Centralization vs. Decentralization in a Multi-Unit Organization: A Computational Model of a Retail Chain as a Multi-Agent Adaptive System

Myong‐Hun Chang · Joseph E. Harrington

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Organizational Management and Leadership Accounting and Organizational Management Management and Organizational Studies

Abstract

A computational model of a retail chain is developed in which store managers continually search for better practices. Search takes place over a rugged landscape defined over the space of store practices. The main objective of this research is to determine how the amount of discretion given to store managers as to how they run their stores influences the rate of innovation at the store level. We find that greater decentralization enhances firm performance when stores' markets are sufficiently different, the horizon is sufficiently long, and markets are sufficiently stable.

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1979Moral Hazard and Observability 1982Moral Hazard in Teams 1997Formal and Real Authority in Organizations 1997Adaptation on Rugged Landscapes 1995The Acquisition, Transfer, and Depreciation of Knowledge in Service Organizations: Productivity in Franchises 1981A model of adaptive organizational search 1988A CONTINGENCY APPROACH TO STRATEGY IMPLEMENTATION AT THE BUSINESS-UNIT LEVEL: INTEGRATING ADMINISTRATIVE MECHANISMS WITH STRATEGY.1993The Organization of Decentralized Information Processing

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