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A note on the impact of the internal organization on the accuracy of the information transmitted within the firm
Author(s) -
AlonsoPauli Eduard,
Bru Lluís
Publication year - 2020
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.3146
Subject(s) - incentive , business , production (economics) , quality (philosophy) , set (abstract data type) , organizational structure , information quality , industrial organization , transfer (computing) , marketing , microeconomics , information system , economics , computer science , management , philosophy , epistemology , electrical engineering , programming language , engineering , parallel computing
We investigate the incentives of sales managers to transmit information on demand conditions to headquarters under different organizational structures and its subsequent impact on firm performance. When headquarters determine quantities of production, sales managers' interests are aligned with that of the firm, and reliable information is transmitted. On the other hand, when the authority of decision making on quantities of production is delegated to sales managers, they prefer not to transmit reliable information; consequently, headquarters set transfer prices given poor information about demand. Due to such difference in the quality of the information available to headquarters, a centralized organizational structure frequently leads to the best performance.