Communications in Hierarchical Organizations and Standards Policies for Information Technology

Rajiv M. Dewan, University of Rochester, Abraham Seidmann, University of Rochester, and Shankar Sundaresan, Pennsylvania State University

9/12/2008
(Original Publish Date: 4/2/1997)

Corporate information systems standards are commonly used to coordinate key infrastructure decisions and to ensure compatibility across the increasing number of technology platforms that most businesses have to deal with today. In this paper, we investigate the economic merit of adopting a delegated, mandated, or single technology standard policy for interuser communication in a hierarchical organization. We show that a centrally mandated policy will always produce the “first best” results in terms of the net organizational benefits and that the voluntary choices made by managers and subordinates tend to converge as the span of control increases. On the other hand, the relative value of a delegated versus a mandated policy tends to be a unimodal function of the span of control. The most salient conclusion of our research is that there is a strong interaction between the choice of the optimal information systems standards and organizational architecture parameters such as the span of control, the direction of communication, the overall volume of communication, and the number of levels in the hierarchy. Contrary to the basic intuition, we also find that, as organizations become more decentralized and the span of control increases, the relative advantage of mandating a standard as a means of facilitating communication rapidly diminishes.