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Organizing for Synergies

Organizing for Synergies Abstract Large companies are usually organized into business units, yet some activities are almost always centralized in a company-wide functional unit. We first show that organizations endogenously create an incentive conflict between functional managers (who desire excessive standardization) and business-unit managers (who desire excessive local adaptation). We then study how the allocation of authority and tasks to functional and business-unit managers interacts with this endogenous incentive conflict. Our analysis generates testable implications for the likely success of mergers and for the organizational structure and incentives inside multidivisional firms. (JEL D23, D86, G34, L22 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

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Publisher
American Economic Association
Copyright
Copyright © 2010 by the American Economic Association
Subject
Articles
ISSN
1945-7685
eISSN
1945-7685
DOI
10.1257/mic.2.4.77
Publisher site
See Article on Publisher Site

Abstract

Abstract Large companies are usually organized into business units, yet some activities are almost always centralized in a company-wide functional unit. We first show that organizations endogenously create an incentive conflict between functional managers (who desire excessive standardization) and business-unit managers (who desire excessive local adaptation). We then study how the allocation of authority and tasks to functional and business-unit managers interacts with this endogenous incentive conflict. Our analysis generates testable implications for the likely success of mergers and for the organizational structure and incentives inside multidivisional firms. (JEL D23, D86, G34, L22 )

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Nov 1, 2010

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