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

• Date: 01 January 2020
• DOI: http://doi.org/10.1002/smj.3084
• Author: Marlo Raveendran
• Published date: 01 January 2020

RESEARCH ARTICLE

Seeds of change: How current structure shapes the

type and timing of reorganizations

Marlo Raveendran

School of Business, University of

California, Riverside, Riverside, California

Correspondence

Marlo Raveendran, School of Business,

University of California, Riverside,

900 University Avenue, Riverside, CA

92521.

Email: marlo.raveendran@ucr.edu

Abstract

Research Summary:This 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 decen-

tralization) but also the employees' interaction structure. I

develop microlevel theory that connects the firm's struc-

ture 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 Summary:I examine the effect of a firm's cur-

rent structure on its corporate reorganization decisions,

which are defined as the addition and/or removal of busi-

ness 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) backgroundsshould 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 imple-

mentation may well require additional time.

Received: 2 March 2017 Revised: 11 July 2019 Accepted: 30 July 2019 Published on: 6 September 2019

DOI: 10.1002/smj.3084

Strat Mgmt J. 2020;41:27–54. wileyonlinelibrary.com/journal/smj © 2019 John Wiley & Sons, Ltd. 27

KEYWORDS

cell-phone industry, corporate strategy, organization design,

organization structure, reorganizations

1|INTRODUCTION

Between 2002 and 2012, LG Electronics reorganized its corporate structure nine times; Nokia

announced eight reorganizations during the same period, and Yahoo! underwent two major reorgani-

zations in 2012 alone. Corporate reorganizations—that is, the addition and/or removal of business

units—are a common occurrence among multi-business entities (Allen, 1977; Karim, 2006, 2009).

Many firms choose to initiate reorganizations frequently even though doing so incurs costs due to

disruption, changed operations, and demotivated employees (Bond, Flaxman, & Bunce, 2008; Lam-

ont, Williams, & Hoffman, 1994).

Traditional perspectives on reorganizations have sought to identify what drives these costly

changes—in particular, whether the triggers are internal or external to the firm (Boeker, 1997; J. P.

Davis, Eisenhardt, & Bingham, 2009; Karim & Kaul, 2015; Karim & Williams, 2012; March &

Simon, 1958; Tushman & Romanelli, 1985). Although it is commonly acknowledged that reorgani-

zations are driven by both internal and external factors, most of this literature focuses on the latter

(Burns & Stalker, 1961; Chandler, 1962; Donaldson, 2001).

In contrast, my article contributes to a growing literature that explores the role played by a firm's

current structure as an internal driver of reorganization decisions (Boumgarden, Nickerson, &

Zenger, 2012; Gulati & Puranam, 2009; Nickerson & Zenger, 2002). The main premise underlying

these research efforts is that a firm's structure is always inherently imperfect and entails tradeoffs. I

examine such trade-offs between different structures more closely and develop theory to examine

how current structure affects the type and timing of reorganizations.

I highlight that reorganizations fundamentally affect two aspects of organization design: (a) the

locus of decision-making power, as determined by centralization versus decentralization; and (b) the

grouping of business units (i.e., by function, product, or market), which determines how they are

expected to collaborate. The organization design literature tends to conflate these two aspects by

assuming that centralization implies a functional form and decentralization a divisional one (and vice

versa). Although the correlation between these choices may be high, I argue that carefully dis-

tinguishing between the locus of decision making (centralized or decentralized) and the interaction

structures among employees (grouped around functions, products, or markets) is a fruitful avenue for

disentangling the effects of organization design on reorganizations.

I build on the premise that all structures have limitations, which eventually trigger reorganizations

intended to overcome them. I extend this reasoning to suggest a novel theoretical account that can

explain the type and timing of reorganizations—whose seeds, I argue, are sown in the current struc-

ture. More specifically, I explore the effect of a firm's current structure on the interactions among its

employees. Focusing on how employees collaborate in response to changes in the firm's direction

allows me to explain (a) how a firm's current structure affects the type of structure chosen in a reorga-

nization and (b) how the process of adjusting to different types of new structure affects the timing of

subsequent reorganizations.

The hypotheses developed here are tested in a longitudinal, large-sample study that relies on a

unique data set of reorganizations in the global industry of manufacturing cell phones. The results

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