In today’s business world companies are facing many hardships. The financial crisis shocked the business world and got many companies unprepared. Being prepared for market shocks in order to avoid failure has become one of the top priorities for business firms. Many companies had to design and implement alternative plans to respond to these extraordinary situations. What companies understood was that these alternative plans should not include a temporal reaction to unexpected problems but also develop a mode of responding, a line of action, to be in place whenever there is the need to react to a certain extreme situation.
There are various forms of responding to market shocks and try to immunize your company from them. Organizational design and structure is one of them. The bigger the company gets the more it tends to bureaucratize itself and encounters problems of inefficiency. Organizational design is that part of business planning which tries to make a company as much efficient and effective in its administrative structure as it can. This way the company will be prepared to absorb different external threats and shocks. This is a good way of avoiding collapse, at the worse, or suffering considerable loss from situations like the recent financial turmoil of last year.
Organizational coordination strategies are yet another form of responding to these market shocks and external threats. If organizational design and structuring had to do with the regulation of the administration of a company, organizational coordination is what ‘speeds up’ communication and interaction among the different departments of this administration.
We can understand thus that it relates to the timing of response to shocks and external threats. Through the process of organizational coordination business firms manage to get their various departments and structures cooperate more efficiently with each other and benefit the company as a whole. It is coordination which shortens the time of response business firms have to external market threats and shocks. Combined with the process of organizational design this cooperation that makes all the different components of the company’s structure join together in reacting to the difficult situation.
In this paper we will give a recall of the circulating ideas regarding organizational design and organizational coordination. This are to recent fields of knowledge in management but developing fast as the need for them rises faster. They emerged during the last two decades as a form of reaction to market shocks and the difficulties many companies were encountering in responding to these difficulties. Since then they have developed quite a lot.
This will be the literature review part of the paper in which a sketch will be made of what are organizational design and organizational coordination. The latest ideas in these fields will be presented, especially related to the latest financial crisis which still hits hard many companies. Of course that the two fields are connected, as they are alternative plans to unexpected situations but they do need to come one after the other. Organizational coordination is the second step to be followed after organizational design when reaction to a certain unexpected problem. This is why we will begin first with organizational design. Yet the two are ineffective without each other.
Organizational design as a form of reaction to market shocks
In this part we will present a literature review of the latest ideas and developments in organizational design. This last two decades the markets, especially financial markets, have had tremendous ups and downs. Many companies lost considerable shares while others even bankrupted. This situation favored the enhancement of research in organizational design and structure design as a form of alternative plan to be implemented in order to ‘save the boat’ if necessary. we shall start first by assessing some basic principles of what organizational design is and what are its basic components.
As Sefa points out the organizational design process came out of the need to transform staff and resources of a firm into competitive advantage on the market. This process is viewed by many as the best strategy a company can implement to avoid market failure when into trouble (Sefa, 2010). There are two basic functions that organizational design is expected to play:
- the company wants to break the organization into efficient and manageable units which support the competitive advantages of the firm;
- the organization designing process coordinates and integrates the various functions in the organization as well as delegates responsibility down the organizational chart;
The effects are that it ensures the staff and activities attain the overall objectives of the company. This ability to organize and coordinate is critical in adapting and reacting to emergent strategic issues (Benham et al, 2006).
The scholars in this field have been divided into the ‘cure’ this form of reaction strategy of a business firm. Some authors do argue that organizational design should direct its efforts in advising companies how to make their internal structures more functional y compacting them (Centeno and Correa, 2008). The benefits that a company will have from this form are:
- Enhanced operational efficiency where tasks are routine/
- Preserves centralized control of strategic control of strategic results;
- Allows benefits of specialization and learning/experience curve effects to be fully exploited;
Other authors point out some disadvantages that this form of organizational design:
- Poses problems of functional coordination;
- Inter functional rivalry, conflict and empire building may occur;
- Promotes over-specialization and narrow management viewpoints; (Berlemann and Markward, 2007)
These authors favor a more geographical design of structures of the company. Reorganizing its structures by geographical area of function will increase the efficiency of the company. The result will be the same benefits as in the case mentioned above but with the advantage of avoiding the disadvantages. That was a favored view in the late 1990’s but critics pointed out that this form leads to duplication of staff services and poses a problem of headquarters control over local operations (Crim, 2008).
They promote instead a decentralized business form of organizational designing. This model will give functional autonomy to company’s various structures and the possibility to headquarters to monitor the ongoing of operations and set the main agenda and principles which these autonomous structures should follow.
This model offers a logical and workable means of decentralizing responsibility and delegating responsibility in a diversified organization. It also puts responsibility of business strategy closer to market (Martin, 2005).
Organizational coordination as a preventive step for company failure
Let us now make a literature review of the concepts for organizational coordination. For any of the forms mentioned above of organizational design there raised the problem of coordination among various departments, components, of companies structure. This was true, especially for the geographical form of organizational design and the decentralized model. This organizational coordination is vital to the strategy process because it links, controls and motivates the staff and capabilities that drive a firm to its success (Freeman et al, 2005).
In order to reach this desired coordination level a company has to enact certain mechanisms. These are informal and formal mechanisms. Among the formal mechanisms authors have put:
- Direct control or supervision-conventional hierarchy-very important when there is considerable risk involved in the operations and activities must be controlled rigorously. One problem which may rise here is that it doesn’t motivate workers to be better or work harder.
- Managers can actively manage the inputs into an operation. Managing inputs may consist of the hiring of staff, supply inputs, funding, training, conferences. This underscores the importance of the organization to inputting new knowledge, skills, and experiences so that the organization and individuals improve continuously.
- Managing activities, actions, and processes is done by many firms and involves developing policies, procedures, and assembly line type operations. The problem here is it tends to restrict the creative and upgrading process (Jannifer, 2005).
- Managing remuneration is an approach used to motivate staff to meet output targets -the output targets are financial, operational and subjective targets such as customer satisfaction. Attention should be paid that these targets must be measurable and controllable. Nevertheless, this mechanism is very useful in motivating sales staff to achieve sales targets (Casson, 2003). This is an important aspect if we consider that these techniques re applied with the primary goal to ‘save’ the company from failing in the market.
Other mechanisms that a company can use to increase the level of coordination are the informal mechanisms. These are often referred in literature as ‘mutual adjustments’ (Gomez-Mejia et al, 2008).
- Grouping key personnel or departments close together to develop relationships, and/or rotating employees through several departments and project teams.
- Using information sessions to better understand the challenges of the various departments.
But there are also some important aspects that should be considered and that relate to both formal and informal mechanisms. These are in fact the latest developments in this field.
Information system has become an important tool for decision processes in today’s business world (Timmons and Spinnelli, 2004). Information technology is an important innovation in this aspect.
This planning and control process enables coordination between tasks and functional areas. The information system disseminates information and knowledge throughout the organization both informally and formally (Gomez-Mejia et al, 2008).
Implementation of a reward system is another important aspect that a company should incorporate in its emergency plans. The reward system, promotions, as well as other mentioned factors is designed to reinforce the desired behavior and company culture. Specifically, the organizational reward system helps individuals and teams focus on strategic objectives. These systems encourage efficiency and effectiveness, core competencies and position as well as group preferences (Jones, 2004).
And a final development proposed is to pay attention to staffing and leadership style. The organization must recruit, train, develop staff in every part of the organization. The organization must hire and retain the most motivated, skilled and effective people in its organization. Top managers have leadership styles that help motivate and direct employees to fulfill the firm’s objectives (Ghosh, 2005).
In conclusion, there are many developments in the ‘emergency planning’ management. Scholarly work is still continuing at an intense level. New ideas are launched every day and concepts are changing rapidly.
Nevertheless, there are various aspects that should be considered. Functionality and efficiency are two themes for organizational structuring. A functional organizational structure focuses primarily on increasing organization’s efficiency by using specialized personnel in handling various processes. Since the late 1980’s the market had gone global obliging many companies to compete globally. This global competitiveness led that many firms concentrated their efforts in certain segments of the market specializing in one or two products of the confectionary industry. Many companies failed to do to in time, and that is one of the reasons why it was becoming less competitive, and thus, gaining less profit. Overhead costs were making the company suffer financially. These companies should definitely move toward specialization in the market. This is why a reorganization of its structures is necessary. This structural reorganization will ensure to the company a higher efficiency in operations for tasks which are routine, will specialize it in certain sectors of the industry and make it more reactive to market shocks and changes.
This organizational structuring should include all aspects of the company involved in this emergency planning. It is a fact that in most of these companies only one of two persons from the management team are members of the Board of Directors, which is the highest decision taking body in a company. The problem that rises here is that despite having very committed and professional members, the Board of Directors does not have the capability to adjust what is going wrong in the company (“Boston Consulting Group, 2009). The reason is that board members do not know from within the management history of the company.
They are not in touch everyday with the processes the company undergoes. That is very significant. Managers are on the front line everyday and their voice is not represented as it should. The structural adjustment should begin by giving more voice and decision power to the managers of the company. A sort of decentralization process would greatly benefit the company.
By giving more decision and implementation autonomy to managers, you will impact on their performance. First of all, the time of reaction to a problem or a situation will shorten. Managers will not have to wait until the board decides what to do even for routine problems but will act independently. Secondly, this will increase their responsibility toward the sector they are in charge. And thirdly, this will motivate them to improve their performance. The board will continue to play an important role. It will monitor the activities of each sector and make managers accountable for errors or lack of performance. But it will be easier for the board also since they can easily identify which sector is lacking performance.
There are many new developments going on in this field right now. Especially in the aftermath of the latest financial crisis many companies have found these new techniques to be effective in getting them out of difficult situations and safeguarding their future in the market. This is why more and more are turning to them for help.
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