Infusing hierarchies with elements of market control has become a much-used way of simultaneously increasing entrepreneurialism and motivation in firms. However, this paper argues that such “internal hybrids, ” particularly in their radical forms, are inherently hard to successfully design and implement because of a fundamental incentive problem of establishing credible managerial commitments to not intervene in delegated decision making. This theme is developed and illustrated, using the case of the world-leading hearing aids producer, Oticon. In the beginning of the 1990s, Oticon became famous for its radical internal hybrid, the “spaghetti organization. ” Recent work has interpreted the spaghetti organization as a radical attempt to foster dynamic capabilities by organizational means, neglecting, however, that about a decade later the spaghetti organization has given way to a more traditional matrix organization. In contrast, an organizational economics interpretation of Oticon organizational changes is developed. This lens suggests that a strong liability of the spaghetti organization was the above incentive problem: Frequent managerial meddling with delegated rights led to a severe loss of motivation, and arguably caused the change to a more structured organization. Refutable implications are developed, and the discussion is broadened to more general issues of economic organization.

Although empirical research indicates that satisfaction is intimately linked to loyalty, anecdotal evidence reveals that many customers who state that they are very satisfied with a service provider nevertheless subsequently defect. In this paper, the authors focus on identifying which customers are vulnerable to defection despite stating high levels of satisfaction. Drawing on the emerging perspective to modeling individual judgments that recognizes that individuals differ in the strength (i.e., conviction, certainty) with which judgments are professed, the authors first decompose a customer’s stated satisfaction into two related but independent facets – satisfaction level and satisfaction strength. The authors then examine the role of satisfaction strength in the translation of satisfaction to loyalty. Results from two studies are reported. In the first study, set in a B2B service context, the authors analyze data obtained from an ongoing customer satisfaction tracking study being conducted by a large service organization in the US. Data from over 25,000 customers are used to calibrate the satisfaction model and examine the effect of satisfaction strength on the

Infusing hierarchies with elements of market control has become a much-used way of simultaneously increasing entrepreneurialism and motivation in firms. However, this paper argues that such “internal hybrids, ” particularly in their radical forms, are inherently hard to successfully design and implement, because of fundamental credibility problems related to managerial promises to not intervene in delegated decision-making ⎯ an incentive problem that is often referred to as the “problem of selective intervention. ” This theoretical theme is developed and illustrated, using the case of the world-leading Danish hearing aids producer, Oticon. In the beginning of the 1990s, Oticon became famous for its radical internal hybrid, the ”spaghetti organization. ” Recent work has interpreted the spaghetti organization as a radical attempt to foster dynamic capabilities by imposing loose coupling on the organization, neglecting, however, that about a decade later, the spaghetti organization has given way to a more traditional matrix organization. This paper presents an organizational economics interpretation of organizational changes in Oticon, and argues that a strong liability of the spaghetti organization was the above incentive problem. Motivation in Oticon was strongly

participants of the MAPS research seminar series at the Weatherhead School of Management, Case

We analyze a key problem in organization theory and design, namely the potential tension between authority (i.e., the power to make decisions which guide the decisions of another person) and the discretion of employees (i.e., the ability of an agent to control resources including his own human capital). The problem is rooted in the fact that in organizations, decisions rights are always loaned rather than owned; a hierarchical superior can always in principle overrule a hierarchical inferior. We provide an integrative treatment of the tensions that are involved in the interaction between authority and discretion, and the motivational problems that may result from this tension. We discuss how these problems may be checked by credible managerial commitments and other mechanisms. The framework is then applied to an analysis of new organizational forms, specifically internal hybrids. Thus, the framework adds to the understanding of the costs and benefits of alternative organizational forms. Acknowledgments We are grateful to Joyce Falkenberg, Kristian Kreiner, and Bertrand Quelin for excellent comments on an earlier version. Seminar audiences at Copenhagen Business School and Université Paris X (Nanterre) also provided useful inputs. All errors are the authors’ responsibility. Key words: Managerial intervention, credible delegation, new organizational forms, organizational economics.

A complex issue in business ethics involves the joining of empirical social science and normative philosophy. The former is descriptive in nature and attempts to discover the way things are. The latter is prescriptive, and aims to prescribe how things ought to be. Although some scholars argue the normative and descriptive realms should not be joined, this research assumes there exists a nexus-- a point at which people evaluate how things are by appealing to how things ought to be. One formulation of how things ought to be is derived from thetradition of social contract theory. Under this approach, individuals come together to form a collective. Each individual agrees to sacrifice certain liberties when living among the collective because of the benefits of being a part of the community. Grossly stated, political, social and economic institutions are expected to honor these reciprocal agreements by not impinging too severely on the rights of the person, and citizens are expected to conduct themselves in ways that support the collective.

We acknowledge the financial support of the American Hospital Association, the Leonard Davis

Taking our point of departure in Oliver Williamson’s notion of the “impossibility of selective intervention, ” we analyze the tension in firms between authority and delegation. The tension arises because a hierarchical superior can always in principle overrule a hierarchical inferior. Negative consequences for motivation and productivity at the level of employees and created value at the level of the firm may result from this tension. We discuss how these problems may be kept at bay by credible managerial commitments and various organizational mechanisms that dispel the temptation of managers to intervene so that motivation is harmed. We then argue that these mechanisms vary systematically across organizational forms. The framework is applied to an analysis of the governance choice between traditional hierarchies and new organizational forms, specifically To most readers of Oliver Williamson’s work ⎯ rookies and advanced students alike

The author(s) shown below used Federal funds provided by the U.S. Department of Justice and prepared the following final report: Document Title:

The author(s) shown below used Federal funds provided by the U.S. Department of Justice and prepared the following final report: Document Title: