Organizational design of multi-product multi-market firms
AbstractIn this paper, we seek to understand how a multi-product multi-market firm (for example, a multinational firm) designs its organizational structure and compensation scheme when its profitability is conditioned by how market information flows within the company. By modifying its organizational structure–centralizing or decentralizing decision making–and changing the weights of its compensation scheme, the firm can shape how information flows and is represented, changing the firm’s profitability. We find that, when being multi-product (having to allocate a scarce resource between markets), the headquarters links the organizational design of decision rights between different product markets. The headquarters decentralizes decision rights in products with higher returns to product differentiation while it centralizes decision rights in products with lower returns to product differentiation. As centralization is complementary with product standardization and decentralization is complementary with product differentiation, the organizational design conditions the firm’s market policy. The relation among product’s decision rights remains even when the headquarters cannot control how local managers allocate resources in their own local divisions. Our results are robust to different generalizations. Our paper therefore, contributes to the literature on organizational design by analyzing the case of multi-product multi-market firms.
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Bibliographic InfoPaper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we1122.
Date of creation: May 2011
Date of revision:
: Multinational; Multi-product; Organization Design; Resource Scarcity; Cheap Talk;
Find related papers by JEL classification:
- D2 - Microeconomics - - Production and Organizations
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-16 (All new papers)
- NEP-BEC-2011-09-16 (Business Economics)
- NEP-COM-2011-09-16 (Industrial Competition)
- NEP-CSE-2011-09-16 (Economics of Strategic Management)
- NEP-IND-2011-09-16 (Industrial Organization)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wouter Dessein & Luis Garicano & Robert Gertner, 2010.
"Organizing for Synergies,"
American Economic Journal: Microeconomics,
American Economic Association, vol. 2(4), pages 77-114, November.
- Ying Chen & Navin Kartik & Joel Sobel, 2008. "Selecting Cheap-Talk Equilibria," Econometrica, Econometric Society, vol. 76(1), pages 117-136, 01.
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