The relationship between product customization and organizational structure

Abstract

AbstractThis research examines the relationship between product customization (a key aspect of flexibility) and organizational structure. Four aspects of organizational ‘structure’ are considered. They are formal control (encompassing the measurement of competitive, internal, and supplier performance) and three key dimensions of organizational design: decentralization, layers, and spans of control. A contingency approach is taken by simultaneously examining the main and moderating effects of environmental uncertainty and firm size. LISREL results show that customization associates with more formal control, fewer layers, and narrower spans of control. Subgroup analysis revealed that these main effects are, for the most part, not moderated by size or environmental uncertainty. Additional analyses reveal the reductions in layers and spans of control that occur as companies make the transition from standardization to customization.