DP13938 Coordination and Organization Design: Theory and Micro-evidence.

Author(s): Wouter Dessein, Desmond (Ho-Fu) Lo, Chieko Minami
Publication Date: August 2019
Keyword(s): Coordinated Adaptation, Local information, Local Volatility, Organization Design, Task Delegation
JEL(s): D21, D22, L2, M5
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13938

We explore the relationship between the volatility of a firm's local environment, the need for coordination among sub-units, and a firm's organizational structure. Using micro-level data on a large retailer, we empirically test and provide support for our hypothesis that a more volatile local environment results in more decentralization only when coordination needs are small or moderate. In contrast, more local volatility is associated with more centralization when coordination needs are high. Our evidence supports theories that argue that centralized organizations are better at coping with local shocks when coordinated adaptation is important.