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Organizing to adapt and compete

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  • Alonso, Ricardo
  • Dessein, Wouter
  • Matouschek, Niko

Abstract

We examine the relationship between the organization of a multi-divisional firm and its ability to adapt production decisions to changes in the environment. We show that even if lower-level managers have superior information about local conditions, and incentive conflicts are negligible, a centralized organization can be better at adapting to local information than a decentralized one. As a result, and in contrast to what is commonly argued, an increase in product market competition that makes adaptation more important can favor centralization rather than decentralization.

Suggested Citation

  • Alonso, Ricardo & Dessein, Wouter & Matouschek, Niko, 2015. "Organizing to adapt and compete," LSE Research Online Documents on Economics 58647, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:58647
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    File URL: http://eprints.lse.ac.uk/58647/
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    References listed on IDEAS

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    Cited by:

    1. Jordi Brandts & David J. Cooper, 2020. "Managerial Leadership, Truth-Telling, and Efficient Coordination," Working Papers 1211, Barcelona School of Economics.
    2. Christian Balcells, 2022. "Determinants of firm boundaries and organizational performance: an empirical investigation of the Chilean truck market," Journal of Evolutionary Economics, Springer, vol. 32(2), pages 423-461, April.
    3. Pisch, Frank, 2020. "Managing global production: theory and evidence from just-in-time supply chains," LSE Research Online Documents on Economics 108488, London School of Economics and Political Science, LSE Library.
    4. Eduard Alonso‐Pauli & Lluís Bru, 2020. "A note on the impact of the internal organization on the accuracy of the information transmitted within the firm," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(6), pages 902-910, September.
    5. Migrow, Dimitri, 2021. "Designing communication hierarchies," Journal of Economic Theory, Elsevier, vol. 198(C).
    6. Dessein, Wouter & Lo, Desmond (Ho-Fu) & Minami, Chieko, 2019. "Coordination and Organization Design: Theory and Micro-evidence," CEPR Discussion Papers 13938, C.E.P.R. Discussion Papers.
    7. Daniel Habermacher, 2022. "Authority and Specialization under Informational Interdependence," Working Papers 142, Red Nacional de Investigadores en Economía (RedNIE).
    8. Wouter Dessein & Richard Holden, 2022. "Organizations with Power-Hungry Agents," Journal of Law and Economics, University of Chicago Press, vol. 65(S1), pages 263-291.
    9. Petros G. Sekeris & Dimitrios Xefteris, 2018. "Delegating decisions to organizations," University of Cyprus Working Papers in Economics 15-2018, University of Cyprus Department of Economics.
    10. Michela Altieri & Giovanna Nicodano, 2020. "Survival and Pricing Puzzles," Carlo Alberto Notebooks 604, Collegio Carlo Alberto.
    11. Jordi Brandts & David J. Cooper, 2018. "Truth Be Told An Experimental Study of Communication and Centralization," Working Papers 1046, Barcelona School of Economics.
    12. Asuyama, Yoko, 2016. "Delegation to workers across countries and industries : social capital and coordination needs matter," IDE Discussion Papers 620, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    13. Alonso, Ricardo & Rantakari, Heikki, 2022. "The art of brevity," Journal of Economic Behavior & Organization, Elsevier, vol. 195(C), pages 257-271.
    14. Mo Chen & Aseem Kaul & Brian Wu, 2019. "Adaptation across multiple landscapes: Relatedness, complexity, and the long run effects of coordination in diversified firms," Strategic Management Journal, Wiley Blackwell, vol. 40(11), pages 1791-1821, November.
    15. Liu, Shuo & Migrow, Dimitri, 2022. "When does centralization undermine adaptation?," Journal of Economic Theory, Elsevier, vol. 205(C).
    16. Siguang Li & Xi Weng, 2017. "Random Authority," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58(1), pages 211-235, February.
    17. Philipp Ehrl & Leonardo Monasterio, 2021. "Spatial skill concentration agglomeration economies," Journal of Regional Science, Wiley Blackwell, vol. 61(1), pages 140-161, January.
    18. Jordi Brandts & David J. Cooper, 2015. "Centralized vs. Decentralized Management: an Experimental Study," Working Papers 854, Barcelona School of Economics.
    19. Daniel Habermacher, 2022. "Information Aggregation in Multidimensional Cheap Talk," Working Papers 169, Red Nacional de Investigadores en Economía (RedNIE).
    20. Tran, Hai & Turkiela, Jason, 2020. "The powers that be: Concentration of authority within the board of directors and variability in firm performance☆," Journal of Corporate Finance, Elsevier, vol. 60(C).
    21. Petros G. Sekeris & Dimitrios Xefteris, 2021. "Strategic Delegation to Organizations," Journal of Industrial Economics, Wiley Blackwell, vol. 69(4), pages 900-922, December.
    22. Panos Constantinides & Ola Henfridsson & Geoffrey G. Parker, 2018. "Introduction—Platforms and Infrastructures in the Digital Age," Information Systems Research, INFORMS, vol. 29(2), pages 381-400, June.
    23. Asuyama, Yoko, 2020. "Delegation to workers across countries and industries: Interacting effects of social capital and coordination needs," International Journal of Industrial Organization, Elsevier, vol. 69(C).
    24. Michela Altieri & Giovanna Nicodano, 2016. "The Apparent Diversification Discount," Carlo Alberto Notebooks 465, Collegio Carlo Alberto.
    25. Katayama, Hajime & Meagher, Kieron J. & Wait, Andrew, 2018. "Authority and communication in firms," Journal of Economic Behavior & Organization, Elsevier, vol. 155(C), pages 315-348.

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    More about this item

    Keywords

    adaptation; information; organization;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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