Organizational Form, the Business Environment, and Competitive Strategy

This paper uses a principal-agent model to investigate how the business environment affects the decision to delegate or centralize project selection authority. Delegation is optimal when the level of competition is low, economic conditions are moderately, but not extremely, favorable, and good and bad projects are relatively dissimilar. Delegating firms also compete more aggressively, suggesting a link between strategy and structure. Finally, there is an inverse U-shaped relationship between the number of competitors for a project and the value realized by the project's sponsor, implying that competition among counterparties in the "value net" does not always benefit the focal enterprise