Speed, coordination and individualistic behaviors: an NK modeling approach to investigate the moderating effects of organizational structure on performance in individual firms

In this paper, we study organizational patterns that describe the way decisions are made at the firm level. We simulate two organizational types which have been previously studied: a decentralized structure, in which decisions are made independently in two divisions; and a hybrid structure, which is modeled using a full interdependence matrix where all decisions interact with each other in a single firm with no divisions. We also introduce two new patterns that we refer to as the semi-decentralized structure, inwhich each division makes proposals to the headquarters which chooses the combination with the highest overall payoff for the firm; and the individualistic structure, in which divisions seek to maximize their own partial fitness, but the winner forces the other to follow its lead in a win-lose situation. The latter allows for introducing assumptions of game theory in our model. As a result, this simulation provides an extension of previous research in organizational innovation.Our analytical results show that exploration is facilitated by higher levels of decentralization, where a structure that combines both centralization and decentralization features delivers the highest long-term performance. In line with that, another finding in our research is that coordination among units is critical to success, but also time consuming. We also find that complex structures such as hybrid full interdependence yield less than average performance. This suggests that problems with coordination and information processing under the full interdependence organization could be too complex and costly to manage in practice. However, our major contribution comes from introducing assumptions of game theory in the NK Model. Our simulation shows and quantifies the negative effects of extreme individualistic behaviors of departments on the overall firm’s performance. We suggest that this is a result of a lack of coordination and incorrect incentives. Implications for organizational design are discussed