Organizational structure and performance feedback: Centralization, aspirations and termination decisions

摘要

Product phaseout includes termination decisions to dissolve several activities such as organizational units, halt investments, abandon practices, sell off units, end alliances, and exit technologies. These activities rely on noisy performance signals. The present study examines how organizational structure performs on termination decisions by concentrating on centralization versus decentralization of decision making. It is proposed that termination affects structure through vertical information flow, and indirectly, through performance assessment. This is done by comparing the continuous measure of product performance into a discrete measure of success or failure along an important dimension to an aspiration level, which serves as a dividing line between perceived success (gain) and failure (loss) using a spline function to compare the effects of a performance-aspirations gap. Based on a set of data of product sales in the German mobile device industry for 2004- 2009, and by applying a piecewise exponential hazard rate model, it was found that as performance increases above aspirations, the rate of phaseout decreases. On the other hand, as performance declines below aspirations, the rate of phaseout decreases but then increases when the product falls below a certain sales threshold. In terms of organizational structure, it was found that centralization amplifies the feedback effect above aspirations but attenuates it below aspirations. (107 refs.)