The Wikified Firm: Authority and Delegation in the Knowledge Economy

Abstract: The decline of authority is widely recognized as a hallmark of the knowledge. Chandler’s visible hand of management, coordinating economic activities through closed R&D processes, vertically integrated manufacturing and distribution systems, and dedicated sales forces, is said to be giving way to Adam Smith’s invisible hand of the market and, even more so, to the less visible handshake of networks and other new organizational forms. These newer forms feature flatter hierarchies with delegated decision authority, employee ownership of assets (most importantly, specialized knowledge), and high-powered incentives. Such tendencies have been taken by many authors as reason to dismiss theories of organizations that focus on authority and firm boundaries. We argue, in contrast, that accounts of the death of authority are greatly exaggerated. First, authority relations can serve as effective coordination mechanisms under conditions of dispersed and rapidly changing knowledge. Moreover, ownership of alienable assets is still important, and firm boundaries can be meaningfully defined in terms of these ownership patterns. Finally, complementarities between incentives, authority, and ownership suggest that transactions will tend to cluster in discrete structural forms, such that authority relations do not disappear. Authority and centralized decision-making continue to play a key role in a knowledge economy.