Selective Intervention and the Choice of Organizational Form

Taking our point of departure in Oliver Williamson’s notion of the “impossibility of selective intervention,” we analyze the tension in firms between authority and delegation. The tension arises because a hierarchical superior can always in principle overrule a hierarchical inferior. Negative consequences for motivation and productivity at the level of employees and created value at the level of the firm may result from this tension. We discuss how these problems may be kept at bay by credible managerial commitments and various organizational mechanisms that dispel the temptation of managers to intervene so that motivation is harmed. We then argue that these mechanisms vary systematically across organizational forms. The framework is applied to an analysis of the governance choice between traditional hierarchies and new organizational forms, specifically internal hybrids.