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The Importance of Organizational Structure for the Adoption of Innovations

  • Stephen J. DeCanio

    ()

    (Department of Economics, University of California, Santa Barbara, California 93106)

  • Catherine Dibble

    ()

    (Department of Geography, University of California, Santa Barbara, California 93106)

  • Keyvan Amir-Atefi

    ()

    (Department of Economics, University of California, Santa Barbara, California 93106)

Organizational structure affects both the overall behavior of firms and the situations of individuals and subunits within firms. The effect of exogenous changes in the environment (market prices, costs, or regulations) on organizations can be partitioned into the immediate direct effect of the change and the full effect after organizational structure has had time to adjust. This paper develops a computational model of the diffusion of a profitable innovation through a firm, and uses numerical simulations to calculate the relative importance of the direct and structural adjustment components of changes in profitability. One finding is that a failure to recognize the importance of organizational structure on the performance of firms will lead to serious bias in estimation of the costs or benefits of a change in external circumstances. The type of network model developed also has implications for the individuals and divisions that make up the firm. We examine some of the structural characteristics of well-adapted organizations, and show that asymmetries and economic inequalities emerge even when the individual agents' personal characteristics are identical.

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File URL: http://dx.doi.org/10.1287/mnsc.46.10.1285.12270
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Article provided by INFORMS in its journal Management Science.

Volume (Year): 46 (2000)
Issue (Month): 10 (October)
Pages: 1285-1299

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Handle: RePEc:inm:ormnsc:v:46:y:2000:i:10:p:1285-1299
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  1. Kennedy, Peter W., 1994. "Information processing and organization design," Journal of Economic Behavior & Organization, Elsevier, vol. 25(1), pages 37-51, September.
  2. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-46, September.
  3. Brynjolfsson, Erik. & Hitt, Lorin M., 1995. "Paradox lost? : firm-level evidence on the returns to information systems spending," Working papers 3786-95., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  4. Stephen J. DeCanio & William E. Watkins, . "Information Processing and Organizational Structure," Computing in Economics and Finance 1997 163, Society for Computational Economics.
  5. Kollman, Ken & Miller, John H & Page, Scott E, 1997. "Political Institutions and Sorting in a Tiebout Model," American Economic Review, American Economic Association, vol. 87(5), pages 977-92, December.
  6. Marschak, Thomas & Reichelstein, Stefan, 1998. "Network Mechanisms, Informational Efficiency, and Hierarchies," Journal of Economic Theory, Elsevier, vol. 79(1), pages 106-141, March.
  7. Grandori, Anna, 1991. "Negotiating efficient organization forms," Journal of Economic Behavior & Organization, Elsevier, vol. 16(3), pages 319-340, December.
  8. Hans Gersbach & Uwe Wehrspohn, 1998. "Organizational design with a budget constraint," Review of Economic Design, Springer;Society for Economic Design, vol. 3(2), pages 149-157.
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