Decentralization, Interdependence and Performance Measurement System Design : Sequences and Priorities

We investigate the determinants of decentralization and performance measurement choices in multidivisional firms.We extend the research on the economics of organizational design choices by examining the impact of two important determinants of those choices, namely, subunit interdependencies and knowledge transfer costs.We test our predictions with a simultaneous equation model that captures the endogenous choices relating to the level of decentralization and the use of alternative subunit performance measures using data collected from 78 business units.Our findings are generally consistent with our predictions.