Organizing for Synergies
London School of Economics & Political Science (LSE)
Columbia Business School - Finance and Economics
Robert H. Gertner
University of Chicago - Finance; National Bureau of Economic Research (NBER)
American Economic Journal: Microeconomics, Vol. 2, No. 4, pp. 77-114, 2010
Columbia Business School Research Paper No. 11-32
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.
Number of Pages in PDF File: 39Accepted Paper Series
Date posted: October 22, 2011
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