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Requisite complexity: organising headquarters-subsidiary relations in MNCs

Author: Ghoshal, Sumantra ; Nohria, NitinINSEAD Area: Strategy Series: Working Paper ; 90/74/SM Publisher: Fontainebleau : INSEAD, 1990.Language: EnglishDescription: 24 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: This paper examines the fit between the structure and environment of multi-unit organizations, such as multinational corporations (MNCs), whose sub-units are located in different environments. In such firms, the structure by which each of the sub-units is governed must be responsive to contingencies presented by its local environment. At the same time, the firm must have structural mechanisms that allow it to respond to contingencies arising from linkages across its national environments. The principle of requisite complexity states that the complexity of firm structure must match the complexity of its environment. Structural complexity increases with internal differentiation of structures as well as with the creation of integrative structures that respond to linkages across environments. Since a uniform and simple structure is preferable to a complex one, firms should only introduce structural complexity consistent with the complexity in their environments
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This paper examines the fit between the structure and environment of multi-unit organizations, such as multinational corporations (MNCs), whose sub-units are located in different environments. In such firms, the structure by which each of the sub-units is governed must be responsive to contingencies presented by its local environment. At the same time, the firm must have structural mechanisms that allow it to respond to contingencies arising from linkages across its national environments. The principle of requisite complexity states that the complexity of firm structure must match the complexity of its environment. Structural complexity increases with internal differentiation of structures as well as with the creation of integrative structures that respond to linkages across environments. Since a uniform and simple structure is preferable to a complex one, firms should only introduce structural complexity consistent with the complexity in their environments

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