Introduction to Organizational Architecture 1.Allocation of Decision Rights, Incentives and Monitoring 2.What does your firm do? 3.How do we decide what to do to get things done without killing each other?

Allocation of Decision 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, Professor NOT 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 resources Time and space Negotiation among factions NOT the same at all schools!

What does your firm DO? 1.Value Chain analysis – make/buy decisions 2.Process Flow diagrams 3.Gantt Charts

What does it mean to “do the right thing”? Incentives Can you tell if someone does “the right thing”? MORE Ambiguity Uncertainty Incongruence of Interests Information Asymmetry MORE INCENTIVES! 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? Ambiguity Time & Place Culture Monitoring & Evaluation

Information Asymmetry: Adverse Selection Pre-contractural information asymmetry What you don’t know about the product, person, situation before you decide to enter a transaction Worse case: Market failure! Remedies: Transactions costs! Signaling Pay to get more information Reputation & repeated games

Information Asymmetry: Moral Hazard Post-contractural information asymmetry What 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 #3 Type of Information General & Specific Knowledge Characteristic #2 Type of Resources Ostrom: common pool resources Characteristic #4 Type of Work & Workers Information asymmetry & incentives Decision Rights Incentives Monitoring & Eval Characteristic #1 Strategic Situation Pandora, Rules of the Game Characteristic #5 Organizational Culture Markets Bureaucracies & Clans YOUR view of the nature of man Transactions Costs Williamson: Transaction Cost Economics

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