Speed, coordination and individualistic behaviors: a pilot NK modeling study to investigate the moderating effects of organizational structure on performance in individual firms

Abstract

A central concern within the field of organizational design is the study of the relationship between structure, innovation and performance. The basic understanding is that decentralized structures appear best suited to promoting innovation and change. Yet this comes at the cost of efficiency. Conversely, organizations that centralize power in the hands of a few appear well-suited functionally to achieving high levels of efficiency, but at the cost of generating inertia. Taking both forms as polar types at the opposite ends of a continuum, the managerial question of how much of each form is necessary to create a good configuration to perform satisfactorily in the long term remains unknown. In this pilot study, we attempt to answer this question by using an NK model. Our results show that exploration is facilitated by higher levels of decentralization, where a structure that combines centralization and decentralization features delivers the highest long-term performance. We also find that complex organizational forms achieve low performance. This suggests that problems with coordination are costly to manage. Assumptions of game-theory are introduced to quantify the risks of decentralization. Keywords: Organizational structure, NK Model, exploration and exploitation, firm performance.