Choice of an information structure versus a production environment: A managerial control perspective

Abstract

Modern manufacturing systems often require standardization of tasks and training of employees with the intent of creating flexible and interchangeable production schedules. Designing of such a production environment must invariably rely on employees' superior information about the task characteristics. Recognizing employees' incentives in their participation of budgeting for such tasks leads to a better understanding of the efficiency implications of different information structures in the context of advanced manufacturing systems. This paper examines the principal's ability and willingness to substitute an information structure for a given specificity of a production environment and vice versa, where production environment is classified either as person-specific (PS) or task-specific (TS). In a TS environment, provision of greater predecision information to multiple managers is always desirable. However, under certain conditions, the principal will prefer managers to have less information but operate in a TS environment to providing greater information to them in a PS environment. Thus, under specified conditions, the specificity effect of the production environment dominates the information effect. Moreover, for a given information structure, we identify sufficient conditions under which the principal will prefer the PS environment to a TS one and vice versa. Finally, ceteris paribus, managerial control problems are less severe when the production environment is TS than when it is PS.