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Overt Interfunctional Conflict (and its Reduction Through Business Strategy)

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  • Julio J. Rotemberg
  • Garth Saloner

Abstract

We study why production and sales departments tend to disagree, with the former wanting long production runs and the latter wanting a broad product line. We then analyze why these disagreements lead to overt conflict in which functional areas fight with each other by presenting arguments that damage each other's position. We show how the firm benefits from the information generated by this conflict. In spite of these benefits, the equilibrium conflict can exceed its profit-maximizing level. Finally, we show that concentrating innovative talent in only one department can help reduce interfunctional conflict.

Suggested Citation

  • Julio J. Rotemberg & Garth Saloner, 1995. "Overt Interfunctional Conflict (and its Reduction Through Business Strategy)," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 630-653, Winter.
  • Handle: RePEc:rje:randje:v:26:y:1995:i:winter:p:630-653
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    References listed on IDEAS

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    1. Rey, Patrick & Stiglitz, Joseph, 1988. "Vertical restraints and producers' competition," European Economic Review, Elsevier, vol. 32(2-3), pages 561-568, March.
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    Cited by:

    1. van Praag, Bernard M. S. & Ferrer-i-Carbonell, Ada, 2001. "Age-Differentiated QALY Losses," IZA Discussion Papers 314, Institute for the Study of Labor (IZA).
    2. Baliga, Sandeep & Sjostrom, Tomas, 2001. "Optimal Design of Peer Review and Self-Assessment Schemes," RAND Journal of Economics, The RAND Corporation, pages 27-51.
    3. Mark J. Zbaracki & Mark Bergen & Daniel Levy, 2006. "The Anatomy of a Price Cut: Discovering Organizational Sources of the Costs of Price Adjustment," Emory Economics 0610, Department of Economics, Emory University (Atlanta).
    4. John R. Hauser, 1998. "Research, Development, and Engineering Metrics," Management Science, INFORMS, vol. 44(12-Part-1), pages 1670-1689, December.
    5. Robert S. Huckman, 2003. "The Utilization of Competing Technologies Within the Firm: Evidence from Cardiac Procedures," Management Science, INFORMS, vol. 49(5), pages 599-617, May.
    6. Juan D. Carrillo & Denis Gromb, 2005. "Culture in Organizations: Inertia and Uniformity," Levine's Bibliography 172782000000000053, UCLA Department of Economics.
    7. Eric Van den Steen, 2010. "Culture Clash: The Costs and Benefits of Homogeneity," Management Science, INFORMS, pages 1718-1738.
    8. Jeremy C. Stein, 2000. "Information Production and Capital Allocation: Decentralized vs. Hierarchical Firms," NBER Working Papers 7705, National Bureau of Economic Research, Inc.
    9. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    10. Andrea Fosfuri & Thomas Rønde, 2009. "Leveraging Resistance to Change and the Skunk Works Model of Innovation," Post-Print hal-00699208, HAL.
    11. Fosfuri, Andrea & Rønde, Thomas, 2009. "Leveraging resistance to change and the skunk works model of innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 274-289, October.

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