How Consultants Can Help Companies Create a Sustainable Business Structure

At this point, you’re probably wondering why business structure is so important. The answer is that a flexible structure is needed to run a global organization. This type of business structure is at the forefront of the knowledge base and has relative value in organizations across North America and the rest of developed countries. When leaders create flexible corporate structures that inspire innovation and creativity, they secure a place in an ever-changing hypercompetitive marketplace.

Corporate structure has been defined as a model by which organizations can divide their activities and tasks as well as control them to achieve higher degrees of coordination. [1] Corporate structure, therefore, refers to the bureaucratic division of labor accompanied by control and coordination between different tasks in order to develop communication within organizations. [2] [3]

Centralization and formalization are the most common structural aspects to examine the structure of the company. [4] Thus, important steps in the company structure could include centralization and formalization, which incentivize employees to make risk-related efforts and generate more innovative solutions. To examine centralization, managers should explore the degree of control and authority over decisions at hierarchical levels – i.e. the extent to which employees can undertake day-to-day work operations without a supervisor and/or the extent to which extent employees are encouraged to make their own decisions and/or how many employees need to refer to someone else when making decisions and/or how many employees need approval from their superior before doing almost anything in their company.

Formalization, as another structural aspect, is studied operationally by measuring the extent to which working relationships and decisions are attributed by formal language that represents official statements, policies, rules and procedures – that is- i.e. the amount of generally documented rules and procedures and/or the extent to which relationships with our supervisors are formal or planned and/or the extent to which employees may ignore the rules and enter into informal agreements to handle certain situations.

It is important for management consultants to understand that the structure of the company can be reshaped by leaders when they develop knowledge sharing and inspire employees to create new ideas for a better environment between business units and departments. . Two prominent academics by the name of Sirkka Jarvenpaa and Sandy Staples argue that the informal structure could facilitate the generation of new ideas to create a more innovative climate within organizations. [5] In particular, management consultants can help executives implement organizational changes that develop better collaboration between subordinates and managers.

Centralized versus decentralized decision making is also a topic that management consultants have to deal with. Researchers have found that a greater emphasis on formalized and mechanistic structures can negatively impact the executive’s ability to exert such changes. [6] On the contrary, a more decentralized and flexible structure can improve departmental and managerial interactions. The mechanics or centralization at the top level of leadership hinders the possibility of developing relationships between managers, business units and departments.

Management consultants should at least be aware that executives can reshape the corporate structure to be more efficient when the organizations command center can disseminate information in a decentralized and organic way as opposed to the mechanical and centralized command center. Decentralized structures transfer decision-making power to lower levels and subsequently motivate members of the organization to create new ideas and even implement them, while centralized structures can have a negative impact on communications interdepartmental and inhibit the exchange of knowledge.

A recent empirical study conducted at Texas A&M University asserts that centralization negatively impacts various knowledge management processes such as knowledge acquisition, creation, and sharing among managers and departmental units. [7] On the contrary, a more decentralized and flexible structure can allow managers to improve interactions between departments and management, which can lead to identifying the best investment opportunities that can improve knowledge use processes for managers. businesses. Management consultants and executives have recognized some form of relationship between corporate structure and the knowledge utilization process. Therefore, managers can contribute positively to knowledge management by creating more decentralized structures within organizations.

The key takeaway for management consultants is to facilitate knowledge management by developing a more flexible structure which is seen as an essential source for developing relationships. Additionally, researchers such as Brian Fugate, Theodore Stank, and John Metzer have asserted that knowledge management is an important indicator of improved organizational performance. [8] Knowledge management can, in fact, improve organizational performance by increasing sales, customer satisfaction, learning opportunities, innovation and the quality of products and services while keeping the shareholder. With this in mind, leaders must develop a flexible business structure that connects knowledge management and business performance to meet customer needs and become more profitable.

Therefore, if the corporate structure is not completely conducive to supporting knowledge management, leaders cannot effectively manage organizational knowledge to improve performance, and businesses cannot be efficient. Therefore, the key core for management consultants is that the business structure is a resource that enables organizations to solve problems and create value through improved performance and it is this point that will reduce the gaps of success and failure leading to more successful decision making.

Additionally, flexible structures can have a direct impact on leadership effectiveness. For example, leaders inspire followers to generate new solutions and a better environment. An empirical study conducted by two eminent academics by the name of Frank Walter and Heike Bruch from the University of St. Gallen provides evidence that a highly centralized structure has a negative impact on leadership practices, while decentralization contributes positively to executives in the development of a more innovative climate. . [9] These findings are reinforced by the crucial role of decentralized structures in facilitating the exchange of ideas and the implementation of more innovative solutions based on the stipulation of decision-making power at all levels of the organization.

Additionally, highly formalized structures are more bureaucratic, which negatively contributes to leadership effectiveness in changing existing situations and creating a better environment.

In conclusion, management consultants are aware that organizational performance can be improved when leaders redesign the corporate structure to develop a more flexible corporate structure that provides open access to knowledge and information. Thus, this article suggests that flexible structures constitute the foundation of a favorable work environment to disseminate knowledge and, subsequently, improve overall organizational performance. I have also presented highly beneficial managerial implications for management consultants and industry leaders and simply extended the current literature by showing how management consultants can help managers improve leadership effectiveness by reshaping the corporate structure.

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Mostafa Sayyadi works with business leaders to effectively drive business innovation and helps companies – from start-ups to the Fortune 100 – succeed by improving the effectiveness of their leaders. He is an author of business books and a longtime contributor to business publications and his work has been featured in leading business publications.

References 

[1] Bowditch, J.L., & Buono, A.F. (2000). A primer on organizational behavior, New York: John Wiley & Sons.

[2] Scott, W.R. (2003). Organizations: Rational, nature, and open systems, Upper Saddle River, NJ: Prentice Hall.

[3] Pounder, D.G. (1998). Restructuring schools for collaboration: Promises and pitfalls. New York: SUNY University Press.

[4] Lee, H., & Choi B. (2003). Knowledge management enablers, processes, and organizational performance: an integrative view and empirical examination. Journal of Management Information Systems, 20(1), 179-228.

[5] Jarvenpaa, S. L. & Staples, D. S. (2000). The use of collaborative electronic media for information sharing: An exploratory study of determinants. Strategic Information Systems, 9(2), 129-154.

[6] Jung, D., Wu, A. and Chow, C.W. (2008), Towards understanding the direct and indirect effects of CEOs' transformational leadership on firm innovation. The Leadership Quarterly, 19(5), 582-594.

[7] Zheng, W., Yang, B. & Mclean, G. N. (2010). Linking organizational culture, structure, strategy, and organizational effectiveness: Mediating role of knowledge management. Journal of Business Research, 63(7), 763-771.

[8] Fugate, B.S., Stank, T.P., & Mentzer, J.T. (2009). Linking improved knowledge management to operational and organizational performance. Journal of Operations Management, 27(3), 247-264.

[9] Walter, F. and Bruch, H. (2010). Structural impacts on the occurrence and effectiveness of transformational leadership: An empirical study at the organizational level of analysis. The Leadership Quarterly, 21(5), 765-782.