The Dissolving of Hierarchies – Modularizing the Enterprise

In the last few years, research and experience from business practice have provided increasing evidence that changed competitive conditions require companies to reorganize. The crux of this criticism concerns large-scale companies with strong hierarchical and dysfunctional organization structures. Much has been said about the end of the “dinosaurs” and that they will be replaced by modularly built, highly flexible, “flotilla” organizations (Drucker 1990). Many authors are of the opinion that company reorganization should be undertaken by flattening hierarchical structures (Bennis 1993; Davidow / Malone 1993; Picot / Reichwald 1994; Wigand 1985). These theories will be discussed in detail in this chapter.

Modularization as an independent organizational principle needs to be defined before the causes and economic explanatory approaches of the above developments are discussed. An analysis of the proposals suggested in the literature for the reorganization of the value chain by means of “fractals,” “segments” or “modules” (Warnecke 1992; Zenger / Hesterly 1997; Wildemann 1998) indicates considerable similarity between these concepts. By combining their fundamentals, one arrives at the following:

Modularization means a reconstruction of the company organization on the basis of integrated, customer-oriented processes with relatively small, observable elements (modules). These are revealed through decentralized decision competency and results-based responsibility, which leads to stronger coordination between the modules through non-hierarchical coordination forms. The common fundamentals of modularization concepts are applicable on different organizational levels (Gerpott / Boehm 2000): From modularization on different working levels to the development of autonomous groups up to breaking up the entire organization into largely independent profit centers.