The Architecture of Attention: Group Structure and Subsidiary Autonomy

Abstract

This paper examines the relationship between strategic decision-making at the subsidiary level and organization structure. In many organizations, the interaction between central headquarters and subsidiaries is mediated by the presence of intermediate organizational units. Building on the attention-based view of the firm, we argue that the greater the "organizational distance" of a focal subsidiary from headquarters (as measured by the number of intermediate subsidiaries separating the subsidiary from headquarters), the greater the level of autonomy the subsidiary will enjoy. Using a large and comprehensive dataset on the structure of corporate groups in Western Europe, we provide two pieces of evidence consistent with this hypothesis. First, perceived autonomy of subsidiary managers, as measured by the World Management Survey, and organizational distance are strongly positively related. Second, the performance of subsidiaries near the bottom of a pyramid is more similar to that of matched standalones in response to changing industry conditions, than the performance of subsidiaries near the top. By contrast, we find little support for the view that tall pyramids are created to magnify the voting control of large shareholders.

Keywords: Subsidiary Autonomy, Organization Structure, Hierarchy, Attention-Based View, Corporate Groups

JEL Classification: L22, L23, K22