An Introduction to Structure • 445

replicate its complex structure and systems in international settings, such as Indonesia, China, or India. Even small changes in structure and systems required to do business overseas seemed to harm performance. It was only after the turn of the millennium, following years of trial and error, that Lincoln learned how to more effectively adapt to its new markets.9

Approaches to Coordination

There are two alternative approaches for developing coordination within firms.10 The first emphasizes autonomy or self-containment, whereas the second emphasizes strong lateral relations. When firms organize using autonomous work units, unit managers control information about operating decisions. Operating information remains within the units, and unit managers provide summary financial and accounting data, including profit data when available, to headquarters. But the flow of information across units is minimal. Firms that are organized this way are more likely to employ corporate strategies featuring mergers and acquisitions, since units that are organized autonomously are easier to both append to a current structure or to detach from that structure and transfer to the control of an acquirer.

A common approach to self-containment is to organize into separate product groups, each of which contains the basic business functions of manufacturing and sales and could plausibly exist by itself in the marketplace (as a spinoff). These autonomous groups, often called profit centers, are controlled on the basis of a target profit goal. Managers in autonomous groups are rewarded for meeting or exceeding a profit goal and punished for failing to meet it. Managers in autonomous divisions may have limited interactions with their counterparts in other units. Diversified firms, such as Procter & Gamble and Johnson & Johnson, make frequent use of profit centers. As discussed in Chapter 2, there is considerable research evidence questioning whether such diversification is profitable. After all, if individual profit centers are fully autonomous, there is little to be gained by joining under a single corporate umbrella. When groups focus on other performance measures besides profit, such as cost, revenue, or investment goals, they are called responsibility centers. Research programs at pharmaceutical companies often make use of responsibility centers and base their performance judgments on such criteria of research productivity as patents and research publications.

The alternative to self-contained groupings is the development of lateral relations across units. Lateral relations make sense when realizing economies of scale or scope requires close coordination among work groups. Lateral relations can be informal, such as with ad hoc or temporary teams or liaisons, or they can be formalized within the firm’s structure. An example of a formal attempt to foster lateral relations is the matrix organization, in which employees are subject to two or more sets of managers at once. This occurs, for example, when an engineer reports both to a research and development department and a project office, or when a salesperson reports both to the head of sales for a particular product and to a regional manager. We discuss matrix organizations in more detail in the next section.

A firm’s authority is often described in terms of centralization or decentralization. As more decisions are made by senior managers, the firm is said to be more centralized regarding those decisions. Since 2000, centralization decisions have been associated with efforts by corporations to adjust to harsher industry conditions and generally declining demand. An example of this can be seen in the 2008 announcement that the European aerospace firm EADS was considering an extensive restructuring that would consolidate the firm’s five divisions into three. Conversely, as more decisions