Contingency Theory: Implications for Designing Multi-Industry and Multinational Companies

In this study we have not directly addressed the particular organizational issues raised by the added complexity of operating either in a number of different industries or in a number of different national cultures. In the past few years, however, these issues have become of vital concern to an increasing number of organizations. Therefore, even though these areas need much specific research attention, it seems useful to explain how the general concepts developed out of this research might relate to them.

The methods that we have found useful in categorizing the environmental differences among the plastics, food, and container industries could help a multi-industry company to get a sharper fix on important attributes of its various industry environments. Are all the environments heterogeneous and dynamic, like that of plastics, or are they also involved with more stable and homogeneous settings, like the containers environment? Mapping out industry differences in these terms can produce some guidelines for helping to answer such essential design questions as: Is it possible for a single basic research unit at the corporate level to be so structured and oriented that it can adequately serve all the various industrial divisions, or must we establish division-level units that can be differentially tailored to the scientific environment of each industry? Of the many technical support groups, such as legal and public relations, which can reasonably be expected to serve all divisions from a corporate- level office, and which, because of industry differences, must be established at the division level? If the number of divisions indicates the need for a level of group executives, can the systematic analysis of industry differences provide a sound basis for clustering divisions into groups? The answers to these questions will, of course, be influenced by considerations other than those of this study, but our findings suggest that the environmental attributes we have identified warrant serious attention.

The issue of integration between industry or product divisions can also be reviewed in the light of the findings of this study. One of the most troublesome problems in many multidivisional companies is that of realizing to any reasonable extent the potential payout of a free flow of ideas, methods, and resources among divisions. Each division tends to “reinvent the wheel,” or to move in a direction that may not be in the interests of its sister divisions. The clarity with which we can now see how differences in structure and orientation affect the quality of integration among units helps to illuminate this issue. An analysis of the relationship among product divisions similar to the one this study makes for functional units could suggest the more promising places to establish interdivisional liaison. And our findings about the partial determinants of effective conflict resolution can suggest practices and procedures that will help to close the gaps among divisions.

The multinational company has attempted not only to span the necessary differences among functional and product specialists, but also to bridge unavoidable differences among cultures. Every society tends to inculcate its young with certain basic ideas about the “right” way to bargain, to solve problems, to reward and punish; the “right” way to show anger, trust, suspicion, respect, pleasure, and disappointment; the “right” way to keep an appointment, to honpr a verbal agreement, to distinguish honest from dishonest business practices. All these and many other basic norms of everyday behavior are brought into the organization by every person in it. When these standards are different, as they must inevitably be in multinational companies, the consequences are bound to be considerable. Perhaps the concepts of differentiation and integration can help managers to think more clearly about this difficult issue. Questions that might lead to its crux are: What are the necessary interdependencies among units employing members with different cultural origins? How great is the cultural differentiation? Does this suggest the best spot to position those rare people with highly developed bicultural skills who can act as integrators?

Source: Lawrence Paul R., Lorsch Jay W. (1967), Organization and Environment: Managing Differentiation and Integration, Harvard Business School.

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