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Predictive analytics and centralization of authority

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  • Labro, Eva
  • Lang, Mark
  • Omartian, James D.

Abstract

We examine the relation between plant-level predictive analytics use and centralization of authority for more than 25,000 manufacturing plants using proprietary US Census data. We focus on headquarters' authority over plants through delegation of decision-making and design of performance-based incentives. We find that increased predictive analytics use is associated with reduced delegation of decision-rights to local managers, increased centralization of control over data gathering and reduced plant managerial payrolls. In terms of incentives, predictive analytics use is associated with more accurate targets and tighter linkages between rewards to workers (performance-based bonuses, promotions and firings) and measured performance. Overall, our findings suggest that predictive analytics use is associated with increased centralization of authority in headquarters.

Suggested Citation

  • Labro, Eva & Lang, Mark & Omartian, James D., 2023. "Predictive analytics and centralization of authority," Journal of Accounting and Economics, Elsevier, vol. 75(1).
    • Handle: RePEc:eee:jaecon:v:75:y:2023:i:1:s0165410122000490
    DOI: 10.1016/j.jacceco.2022.101526
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    Cited by:

    1. Greiner, Ben & Grünwald, Philipp & Lindner, Thomas & Lintner, Georg & Wiernsperger, Martin, 2024. "Incentives, Framing, and Reliance on Algorithmic Advice: An Experimental Study," Department for Strategy and Innovation Working Paper Series 01/2024, WU Vienna University of Economics and Business.

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    More about this item

    Keywords

    Authority in organizations; Managerial incentives; Delegation;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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