Successful business performance of either established or fresh companies both under local and global conditions has been studied through various conceptual lenses a great number of times. The given paper offers, however, a somewhat different from the traditional angle of view opinion as to the factors determining firm survival in competitive economy. The author tries to examine the impact of the organizational structure of the firm upon its business performance in global environment using a concept of transaction costs economics . The rest of the paper is organized as follows. The first part is devoted to the role of organizational form in the successful business performance of modern companies. In the second part the adaptation problem of the chosen organizational form under global conditions is analysed. The paper ends with conclusion.
What Makes a Company Successful: the Problem of Organizational Form
Successful business performance unavoidably means certain management structures through which business transactions are organized and which have proved their efficiency. Transnational corporations are well-known. But what is the way they used to organize their business activity? Could it be a key to at least a part of their commercial success?
It is obvious, the organizational management faces the necessity of a proper management structure choice today. Nevertheless, the neo-classical theory traditionally doesn’t pay mush attention to internal peculiarities of economic organizations. Since a firm is seen as a profit maximizing production function, structural differences between companies are ignored or defined as pursuing monopolistic purposes.
On the contrary, the transaction costs approach emphasizes the importance of aligning the characteristics of company transactions with its internal organizational structure. According to the transaction costs concept, firm is a nexus of contracts directly influenced by the institutional nature of interaction between economic agents . In other words, organizational structure institutionalizes relations and interdependencies between economic agents. Practically it means that the flexibility level of decision-making and available development potential of a company could deeply be impacted by its organizational mode. The following strategic limitations and related costs of international and global development of business organizations can be successfully overcome by taking the advantage of a proper governance structure:
internal resource constraints of expansion into the new market and production areas, and costs of financial and human capital raising ;
monitoring the problems inherent in large, or geographically dispersed transactions, and so called agency costs including costs of monitoring, preventing free-riding and creating the contractual safeguards ;
information and localized knowledge barriers when expanding into the new markets or incorporating new activities, and so called search for costs embracing the costs of obtaining this specific data ;
cultural distance in providing established service on the new cultural ground, and costs of cultural adaptation .
Should one look at the global corporations business experience it could be probably noticed that most of them acquire the limited number of organizational forms. All of these forms are used to overkill resource constraints and minimize business costs mentioned above. Empirical evidence shows that large international companies often take so-called hybrid forms (e. g. franchise chains, alliances, partnerships), rarely vertically integrated generic mode, and almost never — atomized business forms (such as a sole proprietor) . Why is it so? How does organizational peculiarities influence running a particular business? Should the transaction governance structure be acknowledged as the one that adjusts something crucial to the organizational success?
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