THE EFFECT OF ORGANIZATIONAL STRUCTURE ON CORPORATE PERFORMANCE

Introduction

1.1 Background to the Study

The literature on organization structure-performance relationships is among the most vexing and ambiguous in the field of management and organizational behavior (Ogosi & Agbaeze, 2018). Hence, evaluations and generalizations concerning the nature and directions of these relationships are tenuous. This underscores the relative lack of generalizability of research in the area and the need for sound study of the structure-performance literature (Dalton, 2013). For decades, it has been argued that an organization’s performance demands that it simultaneously explore and exploit options that highlight the proper structure (O’Reilly & Tushman, 2017). Thus, the fundamental problem confronting organizations is to organize in a way that will ensure its current viability and at the same time, devote energy to create a structure that will ensure future viability by enhancing performance (Blau, 2013). As submitted by Dalton (2013), organizational structure may be considered as the anatomy of the organization, providing a foundation within which the organization functions. Thus, organization structure is believed to affect the behavior of organization’s members.

All organizations have a structure. Lunenberg (2012) suggested that organization structure has two basic functions, each of which is likely to affect individual behavior and organizational performance. First, organizational structures are designed to minimize or at least regulate the influence of individual variations on the organization and the structure set the stage in which power is exercised, decisions are made and the organization’s activities carried out. Van de Ven (2015) highlighted the importance of organizational structure both at the organization and subunit levels for performance. In that light, Blau (2013) opined that not only does structure assist in systematic comparisons of many organizations, it also establish relationship between the characteristics of organizations and stipulate the conditions under which these relations hold, thereby providing the material that needs to be explained by theoretical principles and important guides for driving these principles of the organization.

Behind every great company, division or team is a great organizational structure. The structure of an organization is tailored to its divisions or team’s goals, and one that helps employees understand how they fit into the bigger picture. Without the proper structure in place, an organization may fail to function efficiently, or even collapse (this have been one of the major reasons for most corporate failure). Poor organizational design and structure results in a bewildering morass of contradictions: confusion within roles, a lack of coordination among functions, failure to share ideas, and slow decision-making, brings managers unnecessary complexity, stress and conflict (Ogosi & Agbaeze, 2018).

Centralization is the process by which the activities of an organization, particularly those pertaining to planning and decision-making within an organization are concentrated to a specific leader or location (Lunenberg, 2012). In a centralized organization, the decision-making powers are retained in the head office, and all other offices receive commands from all other offices. The executives and specialists who make critical decisions are based in the head office. Similarly, in a centralized government structure, the decision-making authority is concentrated at the top, and all other lower levels follow the directions coming from the top of the organization structure. According to Zachary (2015), when an organization follows a centralized management structure, it can focus on the fulfillment of its vision with ease. There are clear lines of communication and the senior executives can communicate the vision of the organization to employees. In the absence of a centralized management, there will be inconsistencies in conveying the message to employees because there are no clear lines of authority. Directing the organization’s vision from the top allows for a smooth implementation of its visions and strategies.

Formalization in organizational structure is a process in which managers specify the procedures, rules and responsibilities for the individual employees, departments, groups, teams and the organization as a whole (Warren & Derris, 2015). In a formalized organization, the official organization of a business is typically hierarchical in nature. The formal structure for an organization can generally be found on its organizational chart that usually includes staff names and their official job titles within the organization (Olajide, 2015). A formalized organizational structure focuses on roles and positions rather than the people in the positions. Formalization is enforced to rationalize the decision-making process within an organization (Lunenberg, 2012). Formalization is more like a bureaucratic process, in a way; management set clear, concise rules, which the organization and employees have to respect. A formalized organization is critical for the organization in which issues are known and changes are implemented slowly and purposefully.

Complexity in organizational structure focuses on how multiple entities of an organization differentiate among themselves (Lunenberg, 2012). It refers to the number of resources that are involved in a division, project or team. If the size of the organizational structure is huge that organization is said to be complex. There are a few reasons why an organization might be complex, namely having multiple stakeholders like customers, suppliers, regulators, investors, public and competitors; multiple organizational structures like divisions, subsidiaries and joint ventures; multiple people are involved in a completing a particular job and multiple steps that have to be followed in a process to get a job done (Lebans & Eukse, 2012).

Organizational performance is an indicator that measures how well an organization achieves their objectives. Organizational performance can be assessed by an organization’s efficiency and effectiveness of goals achievement (Nwosu, 2017). Organizational performance comprises the actual results of an organization as measured against its inputs. Organizational performance measures allow companies to focus attention on areas that need improvement by assessing how well work is done in terms of cost, quality and time. According to Olajide (2015), some structure is necessary to make possible the effective performance of key activities and to support the effort of staff. Organizational structure represents a formalized framework within which management operates. It is by means of organizational structure that the purpose and work of the organization can be carried out. The fact that employees and leaders in an organization are involved in idea generation and implementation makes the incorporation of the concept of organizational structure very important (Ogosi & Agbaeze, 2018). The interplay of leadership and relationship styles can positively or negatively affect employee performance as well as organizational performance.

1.2 Statement of Problem

Managers who set out to design an organizational structure face difficult decisions. They must choose among myriads of alternative frameworks of jobs and departments. There is no consensus on the most appropriate organizational structure that enhances organizational performance (Latifi, 2014; Malik, 2016). In recent times, organizations in an attempt to adopt the best organizational structure have faced a lot of problems. Also, many organizational flaws can be related to an inappropriate structure chosen in order to reach a desired goal. An appropriate structure is contingent upon both the type of work to be performed as well as the environment in which the organization conducts business (Ogbo & Chibueze, 2015). Different structures provide different strengths and weaknesses to work to be performed and it is therefore important to find a suitable structure that would provide desired outcomes. These problems encountered by business organizations in choosing suitable forms of structure are complexities associated with the recent shift from authoritarian to decentralized structures stressing employee empowerment, inability of managers to identify the best form of structure that should follow strategies adopted by their individual organizations, inability to employees to adapt to existing and changing structures and the difficulty in maintaining a stable structure as a result of the ever changing business environment.

Scholars such as Zachary (2015) and Malik (2016) pointed out some deficiencies about centralization. According to them, centralized management is analogous to a dictatorial form of leadership where employees are only expected to deliver results according to what the top management assigned to them. In a centralized management, employees are unable to contribute to the decision-making process of the organization, and they are merely implementers of decisions made at higher level. Even when employees face difficulties in implementing some of the decisions, the executives will not understand because they are only decision-makers and not implementers of the decisions. The result of such actions would be a decline in performance because the employees lack motivation to implement decisions taken by top management without inputs of subordinates.

Formalization is a strict organizational structure that establishes highly formal relationships between the management and employees based on their professional relations. Formalization does not admit the establishment of cordial, friendly and personal relationships between management and employees (Myers, 2014). However, such relations are quite challenging for employees because they cannot feel the personal support from the management. Instead, they feel being a part of the rigid machine, where their relations are highly formalized and there is no room for more personal and friendly relations. In such a way, formalization widens gap between management and employees (Ajagbe, 2015).

Increased complexities in an organization tend to result in higher manager-to-worker ratio, which can in turn increase costs or leads to conflicting employee loyalties. Increased complexity can also create gridlock in decision-making if a manager on one end disagrees with another manager. Blurred authority in highly complex organization leads to reduced agility in decision-making and conflict resolution (Latifi, 2014). As pointed by Hsieh and Hsieh (2012), the defects of organizational complexity are it involves huge cost of administration. Secondly, it tends to generate confusion over authority and responsibility. Thirdly, it has high prospects of conflict and excessively focuses on internal relations. The problem with a complex organization is the negative effect of dual authority. Product or business group managers and functional managers have equal power. There is possibility of conflict and frustration, which could eventually thwart the performance of the organization. Complexity can affect market share positively or negatively. On the positive side, complexity facilitates multiple units, subsidiaries and ventures which could make an organization a force to be reckoned with in the industry. Most complex organizations are dominant in their industry of operations. However, on the other side, complexity results in excessive cost of administration, which could gulp firm’s funds in this area, thus hampering on sales, with reduced sales, the proportion of company’s sales to industry’s sales, which is the market share, drops (Nwosu, 2017).

1.3 Objectives of the Study

The main objective of the study is to examine the effect of organizational structure on corporate performance of firms in Nigeria – a case study of Globacom Limited.

The specific objectives are:

1. To assess the effect of centralization on the profitability of Globacom Limited.
2. To investigate the effect of formalization on the sales growth of Globacom Limited.
3. To explore the effect of complexity on the market share of Globacom Limited.

1.4 Research Questions

The questions of interest in the study are:

1. To what extent has centralization influenced the profitability of Globacom Limited?
2. What is the contribution of formalization to sales growth of Globacom Limited?
3. What is the impact of complexity on the market share of Globacom Limited?

1.5 Research Hypotheses

Based on the objectives, the following hypotheses were developed in order to make valid conclusion on the subject matter.

The hypotheses are expressed in their null form:

H01: Centralization has no significant effect on profitability of Globacom Limited.

H02: Formalization has no significant effect on sales growth of Globacom Limited.

H03: Complexity has no significant effect on market share of Globacom Limited.

1.6 Operationalization of Variables

The dependent variable is corporate performance, represented by profitability, sales growth and market share. On the other hand, organizational structure, being the independent variable, is proxied by centralization, formalization and complexity.

Y= f (y1, y2, y3)

Y= Corporate performance.

y1= Profitability.

y2= Sales growth.

y3= Market share.

X= f ( x1, x2, x3)

X= Organizational structure.

x1= Centralization.

x2= Formalization.

x3= Complexity.

The three specific objectives are operationally expressed as:

Centralization and Profitability

y1= f (x1)

y1= b0 + b1x1 + u

Formalization and Sales Growth

y2= f (x2)

y2= b0 + b1x2 + u

Complexity and Market Share

y3= f (x3)

y3= b0 + b1x3 + u

1.7 Significance of the Study

The study will be of unquantifiable benefits to the management of focused organization, Globacom, the Nigerian telecommunication industry and researchers.

The study will prompt the management of Globacom to appraise the current structure they have been adopting to determine whether it is substantially enhancing their corporate performance, and if otherwise, it unveils the best structures, management can adopt to achieve improved performance.

Moreover, other organizations in Nigerian telecommunication industry can follow suit to review their structure against performance to ascertain if their existing structure should be maintained or replaced. Managers will find this study worthwhile as it espouses alternative decisions that can be made given a particular structure to foster organizational efficiency and effectiveness. Employees will equally find this study relevant as it educates them on how to adapt to structure adopted in their organizations for improved productivity and performance.

This study serves as a body of reserved knowledge on organizational structure and corporate performance that can be consulted by students, lecturers and researchers in their subsequent research undertakings. Researchers willing to conduct further studies on organizational structure and corporate performance in Nigeria will find this study beneficial as it dig-deep the subject matter from the Nigerian telecommunication industry.

1.8 Scope of the Study

The study is streamlined to organizational structure variables such as centralization, formalization and complexity and organizational performance variables namely profitability, sales growth and market share. The study will be carried out in the headquarters of Globacom Limited in Lagos. The unit of analysis of the study is the employees of Globacom Limited at junior, middle-level, senior and management level positions. Based on the information obtained from the Human Resource Department of Globacom Limited, the population of the study is 4,575 employees at junior, middle, senior and management positions. By applying the Taro-Yamane formula of sample size determination at 5% error of margin and 95% confidence level, the most appropriate sample size given the study population is 368 employees.

1.9 Definition of Terms

Organizational Structure:

Organizational also describes the allocation of authority and responsibility and how rules and regulations are executed by workers in an organization (Al-Qatanweh, 2014).

Corporate Performance:

This refers to the extent to which an organization has been achieving desired results with respect to profitability, market share and sales growth (Ajagbe, 2015).

Centralization:

This is a method of organization and management where decision-making powers are concentrated in the hands of top management of an organization (Jones, 2013).

Complexity:

This refers to the number of occupational specialties included in an organization and the length of training required for each (Nwosu, 2017).

Formalization:

This is a process in which manager specify procedures, rules and responsibilities for the individual employees, organization units, groups, teams and the organization as a whole (Malik, 2016).

Profitability:

This refers to the degree to which a business yields profit or financial gain.

Sales Growth:

This represents the percentage increase or decrease in sales volume over a specific period of time.

Market Share:

This refers to the portion of a market controlled by a particular company or product.

1.9 Chapterization

The study contained five chapters. Chapter one discussed the introduction of the study. It contains the background to the study, statement of problem, research questions and objectives amongst others. Chapter two reviewed relevant literatures related to the study in the context of conceptual review, theoretical review and empirical review. Chapter three presented the research methodology adopted in the study. Chapter four contained the presentation and discussion of results. Chapter five contained the summary of findings, conclusion, recommendations and suggestions for further studies.