Organizing for Synergies

Wouter Dessein, Luis Garicano () and Robert Gertner

No 6019, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Multi-product firms create value by integrating functional activities such as manufacturing across business units. This integration often requires making functional managers responsible for implementing standardization, thereby limiting business-unit managers’ authority. Realizing synergies then involves a tradeoff between motivation and coordination. Motivating managers requires narrowly-focused incentives around their area of responsibility. Functional managers become biased toward excessive standardization and business-unit managers may misrepresent local market information to limit standardization. As a result, integration may be value-destroying when motivation is sufficiently important. Providing functional managers only with "dotted-line control" (where business-unit managers can block standardization) has limited ability to improve the tradeoff.

Keywords: communication; coordination; incentives; incomplete contracts; merger implementation; organizational design; scope of the firm; task allocation (search for similar items in EconPapers)
JEL-codes: D2 D8 L2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec
Date: 2007-01
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