When there is a small number of units, we find a tendency for managers' strategies to be excessively tailored to their local market. When the firm has many units, unit strategies can be either excessively or insufficiently standardized. A computational model of competing multi-unit firms, such as a retail chain, is developed in which unit managers and corporate staff continually search for better practices while consumers search among units to find a better match. The main objective of this research is to determine how the amount of discretion given to unit managers, as to how they run their units, influences the rate of innovation. A primary finding is that the presence of competition enhances the relative performance of the centralized form though an increased rate of consumer search differentially benefits the decentralized form.
Search takes place over a rugged landscape defined over the space of unit practices.
There it is shown that a more centralized organization is optimal when markets are not too different and the horizon is not too long. The robustness of those results are explored here with respect to the shape of the landscape. In particular, we find that centralization does better when the search space is larger and there is a stronger correlation in a consumer's preferences across different dimensions. A richer description of comparative dynamics is also provided. At the same time that firms are adapting their offerings, consumers are searching among firms for the best match.