Organizing to adapt and compete

We examine the relationship between the organization of a multi-divisional firm and its ability to adapt production decisions to changes in the environment. We show that even if lower-level managers have superior information about local conditions, and incentive conflicts are negligible, a centralized organization can be better at adapting to local information than a decentralized one. As a result, and in contrast to what is commonly argued, an increase in product market competition that makes adaptation more important can favor centralization rather than decentralization.

[1]  Ying Chen,et al.  Information Transmission in Nested Sender-Receiver Games , 2013 .

[2]  M. Aoki.  Horizontal vs. Vertical Information Structure of the Firm , 2013 .

[3]  Markus K. Brunnermeier,et al.  Leadership, Coordination, and Corporate Culture , 2013 .

[4]  Wouter Dessein,et al.  Adaptive Organizations , 2006, Journal of Political Economy.

[5]  Paul R. Milgrom,et al.  Economics, Organization and Management , 1992 .

[6]  O. Williamson.  The Theory of the Firm as Governance Structure: From Choice to Contract , 2002 .

[7]  Wouter Dessein.  Authority and Communication in Organizations , 2002 .

[8]  M. Delmastro,et al.  Delegation of Authority in Business Organizations: An Empirical Test , 2004 .

[9]  Klaus M. Schmidt.  Managerial Incentives and Product Market Competition , 1997 .

[10]  F. Hayek.  The economic nature of the firm: The use of knowledge in society , 1945 .

[11]  P. Bolton,et al.  The firm as a communication network , 1994 .

[12]  Nahum D. Melumad,et al.  Communication in settings with no transfers , 1991 .

[13]  Tim Harford,et al.  Adapt: Why Success Always Starts with Failure , 2011 .

[14]  Who Lives in the C-Suite? Organizational Structure and the Division of Labor in Top Management , 2012 .

[15]  Andrea Prat,et al.  Communication and In‡uence , 2011 .

[16]  J. Sobel,et al.  STRATEGIC INFORMATION TRANSMISSION , 1982 .

[17]  Nadya Malenko,et al.  Timing Decisions in Organizations: Communication and Authority in a Dynamic Environment , 2016 .

[18]  S. Athey,et al.  The impact of information technology on emergency health care outcomes. , 2002, The Rand journal of economics.

[19]  J. Hagenbach,et al.  Strategic Communication Networks , 2009 .

[20]  Wouter Dessein,et al.  When Does Coordination Require Centralization? , 2006 .

[21]  J. V. Reenen,et al.  Does Product Market Competition Lead Firms to Decentralize? , 2010 .

[22]  Heikki Rantakari.  Governing Adaptation , 2006 .

[23]  Jeffrey A. Hart,et al.  Multinational Firms in the World Economy , 2007 .

[24]  E. Rossi-Hansberg,et al.  Organizations and Trade , 2008 .

[25]  Hongyi Li,et al.  Who Lives in the C-Suite? Organizational Structure and the Division of Labor in Top Management , 2012, Manag. Sci..

[26]  O. Hart,et al.  Property Rights and the Nature of the Firm , 1988, Journal of Political Economy.

[27]  Michael Raith,et al.  Competition, Risk and Managerial Incentives , 2001 .

[28]  C. Barnard.  The Functions of the Executive , 1939 .

[29]  S. Morris,et al.  Social Value of Public Information , 2002 .

[30]  Timothy Van Zandt,et al.  Decentralized Information Processing in the Theory of Organizations , 1999 .

[31]  O. Williamson,et al.  The mechanisms of governance , 1996 .

[32]  Joan de Martí,et al.  Communication and influence , 2015 .

[33]  Jacques Crémer,et al.  Language and the Theory of the Firm , 2007 .

[34]  Heikki Rantakari.  Governing Adaptation -super-1 , 2008 .

[35]  J. Stein.  Cheap Talk and the Fed: A Theory of Imprecise Policy Announcements , 1989 .

[36]  Wouter Dessein,et al.  Strategic Communication: Prices Versus Quantities , 2010 .

[37]  Raffi J. Indjejikian,et al.  Aggregate performance measures in business unit manager compensation: The role of intrafirm interdependencies , 1995 .

[38]  Sanford J. Grossman,et al.  The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration , 1986 .

[39]  D. MacKenzie,et al.  The use of knowledge about society , 2008 .

[40]  Robert H. Gertner,et al.  Vertical Integration and Internet Strategies in the Apparel Industry , 2003 .

[41]  C. Sims.  Implications of rational inattention , 2003 .

[42]  R. Cooke.  Real and Complex Analysis , 2011 .

[43]  G. Leoni.  A First Course in Sobolev Spaces , 2009 .

[44]  Luis Garicano,et al.  Organizing for Synergies , 2007 .

[45]  Leadership, Coordination and Mission-Driven Management , 2008 .

[46]  P. Aghion,et al.  Transferable Control , 2003 .

[47]  X. Vives.  Innovation and Competitive Pressure , 2004 .

[48]  Ricardo Alonso.  Shared Control and Strategic Communication , 2007 .

[49]  Daniel Ferreira,et al.  Who Gets to the Top? Generalists Versus Specialists in Managerial Organizations , 2012 .

[50]  Michael Raith,et al.  Resource Allocation and Organizational Form , 2009 .