Designing for Complexity: Using Divisions and Hierarchy to Manage Complex Tasks

Abstract

This paper studies the impact of task complexity and decomposability on the degree of organizational divisionalization and hierarchy within firms. Drawing upon the team theory and modularity literature, it argues that the degree of divisionalization is predicated not only on the extent of interdependence (complexity) among tasks but also on the extent to which those interdependent relationships are decomposable. As such, the feasibility and benefits of modularization in organizational design may be overstated when the underlying tasks are not decomposable. In addition, this paper argues that organizational hierarchy serves to mitigate the tension between complexity and decomposability by facilitating a higher degree of divisionalization. These arguments are tested using data on the business activities and organization structures of U.S. equipment manufacturers in 1993–2003. Results show that divisionalization increases with task complexity, suggesting that complex task systems encourage more division of managerial responsibilities. However, divisionalization decreases as task systems become less decomposable. Meanwhile, organizational hierarchy increases with task complexity, and it increases as task systems become less decomposable. These findings highlight the constraints firms face in designing modular organization structures and the role of hierarchy in coordinating complex task systems that are not fully decomposable.

Interdependence among productive activities: Implications for exploration and exploitation

“…Empirical studies on the structure of interdependencies are rare, and concentrate either on the implications of patterns on the degree of organizational divisionalization and hierarchy within firms (Zhou, 2013), or they consider the structure of interdependencies as a result of a specific set of a firm's choices. Particularly, Yayavaram and Ahuja (2008) argue that firms' choices of combining and considering disparate components as interdependent on each other limit exploratory activities, and make effective recombination of any newly identified elements into successful inventions more complex and difficult.…”

“…the underlying pattern of interactions among productive activities at the industry level) may influence the long-term benefits of an organization's exploratory and exploitative efforts. In particular, we refer to decomposability as the distribution pattern of interdependencies (Ethiraj, Levinthal, & Roy, 2008;Rivkin & Siggelkow, 2007;Yayavaram & Ahuja, 2008;Zhou, 2013). A set of productive activities is highly decomposable when interdependencies among individual groups of activities are limited in number and weak in intensity as compared to those occurring within each group, which are many in number and strong in intensity (Simon, 1962(Simon, , 2002.…”

Design, Perception and Behavior in the Innovation Era: Revisiting the Concept of Interdependence

“…Regarding design, Nadler et al (1997) propose that it is important for managers to think of ways to integrate the activities of teams in complex organization designs. They refer to this as "structural linking" which is crucial to ensuring teams keep contributing to corporate goals instead of them diverging into unrelated or even conflicting directions (Taylor 2010;Zhou 2013). A prevalent structural linking mechanism included in the organizational design of large organizations is the cross-functional interface (Jansen et al 2009).…”

The Impact of Innovation Off-Shoring on Organizational Adaptability

“…If there exists a way of assigning tasks to a fixed number K of groups such that the dependence exists only within but not between groups, then a system is said to be decomposable with respect to these K groups (cf. Zhou, 2013). The main postulation of complexity theory is that decomposable and appropriately decomposed systems are able to adapt to environmental turbulence fast (Simon, 2002; for simulation results see for example Frenken et al, 1999;Rivkin and Siggelkow, 2007;Ethiraj and Levinthal, 2004;Yayavaram and Ahuja, 2008).…”

“…Concerning benefits, Kedia and Mukherjee (2009) argue for advantages of organizational decomposability. Decomposition can reduce complexity because it allows managers to focus on more narrowly defined problems (Zhou, 2013). On the cost side, decomposition increases the need for coordination between subunits because tasks are rarely fully independent of 2 As Simon (2002) points out, if subsystems are linked by some sort of interdependence, the optimum state of the entire system can only be found when all subsystems are jointly optimized.…”