This paper shows that a firm prefers a process-based task assignment
compared to a function based one if the tasks are from functional
areas which are neither too complementary nor too substitutable. We
consider several projects with contributions from several functional areas.
The organization can be structured along processes like product
lines (M-form) or along functional areas like marketing or production
(U-form). The U-form enables cost savings due to specialization or
scale economies. We show that the more effective incentives under the
M-form might outweigh these savings if the functions are neither too
complementary nor too substitutable.
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