"Organizing for Synergies"
©
American Economic Journal: Microeconomics,
November
2010
Volume: 2
|
Issue: 4
|
Pages: 77-114
Publication type: Journal article
Research Archive Topic: Business Economics and Public Policy, Organizations, Strategy
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.
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