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Delegation in Multi-Establishment Firms: The Organizational Structure of I.T. Purchasing Authority

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  • Kristina Steffenson McElheran
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    A rare large-scale empirical study of delegation within firms, this paper investigates how decision rights over information technology investments are allocated within multi-establishment firms. The core results indicate that a relatively high contribution to firm sales is highly correlated with authority being delegated to the local establishment. Firm-wide operational complexity and local information advantages are also associated with local discretion for IT purchases. Certain IT investments are also positively correlated with delegation. On the other hand, significant operational interdependencies evince a positive correlation with centralization, as do productive similarities among establishments. Surprisingly, absolute size of the firm and having a large IT budget are also correlated with centralized IT decision-making. With the exception of these latter effects, the results are consistent with models of organizational design that predict delegation where there is great demand for locally adapted choices and centralization where firm-wide coordination is most important. The findings document and make sense of widespread heterogeneity in decision rights across a range of firm and industry settings – even among establishments belonging to the same parent firm. Finally, they suggest important considerations for future empirical and theoretical research into the determinants of delegation.

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    File Function: First version, 2010
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    Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 10-35.

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    Length: 51 pages
    Date of creation: Oct 2010
    Handle: RePEc:cen:wpaper:10-35
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    1. Timothy van Zandt, 1999. "Real-Time Decentralized Information Processing as a Model of Organizations with Boundedly Rational Agents," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 633-658.
    2. Timothy Van Zandt & Roy Radner, 1998. "Real-Time Decentralized Information Processing and Returns to Scale," Discussion Papers 1233, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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