The Economics of Organizational Design

It is conventional wisdom in the economic and managerial literature that a new organizational design was gaining ground in the 1980s and 1990s among firms in industrialized countries. Originally developed by large Japanese mass manufacturing firms (Womack et al. 1990), it has been rapidly diffusing since then in other countries and other sectors. This organizational design relies on a series of organizational practices whose purpose is to increase flexibility in the organization and take greater advantage of the creativity and skills of individual workers. These practices have been variously labeled by scholars as “high-performance,” “flexible,” “high-commitment,” “innovative,” “alternative,” etc. In this book we have used the terms innovative work practices (IWPs) for practices that modify how employees perform their tasks, and human resource management practices (HRMPs) for practices aimed at eliciting effort and collaborative behavior from workers and at aligning their objectives to those of the organization (for a definition see Section 1.2.2 in Chapter 1). Moreover, this new organizational design is characterized by delegation of decision authority, an increase in the (horizontal) span of control, and a reduction in the number of levels of the corporate hierarchy (these dimensions of organizations have been called here structural organizational variables; for a definition, see Section 1.2.1 in Chapter 1).