When Does Adaptation Require Decentralization?

49 Pages Posted: 3 May 2012

See all articles by Ricardo Alonso

Ricardo Alonso

London School of Economics & Political Science (LSE) - Department of Management

Wouter Dessein

Columbia Business School - Finance and Economics

Niko Matouschek

Northwestern University - Kellogg School of Management; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Date Written: March 2012

Abstract

We examine the relationship between the organization of a firm and its ability to adapt to changes in the environment. We show that even if lower-level managers have superior information about their local conditions, and incentive conflicts are negligible, a centralized organization can be better at adapting to changes in the environment than a decentralized one. We then show that this result reverses some of the standard intuitions about organizational structure. For instance, an increase in competition that makes adaptation more important can favor centralization over decentralization.

Keywords: adaptation, information, organization

JEL Classification: D23, D83, L23

Suggested Citation

Alonso, Ricardo and Dessein, Wouter and Matouschek, Niko, When Does Adaptation Require Decentralization? (March 2012). Columbia Business School Research Paper No. 12/29, Available at SSRN: https://ssrn.com/abstract=2050134 or http://dx.doi.org/10.2139/ssrn.2050134

Ricardo Alonso

London School of Economics & Political Science (LSE) - Department of Management ( email )

United Kingdom

HOME PAGE: http://www.lse.ac.uk/management/people/ralonso.aspx

Wouter Dessein (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Niko Matouschek

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-4166 (Phone)
847-467-1777 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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