Cowboys or Commanders: Does Information Technology Lead to Decentralization?

People have long speculated about the relation between information technology (IT) and centralization in organizations. For example, previous research has reported various cases in which IT appears to have led to more centralization, more decentralization, or no change in centralization. In this paper we describe a simple new way to model the relationship between IT and the structure of organizational decision making which helps explain these mixed results. The model distinguishes between two kinds of decentralization: connected and unconnected. Our model predicts that unconnected (i.e., independent) decentralized decision makers should be common when communication costs are high. Then, as communication costs fall, centralized decision makers should become more desirable. Finally, as communication costs fall still further, connected decentralized decision makers should become desirable in many situations. This simple model helps explain some of the most salient changes in organizational structures in this century and is consistent with several other empirical examples. It suggests, for example, that recent trends toward "empowerment" are not just a fad, but are a response, enabled by new information technologies, to fundamental changes in the economics of decision-making.