Integrating Economic and Organization Theory
Edited by Anna Grandori
Large firms’ organizational structures have undergone significant changes in the past 25–30 years. In this chapter, we examine key economic drivers of these changes that are external to the firm: shifts in technology, in product markets, and in capital markets. Our focus is on ways in which these shifts have led firms to adopt more centralized or more decentralized structures. However, we also highlight the motivation for, and efficiency of, structural change that occurs in the absence of shifts in external drivers. We emphasize the idea that because organizational structure choices are discrete, while the dimensionality of organizational performance is continuous and multidimensional, organization structures may endogenously oscillate between centralization and decentralization. This implies that scholars and managers must develop a more dynamic perspective on organizational design.
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