Power to the People: Decentralized Project Selection and Employee Self-allocation in Organizations

Delegating to employees the authority to initiate and self-allocate to projects with minimal or no interference from management, has been proposed as a potential source of competitive advantage in an increasingly knowledge-intensive economy. However, our understanding of the benefits, costs, and boundary conditions of decentralized allocation remains limited. In this paper, we develop an agent-based model to investigate the benefits of decentralized allocation and compare its efficacy in terms of project selection and employee allocation with that of a traditional hierarchy. Our results suggest that the relative balance between the organization’s resources and number of opportunities it faces plays a critical role in determining the advantages of self-allocation, which performs better when resources are highly constrained relative to opportunities. We analyze the mechanisms and boundary conditions and discuss potential applications of our findings to the study of organization design.