In: Economics
Describe the three aspects of organizational architecture of a firm. Which is the most important aspect?
Organizational Architecture is "a theory of the firm, or multiple firms, which integrates the human activities and capital resource utilization within a structure of task allocation and coordination to achieve desired outcomes and performance for both the short run and the strategic long-run"
It shall further be noted that it is a process of determining the activities of the company to achieve the desired goal of the business. It determines the rules, regulations, and responsibilities of the business. It also shows the flow of information in the company.
The three aspects of the organizational architecture of the firm are as follows:
1) The assignment of decision rights - this assignment indicates who has the authority to make particular decisions within the organization.
2) Performance-evaluation system - this system specifies the criteria that will be used to judge the performance of agents within the organization (for example, employees).
3) The reward system - this system specifies how compensation (and other rewards and punishments) will be distributed among agents within the firm.
Of these three aspects of the organizational architecture, the assignment of decision rights is most important. With the clear layout of roles & responsibilities with respect to decision-making, the co-ordination would be smooth. People would be driven to perform to the best of their abilities and an efficient reward-system agreeable to all could be developed.