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Organizing for Synergies

  • Dessein, Wouter
  • Garicano, Luis
  • Gertner, Robert

Multi-product firms create value by integrating functional activities such as manufacturing across business units. This integration often requires making functional managers responsible for implementing standardization, thereby limiting business-unit managers’ authority. Realizing synergies then involves a tradeoff between motivation and coordination. Motivating managers requires narrowly-focused incentives around their area of responsibility. Functional managers become biased toward excessive standardization and business-unit managers may misrepresent local market information to limit standardization. As a result, integration may be value-destroying when motivation is sufficiently important. Providing functional managers only with "dotted-line control" (where business-unit managers can block standardization) has limited ability to improve the tradeoff.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6019.

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Date of creation: Jan 2007
Date of revision:
Handle: RePEc:cpr:ceprdp:6019
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