Organization Structure

Abstract

This Chapter concerns formal models of organizations that regularly acquire information about a changing environment in order to find actions which are appropriate to the new environment. Some or all members of the organization are specialists. Each of them privately learns something about a particular aspect of the new environment. The organization operates a mechanism, which assembles relevant pieces of the specialists' private observations and uses the assembled information to obtain the desired new action. The mechanism has various informational costs and they are measured in a precise way. The research seeks to characterize mechanisms that strike an appropriate balance between informational cost and the performance of the mechanism's final actions. As costs drop, due to improved Information Technology, the properties of good mechanisms, and hence the structure of the organizations that adopt them, may change. The Chapter starts by examining research in which the organization's members reliably follow the mechanism's rules and so incentives are not an issue. It then turns to research in which each member is self-interested and needs an inducement in order to make the informational efforts that the mechanism requires. A number of unmet Research Challenges are identified. I. INTRODUCTIONThis chapter concerns organizations that acquire information about a changing environment in order to take appropriate actions.The term "organization" is used in many disciplines and is applied to many groups of persons. The term covers government agencies, markets, entire economies, firms, nonprofit institutions, the users of the Internet, the firms in a supply chain, and so on. We shall be concerned with models of organizations where some or all members are specialists: each of them privately learns something about a particular aspect of the organization's newly changed environment. The organization then adjusts its actions. It seeks new actions that are appropriate to the new environment. It could find them by "Direct Revelation" -collecting in one central place all the information about the changed environment that the members have privately collected, and using it to obtain a new action. But that would be wasteful: much of the transmitted information would not be needed. Instead, the organization seeks to balance the benefit of appropriate actions against the costs of learning about the current environment, transmitting some of what has been learned, and using the transmitted information to choose new actions. Advances in Information Technology (IT) may reduce those costs, and that may change the structure of successful organizations. In all the models discussed in this chapter, there is some precise measure of one or more informational costs.The members of our modeled organization might be totally self-interested, or they might behave like loyal and selfless team members (or well-programmed robots), choosing their informational efforts and their actions so as to contribute in the best way to a common goal. In either case ...