Technology strategy, governance structure and interdivisional coordination

This paper studies how various organizational forms compare in their capacities to solve coordination problems created by technological interdependence between firms' divisions. I contrast the organizational mechanisms used by two firms, IBM and General Motors, to address these problems. While it is widely recognized that centralization distorts incentives facing division managers, this paper highlights its benefits when there are large potential gains from agreement on technological standards. The examples show how a centralized governance structure supported by lower-powered incentives facilitates interdivisional coordination. This suggests a refinement of the theory of organizational form based on how firms resolve the tensions between strategic planning and the measurement of organizational units' performances.