What is meant by organizational architecture?
Refers to the totality of the firm's organization and consists of the following;
→ Organizational structure
- Horizontal differentiation
- The formal division of a firm into subunits like product divisions, national operations, and functions.
- Vertical differentiation
- The location of decision-making.
- Integrating mechanisms
The establishment of integrating mechanisms to coordinate the activities of subunits.
→ Incentives & control systems
- Incentives are tools used to encourage and reward employees for good behaviour, such as bonuses and pay raises.
- Control systems helps a firm achieve consistency in the overall strategic and financial objectives. Personal control → personal contact with subordinates and common in small firms.
- Bureaucratic controls → control through a system of rules that direct actions of subordinates.
- Output controls → control is measured by the performance of reaching goals.
- Cultural controls → the belief is that each employee controls their own behaviour and performance.
- Performance ambiguity = when the cause of a subunit bad performance is unknown → often occurs when subunits are highly dependent upon each other.
→ Processes
They way that decisions are executed within the firm and that valuable processes can be found on all levels of the firm, across country and cultural borders.
→ Organizational Culture
Depends much upon the social culture of the firm, the history of the firm, the perceptions about good management by the current managers as well as founders and decisions that have proofed successful.
→ People
The employees, but also the strategy for recruitment and retaining valuable individuals.