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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Citation

Dessein, Wouter, Luis Garicano, and Robert Gertner. "Organizing for Synergies." American Economic Journal: Microeconomics 2, no. 4 (November 2010): 77-114.

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