2001/20 LEM Working Paper Series

Bridging Contested Terrain: Linking Incentive-Based and Learning Perspectives on Organizational Evolution
 
G. Dosi, D. Levinthal and L. Marengo
 
  Abstract
 
In this paper we present a general model of organizational problem-solving in which weexplore the relationship between problem complexity, decentralization of tasks and rewardschemes. When facing complex problems which require the coordination of large numbers ofinterdependent elements, organization face a decomposition problem which has both a cognitivedimension and a reward and incentive dimension. The former relates to the decomposition andallocation of the process of generation of new solutions: since the search space is too vast to besearched extensively, organizations employ heuristics for reducing it. The decomposition heuristictakes the form of division of cognitive labor and determines which solutions are generated andbecome candidates for selection. The reward and incentive dimension defines the selectionenvironment which chooses over alternative solutions.The model we present studies the interrelationships between these two dimensions, in particularwe compare the problem solving performance of organizations characterized by variousdecompositions (of coarser of finer grain) and various reward schemes (at the level of the entireorganization, team and individual). Moreover we extend our model in a still tentative fashion inorder to account for such power and authority relationships (giving some parts of the organizationthe power to stop changes in other parts) , and to discuss the co-evolution of problemrepresentations and incentive mechanisms.


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