Flat Organization

Hi!

I recently found this article on Guy Kawasaki's blog, which I read regularly. The article describes FAVI, a French company that is a "Designer and Manufacturer of Copper Alloy Components and Mechanical Sub-Assemblies." When FAVI CEO Jean-Francois Zobrist took over in 1983, he flattened the organization by getting rid of what had previously been centralized functions like human resources, purchasing, and product development to create what amounted to "a couple of dozen entrepreneurial miniplants housed under one roof." The goal was to get the teams to focus on the customer, not the company and their place in it. Okay, fine, focus on the customer, got it...

My question is, what's the point of being in a corporation if there aren't economies of scale? I'm taking Global Financial Management this term at Thunderbird and this week's topic is mergers and acquisitions. One of the main reasons that a merger is a good idea is the resulting economies of scale that come from centralizing functions like human resources, purchasing, and product development. Since that's the case, why is it a good idea to de-centralize? Focusing on the customer is a good idea, I won't dispute that. What I will dispute is the idea that getting rid of what makes having a larger corporation profitable, rather than a couple of dozen entrepreneurial miniplants, makes sense. Wouldn't it be better to focus on how to make those centralized functions more efficient rather than dump them and force each "miniplant" to reinvent the wheel?

Maybe FAVI is doing great, but they could definitely be doing better if they put their effort into improving efficiency rather than maintaining a flat organization.

Thanks,
Matt