Are Two Heads Better than One? A Formal Investigation into the Efficacy of Multi-authority Hierarchies in Coordinating Action in Complex Organizations. Dan Levinthal (Wharton) and Maciej Workiewicz (INSEAD)

Background and motivation The task environment – hierarchical complex system Results: steady state fitness levels for the three organizational structures • As organizations grow larger, the task of coordinating distributed and complex simple interdependent action (or projects) becomes increasingly difficult. easy executive’s problem hard Executive’s problem (Penrose, 1959; Burton, Obel, DeSanctis, 2011) Executive Level • Understanding the effects of an organizational structure on performance is one of the central concerns of theoretical and empirical work in strategic management and organizational theory. autonomous (Chandler, 1962; Lawrence, Lorsch 1967; Miller et al. 2009). ( design , manufacturing , financing , advertising )

one boss Manager’s Manager’s problem matrix

• There have been different approaches to the challenge of organizing: Unit Managers’ Level asy e • Complexity is best answered with a simple organizational structures with small, only high level only lower level one boss matrix . autonomous units (Hamel, Prahalad, 1996; Christensen, 1997) matters matters

“Most important is clarity and to some extent simplicity. I am absolutely willing to trade in a 100% perfect – academically perfect – but complex organization for only [a] 70% perfect organization that is simple and easy to understand.”

former CEO of ABB (Galbraith, 2009) Manager’s Manager’s problem • employ equally complex organizational structure, like the matrix form Connecting the two levels – an example

(Ashby 1956; Nadler, Tushman, 1997; Galbraith, 2009) hard Connecting the two levels Less hierarchy More hierarchy Executive (vehicle type) (SPORT) or (SUV) Level Robustness checks (higher and lower levels are hard)

wheels autonomous No bosses One Boss Matrix Structure 1. matrix auton. Managers’ 1. Bounded rationality matrix suspension one boss CEO CEO Level one BR boss

Manager Manager Manager Manager Manager Manager Manager Manager Superior Superior body 2. Conflict resolution Unit 1 Unit 2 Unit 3 Unit 4 Unit 1 Unit 2 Unit 3 Unit 4 B1 B2

Superior Manager Manager 3. Motivation C1 B1C1 B2C1

Superior Manager Manager Tuning the relative benefits of coordination and specialization

C2 B1C2 B2C2 Ω표푟푔 = αΩ퐿퐿 + (1 − α)Ω퐻퐿

푐표표푟푑푖푛푎푡푖표푛 α → 0 푠푝푒푐푖푎푙푖푧푎푡푖표푛 α → 1 2. autonomous one boss auton. 3. matrix one boss matrix one boss one boss matrix autonomous dysf. matrix lazy auton.

• Recent evidence suggests that multi-authority structures are becoming increasingly common among project-based and multinational companies. (Galbraith 2009; Guadalupe et al. 2013).

• The available research offers conflicting findings and more formal modelling is Three canonical organizational structures Summary of key points needed to capture the core drivers of performance of complex organizational structures (Ford, Randolph 1992; Roberts, Saloner, 2013; Puranam, Forthcoming). ONE BOSS MATRIX AUTONOMOUS (Traditional) • Multi-authority structure is the best alternative when: – the lower level problems are hard (i.e. complex) Key question Executives – Balancing coordination and specialization is important What are the costs and benefits of a multi-authority no bosses hierarchy in coordinating complex projects? for the overall performance of an organization (α)

Approach • Bounded rationality, conflict resolution and motivation are An agent based model testing performance of three all key in determining the relative efficacy of the three canonical organizational structures in projects of varying Manager’s Always obeys the Needs to obey at No bosses, no organizational structures, but impact their performance to characteristics. search superior least one boss constraints different degrees