Hierarchical planning in organizations: Elements of a general theory

Abstract This paper gives a general framework which allows one to study various hierarchical structures of an organization. It provides a unified view of hierarchical planning, principal-agent relationships, and hierarchical negotiations. The main idea is to describe an organization as a superposition of interfering individual decision processes resulting in a pair of functional equations. Diverse specifications of these equations allow one to characterize the above mentioned hierarchical phenomena as well as to describe their interior structure. As an example, the equations can be used to differentiate between diverse kinds of hierarchical planning or between team and non-team situations within hierarchical bargaining. Since management can be considered as a planning and leadership activity to control the interrelationship of individual decision processes, the paper provides a better understanding of the general structure of the management process.