IDEAS home Printed from https://ideas.repec.org/a/eee/jeborg/v84y2012i2p586-599.html
   My bibliography  Save this article

The impact of complexity and managerial diseconomies on hierarchical governance

Author

Listed:
  • Brahm, Francisco
  • Tarziján, Jorge

Abstract

Based on data from Chilean construction projects, we evaluate how the boundary choice of a focal activity is affected by the number of activities integrated elsewhere in a project and by the level of “between complexity” and “within complexity” of those activities. Our results show that managerial diseconomies of scale, which arise when contractors integrate more activities, and the different types of complexity, affect the relative advantages of hierarchical governance. In a novel result, we also show that interactions between the number of integrated activities and the types of complexity affect the relative merits of hierarchical governance to handle an activity, meaning that complexity and the extent of a project's integration are systematically intertwined in the explanation of boundary choices. Our findings indicate a need for research on interdependencies between different boundary choices and suggest that the evaluation of these interdependencies should consider the complexity of activities.

Suggested Citation

  • Brahm, Francisco & Tarziján, Jorge, 2012. "The impact of complexity and managerial diseconomies on hierarchical governance," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 586-599.
    • Handle: RePEc:eee:jeborg:v:84:y:2012:i:2:p:586-599
    DOI: 10.1016/j.jebo.2012.09.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167268112001680
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jebo.2012.09.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. J. Myles Shaver & John M. Mezias, 2009. "Diseconomies of Managing in Acquisitions: Evidence from Civil Lawsuits," Organization Science, INFORMS, vol. 20(1), pages 206-222, February.
    2. Margarethe F. Wiersema & Harry P. Bowen, 2009. "The use of limited dependent variable techniques in strategy research: issues and methods," Strategic Management Journal, Wiley Blackwell, vol. 30(6), pages 679-692, June.
    3. Steven Tadelis, 2002. "Complexity, Flexibility, and the Make-or-Buy Decision," American Economic Review, American Economic Association, vol. 92(2), pages 433-437, May.
    4. Sharon Novak & Steven D. Eppinger, 2001. "Sourcing By Design: Product Complexity and the Supply Chain," Management Science, INFORMS, vol. 47(1), pages 189-204, January.
    5. Lopez-de-Silanes, Florencio & Phalippou, Ludovic & Gottschalg, Olivier, 2010. "Giants at the Gate: On the Cross-section of Private Equity Investment Returns," MPRA Paper 28487, University Library of Munich, Germany.
    6. Todd R. Zenger, 1994. "Explaining Organizational Diseconomies of Scale in R&D: Agency Problems and the Allocation of Engineering Talent, Ideas, and Effort by Firm Size," Management Science, INFORMS, vol. 40(6), pages 708-729, June.
    7. C. Tsuriel Somerville, 1999. "The Industrial Organization of Housing Supply: Market Activity, Land Supply and the Size of Homebuilder Firms," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(4), pages 669-694, December.
    8. Rasmusen, Eric & Zenger, Todd, 1990. "Diseconomies of Scale in Employment Contracts," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 6(1), pages 65-92, Spring.
    9. Demsetz, Harold, 1988. "The Theory of the Firm Revisited," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 4(1), pages 141-161, Spring.
    10. Gonzalez-Diaz, Manuel & Arrunada, Benito & Fernandez, Alberto, 2000. "Causes of subcontracting: evidence from panel data on construction firms," Journal of Economic Behavior & Organization, Elsevier, vol. 42(2), pages 167-187, June.
    11. Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, vol. 75(2), pages 123-123.
    12. Jack A. Nickerson & Todd R. Zenger, 2008. "Envy, comparison costs, and the economic theory of the firm," Strategic Management Journal, Wiley Blackwell, vol. 29(13), pages 1429-1449, December.
    13. McAfee, R Preston & McMillan, John, 1995. "Organizational Diseconomies of Scale," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 399-426, Fall.
    14. Masten, Scott E & Meehan, James W, Jr & Snyder, Edward A, 1991. "The Costs of Organization," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(1), pages 1-25, Spring.
    15. Jeffrey T. Macher, 2006. "Technological Development and the Boundaries of the Firm: A Knowledge-Based Examination in Semiconductor Manufacturing," Management Science, INFORMS, vol. 52(6), pages 826-843, June.
    16. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    17. Yoram Barzel, 1997. "Measurement Cost and the Organization of Markets," Chapters, in: Svetozar Pejovich (ed.), The Economic Foundations of Property Rights, chapter 13, pages 171-192, Edward Elgar Publishing.
    18. Tasadduq A. Shervani & Gary Frazier & Goutam Challagalla, 2007. "The moderating influence of firm market power on the transaction cost economics model: An empirical test in a forward channel integration context," Strategic Management Journal, Wiley Blackwell, vol. 28(6), pages 635-652, June.
    19. Jeremy C. Stein, 2002. "Information Production and Capital Allocation: Decentralized versus Hierarchical Firms," Journal of Finance, American Finance Association, vol. 57(5), pages 1891-1921, October.
    20. Dilip Mookherjee, 2006. "Decentralization, Hierarchies, and Incentives: A Mechanism Design Perspective," Journal of Economic Literature, American Economic Association, vol. 44(2), pages 367-390, June.
    21. Sharon Novak & Scott Stern, 2009. "Complementarity Among Vertical Integration Decisions: Evidence from Automobile Product Development," Management Science, INFORMS, vol. 55(2), pages 311-332, February.
    22. Argyres, Nicholas S. & Liebeskind, Julia Porter, 2002. "Governance inseparability and the evolution of US biotechnology industry," Journal of Economic Behavior & Organization, Elsevier, vol. 47(2), pages 197-219, February.
    23. Kathleen R. Conner & C. K. Prahalad, 1996. "A Resource-Based Theory of the Firm: Knowledge Versus Opportunism," Organization Science, INFORMS, vol. 7(5), pages 477-501, October.
    24. Ranjay Gulati & Paul R. Lawrence & Phanish Puranam, 2005. "Adaptation in vertical relationships: beyond incentive conflict," Strategic Management Journal, Wiley Blackwell, vol. 26(5), pages 415-440, May.
    25. Lamar Pierce, 2012. "Organizational Structure and the Limits of Knowledge Sharing: Incentive Conflict and Agency in Car Leasing," Management Science, INFORMS, vol. 58(6), pages 1106-1121, June.
    26. Evan Rawley, 2010. "Diversification, coordination costs, and organizational rigidity: evidence from microdata," Strategic Management Journal, Wiley Blackwell, vol. 31(8), pages 873-891, August.
    27. Graham Winch, 2001. "Governing the project process: a conceptual framework," Construction Management and Economics, Taylor & Francis Journals, vol. 19(8), pages 799-808.
    28. Anna Dubois & Lars-Erik Gadde, 2002. "The construction industry as a loosely coupled system: implications for productivity and innovation," Construction Management and Economics, Taylor & Francis Journals, vol. 20(7), pages 621-631.
    29. Oliver E. Williamson, 1999. "Strategy research: governance and competence perspectives," Strategic Management Journal, Wiley Blackwell, vol. 20(12), pages 1087-1108, December.
    30. Michael Buzzelli & Richard Harris, 2006. "Cities as the Industrial Districts of Housebuilding," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 30(4), pages 894-917, December.
    31. Michael J. Leiblein & Douglas J. Miller, 2003. "An empirical examination of transaction‐ and firm‐level influences on the vertical boundaries of the firm," Strategic Management Journal, Wiley Blackwell, vol. 24(9), pages 839-859, September.
    32. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59(3), pages 185-185.
    33. repec:bla:jemstr:v:4:y:1995:i:3:p:399-426:a is not listed on IDEAS
    34. Nicolai J. Foss, 2003. "Selective Intervention and Internal Hybrids: Interpreting and Learning from the Rise and Decline of the Oticon Spaghetti Organization," Organization Science, INFORMS, vol. 14(3), pages 331-349, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mariani, Laura & Cavenago, Dario, 2014. "Defining hospital's internal boundaries. An organisational complexity criterion," Health Policy, Elsevier, vol. 117(2), pages 239-246.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aseem Kaul, 2013. "Entrepreneurial Action, Unique Assets, and Appropriation Risk: Firms as a Means of Appropriating Profit from Capability Creation," Organization Science, INFORMS, vol. 24(6), pages 1765-1781, December.
    2. Jain, Amit, 2011. "Connaissance, ressources, concurrence et les frontières de l'entreprise," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/6403 edited by Thiétart, Raymond-Alain.
    3. Nicholas S. Argyres & Todd R. Zenger, 2012. "Capabilities, Transaction Costs, and Firm Boundaries," Organization Science, INFORMS, vol. 23(6), pages 1643-1657, December.
    4. Bigelow, Lyda S. & Argyres, Nicholas, 2008. "Transaction costs, industry experience and make-or-buy decisions in the population of early U.S. auto firms," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 791-807, June.
    5. M. Shyam Kumar, 2013. "Production knowledge and its impact on the mechanisms of governance," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 17(2), pages 261-281, May.
    6. Claudine Gartenberg & Lamar Pierce, 2017. "Subprime governance: Agency costs in vertically integrated banks and the 2008 mortgage crisis," Strategic Management Journal, Wiley Blackwell, vol. 38(2), pages 300-321, February.
    7. Michael G. Jacobides, 2008. "How Capability Differences, Transaction Costs, and Learning Curves Interact to Shape Vertical Scope," Organization Science, INFORMS, vol. 19(2), pages 306-326, April.
    8. Peters, Frank, 2018. "The business of video games is a multi-player game : Essays on governance choices and performance in a two-sided market in the cultural industries," Other publications TiSEM 886b3148-4bbb-4ea4-b666-0, Tilburg University, School of Economics and Management.
    9. Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
    10. Sharon Novak & Scott Stern, 2008. "How Does Outsourcing Affect Performance Dynamics? Evidence from the Automobile Industry," Management Science, INFORMS, vol. 54(12), pages 1963-1979, December.
    11. Emilie R. Feldman & Claudine Gartenberg & Julie Wulf, 2018. "Pay inequality and corporate divestitures," Strategic Management Journal, Wiley Blackwell, vol. 39(11), pages 2829-2858, November.
    12. Nicholas Argyres, 2011. "Using Organizational Economics to Study Organizational Capability Development and Strategy," Organization Science, INFORMS, vol. 22(5), pages 1138-1143, October.
    13. Francisco Brahm & Jorge Tarzijan, 2016. "Relational Contracts and Collaboration in the Supply Chain: Impact of Expected Future Business Volume on the Make-or-Buy Decision," Journal of Supply Chain Management, Institute for Supply Management, vol. 52(3), pages 48-67, July.
    14. Matthew Bidwell, 2010. "Problems Deciding: How the Structure of Make-or-Buy Decisions Leads to Transaction Misalignment," Organization Science, INFORMS, vol. 21(2), pages 362-379, April.
    15. Mahka Moeen & Deepak Somaya & Joseph T. Mahoney, 2013. "Supply Portfolio Concentration in Outsourced Knowledge-Based Services," Organization Science, INFORMS, vol. 24(1), pages 262-279, February.
    16. Francisco Brahm & Jorge Tarziján, 2016. "Toward an integrated theory of the firm: The interplay between internal organization and vertical integration," Strategic Management Journal, Wiley Blackwell, vol. 37(12), pages 2481-2502, December.
    17. Moeen, Mahka & Somaya, Deepak & Mahoney, Joseph T., 2011. "Supply Portfolio Concentration in Outsourced Knowledge-Based Services," Working Papers 11-0106, University of Illinois at Urbana-Champaign, College of Business.
    18. Michael G. Jacobides & Stephan Billinger, 2006. "Designing the Boundaries of the Firm: From “Make, Buy, or Ally” to the Dynamic Benefits of Vertical Architecture," Organization Science, INFORMS, vol. 17(2), pages 249-261, April.
    19. Soufiane Mezzourh & Walid A Nakara, 2009. "Governance and innovation : A Knowledge-based approach [La gouvernance de l'innovation : une approche par la connaissance]," Post-Print halshs-01955966, HAL.
    20. Thomas Mellewigt & Glenn Hoetker & Martina Lütkewitte, 2018. "Avoiding High Opportunism Is Easy, Achieving Low Opportunism Is Not: A QCA Study on Curbing Opportunism in Buyer–Supplier Relationships," Organization Science, INFORMS, vol. 29(6), pages 1208-1208, December.

    More about this item

    Keywords

    Firm boundaries; Complexity; Managerial diseconomies; Make or buy;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:84:y:2012:i:2:p:586-599. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jebo .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.