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

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 decentralization) but also the employees' interaction structure. I develop microlevel theory that connects the firm's structure 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 current structure on its corporate reorganization decisions, which are defined as the addition and/or removal of business 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) backgrounds should 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 implementation may well require additional time.