1. Chapter 11: Organizational Architecture
Brickley, Smith, and Zimmerman, Managerial Economics and Organizational Architecture, 4th ed.
Chapter 11: Organizational Architecture

2. Organizational Architecture learning objectives
Students should be able to
Define architecture and distinguish between markets and organizations
Identify the determinants of architecture

3. The fundamental problem
Profit maximization may face information limitations
controlled by many individuals
may be costly to transfer
Individuals may have incompatible incentives
Organizational architecture must overcome these limitations

4. Components of architecture “three legs of the stool”
Decision-right assignment
empowering employees
Reward system
compensating employees
Performance-evaluation system
evaluating employees

5. Determinants of architecture

6. Changing architecture
Benefits of organizational change must exceed costs
Costs
direct: resources for design and communication
indirect: impact on job-specific human capital formation
Organizations are interdependent systems, change must be coordinated

7. Corporate culture
Culture is the set of explicit and implicit expectations of behavior within the firm
Communicating culture
slogans, rituals, role models
Architecture shapes employee expectations
Architecture elements are complements

8. When architecture fails
Management is at risk of dismissal
Firm is at risk of takeover
Rivals are waiting to take over

9. Managerial implications
Consultant advice should be examined closely
e.g., employee empowerment may not always be appropriate
Effective benchmarking requires architectural awareness