Read the working paper
INSEAD Working Paper 2015/79/STR
Bounded rationality implies that organization designs are often limited in their accuracy and enforcement. Nonetheless, by acting as a framework that shapes how interactions within the organization evolve, we argue that formal structures can be useful for organizational adaptation even if their design is not the result of any particular insight or wisdom on the part of the designer. We develop a novel agent-based computational model which allows us to rigorously analyze the dynamic interactions between a specified formal structure and the emergent networks of interaction between the agents who inhabit the structure. The model features multiplex network evolution and allows the precise separation of omission and commission errors in network formation. The analysis of the model uncovers two key results arising from the interplay between formal and informal structure—substitutive and complementary inertia—and pinpoints the mechanisms that produce these results: network decay, error redistribution and asymmetric error correction. Together, these constitute a coherent new theoretical explanation for why organization designs may be useful despite limits to their accuracy and enforcement.