Over the last few decades, there has been a great deal of management literature recommending the removal of firms’ hierarchies and the empowerment of employees. Ivan Pongracic, Jr. examines these themes through the lenses of the economic theory of the firm. Balancing the tendency for management literature to overlook basic costs and trade-offs of decentralization, and the rigidity of economics that hinders an appreciation for the real world phenomenon of decentralization, this book arrives at a realistic middle ground between the two extremes. The dance between hierarchy and employee empowerment exists in even the most hierarchical firms, and this book explores this often overlooked dynamic.
The decentralization of decision-making and flattening of managerial hierarchies within business firms can best be understood as a response to situations where employees hold knowledge that is superior to that held by firms’ owners and managers. Decentralizing decision-making in those circumstances allows firms to utilize their employees' superior personal knowledge, often by encouraging them to act in creative, entrepreneurial ways, while requiring some reliance on intra-firm spontaneous order processes to co-ordinate the activities of the employees. This book adds an important component to the standard economic theory of the firm by exploring the implications of intra-firm knowledge dispersion. It also explains how firms engage in a process of continuing experimentation to create an organizational structure that fosters employee creativity and entrepreneurship.
Scholars in economics, entrepreneurship, organizational studies and management will find this book a fascinating exploration of firm behavior.