Brickley, Smith, and Zimmerman,
Managerial Economics and
Organizational Architecture, 4th ed.
Chapter 12: Decision Rights:
The Level of Empowerment
Decision Rights-empowerment
learning objectives
• Define and apply the concept of
decision authority
• State and provide examples of costs
and benefits of decentralized decision
making
• State and provide examples of costs
and benefits of team decision making
Assigning tasks and decision rights
• Production process involves tasks
bundled into jobs
• Job dimensions
– variety of tasks
• few or many
– decision authority
• limited or broad
Dimensions of job design
Centralization versus decentralization
benefits of decentralization
• Effective use of local knowledge
– local tastes and preferences
– price sensitivities of particular customers
• Conservation of management time
– senior management focus on strategy
• Training and motivation for local
managers
Centralization versus decentralization
costs of decentralization
• Potential agency problems
– effective control systems may be
expensive
• Coordination costs and failures
• Less effective use of central information
Benefits and costs of team
decision making
• Benefits of team decision making
– improved use of dispersed specific
knowledge
– Employee buy-in
• Costs of team decision making
– collective-action problems
– free-rider problems
• Use teams if benefits exceed costs
Decision management and control
Fama-Jensen
• Decision
management
• Decision control
– Initiation
– Ratification
– Implementation
– Monitoring
Influence costs
• Employees have incentives to influence
managerial decisions
• Influence activities may entail costs
– time away from the job
– dysfunctional activities
• Limits on managerial discretion may
reduce influence costs