Organizational Design and Space: The Good, the Bad, and the Productive

Abstract

We study how firms can design the physical space of their organizations to maximize performance, both theoretically and empirically. We find that physical location of workers greatly affects performance by means of the performance of peers spilling over to the focal worker --- both positively and negatively --- across several dimensions, whether spillover is due to learning or more transitory effects such as peer pressure. We also find that workers have different strengths, and that while performance spillover can be minimal for a worker when it occurs in an area of strength, the same worker can be greatly affected if the spillover occurs in her area of weakness. For the large technology firm that we study, we find that this multi-dimensional spillover allows for a symbiotic pairing of workers with different strengths that can improve performance by some 15%. Overall, workplace space appears to be a resource that can be used to design higher-performing organizations.

Keywords: strategic human resource management, peer effects, productivity, spillovers, toxic worker