Globalization and Its Effects on Organizational Structure and Management

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Introduction

Unmistakably, the topic of globalization has received profound attention since the early eighties. This is evidenced by the increased discussions on the topic in conferences and scholarly debates. The mainstream media and other debates and articles continue to focus on the issue, identifying the dynamism of the topic. Consequently, it is arguable that globalization is an issue that carries great significance on contemporary society. Furthermore, the topic has also assumed centrality in terms of the relationship with other disciplines including economics, cultural studies, sociology, business management, et cetera. Unfortunately, the issue of globalization has received less focus in relation to business and management in general. This article seeks to identify globalization as an important subject in management. It seeks to argue that globalization greatly affects organizational structures and that the future of management is to a great extend founded on globalization.

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What is globalization and what are the dimensions of the issue? Globalization is the integration of global activities like goods and products exchange, integration of information around the globe, exchange, and integration of knowledge and culture. These form the main structure of globalization as a global phenomenon. As stated earlier, globalization affects every subject and topic of human endeavors. Like the rest, organizational management is not left out. Considering the major pillars of globalization mentioned above, how can business organizations be affected by globalization? The following sections elucidate the way business organizations are greatly impacted by globalization. To achieve this, the main pillars of globalization, which include integration of knowledge, communication, goods and products exchange, information, and culture will be analyzed in relation to business organization and management. It will examine how information flow can be organized in business organizations and how it can be made to reflect on the issue of globalization. Management of knowledge and cultural diversification will also be examined as the world continually becomes a global village.

As the world continually enters into the globalization sphere, conventional criteria in organizational structures need to be reformed. Prasad and Prasad (2006) point out that for any successful operation of an organization, internal restructuring must be done to ensure that the organization’s structure incorporates the global thinking element. They also argue that the monolithic view of certain regions should be put to an end. Specifically, developed countries need to view each developing country and not generalize them and assume that they are inconsequential.

Organizational structure and information flow

Economics of comparative advantage points out that a good flow and utilization of information is integral to the success of any business organization. Through appropriate information system management, the organization would be in a position to identify the needs of the market and hence develop products that meet international quality and standards. Through this, an organization spreads its markets beyond its boundaries. International operations thus offer the organization an opportunity to widen its market while at the same time increasing its access to resources. Among the most important resources that an organization stands to gain is knowledge. Considering this, it is arguable to say that the information systems of an organization play a central role in operations and hence the definitions of success for the organization. This means that an organization operating beyond boundaries must have an appropriate strategy that will offer a competitive advantage. This, according to King and Sethi (1999) can only be reflected in their information system.

This makes globalization one of the areas that are greatly implicated by globalization. With globalization, new challenges have been witnessed in the management of information. Unlike the conventional approaches to information system management, globalization calls for a more dynamic approach that puts into consideration contemporary challenges. Particularly, the contemporary organization of information systems must reflect the issue of cross-boundary management. With businesses operating beyond a given boundary, the organization of information systems requires that cultural diversity be considered. In addition, the organization must also reflect an appropriate organizational structure and business process that will promote information system management and organization.

With globalization affecting the organizational structures and strategies, the approach to international strategy is completely different from the previous approaches. A contemporary information system must reflect the organization’s international strategy. To develop a good information system strategy, King and Sethi (1999) identify five strategic dimensions that must be considered for an organization to develop an appropriate information system. They further argue that the information system of the organization is the principal reflection of its international strategy. The five strategic approaches include configuring the activities related to the value chain, identifying methods with which the value chain activities can be harmonized and coordinated, centralization of the activities, forming durable and workable alliances, and integrating the market. All these five factors can well be integrated within a functional information system of an organization.

Globalization hence calls for intensive incorporation of information technology as an integral part of the organization. Given that organizations engage in transnational operations, the different constituents of an organization operating in different countries need to identify an appropriate channel of information sharing. This brings the core aspect of Information technology in organizations in relation to globalization. As a role player in organizations, IT offers a mechanism through which activities that transcend boundaries could be coordinated. In addition, Information Technology allows the different organizations under one umbrella to appropriately coordinate and become one global cooperative. Hence, IT provides coalition mechanisms.

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Organizational structure and management of knowledge

One of the mentioned pillars of globalization is the integration of knowledge. It thus becomes fundamental to examine the issue of knowledge management in relation to globalization. How does the issue of globalization impact on organizational structure and the management of knowledge? Mahesh and Suresh (2009) argue that organizational structures are in need of serious reforms in order to reflect the needs of the contemporary globalized society. While former organizational structures need not be discarded, there is need to improve on them through the development of knowledge based structures which will hence meet the needs of globalization.

Market growth and rapid globalization call for a new approach to knowledge management. The foundation of organizational structures needs to put into consideration the flux of technology and the complexity of needs in terms of services and goods that are brought about as a result of globalization. In addition, the processes involved in the production of complex products and services also lead to the need for an appropriate structure. The complexity is brought about by increased awareness by consumers, mounting competition from other globalized organizations also fighting for a share in the global market, increase in the spread of the market, reduced life cycles of products, cultural and knowledge diversity in the workers, and increasingly strict regulations on products and services.

To attain a competitive edge and be able to meet the complex needs, an organization must develop a knowledge-based decision-making structure. Its workforce and functional capacity must greatly reflect knowledge. This means that globalization has led to a shift in the way organizations mobilize, organize and transform resources employed in their daily production. Organization value creation hence relies principally on the knowledgeability of the various factors of production (land, labor and capital). In the new era of globalization, primacy has been centered on human resources with the basic principle defining that the most relevant means of production dwells in the mind of each and every employee within the organization. Globalization calls for products and services that reflect knowledge through their production. With such products and services, the organization is able to attain value from the market while at the same time providing sustainable solutions to the problems of the consumers. To attain this, organizations need to ensure that knowledge is adequately managed through the development of organizational structures that properly respond to the complexities experienced in the contemporary environments of demand and supply of chains of value.

The classical factory model of organizational structure offers an infusion of knowledge only in certain sections of the organization. For instance, knowledge-intensive activities were only experienced in the department of research and development. Unfortunately, globalization has led to the incapacitation of this approach. For instance, organizations that specialize in information and communication technology (ICT) and consumer packaged goods (CPG) cannot be operational in the given model. In such companies, the bases of production and also the consumption of the products are characterized by a wide and hence diverse market that is geographically dispersed. This leads to a comparatively smaller cognitive gap between the middle and the upper management levels and a big gap between the middle and the lowermost levels of production. The low level of management is hence informed of the rapid changes in technology and other market changes at the grass root. On the other hand, the upper management will not easily be informed of the changes given the great geographical disparity. This explains the big gap between the middle management level and the lowermost production level. As a result, the topmost management might not find it easy coming up with decisions that will steer the organization to greater heights considering that they do not have appropriate knowledge of the market. On the other hand, the organizational strategy calls for a two-way information flow that allows the low-level production, which is at the grass roots to identify the dynamics in the market changes and send the information back to the management which will then make the organization structure. This is a challenge that conventional organizational structures face in the event of globalization.

Globalization has therefore incapacitated former models of organizational structures leading to a more knowledge-based approach. Mahesh and Suresh (2009) point out that the new development should not render former models out of question. What globalization calls for is a reform of the conventional models by the inclusion of some new dimensions which will cater to the needs of contemporary challenges brought about by globalization. The management of a company with one of these conventional models can still meet the complex requirements of the market by making up their mind to incur the risks involved and the profit that is involved too. This can be done through dynamic planning, proper scheduling, appropriate coordination, and superb order execution. All these will take place at every point of production. This will mean that knowledge-based decision-making will cease to be a preserve of certain departments and hence become a normal part of operations in all stages of production. The people involved in decision-making will be more than the conventional approaches. The complexities reflected in production needs and customer requirements will force organizations to increase their needs for knowledge-based workers to ensure optimum productivity and sustainable solutions for customer needs.

Integration of the exchange of goods and services marks another pillar of globalization. Equally, this aspect of business organizations has had a fair share of challenges brought about by globalization. In his analysis on the effect of globalization on the flow of goods and services, Milberg (2004) posits that the world witnessed a change in trade openness in the 80s. This change in the number of trading goods was accompanied by an increase in the quality of goods and services on the international platform. With the changes in quality, strategic approaches have led to the disintegration of production where the process of production is broken up into different parts that are hence carried out in different locations. This marks the first effect of globalization on the production process. Unlike conventional criteria where production was centered at a given place, globalization lead to dynamism in the consumer needs which eventually led to the diversification of production to meet the increase in complexity of demand. To meet the specific needs of a region, production was centered to that region hence leading to disintegration of production.

The disintegration of production has led to what is termed global production sharing. This is another effect that globalization has had on management and business structures. Multinational enterprises have particularly thrived in process disintegration and integration of production. For instance, the production of Ford’s “world car” involves 14 countries producing different parts that are later assembled by nine countries. This is a clear indication that what management thought that international trade involved substitute operations is no longer the status. Globalization has led to complementary cooperation between countries. This means that the management of business organizations needs to develop strategies that have flexibilities allowing for cooperation (Daft, 2009).

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With the integration of the production process, the whole unit will be made up of systems that play different roles which eventually result in a fully developed product. This brings another pillar of globalization into account. This is the integration of culture to come up with a global culture that will promote cooperation. The systems in the unit of production are made up of a diversity of cultures (Malnight, 1995). Business management then calls for flexibility and knowledge in the management of these units. Milberg (2004) argues that identity in culture is a necessity for intra-firm connection which on their part reduces the level of risk that is associated with quality and delivery.

In the same line, globalization has also led to a change of organizational structure from hierarchical to the lattice. This is the most viable form of structure that operates well within the different systems that share a similar objective. The lattice structure reflects the market or quasi-market needs in their decision-making. This form of management leads to reduced costs of production, increased efficiency, enhanced delivery speed boosts flexibility, and finally leads to risk sharing.

Globalization has led to challenges in terms of long-term economic development as a result of the difficult process to capture rents which are necessary for reinvestment. Milberg (2004) argues that the process of globalization has prompted developing countries to rely on export-oriented manufacturing. As a result, the major organizations of the global production network engage in lower value-added activities through outsourcing while maintaining their line of trade which is high-value activities that are their core specialties. The high value-added activities are made up of technology and skill-intensive activities than the low value-added activities. In comparison, the legislative and capital entry requirements are so stiff for the high-value activities while the low-value activities remain easy in terms of entry. Several organizations hence scramble for entry increasing the level of competition. Eventually, the organizations make little or no profit leading to difficulty in reinvesting.

Globalization has led to new challenges to business management. Among them is the call for corporate responsibility. The greatest beneficiaries of globalization have been business organizations. Consequently, most groups have called upon business organizations to ensure that they deal with the atrocities associated with globalization. For instance, there have been cries from several quarters for business organizations to ensure that they dealt with the problem of economic globalization. A good example of challenges faced as a result of economic globalization is polarization. Economic polarization may lead to an increase in tensions of social and political nature. This might create an unwelcome environment for business. For the sake of self-interest and survival of the businesses, managements need to ensure that they embark on social responsibilities so that a proper environment for business is created. However, the role of social responsibility cannot be achieved if conventional approaches to management were retained (Chambers, Saxena & Shah, 1989; Oxfam, 2002). Organizations need to make significant reforms in their organizational structures in order to facilitate management. The changes needed in the management include a reversal of interests from satisfying shareholders’ interests only to reflecting all the needs of all stakeholders. In addition, the management must increase cooperation not only with other business organizations and stakeholders only but also cooperation with government bodies and civil societies. They should also cooperate with Non-governmental organizations and other social movements. All this will drive at creating a favorable environment for the operation of the business organizations.

Conclusion

With globalization taking the best of every aspect of human life, business organizations must identify the challenges that are likely to be associated with the phenomenon. This is important given that the impacts that globalization has on business management and structure might be more than important. This is especially true considering that globalization involves the integration of culture, flow of goods and services, flow of knowledge, flow of information, and communication. All these are very important aspects of management. With the spread of business operations to cover several boundaries, more challenges related to the mentioned areas arise. Unfortunately, the conventional approaches do not respond to these changes adequately. It calls for a total reformation in the organizational structure and management. In conclusion, globalization has greatly affected management and organizational structures. The challenges associated with the phenomenon will call for contemporary approaches that put the aspect of internationalization at the center of organizational strategy.

Reference List

Chambers, R. N. Saxena and T. Shah. (1989). To the Hands of the Poor: Water and Trees. London: Intermediate Technology Publications.

Daft, R. L. (2009). Understanding the theory and design of organizations. South-Western: Thomson Learning.

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King, W.R., & Sethi, V. (1999). An empirical assessment of the organization of transnational information systems. Journal of Management Information Systems, 15(4), 7-28. Web.

Mahesh, K. & J.K. Suresh. (2009). Knowledge criteria for organization design. Journal of Knowledge Management, 13(4), 41-51. Web.

Malnight, T. W. (1995). Globalization of an ethnocentric firm: An evolutionary perspective. Strategic Management Journal, 16(2), 119. Web.

Milberg, W. (2004). The changing structure of trade linked to global production systems: What are the policy implications? International Labor Review, 143(1/2), 45-90. Web.

Oxfam. (2002). Rigged rules and double standard: Trade, globalization and the fight against poverty. Web.

Prasad, A., & Prasad, P. (2006). Global transitions: The emerging new world order and its implications for business and management. Business Renaissance Quarterly, 1(3), 91-113. Web.

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