and the need for better marketing arises, that means the marketing concept (as per Kotler and Armstrong 2006) is practiced. By focusing on consumer needs, one uses integrated marketing perfectly on both, the external and the internal level, and achieves profits through customer satisfaction (Kotler and Armstrong 2006: 10). Ericsson and Sony might be examples for companies who follow this organizational and marketing design.

The authors then go into the fact that from research and development, product innovation, and the new organizational structure, a development of investments into foreign markets emerges. Among others, that is the case because the products produced locally, are unique and will not be found abroad. There are different types however, of how the set-up may look like (i.e. there might be a separate international division, world-wide production divisions, a geographic division, or a mixed form). Lastly, there is an illustration of the modern organization, or matrix organization, where there are many more products and product departments, along with different managers and different geographical registrations. In terms of a three-dimensional design it typically would see the managers on an x-axis, the product range on the y-axis, and the locations on the z-axis (although this may vary). It is also very likely that a manager in such a structure carries responsibility for more than one product, attached to different regional focuses.

This clearly suggests more flexibility (managers are automatically more skilled and can adopt different tasks), but also brings about the problem of a divided responsibility or a weak accountability (for instance difficulties when questioning which manager would be liable for the success or failure of a particular product launch in any region). Both the product as well as the marketing concept can be implemented by a company that has this structure. The product concept may be applicable since product differentiation takes place, and it is the organizations aim to create higher value added by exploring different product ranges (most likely by the use of R&D). At the same time, relationship marketing might be applied (i.e. satisfying customers for the long-term), when considering that managers will opt for recurring purchases.

All in all, the above has been an outline of Chandlers Strategy and Structure (1966), re-studied by Lawrence E. Fouraker and John M. Stopford. Although the evolution of different organizational designs is illustrated to a great extent, it is evident that virtually all of these are still having importance today as they are wittingly or unwittingly implemented by corporations.

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