Topic 10

50 vocabulary-style flashcards based on the Topic 10 lecture notes on Organizing for Innovation, covering organizational structures, incentives, and personnel management.

Centralization

The location of decision-making power at the top levels of a firm.

Decentralization

An organizational setup where decision-making authority is distributed, often making R&D more market-oriented and better at accessing external information.

Organic structures

Organizational forms with low degrees of formalization and standardization that encourage creativity, experimentation, and flexibility to adapt to unforeseen changes.

Hierarchical (mechanistic) structures

Structures with a high degree of formalization of roles and responsibilities, standardized routines, and tight control over processes and employees.

Formalization

The degree to which an organization utilizes rules, procedures, and written documentation to govern behavior.

Standardization

The degree to which activities in an organization are performed in a unified and consistent manner.

Ambidextrous organization

A firm that attempts to combine the positive properties of mechanistic and organic structures, especially useful in large firms.

Slack resources

Extra resources available in large firms that allow them to fund risky projects and spread risk over several products.

Lockheed Skunkworks

A historical example provided in the lecture of a specialized, innovative division within a large corporation.

Strategic VCs

Corporate venture capital units (e.g., Intel Capital, Google Ventures) that provide funding for strategic investment rather than strictly for return on investment.

Extrinsic motivation

The drive to perform an action in order to receive an external reward.

Intrinsic motivation

The drive to perform an action because of internal motivation, curiosity, or personal satisfaction.

Village of Xiaogang

A location in Anhui province where a secret 1978 agreement to privately run farm plots led to grain production increasing six times due to changed incentives.

Household responsibility system

The policy expanded in 1981 in China that moved away from communal farming to allow families to keep surplus production.

Moral hazard

A fundamental incentive problem where an employer cannot observe what the employee is actually doing.

Adverse selection

A problem where the employer does not know the worker's 'type,' such as their true work ethic, knowledge, or health status.

Risk aversion

A worker's preference for stable pay over incentive-based pay when output depends on both effort and randomness (luck).

Multitasking problem

The challenge of paying for performance when only some aspects of the job (Task A) are observable, while important but unobservable aspects (Task B) are neglected.

Team incentives

Incentives based on the output of a whole group, which can lead to morale hazard and the incentive for individuals to shirk.

Ratchet effect

The tendency for workers to hide their true productivity because they fear the firm will change future work conditions or quotas based on current information.

Risk sharing

The concept that 'high powered' incentives based on stochastic output should only be used for workers who are not very risk-averse, like senior managers.

Efficiency wages

Paying workers above-market wages (e.g., Henry Ford's $5$ per day) to motivate them when direct monitoring or strong incentives are difficult to implement.

Corporate spin-off

A new independent firm backed by a parent firm that keeps a minority share and provides financial support to exploit a specific idea.

Spawned entrepreneurship

Independent firms created by a group of employees who leave an established firm to exploit an idea without parent firm backing.

Homophily

The tendency for individuals to associate with similar people, which may lower group cohesion in highly diverse R&D teams.

Radical innovation

Innovation often associated with centralized R&D, basic research, and long-term projects.

Incremental innovations

Small-scale improvements that hierarchical or mechanistic structures are potentially better at creating through standardized routines.

Alphabet Inc.

The parent organization of Google that uses a structure split into 'Google' and 'Other Bets' to manage various technological initiatives.

Expert Power

A source of influence that is high in organic structures and low in mechanistic structures.

Position Power

A source of authority based on one's rank in a hierarchy, which is high in mechanistic structures and low in organic ones.

Control span

The number of subordinates a manager accounts for; it is wide in organic structures and narrow in mechanistic structures.

Basic research

Long-term innovative projects that centralization helps motivate by reducing coordination costs and taking advantage of learning economies.

Not-invented-here syndrome

The tendency of R&D personnel to avoid external ideas; incentives can be used to mitigate this mindset.

HHMI Investigator Program

A funding model (Howard Hughes Medical Institute) that focuses on 'people, not projects' and provides five-year funding with a two-year phase-down.

NIH R01 Grants

Three to five-year funding for a particular project where funds dry up immediately upon nonrenewal.

Cross-functional teams

Teams comprising members from different functional areas to increase the breadth of the knowledge base.

Organizational tenure

The length of time an employee has been with a firm; diversity in this area can provide multiple perspectives in R&D teams.

Stochastic output

Output that is influenced by random factors or luck, making it difficult to use incentive pay for risk-averse workers.

High powered incentives

Pay that is conditional on performance results rather than a straight hourly wage.

Open Science

A movement involving the publication of research in scientific journals, which R&D staff may value as an incentive for external recognition.

Opportunity costs in R&D

The cost of forgoing other projects because resources are aligned with a firm's core strategy or because time is spent on administrative tasks like publishing.

Geographical dispersion

The state of having R&D units in multiple locations, which can access local technology spillovers but makes coordination more difficult.

Learning curve economies

Cost advantages large firms obtain through high-volume production and investment in production processes.

Scale economies in R&D

Efficiency gains achieved by centralized R&D through the avoidance of duplication and sharing of knowledge complementarities.

Synergies

The interaction of R&D needs and knowledge between different areas that can be better captured through centralized decision-making.

Market-oriented R&D

R&D activities that focus on customer preferences, often achieved more effectively through decentralization.

Technology spillovers

Knowledge benefits gained by being in physical proximity to entities like universities and customers.

Functional teams

Teams organized by specific internal R&D disciplines, contrasted with cross-functional teams in the lecture.

Team stability

Maintaining a constant composition of a team to improve working relationships, though it may risk lower creativity over time.

Physical proximity

The geographic nearness of researchers, which Catalini (2018) shows increases the probability of collaboration.