IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/58647.html
   My bibliography  Save this paper

Organizing to adapt and compete

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/58647/
    File Function: Open access version.
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jeanne Hagenbach & Frédéric Koessler, 2010. "Strategic Communication Networks," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1072-1099.
    2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    3. Gertner, Robert H & Stillman, Robert S, 2001. "Vertical Integration and Internet Strategies in the Apparel Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 417-440, December.
    4. Gary S. Becker & Kevin M. Murphy, 1994. "The Division of Labor, Coordination Costs, and Knowledge," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, pages 299-322, National Bureau of Economic Research, Inc.
    5. Philippe Aghion & Mathias Dewatripont & Patrick Rey, 2004. "Transferable Control," Journal of the European Economic Association, MIT Press, vol. 2(1), pages 115-138, March.
    6. Patrick Bolton & Mathias Dewatripont, 1994. "The Firm as a Communication Network," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 809-839.
    7. Robert H. Gertner & Robert S. Stillman, 2001. "Vertical Integration and Internet Strategies in the Apparel Industry," NBER Chapters, in: E-commerce, pages 417-440, National Bureau of Economic Research, Inc.
    8. Jacques Crémer & Luis Garicano & Andrea Prat, 2007. "Language and the Theory of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 373-407.
    9. Nicholas Bloom & Raffaella Sadun & John Van Reenen, 2010. "Does Product Market Competition Lead Firms to Decentralize?," American Economic Review, American Economic Association, vol. 100(2), pages 434-438, May.
    10. Timothy Zandt, 1999. "Decentralized Information Processing in the Theory of Organizations," International Economic Association Series, in: Murat R. Sertel (ed.), Contemporary Economic Issues, chapter 7, pages 125-160, Palgrave Macmillan.
    11. Philippe Aghion & Mathias Dewatripont & Patrick Rey, 2004. "Transferable Control," Journal of the European Economic Association, MIT Press, vol. 2(1), pages 115-138, March.
    12. Masahiko Aoki, 2013. "Horizontal vs. Vertical Information Structure of the Firm," Chapters, in: Comparative Institutional Analysis, chapter 5, pages 57-58, Edward Elgar Publishing.
    13. Wouter Dessein, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 811-838.
    14. Klaus M. Schmidt, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 191-213.
    15. Heikki Rantakari, 2008. "Governing Adaptation -super-1," Review of Economic Studies, Oxford University Press, vol. 75(4), pages 1257-1285.
    16. Massimo G. Colombo & Marco Delmastro, 2004. "Delegation of Authority In Business Organizations: An Empirical Test," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 53-80, March.
    17. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    18. Pol Antràs & Esteban Rossi-Hansberg, 2009. "Organizations and Trade," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 43-64, May.
    19. Wouter Dessein & Luis Garicano & Robert Gertner, 2010. "Organizing for Synergies," American Economic Journal: Microeconomics, American Economic Association, vol. 2(4), pages 77-114, November.
    20. Xavier Vives, 2008. "Innovation And Competitive Pressure," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
    21. repec:hal:spmain:info:hdl:2441/5adcidkke9omt0s9p6m01j1rh is not listed on IDEAS
    22. Susan Athey & Scott Stern, 2002. "The Impact of Information Technology on Emergency Health Care Outcomes," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 399-432, Autumn.
    23. Guido Friebel & Michael Raith, 2010. "Resource Allocation and Organizational Form," American Economic Journal: Microeconomics, American Economic Association, vol. 2(2), pages 1-33, May.
    24. Wouter Dessein & Tano Santos, 2006. "Adaptive Organizations," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 956-985, October.
    25. Daniel Ferreira & Raaj K. Sah, 2012. "Who gets to the top? Generalists versus specialists in managerial organizations," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 577-601, December.
    26. Robert H. Gertner & Robert S. Stillman, 2001. "Vertical Integration and Internet Strategies in the Apparel Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 417-440, December.
    27. Becker, Gary S. & Murphy, Kevin M., 1992. "The Division of Labor, Coordination Costs, and Knowledge," Working Papers 79, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    28. William M. Dugger, 1996. "The Mechanisms of Governance," Journal of Economic Issues, Taylor & Francis Journals, vol. 30(4), pages 1212-1216, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dessein, Wouter, 2012. "Incomplete Contracts and Firm Boundaries: New Directions," CEPR Discussion Papers 9019, C.E.P.R. Discussion Papers.
    2. Shuo Liu & Dimitri Migrow, 2019. "Designing organizations in volatile markets," ECON - Working Papers 319, Department of Economics - University of Zurich.
    3. Ricardo Alonso & Wouter Dessein & Niko Matouschek, 2008. "When Does Coordination Require Centralization?," American Economic Review, American Economic Association, vol. 98(1), pages 145-179, March.
    4. Alonso, Ricardo, 2009. "Strategic control and strategic communication," LSE Research Online Documents on Economics 58682, London School of Economics and Political Science, LSE Library.
    5. Liu, Shuo & Migrow, Dimitri, 2022. "When does centralization undermine adaptation?," Journal of Economic Theory, Elsevier, vol. 205(C).
    6. 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.
    7. 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.
    8. Laura Alfaro & Nicholas Bloom & Paola Conconi & Harald Fadinger & Patrick Legros & Andrew F. Newman & Raffaella Sadun & John Van Reenen, 2017. "Come Together: Firm Boundaries and Delegation," Harvard Business School Working Papers 18-051, Harvard Business School, revised May 2019.
    9. José María Liberti & Mitchell A. Petersen, 2018. "Information: Hard and Soft," NBER Working Papers 25075, National Bureau of Economic Research, Inc.
    10. Migrow, Dimitri, 2021. "Designing communication hierarchies," Journal of Economic Theory, Elsevier, vol. 198(C).
    11. Luis Garicano & Yanhui Wu, 2012. "Knowledge, Communication, and Organizational Capabilities," Organization Science, INFORMS, vol. 23(5), pages 1382-1397, October.
    12. Patrick Legros & Andrew F. Newman & Eugenio Proto, 2014. "Smithian Growth through Creative Organization," The Review of Economics and Statistics, MIT Press, vol. 96(5), pages 796-811, December.
    13. Nicholas Bloom & Luis Garicano & Raffaella Sadun & John Van Reenen, 2014. "The Distinct Effects of Information Technology and Communication Technology on Firm Organization," Management Science, INFORMS, vol. 60(12), pages 2859-2885, December.
    14. Ernst Fehr & Holger Herz & Tom Wilkening, 2013. "The Lure of Authority: Motivation and Incentive Effects of Power," American Economic Review, American Economic Association, vol. 103(4), pages 1325-1359, June.
    15. Englmaier, Florian & Filipi, Ales & Singh, Ravi, 2010. "Incentives, reputation and the allocation of authority," Journal of Economic Behavior & Organization, Elsevier, vol. 76(2), pages 413-427, November.
    16. Patrick Legros & Andrew F. Newman, 2008. "Competing for Ownership," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1279-1308, December.
    17. Paul Walker, 2010. "The (Non)Theory Of The Knowledge Firm," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(1), pages 1-32, February.
    18. Helmut Bester, 2009. "Externalities, communication and the allocation of decision rights," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(2), pages 269-296, November.
    19. Tomoo Kikuchi & Kazuo Nishimura & John Stachurski, 2012. "Coase meets Tarski: New Insights from Coase's Theory of the Firm," KIER Working Papers 828, Kyoto University, Institute of Economic Research.
    20. Migrow, Dimitri, 2018. "Designing Communication Hierarchies," CRETA Online Discussion Paper Series 44, Centre for Research in Economic Theory and its Applications CRETA.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:58647. 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: . General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LSERO Manager (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.