Chapter 2

Literature Review
Literature review is an integral part of the research thesis which provides an overview of the
work done on the topic and puts discussion relating to the study in a particular context or
perspective. This literature review provides a discussion on the organizational structure with
particular reference to the flatter organization structure and its impact on the performance of
employees and their empowerment. This literature review is organized as follows: at the
beginning relevant variables of the study are defined and discussed i.e. organizational structure,
employee performance and employee empowerment. After that the interrelationship of these
three variable is discussed and empirical evidences with regard to their interrelationships is
provided.

2.1 Organizational structure

Organization structure or hierarchy of the organization describes the information flows within an
organization and also indicates as to how decisions are made in the organization. Klenke (2006)
provided that organizational structure define the degree of control, formalization and
centralization in an organization and traditionally organizations were structured in vertical,
pyramid type hierarchies where power was concentrated on the top level and control in such
organizations is exercised using classical principles of management. This centralization of power
provides continuity, stability along with a structured reward system and predictable career
pathways. The span of control in such organization is quite clear defining the duties and
obligations of each individual with clear reporting structure as to who reports to whom and
command and control style of leadership is used in such organizations. According to Farhanghi,
Abbaspour and Ghassemi (2012), many factors influence organizations which are of contextual
nature and are related to both internal and external dynamic of the organization and organization
with a static structure could not effectively respond to such factors. Sikavica and Novak (1993)
provided that external factors in this regard are technological developments, process of
integration, institutional environment and markets being served by the organization while
internal factors consist of strategy and goals of the organization, location & products of
organization, life cycle of organization, its employees, size, and technology. Draft (2004) in this
regard also divided organization into two dimensions i.e. contextual and structural factors and
variables of structure of the organization as identified by draft were degree of formalization,
authority, hierarchy, degree of specialization, employee structure and professionalism. Degree of
formalization in an organization is the extent to which documentation takes place in the
organization with regard to set policy manuals, job description, regulations, rules, procedures,
etc. Such documentations entail the details of the activities, procedures and behaviors in the
organization as to how things should be done in the organization. Authority and hierarchy is
represented by the number of managerial levels in the organization. Hierarchy is also represented
by the span of control in the organization as to how many people are controlled and directed by
one manager or supervisor. Wider span of control implies relatively flatter organization and
shorter span of control implies taller organizational structure. Canalization on the other hand is
the degree to which decision making power is concentrated to the top hierarchical levels of the
organization or is distributed among the lower level of the organization. More concentration is
deemed as more centralization and distribution of power among the lower level mangers is called
decentralization. While degree of specialization is the extent to which tasks and activities in an
organization are divided, organized and standardized. Higher degree of specialization implies
that activities in organization are formally divided and employees perform the task according to
their job description only in a repetitive manner. Professionalism is represented by the education
and experience of the employees in an organization and lastly employee structure as mentioned
by Draft (2004) as personnel ratio is the ratio of employees to their education level. The other
factors of contextual nature include goals, environment, technology and size of the organization.
Robbins (2004), provided that organizational structure could be explained using three
dimensions i.e. complexity, formalization and centralization. Following is a brief discussion on
these three elements of organizational structure:

2.1.1 Complexity
Complexity could be elaborated the divisional distribution of occupational characteristics of
people working in an organization (Robbins, 2004). Draft (2004) on the other hand related
complexity within an organization with the number of hierarchal levels in the organization.
Generally, it is believed that complexity is about the dispersion of job natures and title in an
organization, levels of hierarchy with regard to managerial positions, geographical distribution of
organizational units from each other and degree of education of the employees. Thus, the
complexity could be distributed among geographical, horizontal and vertical types (Horwitz &
Mark, 1994); whereas geographical complexity refers to the geographical dispersion of different
units of the organization, while horizontal complexity is number of jobs and their separation at
one hierarchal level in an organization and vertical complexity is basically the number of
hierarchal levels or layers of management positions in an organization (Butler, 1996).

2.1.2 Formalization
According to Robbins (2004), formalization is the extent or degree to which jobs and tasks in the
organization are standardized. Generally, it is believed that formalization refers to the
documentation of tasks, procedures, laws, formal rules, regulations, job duties, instructions in
order to clarify the sense of duties and responsibilities of employees in an organization
(Mintzberg, 1979). So, formalization has two dimensions. First dimension of the formalization
deals with the documentation of rules, laws, procedures etc. and second dimension is related to
the practical aspect as to how such rules, procedures and instructions are followed, obeyed and
executed and how the set red lines are adhered to by the employees in the organization (Shefritz,
& Owt, 2002).

2.1.3 Centralization
The third aspect of organizational structure is centralization which refer to the extent to which
the decision making power is concentrated at one position in an organization and how different
aspects of the organizational decision making relating to different functional areas of the
organization such like human resource, financial, production, marketing are affected by such
decision making (Robbins, 2004). Decision making is main element of this aspect of
organizational structure and the extent to which individual job title is benefitted from an
independent decision making power is core of this aspect. The scope of centralization is
extended to the extent of job independence, extent of power with regard to the allocation and
distribution of resources, granting rewards, making performance evaluations and appraisals,
promoting, hiring & firing employees, allocating and modifying budgets, accessing to the data
and controlling the decision making in sub groups (Baligh et al., 1992).

According to the Dimovski and Penger (2003), the conventional organizational structure which
was based on the vertical hierarchal characteristics is being replaced by the contemporary design
of horizontal structure organization. The change is primarily due to the bureaucratic nature of the
control where decision making rests with the senior management and in the dynamic
environment of today, such vertically structured organizations become overloaded (Ohame,
1995) and are less responsive to the external environment (Klenke, 2006). This lack of
responsiveness along with other characteristics of the traditional organization such like status
driven boundaries, strict chain of command and lack of connection of top management with the
market deem such organization in effective in the modern corporate era. Thus, in response
contemporary organizations are being changed and becoming more flexible as these
organizations alter their structure in accordance with the change of external environment
(Lawrance & Lorch, 1967; Klenke, 2006). Wulf (2012) provided that a dramatic shift has been
witnessed in the hierarchical structures of the corporation from 1986 up till 2006 and focus of
contemporary organizations in on a flatter organizational structure and in order to move towards
a more flexible and flatter organization structure, CEOs have eliminated various managerial
levels and have actively delayered their organization. Delayering; a term popularized by Boston
Consulting Group of USA is used to describe the process of eliminating the layers of
management hierarchy by expending the managerial span of control. Rajan and Wulf (2006) also
provided evidence that considering the period from 1986 to 1998, the corporations have been
delayered their organizational hierarchy in a considerable manner and in a consequence various
levels of the senior management have been eliminated. They found that with time position of
Chief Operating Officer (COO) is being eliminated in the organization as a 20% reduction was
witnessed in the number of organization which had a formal position of COO in 1986 and this
position was eliminated by 1998 and this trend is seen to sustain till 2011 (Crist Kolder Volatility
Report, 2011). Rajan and Wulf (2006) further posited that it’s not just the elimination of the
COO, organizations have reduced their average numbers of managerial levels up to 25% as
average number of managerial levels between Chief Executive Officer (CEO) and divisional
managers in 1986 were found to be 1.6 which declined to 1.2 in 1999. Thus, the trend towards a
flatter organization is quite persistent in the corporations around the globe (Wulf, 2012). Klenke
(2006) in this regard also posited that modern day organizations are delayering their structure
and organizations which previously had ten or more levels, now just have three to four
managerial levels in their hierarchy. This trend of a flatter organization has broadened the span
of control within an organization and thus average number of people directly reporting to CEO
of the organization has increased from 4.5 in 1986 to 7 in 1999 and further increased to 9.8 in
two decades after late 1980’s (Rajan & Wufl, 2006; Guadalupe, Li & Wulf, 2011). This
primarily has occurred due to delayering and moving up of traditionally junior positions in the
hierarchy, which has facilitated flow of information from both ends of the contemporary
organizations. Dimovski and Penger (2003) also entailed that such organizations have a wider
span of control with a more empowered role of the employees which enables organization to
exercise decentralized decision making by shifting the decision making power from upper to
lower levels of organization. This organizational structure also facilitates information flow by
promoting flexibility and co-operation within the organization. This contemporary organizational
structure can take various forms such like virtual network structure, team based structure,
horizontal matrix structure, hybrid structure and dynamic network structure which are more
congruent to the modern era of knowledge economy (Burton, 1999).

Guadalupe and Wulf (2010) entailed that this trend of delayering and flattening of organizations
is not out of nowhere. They suggested that this trend is sustained because of increased
competition in the marketplace which has intensified overtime and a more flexible and agile
organization is deemed better to effectively operate in such an environment as such organizations
are structured around problems, connections, teams, customers, employees and networks
(Klenke, 2006). Flexibility is demand of era and certain researcher even boost about an
organization which is beyond flexibility like Sherehiy, Karwowski and Layer (2007), in this
regard used the term of ‘agile organization’ which according to them a step forward to the a
flexible organization and is based on the leveraging the impact of information and people,
organization wide corporation to boost competitiveness, customer enrichment. Such organization
by any means have flexible organizational structures. Regarding the people and information,
these are the main resources to leverage on the organizational success in the modern era of
knowledge economy. Organizations are defined by the capabilities and competencies of its
employees and knowledge possessed by such organizations and information and people are the
main contributory factors in order to build and agile organization ( Goldman, Nagel & Preiss, 1995).
Corporation with in the organization is how well employees of the organization work together
and exploit both internal and external resources to build a competitive advantage while customer
enrichment is not only delivering the product to the customers but to focus on the solutions to the
problems of the customers by considering their needs and demands in the relevant perspective.
Above all, flexible organizational structure helps the organizations to build such competencies
and survive in the hostile environment of today. Many other researchers also define such
contemporary organization as agile organization which is more strategically aligned to the
modern era. Overby, Bharadwaj and Sambamurthy (2005) termed it as strategic flexibility which
bases on three foundations i.e. flexibility, adaptability, balance and coordination (Tsourveloudi
& Valavanis 2002). Oosterhout (2010) in this regard entailed that ability of an organization to
respond quickly to uncertain and unpredictable external environment require that new level of
flexibility which is embedded in an agile organization.

According to Wulf (2012), this notion is consistent with the view on the flattening of
organizations that organizations are becoming less tall and even less wide by narrowing their
portfolios as to respond to the mounting competition in the industry. The study also conducted
the interviews of the CEOs as to understand their point of view with regard to the need of a
flattened organization. The main reason for the flattening the organization in this regard was
found to be, “getting closer to the business” (p. 14). Which according to the CEOs is described
by their more involvement in the decision making process and implies that most of the decision
making in the organization is done at the top hierarchical level of the organization. Although, it
was also indicated by the CEOs that the traditional hub-and-spoke model to the team based
model of organization which has embedded characteristic of enhanced interactivity and
collaboration. Klenke (2006) also indicated towards some pitfalls of the flatter organizations
which included prevalence ‘groupthink’ that might evoke stagnancy and prevent creativity
among people. Apart from this, implementation of the decision could prove to be difficult in
such organization due to lack of formalization and due to the fact that such organizations serve
multiple stakeholders and constituencies at the same time. Moreover, such organizations are
based on the teams, members of which are normally geographically dispersed and connect trough
a virtual setting, which again could create some problems in the effective functioning of the
organization.

2.2 Employee performance

Corporate firms are established primarily as to enhance the wealth of their stockholders (Gitman
& Zutter, 2010) which is related to the ability of the firm to generate the profits and make
distributions to stockholders in shape of dividends. Part of the profits is distributed to the stock
holders as dividends and the other part of the profits is retained in the business which is
reinvested as to leverage the growth of the organization. This growth is expected to yield
increased profits in the future and increased profits bring increased dividends for the stock
holders. So, traditionally the performance of any company was measured through various
profitability ratios (Iswati & Anshori, 2007; Sofian, Tayles & Pike, 17; Usoff, Thibodeau, &
Burnaby, 2002). A lot of criticism is available on the traditional performance measurement based
on the financial ratios as these financial ratios primarily are related to the past performance as
Kaplan and Norton (1992) and Drucker (1992) termed these ratios lagging measures of
performance and that these ratios fail to account for the intangible assets of organization as
enablers of future value creation which is plainly indicated by a higher market value of the
corporations as compared to their book value (Amir & Lev, 1996; Amaratunga, Baldry &
Marjan, 2001). Moreover, the nature of modern era organization has considerably transformed
by the technological interventions which has increased importance of intangibles in overall
performance nexus of corporate organizations (Eccles, 1991). Thus, according to Hansen and
Mowen (2005), the performance of any organization has two dimensions; one of which is
financial performance and the other is non-financial performance. Walker (2001) on the other
hand, incorporated the productivity of the organization and market premium i.e. difference of
market and book value of the organization with traditional profitability dimensions as to assess
the complete performance of any organization.

Apart from the accounting and financial means, contemporary research on the performance
measurement has put greater emphasis on the non-financial aspect of the performance of any
organization and various frameworks for performance assessment have been devised in this
regard. Such model lay greater stress on the employee side of the paradigm and managing and
cultivating a superior workforce which has the ability to performance better than the competitors
in the marketplace is considered a key aspect of sustainable performance of any organization. In
this regard, a specific term of human/ intellectual capital has been devised and the conception in
this regard states that organizational performance is dependent upon employee performance
which knowledge, abilities and skills of the workforce of the organization which could be used to
sustain economic growth of the organization (Coleman, 1988). Human capital provides a
foundation stone to build a competitive advantage of the organization (Nonaka and Takeuchi,
1995). Makki (2010) entailed that successful companies always invest in their human capital as
to leverage success. A positive relationship between investment in human capital and firm
performance has been documented by many studies (Pennings, Lee & Witteloostuijn 1998;
Becker, Huselid & Ulrich, 2001).

So, performance on the whole is a broader term which is seen and measured in many contexts as
provided by Bedeian (1986), “although effectiveness is a central theme in the study of
organizations, it remains one of the most frequently cited yet least understood concepts in
organization theory” (p. 186). Most of the literature on performance measurement and
management discusses the term in organizational context, as corporations on the whole strive for
the enhancement of the performance of the overall organization. According to Hill, Ferris and
Martinson (2003), there are three main dimensions of performance i.e. people, plant and profits.
While measuring the performance through people, outcomes such like work life balance, job
satisfaction, employee commitment and flexibility are considered. Such variables are based on
the overall wellbeing of the employees and are considered soft side of performance outcomes.
Plant performance is related to the predictability of the organizational assets while profit
measurement is considered a more rigorous and hard aspect of the performance of an
organization. On individual level, profit aspect of the performance measurement focuses on the
productivity of individual employees and on the organizational level, focus is laid on the
measures such like market share, innovativeness and overall performance of organization. This
study considered the performance of employees so individual level performance measure i.e.
productivity would be focus of the study. Productivity is a subjective measurement as the
measurement criteria of productivity lacks a fixed standard or reference point against which it is
gauged and sometimes human feedback is also involved in this (Kahneman & Tversky, 2000).
Literal meanings of the productivity are ‘state of producing rewards or results’ and being
productive is synonymous with being fruitful, profitable or lucrative. Thus, productivity could be
related to the output. In the literature the term productivity is defined as the relationship between
output and input (Singh & Mohanty, 2012). According to Tangen (2005), productivity is a
multidimensional construct which changes its meanings in accordance with the context in which
it is being used in. Thus, according to him measurement of productivity is a difficult task,
particularly when its measurement is required for wide variety of tasks and occupations and at
times it becomes impractical to gauge productivity in a manner which is significantly
comparable for a variety of jobs.
Mathis and Jackson (2011), on the other hand suggested that productvity of the employees in an
organization could be measured by considering the labour cost per unit of output. The authors
furtrher explaind that performance of the emplyees is depedent on three factors i.e. ability to do
the task, level of effort exerted to do the task and organizational support provided to the
individual so that he may perform the task in a smooth and effective manner. This three factor
paradigm of the performance is widely accepted in the management litrature where performance
(P) is considered a function of ability (A), effort (E) and support (S). following equalition is
proposed in the regard:

P = A×E×S

Employee performance diminishes with the rduction of any of these three factors. The authors
further contended that this three factor operatioliazation of the performance do not considers the
quality of the output, which should be considered within the parameters of the productivity as
producing more with inferior quality is futile in the modren era which focuses more on the
quality of the output. In contrast to focusing on the costs, Cahse and Aquilano (1992) opined that
priductivity should be defined in terms of output per labor hour. The problem with this
measurement is that, this measurement do not ensure that organization would earn something or
not as enhanced productivity could result in piling up inventory within the organization. So, the
productivity should not only be seen in cotext of the priduction, but also whether the inventories
in the organization have reduced or not? Overall, productivity should bring organization closer to
the achievenment of its objectives. Mathis and Jackson (2011), however considered the
compositive view of the productivity by considering nout only the qualitity of output, but also its
quality along with related costs of production incurrered to perform the task.

According to Bhatti and Qureshi (2007), the concept of producyivity accounts for both
effectivness and efficieny of the task done and it is importat to measure the productivity of the
employees which is a key criteria in process of appraising performance. Organizations which are
characterized by greater performance and effectiveness build a cuture that encourages employees
to particpate and get involved and when employees are more involved in problem solving, goal
setting or decsion making, they perform better (Hellriegel, Slocum & Woodman, 1998). Bhatti
and Qureshi (2007) also suggsted the organizations to adopt participatory management, which in
turn could enhance employee productivity. Other antecendents of employeeproductivity are job
satisfaction (Miller & Monge, 1986); which enhances work motivation and increase work
capabilities of employees and thus producity is improved with the imporovement of job
satisfaction of employees.

2.3 Employee empowerment

Literal meanings of the word empowerment are to authorize someone or enable someone or to
give someone power to act. These meanings imply that empowering employees is related to
giving them freedom of action in an organization (Baybordi, Azizzadeh & Khalilzadeh, 2013).
This empowerment also implies that employees in an organization are entrusted with more
responsibility and they are free to make decisions relating to their work life (Abtahi, 2008).
Delegating authority in an organization is also synonymous with employee empowerment and
such empowerment enables an organization to move forward from the conventional concept of
participatory decision making and enable the organization to actualize true potential of its human
resource (Kenla, 2008). The term of employee empowerment popularized in 1980’s and over the
time the concept has become more complex and now it has been extended from the procedural
aspects of the organization to the psychological aspects of the individual employee working in an
organization. In this regard, Conger and Kanungo (1988) defined empowerment by considering
not only in terms of delegation of authority and decision making power from upper level of
management to the lower levels of the organization and access to the resources and information
within an organization but also in terms of the motivational processes stem from such
empowerment. This extension of the concept is also evident in the literature where employee
empowerment has become a concept not only confined to the work practices but also to the
psychological aspects of the employees within an organization which ultimately is linked to the
effort-performance nexus of employee performance (Thomas & Velthouse, 1990; Spreitzer,
1995). Thus, literature on the employee empowerment provides two paradigms related to the
construct of empowerment; where one paradigm is structural empowerment or situational
empowerment and other is psychological empowerment (Laschinger, 2004). Structural or
situational empowerment is related to the normal work place conditions and considers both
actual and perceptual level of empowerment within a workplace. The main facets of such
empowerment are related to empowerment related to the work/ management related practices,
delegation of decision rights from top managerial level to the lower levels of the organization,
provision of necessary resources and access to related information so that employees may
perform the tasks autonomously. The other paradigm i.e. psychological empowerment is related
to the employees themselves and it intrinsic in nature. This paradigm of empowerment stems
from the structural empowerment and related conditions and brings increased task motivation
with in set of four further dimensions related to the orientation of the individual to his work role.
These dimensions are meaning, competence, self-determination and impact (Thomas &
Velthouse, 1990). According to Spreitzer (1995), psychological motivation is “the intrinsic
motivation manifested in meaning, competence, self-determination, and impact, in which an
employee feels able to shape his role in work and context”. Meaning dimension of the
empowerment is about the fit between one’s behaviors, beliefs & values and needs of one’s work
(Spreitzer, Kizilos, & Nason, 1997). The basic idea in this regard is that employee should feel
energized and motivated about his work and if the value and belief system of the employee is in
conflict with the work of employee; he would never feel empowered enough to do the job in an
effective manner (Thomas & Velthouse, 1990). The second dimension of psychological
empowerment of employees is competence which is also termed as self-efficacy (Bandura,
1977). Competence basically is the personal belief of an individual about his capabilities as to
whether he is able to perform certain task or activity on his own using his own skills (Thomas &
Velthouse, 1990). The third dimension in this regard is self-determination which is related to the
perceptions of employee with regard to independence, discretion and freedom within on
organization (Hackman, 1987). Thus, this dimension indicates towards the ability of an
individual to choose to regulate his own actions (Deci, Connell & Ryan, 1989). According to
Conger and Kanungo (1988), self-determination is about the provocation of instinct motivation
of individuals by developing their self-efficacy which could be done by providing such
conditions in the organization as to not only delegate task to the employees but also by enabling
them to navigate their duties in an independent manner. As entailed by Deci and Ryan (1985),
self-determination is positively associated with self-regulation, initiative, creativity and
flexibility. The last dimensions of psychological empowerment is impact which is associated
with the degree to which some individual is able to influence outcomes of operative,
administrative and strategic nature as to make a difference (Ashfort, 1989). Employees who are
more confident that they can shape their work related outcomes, feel more empowered.
Following table is provided by Miri, Rngraiz and Sabzikaran (2011) which provides a
differentiating view of both paradigms of empowerment:
Table 2.3.1 Difference between structural and psychological empowerment

Point of Psychological Approach Structural Approach

Difference
Meaning According to psychological approach According to structural approach,
empowerment grants energy to the empowerment gives authority to the
employee. employee.
Emphasis It emphasizes more on risk taking, It emphasizes more on bilateral goal
intentional job commitment, setting. self-managed teams, quality
innovations and simple control. cycles, and participatory decision
making.
Process of Such empowerment is delegated by It is delegated by establishing a clear
delegation motivating employees intrinsically as framework of authority and
to create an environment where responsibility where increased
employee feels enhanced self- decision-making power leads towards
efficacy. more responsibility and
accountability.
Boundary Employee is able to exercise its Employees can only exercise
empowerment within the whole empowerment within the limits of
organization from top to bottom. organizational hierarchy.
Developmen It is developed by provoking It is developed by providing
t individual and his perceptions. guidelines and setting boundaries of
autonomy within the organization.

Psychological aspect of the empowerment has gained a lot of scholarly attention as the new
conception of empowerment entails that power distribution does not imply the full extent of the
empowerment and true empowerment happens when psychological conditions of the employee
empowerment are developed and sustained among the employees (Wilcox, 2000). Following
Spreitzer (1995), other researchers like Thomas and Velthous (1990) used the same four
dimensions of the empowerment in their research i.e. feelings of self-efficacy, feeling of self-
organization, admittance of personal consequences and sense of meaningfulness and according to
them, if managers can develop these four things among employees they can successfully
empower the employees in an organization. Development of these traits among employees not
only brings psychological empowerment among employees but also evoke the ability of the
employees to think differently from others (Wuten & Camroon, 1999).

Employee empowerment enables the employees to work independently in a more flexible and
responsive manner which could contribute a lot towards the organizational performance as such
work attitude brings more effectiveness, quickness and creativity in the work done by the
employees. According to Baird and Wang (2010), empowering the employees in a logical choice
in the dynamic environment being faced by the organizations and this approach also has more
strategic relevance. Empowered employees at the lower levels of the organization can take their
work decisions readily and are more accountable for the outcomes of their actions. Thus, this
approach reduces extensive and unnecessary information flow and communication among
different hierarchical levels of the organization and let the senior management focus on the long
term strategic decision making. Thus, in a response to the external business environment which
require a strategic perspective from the organizations, organizations are increasing delegating
authority and responsibility to the lower level of management and are moving towards a more
organic and decentralized type organizational structure where senior management focus on the
strategic aspects of decision making and junior level of management is left to deal with the
decisions of routine nature which might not have much of the strategic implications (Baybordi,
Azizzadeh & Khalilzadeh, 2013).

It is important to understand the concept of employee empowerment in context of organizational

structure as empowering implies that authority and responsibility is delegated to the lower levels
of the organization from the top levels of organizational hierarchy in a way that lower level of
management hierarchy are empowered to work autonomously and take their work related
decisions independently (Baybordi, Azizzadeh & Khalilzadeh, 2013). According to Honold and
Linda (1997), employees empowerment is distribution of the responsibility and decision making
power among the lower level managers of the organization from the hands of the top level
managers and thus, as a consequence a less hierarchal organization emerges. But such delegation
of authority and power among the lower level staff of the organization is not without caution and
consideration as such empowerment implies that employees being entrusted with the authority
have required knowledge, experience, information, power and rewards as provided by Melhem
(2004), ability of an employee to respond effectively to a situation during delivering service
delivery is dependent on the control and knowledge of that particular employee.

2.4 Flatter Firm and employee performance

Underdown and Talluri (2002) argued that organizational structure is designed in order to meet
performance credentials of the organization in such a way that first step in the development of
organizational structure is to decide the goals, behaviors and attitudes of its employees and then
organization structure is decided and cultural values are built so that employees may be
motivated to achieve decided goals. Thus, structures do influence attitudes, behaviors and
performance of employees within an organization. Brown (1995) provided that organizational
structure is the mean to align organizational goals with the resources while Sablynski (2003)
indicates that although appropriate organizational structure decreases ambiguity and helps to
predict and explain employee behavior; it has little to do with employee performance. Contrary
to this, Penguin (2003) argued that organizational structure is related to organizational effectives
but this relationship depends upon information processing requirement of employees working in
the organization. Wolf (2002), on the other hand proposed a direct impact of organizational
structure on the success of operational strategy of an organization. According to him, better
structure evokes execution of operational strategy of the organization and shapes the processes
and competences of the organization which are necessary for better performance. According to
Bedeian (1986) provided consequences of a bad choice of organizational structure by stating that
such organizations lack flexibility and adaptability particularly in time of the need and tus
various aspects of the organization such as leadership, relationships with stakeholders, workforce
composition and innovativeness are affected. Thus, a lot of confusion exists between
organizational structure and performance enhancement of the organization. Following discussion
emphasize more on the flat organizational structure and its impact on performance of
organization and employees in the organization.

Pontefract (2013) argued that when organizations are unable to engage employees in their work
and in order to provoke employee engagement, organizations should adopt a ‘Flat Army’
approach which is based on the philosophy of a more flexible organizational structure in which
managers surrender command and control type of leadership style and build connection with the
employees by forming teams in order to build a ‘Flat Army’ the essence of which is
togetherness. This enables the employee of an organization to be more engaged in their work and
thus, they perform better. Groysberg and Slind (2012) described that command and control
structure of the traditional organization is reducing in the market place as new trends such like
technological innovations, globalization, ways in which organization create value and interacts
with its customers have been changes. Thus, in this context one way communication is not an
effective way to indulge and engagement employees in their work. As a response, organizations
are getting flatter in order to enable their front line employees to take part in value creation by
aligning their performance in this regard and by fostering bottom up communication and
employee involvement and engagement. Kettley (1995) provided that delayering the
organization itself do not yield much of the improvement in the performance of the employees;
an integrated human resource strategy is a must in order to reap benefits of the delayering. The
HR strategy should be based on cross functional working and interaction within the organization,
increased emphasis on team work and provocation of employee involvement and empowerment.
This according to the author is necessary as many employees create rifts in the change process
which aimed increased employee productivity and performance and for which delayering could
play its role. The author suggested that a well-planned delayering process with a worthwhile
contribution and intervention of HR department could yield better outcomes with regard to the
performance of the employees in an organization. There also has been an indication of a negative
impact of the flattening of organization with the performance as Meltzer and Salter (1962)
provided evidence of a positive impact of vertical span of control with performance of
psychologists. Blau (1968), in this regard stated that organizational having taller structure have
clear promotion criteria which emphasize more on merit rather than seniority which implies that
organizations with taller structure are more performance focused. Carzo and Yanouzas (1969)
supported this notion by providing evidence that no significant differences exist between taller
and flatter organizations with regard to the time which such organizations take to make a
decision. Moreover, organizations with flatter structures tend to spend more time in conflict
resolution and coordination. Apart from that organizations with taller organizational structures
have better financial performance considering the criteria of profits and rate of returns.

There has also been debate with regard to the usability and value of a flatter or flexible
organizational structure. Damanpour (1991) provided that more organic organizational structure
is best suited to the innovativeness and adoption of new technology in an organization. Thus
organizational structure is considered important with regard to implementation of advanced
technology and usability of that technology by the employees of the organization. Thus, it seems
that flatter organizational structure which is more flexible is best suited to the contemporary
organizations having high demands of innovativeness and which are posed to more hostilities of
external environment. Walton (1985) argued that reducing number of layers in organizational
hierarchy enables the organization to transfer the decision-making power in the lower levels of
the organization which according to Hull and Hage (1982) and Damanpour (1991) provide a
better channelization of information and ideas among all levels of the organization. This
enhances the learning, knowledge sharing and knowledge based work in the organization which
basically is a consequence of a flattening or decentralized organization. Moreover, in shift
decision-making power from top to bottom, organizations need to have a higher level of
horizontal integration (Davenport & Nohria, 1994). This overall leads towards a more flatter
organization which enable the employees of the organization to make effective decisions in a
timely manner and thus employee performance and productivity is enhanced (Damanpour,
1991). Dalton, Todor, Spendolini, Fielding and Porter (1980), opined that organizational
structure influence the behavior of the employees and that flatter organizational structure provide
better opportunity for effective supervision in the organization which also leads towards better
performance of the employees in the organization. Tiernan, Flood, Murphy and Carroll (2002)
provided that flexible organization are more integrated and employees in such organizations have
better perceptions of job characteristics and sense of job satisfaction. Such organizations focus
more on cross functional teams and are better adaptors of customer focus and attend to
customers’ needs in a better way.

The evidence of a positive impact of flatter organizational structure on employee performance

was found earlier by Ivancevich and Donnelly (1975) considering the sample of salesperson.
Another evidence was provided by Nahm, Vonderembse and Koufteros (2003), who conducted a
study to assess the impact of organizational structure on time based manufacturing and plant
performance. Time based manufacturing performance is a contemporary aspect of performance
which gauges the extent to which procedures and processes are changed in order to align the
production process to the needs and requirements of the customers (Huber & Brown, 1991;
Brown & Mitchell, 1991) while plant performance considers the growth in sales, overall
competitive position, market share and return on investment aspects of organizational
performance (King & Teo, 2000; Ward & Duray, 2000). Organizational structure in the study
was measured using the dimensions of degree of formalization, layers in hierarchal setup of
organization, level of horizontal integration, locus of decision making and level of
communication. The results of the study confirm that organizational structure impacts time based
manufacturing practices which are essential for survival of the organization. It was also
elaborated that nature of formalization could actually facilitate learning, autonomous work and
creativity. In order to foster better performance with in the context of time based manufacturing
performance, the study suggested that the organizational hierarchy should be flatter as to
facilitate decision making by the people who are at a better position to respond to the
environmental demand effectively and quickly. High level of horizontal integration was also
suggested by the study in order to provoke organizational performance.

2.5 Flatter Firm and employee empowerment

Flatter firms are believed to be more flexible and are formed to increase the responsiveness of
the organizations to the changes in the external environment. This implies delegation of authority
and a more empowered workforce which may take decisions independently. If the organization is
to survive in the dynamic environment of today, it has to build its employees in the consistent
manner and develop a boundary less and non-hierarchical nature of organization which could
respond to the external environment more rapidly in comparison to its competitors (Dimovski,
1994). The contemporary form of organizations which are more horizontally structured or are
based on virtual networks or teams (Laubacher & Malone, 2000) evokes more co-operation and
communication among its employees which enables employees representing different levels of
the organization to locate and solve the problem by contributing to the competencies and
capabilities of the employees while in the vertically structured organizations, management do
much of the decision making which isolate technical staff of the organization from decision
making. Flatter organization on the other hand is based on the wider chain of command which
function as a base for the authority delegation to the employees and in such organization
employees are more empowered for the effective functioning of the organization as Miles and
Snow (1995) argued that cross functional teams are essential part of the flattened organizations
and such teams should have ability to manage the assigned work in an independent manner.
Moreover, such teams evoke horizontal co-ordination with in the organization and enable
organization to be more responsive, which is essential to cope up with the hostilities posed by the
external organization.

According to Rajan and Wulf (2006), as the organizations get flatter, the compensation structure
of the lower level management is changed. The compensation structure is directly associated
with the employee decision rights, that is if organizations are flattened the lower level managers
are privileged with more autonomy and enjoy more empowerment with regard to decision
making and control (Prendergast, 2002; Wulf, 2007). Wulf (2012), in this regard discussed the
evidence that faltering of the organization is positively associated with the compensation of the
organization both salary plus bonus and such organizations also tie their reward structure with
organizational performance by means of stock options etc. and apart from the change in
compensation structure, such organization also prone entrust more firm wide responsibility to its
lower level staff which also implies greater delegation of authority to the lower levels of the
organizations in such delayered corporations. Klenke (2006) elaborated that in flatter
organizations, power and control is not centralized but dispersed and distributed across the
organization which implies that people are responsible for their own work and they should
organizer and arrange their work themselves. Such people are elf countable and monitor their
own performance and make improvements in their work by seeking help from others in a
collaborative manner.

Such traditional view of the decentralization and flattening of the firm is opposed by some
authors as explained by Wulf (2012). The traditional view provides that a broader span of control
implies that CEO has more subordinates and due to time constraint CEO might not have enough
time to meddle into the decision power entrusted with the subordinates (Aghion and Tirole,
1997). This view is entailed by Boston Consulting Group (2006) in the following words, “When
managers have a greater number of direct reports to oversee, they are forced to stop meddling
and micromanaging.” The opposite view of this conventional entails that with border span of
control, CEO has more deep connections within the organization and thus, has more involvement
or control over the decision making process across the organization. Thus, such border span of
control may evoke centralization where decisions are pushed from top to bottom levels of the
organization. Guadalupe, Li and Wulf (2011), in this regard provided evidence that as a
consequence to delayering, CEOs tend to change the composition of position types directly
reporting to them. Moreover, it was also evinced that after with delayering CEOs tend to increase
the numbers in their corporate staff comprising top executive team which is delighted with the
responsibility of different functional units across organization such like marketing, human
resource, information technology etc. The study showed that on average 5 positions were added
to the executive team of CEO in a period of 20 years. This indicates a shift towards a more
centralized organization where decision making power is concentrated among the executive team
reporting directly to CEO (Cremer, Garicano & Prat, 2007; Dessein, Garicano & Gertner, 2010).
As entailed above, the compensation of the managers increases with delayering of the
organization. Guadalupe, Li and Wulf (2011), in this regard found evidence that the
compensation of such functional managers in the executive team no doubt increases with
flattening of the organization implying their increased responsibilities and decision making
power, but compensation of lower level managers, on the contrary tend to decline implying a
reduced power of decision making and delegation of responsibility. This is directly in opposition
to the conventional view on the consequences of flattening of organizations and this view entails
that flattening of the organization breeds centralization of decision making among the chosen
few. Another study of the consistent view was conducted by Hannan, Rankin and Towry (2010),
who investigated the impact of widening the spam of control on the budgeting effectiveness
within the organization where budgeting effectives is used as a measure of control. The
conventional wisdom suggests that increasing spam of control weakness the managerial control
as if manager would have many subordinates to supervise, he would have lessor time for each
individual (Simon, 1957; Williamson, 1967; Henricks, 2005; Leavitt, 2005). Contrary to this
view, Hannan et al. (2010) provided evidence that increasing span of control reduce slack in the
budgets and thus increases the effectiveness of the budgeting which is a sign of better
accountability and control in such firms.

On the other hand there has been some positive evidence in this regard. Like Miri, Rangraiz and
Sabzikaran (2011), in third study conducted on an oil distribution company of Iran provided
evidence that a negative and significant relationship existed between mechanic or bureaucratic
form of organizational structure and psychological empowerment of the employees which could
be seen as the a positive relationship between flexible organizational structure and employee
empowerment. Further, the study took three dimensions of organizational structure i.e.
complexity, formalization and centralization. So in this regard, the study also provided evidence
of a weak but significant direct impact of organizational complexity and employee
empowerment, a significant and inverse relationship between formalization and employee
empowerment which is quite obvious and again an inverse relationship with regard to variables
of centralization and employee empowerment. This study indicates that flatter or flexible
organizations do have more empowered employees than their counterpart organization with
steeper organizational structure.

2.6 Employee empowerment and employee performance

Empowerment of the employees has become a buzz world in the field of management and
organizations around the globe are taking initiatives cultivate a more empowered and responsive
workforce in order to cope up with the hostilities of external environment. The importance of
empowering employees could be highlighted by the views of a CEO who stated, “No vision, no
strategy can be achieved without able and empowered employees” (Cited in Wall, Wood &
Leach, 2004). An increased focus on the empowerment of the employees has been evident by
many surveys conducted to see whether organizations around the globe are taking initiatives to
empower their employees or not. Waterson et al. (1999) provided such evidence by surveying
564 UK based organizations and showed that 23% of the sampled firms were using
empowerment extensively in their organizations while 72% organizations had taken some
initiatives related to development of an empowered workforce in last few years and these
organizations were also planning to take more initiatives in this regard. This was confirmed by a
subsequent study on the same sample conducted by Wood, Stride, Wall and Clegg (2003) who
found that organizations using empowerment extensively almost doubled during a period of four
years only. Almost same results of adoption of empowerment practices were reported in other
countries such like Switzerland, Australia, Japan and USA (Clegg et al., 2002; Lawler, Mohrman
& Ledford, 1998). According to Wall, Wood and Leach (2004), research on empowerment could
be divided into four perspectives i.e. psychological empowerment, role empowerment, and
organizational empowerment and embedded empowerment. Thus, this part of literature review
discusses and relates all of four empowerment domains to the performance.

Psychological empowerment is the first perspective on empowerment which focuses on the

individual’s cognition of self-determination, competence and other related constructs (Thomas &
Velthouse, 1990). This perspective is related to the feelings of an empowered employee and is
rather a subjective or experiential perspective than an objective one. According to Wall, Wood &
Leach (2004), research on the empowerment has focused much on this construct of
empowerment and it is widely argued that it enhances motivation and performance of the
employees in an organization. In this regard it is argued that only empowerment initiatives and
practices do not have significant impact on employee behavior and performance; and employee
need to feel empowered before he is engaged in performance enhancing activities. (Thomas &
Velthouse, 1990). Spreitzer (1995) provided evidence that all sub dimensions of the
psychological empowerment collectively predict work related outcomes such like job strain,
work satisfaction and work effectiveness. Gagne´, Senecal, and Koestner (1997), in this regard
found that two dimensions of psychological motivation i.e. autonomy and meaning were
positively associated with the intrinsic motivation of the employees. They further found the
evidence that some dimensions of construct of psychological empowerment mediate the
relationship of job characteristics and outcome. Liden, Wayne and Sparrowe (2000) also
provided evidence of a mediating impact of the dimensions of psychological empowerment in
relationship between variables of job characteristics i.e. task intensity, task significance and
feedback from work and outcome related variables i.e. organizational commitment, work
satisfaction and performance). Another study conducted in this regard also confirmed a direct
impact of psychological empowerment on the performance of the employees where performance
of the employees was measured through productivity and customer service of employees.

The second perspective of empowerment i.e. role empowerment perspective ensures that
employees have authority and power to perform his duties and job in an effective manner
(London, 1993). Self-managed teams and job enrichment are examples of this perspective of
empowerment. The conventional conception suggests a positive impact of job enrichment on
employee performance by means of motivation and resulting enhanced efforts (Campion &
McClelland, 1993). Parker et al. (1997), in this regard stated that role orientation would only
develop if the employee would be given complete autonomy over his work. They also tested this
proposition and provided that changes in the strategic orientation of the organization only
changes the role orientation of employees when such employees have role empowerment which
align the performance of the employees with the long run objectives of the organization. Parker
(1998) provided the argument that role empowerment leads towards the role breadth self-
efficiency which improves self-confidence of the employees and thus, increases their
performance. Another argument with regard to the link of role empowerment and employee
performance explains that role empowerment improves understanding, knowledge and learning
of the employees with regard to their job and that enable them to work more effectively and thus
their performance is increased through role empowerment. This conventional though is
supported by Herzberg (1966) who iterated that, “job design promotes psychological growth
which involves knowing more, seeing more relationships in what we know, being creative, being
effective in ambiguous situations” (p. 70). Same notion was supported by Susman and Chase
(1986), who argued that role empowerment not only motivates employees but also provide a
better understanding of the task at hand which enable them to underrated the link between their
actions and relative consequences. The positive impact of job empowerment is also supported by
the empirical studies like Kelly (1992), in this regard reviews 31 job resign studies and found
performance gains of about 10% in 13 of these studies. Almost same findings were put forward
by Waterson et al., (1999) who found that out of total sample of 564 companies 406 were using
empowerment initiatives and out of these 406 organizations 46% reported significant
performance improvements, 32% indicated moderate benefits in this regard and remaining 22%
provided that no significant performance effects stem from empowerment initiatives. In this
regard, Wall et al. (1990) provided evidence that in case of high operational uncertainty,
increased role empowerment exerts a positive and significant impact on the performance of the
employees. Similar findings were provided by Cordery, Wright and Wall (1997) in settings of
self-managed teams.

Third perspective of empowerment is organizational empowerment is referred to the

participation of the employee in the decision making at organizational level in wider context. It
encompasses all the ways and practices that enable the employees of an organization to
participate in the decision making of that organization with regard to the organizational strategy
(Wall, Wood & Leach, 2004). Organizational empowerment is mostly considered a narrow term
which only considered empowerment of the employees with regard to practices such like
environment strategy of organization, mergers & acquisitions, working practices, terms &
conditions of employment, investments in the new technology, adoption of practices relating to
role empowerment & enhancement and quality management. Such organizational empowerment
is exercised by means of trade unions, involvement in quality circles, supervisory board and
work councils. Trade unions may impact organizational performance in two ways. First these
unions might have monopolistic face where these might have a negative impact on the
organizational performance (Machin & Wadhwani, 1991). Second these trade unions might have
a voice face which is said to have a positive impact on performance (Freeman & Medoff, 1984).
Evidence in this regard suggests a decreasing role of trade unions in the organizations as trade
union mark-up which was around 15% during 1967-1979 (Lewis, 1986) declined particularly for
the industries with enhanced competitive pressure (Bratsberg & Ragen, 2002). A subsequent
study by Blanchflower and Bryson (2003) provided the evidence that the union mark-up has
declined to almost 5.1% in 2000-01 as opposed to 12.2% between1993-95 and for some jobs
particularly educated ones the markup has been vanished. This indicates that unionization
increased wage rate and thus have a negative impact on the profitability of the organization.
While Freeman and Medoff (1984) also provided a moderate positive impact on the productivity
which is also supported in some other instances (Doucouliagos & Laroche, 2000). The overall
indication in this regard is that unionization increases wages, enhances productivity and reduces
profits of the organization but these results are not that consistent particularly in context of the
productivity.

The last perspective of empowerment is embedded empowerment which refers to the initiatives
and tasks where role or organizational empowerment is a core component in a wider framework.
One of the relevant examples in this regard is human resource management (HRM), where
empowerment is embedded in the role of HRM. Much of the argumentation in this regard states
that basic function of HRM is to channelize energies and commitment towards the objectives of
the organization (Wall, Wood & Leach, 2004). Huselid (1995), in this regard provided the
evidence that HRM practices evoke motivation among employees which is associated with the
productivity, while other HRM practices aim at building employees skills and development of
appropriate organizational structure were related to the return on assets and both of these scales
are related to the market value of the organization. Overall, the evidence between the link of
organizational performance and HRM practices is not conclusive rather encouraging which does
lead towards an indication of a positive impact of embedded empowerment and performance.
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