Integration Through Incentives Within Differentiated Organizations

Organization Science, Forthcoming

49 Pages Posted: 18 Jul 2004  

Tobias Kretschmer

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management); Centre for Economic Policy Research (CEPR)

Phanish Puranam

INSEAD

Abstract

The specialization of activity within organizations can make it worthwhile to motivate collaboration efforts, but also makes such efforts less effective through coordination challenges. Drawing on the concepts of organizational differentiation and integration, we present a formal analysis of the manner in which these two consequences of specialization shape the effectiveness of collaborative incentives in complex organizations. We show that ignoring the coordination challenges created by differentiation does not merely impede the achievement of gains from integration, but can lower organizational performance below the levels achieved when such gains are simply ignored. Thus, treating inter-unit collaboration purely as a problem of motivating cooperation can be counter-productive.

Keywords: Incentives, Coordination, Organization design

JEL Classification: L22, D23

Suggested Citation

Kretschmer, Tobias and Puranam, Phanish, Integration Through Incentives Within Differentiated Organizations. Organization Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=564424

Tobias Kretschmer

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, 80539
Germany

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Phanish Puranam (Contact Author)

INSEAD ( email )

1 Ayer Rajah Avenue
Singapore, 138676
Singapore

HOME PAGE: http://www.insead.edu/facultyresearch/faculty/profiles/ppuranam/

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