The Janus of firm design : the impact of information on firm boundaries and structure

This dissertation examines the forces that drive organizational structure andboundary decisions. Using theoretical concepts drawn from transaction cost theory andagency theory, this dissertation develops a model that draws attention to behavioral andoutcome distinctions in information flow. Specifically it examines how characteristics ofthese different types of management information alter the organizational design outcomespredicted by the two theory bases above. The foundational arguments regarding firmboundaries and structure are based on the two contracting modes of agency theory,behavioral and outcome. The construct of information localization (IL), defined as theneed to use information within its immediate context (or conversely, the difficulty oftransferring and utilizing information outside of its immediate context), is introduced andused to predict organizational design decisions. This construct represents a synthesis ofprior conceptions of information characteristics and is used both to capture salientcharacteristics of management information and to facilitate an examination of the impactsof different information technology (IT) applications. The relationship betweeninformation localization and firm boundaries and structure is tested at the task level. Therelationship of information technology with boundary and structure decisions is explainedusing the model and tested concurrently with the test of the information localizationhypotheses. A comprehensive model is proposed and propositions to guide futureresearch are developed. The distinction between outcome and behavioral informationlocalization allows a more nuanced assessment of the impacts of information andinformation technology on the organization of work. The empirical results suggest thatthe impact of IT on outcome information localization is negligible for tasks with lowoutcome IL but increases the likelihood of outsourcing for tasks with high outcome IL.Contrary to prior findings utilizing different conceptualizations of information flow, theimpact of technology on behavioral IL on autonomy showed that applications of IT mayincrease autonomy (decentralization of decision-making) rather than decrease it.