Choice Interaction And Organizational Structure

Topics:
Management By Objectives
Tags:
Human Resources,
Organizational Structure,
Social Science Electronic Publishing Inc.,
Subordinate
Source:
Social Science Electronic Publishing

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Overview: The article examines how a firm's formal organizational structure affects its ability to cope with interdependent decisions. An agent-based simulation, in which firms struggle to discover good sets of decisions, allows to examine four coordinating mechanisms that have rarely been analyzed jointly: the grouping of related decisions under a single subordinate, a vertical hierarchy that reviews proposals from subordinates, firm-level incentives, and managers who are able to process more information. It is found that organizational structure affects long-term performance by influencing the number and nature of "sticking points" - configurations of choices the organization will not change. It identifies each of the four coordinating mechanisms as a force that either encourages firms to explore a broad set of alternatives or stabilizes firms around existing choices. Successful firms strike a balance between exploration and stability. Therefore, firms sometimes benefit from seemingly harmful features: avoidable decision interdependence between departments, a passive CEO, or subordinates of limited ability. It further examines how appropriate organizational design depends on the underlying pattern of interaction among decisions.

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Format: PDF | Size: 369KB | Date: Jul 2001 | Pages: 36

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