Modeling the Performance of Organizational Structures

We develop models for comparing the performance of coordination structures that appear in a wide variety of systems, including human organizations and computer systems. First, we define four generic structures: product hierarchies, functional hierarchies, centralized markets, and decentralized markets. Then, drawing primarily on queueing models, we rank these structures in terms of three performance measures: production costs, coordination costs, and vulnerability costs. The models show how changes in the values of these performance measures affect the desirabilities of the different structures. Then, we show how these simple relationships between performance measures and the desirabilities of structures are consistent with a surprising range of phenomena, including; (1) major historical shifts in the dominant organizational forms used by American businesses, and (2) the evolution of computing system architectures. Finally, we use the models to suggest the possible future evolution of both human and computer systems.