I’m studying for my Business class and need an explanation.
Size versus Structure
Many of the advantages and disadvantages of firm size that were discussed at the beginning of the chapter are related to the structural dimensions of formalization,standardization, and centralization. Large firms often make greater use of formalization and standardization because as the firm grows it becomes more difficult to exercise direct managerial oversight. Formalization and standardization ease coordination costs, at the expense of making the firm more mechanistic. Many large firms attempt to overcome some of this rigidity and inertia by decentralizing authority, enabling divisions of the firm to behave more like small companies. For example, firms such as General Electric, Hewlett-Packard, Johnson and Johnson, and General Motors have attempted to take advantage of both bigness and smallness by organizing their companies into groups of small companies that can access the large corporation’s resources and reach while retaining a small company’s simplicity and flexibility.28 The next section examines several methods by which firms can achieve some of the advantages of large size, and the efficiency and speed of implementation afforded by mechanistic structures, while simultaneously harnessing the creativity and entrepreneurial spirit of small firms and organic structures.