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Organizing for synergies

By Wouter Dessein, Luis Garicano and Robert Gertner

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

Topics: HB Economic Theory, HD Industries. Land use. Labor
Publisher: American Economic Association
Year: 2010
DOI identifier: 10.1257/mic.2.4.77
OAI identifier: oai:eprints.lse.ac.uk:37001
Provided by: LSE Research Online
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