EFFECTS OF ALTERNATE INFORMATION STRUCTURES IN A DECOMPOSED ORGANIZATION: A LABORATORY EXPERIMENT.

The literature on the decomposition of mathematical programs as models for organizational design and resource allocation in decentralized organizations is extensive. Although models differ in detail, all conceptualize the allocation problem as a multi-level managerial coordination procedure, involving local (divisional) and global (organization-wide) resources, in which informational automony is to be maintained. That is, coordination of resource usage by relatively autonomous divisions is to be effected in these models without any one agent in the organization accumulating complete knowledge of the technical resource transformations, payoff or cost coefficients and detailed plans that divisions utilize in converting resources to useful ends. Unfortunately there has been little empirical investigation into the implementational problems of applying these models in decentralized organizations. This study reports on an experiment with human subjects as decision makers in a simulated decentralized organization. The formulation of the overall resource-allocation problem as a linear program permitted two forms of coordination: price-directive in which transfer pricing is used to allocate resources, and resource-directive in which a rationing or budgeting approach is used. Both schemes can be shown to solve the overall organizational problem but impose different information, communication, and decision-making structures upon the subject managers. The experiment was designed to examine comparative managerial performance by the subjects, as central coordinating agents, under the alternative transfer pricing and budgeting schemes. Within each of these schemes two levels of decision time pressure were also introduced to examine its impact upon subject performance. The purpose of the investigation was to study the influence of organizational design (allocation scheme) and situational factors (time pressure) upon human decision-making under carefully controlled experimental... [ABSTRACT FROM AUTHOR]