Computational Modelling of Multi-Level/Multi-Unit Organizations

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Computational Modelling of Multi-Unit/Multi-Level OrganizationsOne of the most important organizational forms in modern economies is the multi-unitorganization. In manufacturing, the typical plant is part of a multi-plant manufacturer. Inservices, the typical store is part of a retail chain. A defining problem of a multi-unitorganization is how to balance giving units the freedom to handle the idiosyncraticfeatures of their environments while, at the same time, coordinating the units to takeadvantage of the commonality among them. How do multi-unit organizations solve this problemand what is the most effective means of doing so? What is the relevant set of instrumentsand what are the relevant features of the environment determining the best organization andstrategy? This project explores these questions and more broadly advances our understandingof multi-unit organizations.Our focus is on retail chains. The central idea underlying our approach is that much of thebehavior and performance of a retail chain can be explained by understanding how chainsgenerate, communicate, and use information. How new ideas arise and how they are evaluatedand adopted. How the authority to use information is distributed within the chain and howincentives are structured to influence the creation and effective dissemination ofinformation. And how competition and technology interact with these information processes.Implementation of this approach involves the development of a computational model of aretail chain in which corporate headquarters (HQ) and stores are adapting to theirenvironments. HQ and store managers develop new ideas, evaluate their ideas and the ideasof others, and then decide whether to adopt and communicate them to other members of theorganization. Competing chains are simultaneously engaging in an analogous exercise whileconsumers experience and experiment among stores to find the one that best suits theirneeds. Our analysis explores how various factors influence the rate of improvement of storepractices and chain efficiency. These factors include organizational structure (inparticular, the authority of store managers to change practices), store manager incentives(as influenced by how they are compensated), the degree of competition within and acrossgeographic markets (and, relatedly, the effect of mergers), the amount of consumer search,the rate of change in consumers' preferences, the degree of informational spillovers acrosschains, and advances in information technology.