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Integration Through Incentives Within Differentiated Organizations

Institute for Communication Economics, Munich School of Management, LMU Munich, 80539 Munich, Germany
London Business School, University of London, London NW1 4SA, United Kingdom
t.kretschmer{at}lmu.de
ppuranam{at}london.edu

Drawing on the concepts of organizational differentiation and integration, we present a formal analysis of the manner in which these two consequences of specialization shape the effectiveness of collaborative incentives in complex organizations. We show that ignoring the coordination challenges created by differentiation does not merely impede the achievement of gains from integration through incentives, but can lower organizational performance below the levels achieved when such gains are simply ignored. Thus, treating interunit collaboration purely as a problem of motivating cooperation can be counterproductive. We describe implications in the context of interdivisional relationships and postmerger integration.

Key Words: coordination; incentives; interdivisional relationships; merger integration