The Janus of firm design : the impact of information on firm boundaries and structure

Abstract

This dissertation examines the forces that drive organizational structure and boundary decisions. Using theoretical concepts drawn from transaction cost theory and agency theory, this dissertation develops a model that draws attention to behavioral and outcome distinctions in information flow. Specifically it examines how characteristics of these different types of management information alter the organizational design outcomes predicted by the two theory bases above. The foundational arguments regarding firm boundaries and structure are based on the two contracting modes of agency theory, behavioral and outcome. The construct of information localization (IL), defined as theneed to use information within its immediate context (or conversely, the difficulty of transferring and utilizing information outside of its immediate context), is introduced and used to predict organizational design decisions. This construct represents a synthesis of prior conceptions of information characteristics and is used both to capture salient characteristics of management information and to facilitate an examination of the impacts of different information technology (IT) applications. The relationship between information localization and firm boundaries and structure is tested at the task level. The relationship of information technology with boundary and structure decisions is explained using the model and tested concurrently with the test of the information localization hypotheses. A comprehensive model is proposed and propositions to guide future research are developed. The distinction between outcome and behavioral information localization allows a more nuanced assessment of the impacts of information and information technology on the organization of work. The empirical results suggest that the impact of IT on outcome information localization is negligible for tasks with low outcome IL but increases the likelihood of outsourcing for tasks with high outcome IL. Contrary to prior findings utilizing different conceptualizations of information flow, the impact of technology on behavioral IL on autonomy showed that applications of IT may increase autonomy (decentralization of decision-making) rather than decrease it.