Intra-firm feudalism and the risks of its digital amplification

Abstract

Ever changing environment brings to light the need to create the appropriate hierarchical management structure maintaining efficient and sustainable firm’s performance. The scholars become more focused on the importance of the non-formal rules determining the nature of the intra-firm relations. This article attempts to justify theoretically the applicability of the feudalism categories to the analysis of the hierarchical management structure in the modern industrial enterprise, as well as to define the ways to overcome the negative implications of the intra-firm feudalism. Methodologically, the research is based on the provisions of the A.A. Bogdanov’s general organizations science. The article justifies the in-house system of relationships, which, in fact, correlates with the fundamental characteristics of the feudal relationships. This system of non-formal relations affects the approved managerial decisions, determines the nature and goals of the structural units of the industrial enterprise. It is shown that the nature of these non-formal relationships shapes the long-term resilience of the firm. The article looks at how the in-house departments obtain the elements of quasi-feudal power by controlling the functional levels of the firm – physical (control over the main assets), distribution (control over the material, labor, and energy resources), economic (impact on the cash flows), and design and technological (impact on the strategic development and firm’s technologies). The main reason for the intra-firm feudalism is the difference in opinions among the top managers of the firms and its employees, which, in its turn, is caused by different assets circulation periods – the main means of manufacturing and labor. It is claimed that information asymmetry inherent to the hierarchical structure is the indispensable condition for the intra-firm feudalism. In-house feudalization amplifies when a particular employee and its department acquire specific capital, including experience, knowledge about the manufacturing technologies, ties with colleagues and outside subjects, etc. It is justified that economy digitalization changes the composition and the structure of the feudal lords’ powers, while the scales of intra-firm feudalism manifestations do not change. To counteract the firm’s feudalization, the article proposes measures, including dismissal of the feudal lords and destruction of feuds, delegation of the design and technological powers from the feudal lords to the personnel, blurring the feudal lords’ powers, changing the business conditions for feuds, changes of the hierarchical structure in the firm. It is noted that the intra-firm feudalism can be restrained by setting up a new intra-firm unit – General Council of Employees empowered with design and technological rights with the level inversely proportional to the intra-firm feudal lords’ power level. Therefore, higher level of powers given to the firm’s employees will restrain the powers of the intra-firm feudal lords. Further research is seen to be connected with the assessment of the hypothesis concerning the development of the intra-firm feudalism in particular industrial enterprises.