Summary
Organization Design
(EBM049A05)
Articles
Seminar 2: Centralization
Joseph, J., Klingebiel, R., & Wilson, A. J. (2016). Organizational structure and performance
feedback: Centralization, aspirations, and termination decisions. Organization Science 27(5)
1065–1083
Foss, N. J., Lyngsie, J., & Zahra, S. A. (2015). Organizational design correlates of
entrepreneurship: The roles of decentralization and formalization for opportunity discovery and
realization. Strategic Organization 13(1) 32–60
Seminar 3: Incentives & Compensation
Oehmichen, J., Jacobey, L., & Wolff, M. (2020). Have we made ourselves (too) clear? —
Performance effects of the incentive explicitness in CEO compensation. Long Range Planning
53(3) 101893
Wade, J. B., O’Reilly III, C. A., & Pollock, T. G. (2006). Overpaid CEOs and underpaid managers:
Fairness and executive compensation. Organization Science 17(5) 527–544.
Seminar 4: Structure & Culture
Mintzberg, H. (1980). Structure in 5S. A synthesis of the research of organization design.
Management Science 2(3) 322–341.
Bate, P., Khan, R. & Pye, A. (2000). Towards a culturally sensitive approach to organizational
structuring: Where organization design meets organization development. Organization Science
11(2) 197–201
Seminar 5: Technology & Digitalization
Barley, S.R. (1986). Technology as an occasion for structuring: Evidence from observations of CT
Scanners and the social order of radiology departments. Administrative Science Quarterly 31
78–108.
Seidel, S., Recker, J. & vom Brocke, J. (2013). Sensemaking and sustainable practicing.
Functional affordances of information systems in green transformations. MIS Quarterly 37(4)
1275–1299.
Seminar 6: Legitimacy & Changing Social Expectations
Meyer, J. W., & Rowan, B. (1977). Institutionalized organizations: Formal structure as myth and
ceremony. American Journal of Sociology 83(2) 340–363.
Pache, A. C., & Santos, F. (2013). Inside the hybrid organization: Selective coupling as a
response to competing institutional logics. Academy of Management Journal 56(4) 972–1001.
Key take-aways Seminar 6
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Articles
Seminar 2: Centralization
Joseph, J., Klingebiel, R., & Wilson, A. J. (2016). Organizational structure and
performance feedback: Centralization, aspirations, and termination
decisions. Organization Science 27(5) 1065–1083
This study examines the effects of organizational structure and performance feedback on
termination decisions such as product phaseout
- Directly, through coordination
- Indirectly, by shaping the interpretation of performance feedback.
As performance increases above aspirations, the rate of phaseout decreases.
As performance declines below aspirations, the rate of phaseout decreases, but then increases
when the product falls below a certain sales threshold.
Centralization amplifies the feedback effect above aspirations but attenuates it below
aspirations.
Introduction
This study examines the effects of organizational structure and performance feedback on
product phaseout.
Product phaseout is part of a broader category of termination decisions that includes decisions
to dissolve organizational units, halt investments, abandon practices, sell off units, end
alliances, and exit technologies.
Structure’s role in information processing is a well established one in that it can facilitate the
efficient collection, processing, and distribution of information intended to help managers make
decisions.
Main thesis is that structure affects termination in two ways: directly, through vertical information
flow, and indirectly, through performance assessment.
As performance declines below aspirations, the rate of phaseout decreases but then increases
when the product falls below a certain sales threshold.
Three contributions to the literature
1. We apply a new theoretical lens to the important issue of termination decisions.
2. We augment theories of performance feedback by elaborating the conditioning role of
organizational structure.
3. Offer new insights into how structural and attentional drivers interact to shape adaptive
behavior, of which phaseout is but one example.
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Performance Feedback and Termination Decisions
Aspiration level → serves as a dividing line between perceived success (gain) and failure
(loss).
When product performance increases above the aspiration level, the product is likely to be
retained by the organization.
The shifting focus model would predict that as product performance falls below aspiration
levels, managers will continue to invest in existing products and culling will slow, but as the
performance-aspiration gap gets sufficiently large, culling will accelerate → This implies a
U-shaped relationship between performance below aspirations and rate of phaseout.
Organizational Structure and Termination Decisions
Information processing theory: the study of how structural choices bear directly on the firm’s
capacity to collect, process, and distribute such information as plans, budgets, market
conditions, and feedback.
Centralization reflects the extent to which the locus of authority to make final decisions
affecting the organization is concentrated at higher levels of the hierarchy.
Centralization and Information Processing
Centralized structures may avoid what would otherwise be time-consuming negotiations to
resolve discordant preferences on which products to terminate (and which products to launch as
replacements).
Centralization and Performance Feedback
The idea that structure shapes attention serves as the foundation for the attention-based view
of the firm, and it provides a means to understand why responses to performance feedback may
vary with the degree of centralization.
Even as product performance declines, decision makers within decentralized structures
are likely to exhibit upward bias in their beliefs about the viability of their products – a
bias that might cause retention of those products.
The greater the elevation of decision-making authority within the firm, the greater the overall
focus will be on changes to activities that have significance for maintaining the whole enterprise
and for ensuring the portfolio’s survival—even at the expense of a particular product.
Methods
An advantage to confining our analysis to a single industry and country setting and to Germany,
in particular, allows us to trace precisely which products have been culled and also eliminates
concerns arising from aggregate performance measures that disguise heterogeneity across
countries → product phaseout decisions were country-specific decisions.
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Dependent Variable
Phaseout of a product from the German market.
Phaseout; the cessation (stopzetting) of product shipments from the handset manufacturer to
German retailers, not as the cessation of all retail sales.
Performance Feedback
- Historical aspiration levels; performance signals derived from one’s own past
performance.
- Social aspiration levels; the performance of peer firms.
Article focuses on historical aspirations (quarterly sales at the device level).
The performance–aspiration gap was defined as the difference between performance and
aspiration level for each of the phones, or the quantity (Pit −HAit).
Organizational Structure: Centralization and Oversight
Assess the degree of (de)centralization in decision making in each firm
- Primary data (manager interviews)
- Secondary data (organization charts, books, news articles)
Centralization
An example of high centralization (5) is Samsung in 2006.
Oversight
First calculated an estimate of what capital investment in the mobile devices unit should be in
light of observed sales, cash flow of the mobile unit (and of other firm units), and the mobile
unit’s external investment opportunities.
A positive residual value suggests that the corporate office has allocated extra capital to the
mobile device segment and hence that decisions regarding the segment are more likely to
require approval by senior management → a larger positive value of this residual measure
is consistent with a greater degree of oversight, and consequently more involvement of
senior managers in decisions such as product phaseout.
Other Controls
Direct replacement is one that is launched within two quarters of its predecessor device’s exit
and whose launch price is within 10% of that previous device’s launch price.
Firm size; total firm sales as a proxy.
Control for absorbed slack; this is defined as the ratio of corporate selling, general, and
administrative expenses to sales
Firm’s average portfolio age in each quarter to capture the degree of portfolio obsolescence.
Culling experience, calculated as the ratio of total products removed from the market (starting in
1997) to the total number of products introduced up through and including the focal quarter.
