Corporate structure has been defined as a pattern by which organizations can divide their activities and tasks as well as control them to achieve higher degrees of coordination. Corporate structure refers to the bureaucratic division of labor accompanied by control and coordination between different tasks in order to develop communication within organizations.
Centralization and formalization are the most common structural aspects. To examine centralization, executives should explore the degree of control and authority over decisions in hierarchical levels—that is, how much employees can undertake daily work operations without a supervisor and/or how much employees are encouraged to make their own decisions. Formalization, as another structural aspect, is investigated through measuring the extent to which working relationships and decisions are assigned by formal language that represents official statements, policies, rules, and procedures—that is, how much rules and procedures are generally documented.
Corporate structure can be reshaped by transformational leaders when they develop knowledge sharing and inspire employees to create new ideas for a better environment among business units and departments. An informal structure could facilitate new idea generation to build a more innovative climate within organizations. Transformational leaders are known to implement organizational changes that develop better collaboration among subordinates and managers.
Centralized versus decentralized decision-making is a topic that transformational leaders must deal with. Research shows that more emphasis on formalized structures can negatively impact the transformational leader’s ability to make changes. Yet, a more decentralized and organic structure may improve departmental and managerial interactions. Centralization at the commanding level of leadership impairs the opportunity to develop relationships among managers, business units, and departments.
Transformational leaders reshape organizational structures to be more effective when the command center of organizations can disseminate information in a decentralized and organic way as opposed to the mechanical and centralized command center. Decentralized structures shift the power of decision-making to the lower levels and subsequently inspire organizational members to create better ideas and implement them. Centralized structures negatively impact interdepartmental communications and inhibit knowledge exchange. Better solutions and more innovative ideas can improve the quality of products and services, which in turn increases sales, profitability, and market share for companies. Therefore, transformational leaders positively contribute to organizational performance through building more decentralized structures within organizations.
Transformational leaders directly support organizational performance through setting highly desired expectations. The higher level of expectation enhances productivity and decreases organizational costs. In addition, when transformational leaders show concern for the employee’s individual needs, individuals begin to develop more commitment and become more inspired them to put extra effort into their work. This extra effort improves the quality of products, customer satisfaction, and impacts the return on assets, sales, shareholder value, and improves operational risk management.
Furthermore, knowledge management is a significant indicator of improving organizational performance. Knowledge management can improve organizational performance through increased sales, increased customer satisfaction, increased learning opportunities, increased innovation, and increased quality of products and services. Therefore, if corporate structure is not completely in favor of supporting knowledge management, executives cannot effectively manage organizational knowledge to improve performance and organizations may become obsolete or taken over.
The figure at the top of the page provides a snapshot of how corporate structure, transformational leadership, knowledge management, and organizational performance interact.
In conclusion, executives can now see that improving knowledge management and organizational performance requires adopting transformational leadership—not only at the higher echelons of the organization but at every level. Knowledge management and organizational performance can be enhanced when executives adopt transformational leadership and reshape corporate structure to develop a flexible corporate structure that provides open access to knowledge and information.