Julie Wulf (Harvard)

"Functional Specialization and the Division of Labor in Management"


Friday, May 6, 2011
1:30 pm - 3:00 pm
@ The UCLA Anderson School

Cornell Hall, Room D-313



We analyze the division of labor in senior management ranks and show that the number of functional managers (e.g., Chief Financial Officer or Chief Marketing Officer) relative to general managers has increased over the past two decades. Using panel data on senior management positions in large US firms (1986-1999) and exploiting variation within firms over time and across position types, we document a number of robust correlations between the importance of types of functional manager positions, the firm’s intensity of information technology, and the relatedness of businesses. Specifically, the number of functional managers reporting directly to the CEO increases with the intensity of IT for “administrative” functions (e.g., finance function and Chief Financial Officer). However, the same relationship only holds for “product” functions (e.g., marketing function and Chief Marketing Officer) in firms with related businesses. Also, we find that division manager pay declines as the number of product functional managers increases, yet it is not related to administrative functional managers. Our findings show that distinguishing between types of functional positions is a critical step in understanding changes in firm organization. To understand this phenomenon and our empirical findings, we develop a simple model where managers in charge of firm activities aggregate both product-specific and firm-level information. As communication costs decline and products become more homogeneous, the tradeoffs shift in favor of functional managers with varying predictions for different types of functions.

Link to paper: Electronic version not available

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