The Dynamic Value of Hierarchy
This study develops a dual-routines view of the dynamic value of hierarchy, and tests it against the implicit null hypothesis that hierarchy merely provides static advantages over markets. The view holds that hierarchical managers perform two roles that create value for firms in perpetuity---an administrative role of enforcing operational routine, and an entrepreneurial role of executing a metaroutine that continually revises operational routine to keep pace with changes in the environment. The test consists of a natural experiment comparing the behavior and performance of establishments that leave a franchise, "lose their hierarchical managers," with those that remain. I find support for the view. In the absence of the franchisor, establishment behavior drifts from the operational routine, and establishments fail to adopt innovation. Both responses lead to significant decay in performance. Thus hierarchical managers are necessary to actively enforce routine, even after the routine been assimilated, and to introduce innovation, even in this unique setting of perfect incentives.
Volume (Year): 47 (2001)
Issue (Month): 3 (March)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
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.:
- Eric D. Darr & Linda Argote & Dennis Epple, 1995. "The Acquisition, Transfer, and Depreciation of Knowledge in Service Organizations: Productivity in Franchises," Management Science, INFORMS, vol. 41(11), pages 1750-1762, November.
- Henderson, Rebecca. & Cockburn, Iain., 1994. "Measuring competence? : exploring firm effects in pharmaceutical research," Working papers 3712-94., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Knott, Anne Marie & McKelvey, Bill, 1999. "Nirvana efficiency: a comparative test of residual claims and routines," Journal of Economic Behavior & Organization, Elsevier, vol. 38(4), pages 365-383, April.
- Marvin B. Lieberman & Lawrence J. Lau & Mark D. Williams, 1990. "Firm-Level Productivity and Management Influence: A Comparison of U.S. and Japanese Automobile Producers," Management Science, INFORMS, vol. 36(10), pages 1193-1215, October.
- Epple, D. & Argote, L. & Darr, E.D., 1995. "The Acquisition, Transfer and Depreciation of Knowledge in Service Organisations: Productivity in Franchises," GSIA Working Papers 1995-16, Carnegie Mellon University, Tepper School of Business.
When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:47:y:2001:i:3:p:430-448. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)
If references are entirely missing, you can add them using this form.