Discussion paper

DP6019 Organizing for Synergies

Multi-product firms create value by integrating functional activities such as manufacturing across business units. This integration often requires making functional managers responsible for implementing standardization, thereby limiting business-unit managers? authority. Realizing synergies then involves a tradeoff between motivation and coordination. Motivating managers requires narrowly-focused incentives around their area of responsibility. Functional managers become biased toward excessive standardization and business-unit managers may misrepresent local market information to limit standardization. As a result, integration may be value-destroying when motivation is sufficiently important. Providing functional managers only with "dotted-line control" (where business-unit managers can block standardization) has limited ability to improve the tradeoff.


Gertner, R, L Garicano and W Dessein (2007), ‘DP6019 Organizing for Synergies‘, CEPR Discussion Paper No. 6019. CEPR Press, Paris & London. https://cepr.org/publications/dp6019