Passing the Hot Potato, Above or Sideways? Work Ows in Multidivisional Firms

Miguel Espinosa (Universitat Pompeu Fabra)
Ramon Lecuona (Darmouth College)

Abstract: This paper examines the organization of work flows in multi-divisional firms, where the division of labour follows both a knowledge hierarchy with skilled workers at the top and less skilled workers at the bottom, as well as horizontal segmentation into divisions on the basis of the type of knowledge held by workers. We examine the commonly occurring case in which workers at the bottom of the hierarchy are the ones initially faced with non-routine problems that affect production. These workers are often unable to distinguish whether the problems they cannot solve require more advanced knowledge -as that possessed by their hierarchical superiors, or the type of knowledge held by workers from other divisions. Should workers pass these problems above to hierarchical superiors or sideways to peers from different divisions? What are the effects of such arrangements? We provide a theoretical framework that outlines the trade-off embedded by this decision and study its main effects on skills and performance. Using a comprehensive database of e-mail communication from a large multi-divisional company, we examine the work flows of employees and find evidence that is consistent with our model.