Introduction to Organizational Architecture

1. Allocation of Decision Rights, Incentives and Monitoring2. What does your firm do?3. How do we decide what to do to get things done without

killing each other?

Allocation ofDecision Rights

Who?

What?

Where?

When?

Why?

How?

One person? The same person each time? A team? The “boss” can’t be everywhere all the time and make all the decisions!

A decision requires options! No options no decision.

On sight? In an office? Face-to-face? In cyberspace?

TIME MATTERS!! On the spot or with reflection?

What is the strategic situation? Core or routine decision?

What is the organizational culture? Deliberate? Research?

Example: Who will teach what classes, where and when?

Who?

What?

Where?

When?

Why?

How?

Dean, Registrar, Department Chair, ProfessorNOT the College President, Trustees

What professor, what class, what room, What content and location on any given day

Office, Electronic documents Web scheduling has increased coordination!

1-year prior, 1 semester prior, Daily

Allocation of resourcesTime and space

Negotiation among factionsNOT the same at all schools!

What does your firm DO?1.Value Chain analysis – make/buy decisions2.Process Flow diagrams3.Gantt Charts

What does it mean to “do the right thing”?

IncentivesCan you tell if

someone does “the right thing”?

MOREAmbiguityUncertainty

Incongruence of InterestsInformation Asymmetry

MOREINCENTIVES!

Laffont & Martimort: You have to pay the rent!But there’s more than one way to pay the rent…

Can you measure what you are interested in?

Is it worth the transactions cost?

AmbiguityTime & Place

Culture

Monitoring & Evaluation

http://en.wikipedia.org/wiki/Information_asymmetry

Information Asymmetry: Adverse Selection

Pre-contractural information asymmetryWhat you don’t know about the product, person, situation before you decide to enter a transaction

Worse case: Market failure!Remedies: Transactions costs!

SignalingPay to get more information

Reputation & repeated games

Information Asymmetry: Moral Hazard

Post-contractural information asymmetryWhat you don’t know about the product, person, situation after you decide to enter a transaction

Mom: “Everyone is special…”

Dash: “…which is another way of saying no one is.”

Message: If you provide an incentive you need a way to determine who gets it and when…

…and manage the fall-out.

: “…optimal architectures will differ across companies. Such structural differences are not random but vary in systematic ways with differences in certain underlying characteristics of the companies themselves.” BSZ p. 345

Characteristic #3Type of InformationGeneral & Specific Knowledge

Characteristic #2Type of ResourcesOstrom: common pool resources

Characteristic #4Type of Work & WorkersInformation asymmetry & incentives

Decision Rights Incentives Monitoring & EvalCharacteristic #1Strategic SituationPandora, Rules of the Game

Characteristic #5Organizational CultureMarkets Bureaucracies & ClansYOUR view of the nature of man

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What YOU need to do NOW:1. Figure out what your firm DOES?

Make a process-flow OR Gantt chart of your key process.

4. Figure out what RESOURCES are needed to make/execute the decision.

3. Figure out what INFORMATION is needed to make/execute the decision.

5. Think about the INTERESTS & MOTIVATIONS of the people in your organization (back to factions…)

What YOU will do after Spring Break:

What YOU will do NEXT WEEK:2. Figure out your key DECISIONS including what you will make/buy