This paper shows that a firm prefers a process-based task assignment compared to a function based one if the tasks are from functional areas which are neither too complementary nor too substitutable. We consider several projects with contributions from several functional areas. The organization can be structured along processes like product lines (M-form) or along functional areas like marketing or production (U-form). The U-form enables cost savings due to specialization or scale economies. We show that the more effective incentives under the M-form might outweigh these savings if the functions are neither too complementary nor too substitutable.
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Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number
2006/19.
Find related papers by JEL classification: D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
References listed on IDEAS 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.:
Holmstrom, Bengt R. & Tirole, Jean, 1989.
"The theory of the firm,"
Handbook of Industrial Organization,
in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133
Elsevier.
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