MQ-NewEconofOrg

MQ-NewEconofOrg - I N CLASSICAL MICROECONOMIC THEORY , a...

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Unformatted text preview: I N CLASSICAL MICROECONOMIC THEORY , a company is a black box, a purposeful entity whose inner workings cannot be observed and whose behavior is determined almost entirely by the markets in which it competes. Executives and management practitioners, on the other hand, tend to behave as though changing the internal design and operation of a company can profoundly afect its performance. Can the views of economists and managers be reconciled? Which innovations in corporate design are likely to succeed in the business environment of the next decade? We undertook a two-year research program to find out. First, we analyzed the advantages and problems of todays largest corpo- rations. Second, we examined the strategies and organizational designs of innovative and successful firms. These are few in number, and many of them are small. For that reason, they cannot act as a ready source of best practices for giant corporations to adopt. Yet they do ofer a landscape attractive to executives for whom innovation and entrepreneurialism are aspirations rather than everyday realities. Since the grounds for future competitive success cannot be understood solely on the basis of current practice, we also drew on the discipline of organi- zational economics, which analyzes organizational actions as outcomes of strategic interplay among individuals as they respond to incentives or otherwise pursue their own interests. Jonathan Day is a principal and Jim Wendler is a consultant in McKinseys London ofice. Copyright 1998 McKinsey & Company. All rights reserved. The new economics of organization The new economics of organization ORGANIZATIONAL ECONOMICS In their purest forms, markets motivate and hierarchies coordinate Have we learned to combine the best of both? Two challenges for the corporations of the future: Entrepreneurialism and knowledge Jonathan D. Day and James C. Wendler PICTOR INTERNATIONAL Organizational economics thus looks inside the black box of the corpo- ration by examining the task of motivating and coordinating human activity. Though not in the mainstream of economic thought, the field has matured rapidly, and several of its leading exponents have won Nobel prizes.* The work of such thinkers as Ronald Coase, Oliver Williamson, and Herbert Simon informs many contemporary practices in strategy and organization. Unlike classical microeconomics, organizational economics is not at odds with a managerial view of strategy and organization. Indeed, it complements it, giving us tools for designing and changing organizations with less recourse to such ambiguous concepts as community, trust, and culture. There is nothing intrinsically wrong with these ideas, which may have a central part to play in the design of efective organizations. But they are dificult to define and can impede managers communication....
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MQ-NewEconofOrg - I N CLASSICAL MICROECONOMIC THEORY , a...

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