Information Technology and Organization Design: Locating Decisions and Information Export

@article{199810, abstract = {We study the impact of information technology (IT) on the profitability of individual organization designs and on the relative profitability of different organization designs. We develop models where organization design is defined by the location of investment decision authority. We consider global and local investment when there is an information asymmetry between a central authority and decentralized nodes-decentralized nodes make better local investment decisions because of their local knowledge. We define three separate organization designs: a hierarchy where all investments are made by a central authority, a market where all investments are made by the decentralized nodes, and a mixed mode where global investments are made by a central authority and local investments are made by decentralized nodes. Because of complementarities between global and local investment, we show that there is underinvestment relative to first-best in all three organization designs. We also find that IT can be used to mitigate that underinvestment, either by bringing information to the decision maker or by re-designing the monitoring and incentive structure. We demonstrate that IT does not necessarily favor decentralized organization designs, and we show how the costs of coordination may result in the mixed mode being dominated by one or both of the alternative organization designs. Thus, collocation of investment decision rights and information that results in decisions that require coordination might not be optimal when the costs of not synchronizing global and local investment are high.}, author = {Nault, Barrie R.}, citeulike-article-id = {1466653}, journal = {Management Science}, keywords = {asymmetry, centralization, collocation, decentralization, decision, externalities, form, information, is329, it, management, network, organizational, rights}, month = {oct}, number = {10}, pages = {1321--1335}, posted-at = {2007-07-19 07:45:57}, priority = {0}, publisher = {INFORMS}, title = {Information Technology and Organization Design: Locating Decisions and Information}, url = {http://links.jstor.org/sici?sici=0025-1909%28199810%2944%3A10%3C1321%3AITAODL%3E2.0.CO%3B2-4}, volume = {44}, year = {1998} }

TY - JOUR ID - 199810 L3 - citeulike-article-id:1466653 N2 - We study the impact of information technology (IT) on the profitability of individual organization designs and on the relative profitability of different organization designs. We develop models where organization design is defined by the location of investment decision authority. We consider global and local investment when there is an information asymmetry between a central authority and decentralized nodes-decentralized nodes make better local investment decisions because of their local knowledge. We define three separate organization designs: a hierarchy where all investments are made by a central authority, a market where all investments are made by the decentralized nodes, and a mixed mode where global investments are made by a central authority and local investments are made by decentralized nodes. Because of complementarities between global and local investment, we show that there is underinvestment relative to first-best in all three organization designs. We also find that IT can be used to mitigate that underinvestment, either by bringing information to the decision maker or by re-designing the monitoring and incentive structure. We demonstrate that IT does not necessarily favor decentralized organization designs, and we show how the costs of coordination may result in the mixed mode being dominated by one or both of the alternative organization designs. Thus, collocation of investment decision rights and information that results in decisions that require coordination might not be optimal when the costs of not synchronizing global and local investment are high. IS - 10 JF - Management Science EP - 1335 TI - Information Technology and Organization Design: Locating Decisions and Information PB - INFORMS VL - 44 SP - 1321 KW - asymmetry KW - centralization KW - collocation KW - decentralization KW - decision KW - externalities KW - form KW - information KW - is329 KW - it KW - management KW - network KW - organizational KW - rights AU - Nault, Barrie PY - 1998/oct// ER -