Uncertainty Drives Them Apart - Managerial Practices in Teams
Abstract: Managerial practices vary not just across different organizational forms but also within. I present a model where some firms optimally choose the same organizational form, yet different managerial practices. Firms choose their organizational and managerial practices in response to a given task distribution. These distributions contain some relatively simple and some complex tasks. Some firms face distributions with low variance and low uncertainty about the tasks at hand, while other firms face distributions with high task uncertainty. I show that 'team' is the optimal organizational form for firms facing complex tasks, even if there is no uncertainty, and for firms facing high task uncertainty, even for relatively simple tasks. But optimal managerial practices depend on the distribution of tasks, the variance in pay-offs, and the likelihood that a particular worker's effort is needed for the firm to succeed - and therefore complexity and uncertainty-driven teams choose different managerial practices. The results shed light on anecdotal variability of team management practices and suggest that empirical studies of team production take the underlying task distribution into account.