Thursday, June 20, 2013

Who Lives in the C-Suite? Organizational Structure and the Division of Labor in Top Management

LI Hongyi, WULF Julie, GUADALUPE Maria
Access the publisher's website Management Science 60, 4 (2014) 824-844

This paper shows that top management structures in large US firms have changed significantly since the mid-1980s. While the size of the executive team – the group of managers reporting directly to the CEO – doubled during this period, this growth was driven primarily by an increase in functional managers rather than general managers. Using panel data on senior management positions, we explore the relationship between changes in the structure of the executive team, firm diversification, and IT investments—which arguably alter returns to exploiting synergies through corporate-wide coordination by functional managers in headquarters. We find that the number of functional managers closer to the product ("product" functions i.e., marketing, R and D) increases as firms become less diversified, while the number of functional managers farther from the product ("administrative" functions i.e., finance, law, HR) increases with IT investments. Finally, we show that general manager pay decreases as functional managers join the executive team suggesting a shift in activities from general to functional managers— a phenomenon we term "functional centralization".