The Importance of Organizational Structure for the Adoption of Innovations

Organizational structure affects both the overall behavior of firms and the situations of individuals and subunits within firms. The effect of exogenous changes in the environment (market prices, costs, or regulations) on organizations can be partitioned into the immediate direct effect of the change and the full effect after organizational structure has had time to adjust. This paper develops a computational model of the diffusion of a profitable innovation through a firm, and uses numerical simulations to calculate the relative importance of the direct and structural adjustment components of changes in profitability. One finding is that a failure to recognize the importance of organizational structure on the performance of firms will lead to serious bias in estimation of the costs or benefits of a change in external circumstances. The type of network model developed also has implications for the individuals and divisions that make up the firm. We examine some of the structural characteristics of well-adapted organizations, and show that asymmetries and economic inequalities emerge even when the individual agents' personal characteristics are identical.