Seeds of change: How current structure shapes the type and timing of reorganizations

Abstract

AbstractResearch SummaryThis article develops theory on how an organization's structure affects future reorganizations. I highlight that a firm's structure shapes not only the locus of decision‐making power (i.e., centralization and decentralization) but also the employees' interaction structure. I develop microlevel theory that connects the firm's structure to the interactions among its employees—for instance, its influence on the time employees spend adjusting their behavior after a reorganization. This theory predicts that some structures are more likely than others to promote a reorganization to occur sooner. I use a unique, hand‐collected data set of reorganizations in the cell‐phone manufacturing industry to test and find directional support for this theory.Managerial SummaryI examine the effect of a firm's current structure on its corporate reorganization decisions, which are defined as the addition and/or removal of business units. I posit that the way employees are grouped into those business units may affect both the type and timing of subsequent reorganizations; the reason is that employees of similar (resp. different) backgrounds should need less (resp. more) time to achieve effective collaboration. Using data on the reorganizations of cell‐phone manufacturing firms during 1983–2008, I find directional support for the theory. This result implies that managers may need to watch closely any reorganization that shifts the firm toward more heterogeneous interaction structures—because its implementation may well require additional time.