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Autonomy In Knowledge-Intensive Activities: Efficiency Or Incentives?

Authors/Editors: Khashabi, P
Gambardella, A.
Panico, C.
Published: 2015
Type: Articles in Refereed Journals (International)

Abstract

Because innovation depends increasingly on the creativity of human capital, scholars and managers of innovation have recognized that the ability to take decisions or individual motivations matter. At the same time, parallel streams in the literature suggest that firms delegate decisions in specific projects for two main reasons: efficiency (subordinates take better decisions because they know the problem better) or incentives (autonomy motivates them.) We label firm’s assets in the project as project-specific (PS) capital, and show that efficiency and incentives have opposite implications for the relationships between decision-making autonomy and PS capital. Efficiency encourages firms to delegate more when PS capital is high because complementarity raises the value of better decisions. However, low PS capital – for instance, in projects outside the firm’s core business – demotivate individuals, who are offered autonomy to regain motivation. Using a detailed dataset at the level of innovation projects we document the existence of both channels. This paper contributes to our understanding of managerial practices by clarifying how firms can use autonomy to improve the management of innovation at the project-level. We also highlight the use of a tool, autonomy, alternative to pecuniary mechanisms for incentives. Our more general implication is that firms can develop new business models that pivot on the allocation of decision rights rather than property rights.