Firms as Systems of Interdependent Choices

Abstract

abstract Managers within firms have to make choices along a large number of dimensions; for instance, how to configure activities involving manufacturing and marketing, and which organizational design to employ. Since these choices interact with each other, firms can be conceived of as systems of interdependent choices. In this article, I discuss research that addresses three questions that naturally arise in this context. First, how do such systems evolve over time? Second, what role does organizational design play in whether a firm will arrive at a consistent and high‐performing set of choices? Third, what are the consequences of cognitive limitations by decision makers when faced with such complex systems? The article concludes by sketching out possible future directions of research in this domain.

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