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Hands Off! - How Organizational Design Can Make Delegation Credible

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First version 22 February 2002; this version 17 October 2005 ; Credible delegation of discretion obtains when it is a rational strategy for managers not to overrule employee decisions that are based on delegated decision rights or renege on the level of delegated discretion (and this is common knowledge). Making delegation of discretion credible becomes a crucial issue when organizations want to sustain the advantages that may flow from delegation: Such advantages are dependent on motivated employees, and managerial overruling or reneging is harmful to motivation. However, little work has been done on how organizations can make delegation credible. We argue that key elements of organizations (i.e., organizational structure, coordination mechanisms, reward structures, and interdependencies between activities) and how these fit influence the credibility of delegation. Fit configurations of organizational elements reduce the probability of managerial intervention that may harm employee motivation. This introduces a neglected incentive dimension to the organizational design literature. Moreover, it is argued that harmful intervention may be reduced by increasing managers’ costs of intervening. Refutable propositions are derived.

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Kirsten Foss, Nicolai J. Foss

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