Economics, Organization and Management Chapter 1: Does Organization Matter? Joe Mahoney University of Illinois at Urbana-Champaign

Milgrom and Roberts (1992): Chapter 1 Economics, Organization & Management Chapter 1:Does Organization Matter? The study of organization is about how people are coordinated and motivated to get things done. Organization and business strategy can be as important as technology, cost and demand in determining a firm’s success. In successful organizations, effective incentives are one important element.

Milgrom and Roberts (1992): Chapter 1 Economics, Organization & Management Another important shared feature of successful organizations is the tendency to place authority for decisions in the hands of those with information. Although delegating authority to those with the information needed to make good decisions is an important element of good organization design, it is of little use unless the decision makers share the organization’s goals. Incentives are important to align goals. Incentives are especially important when more initiative is expected from the employee.

Milgrom and Roberts (1992): Chapter 1 Economics, Organization & Management In the language of economics, incentives and delegated authority are complements: each makes the other more valuable. Evaluating complementarities --- how the pieces of a successful organization fit together and how they fit with the company’s strategy --- is one of the most challenging and rewarding paths of organizational analysis.