We examine how a firm's organizational structure affects its ability to cope with interdependent sets of decisions. To do so, we develop an agent-based simulation in which firms with simple organizational structures struggle to discover good sets of decisions. We identify each mechanism as a force that either encourages the firm to explore a broad array of sets of choices or stabilizes the firm around existing choices.
Successful firms strike a balance between exploration and stability.
The need to pursue both exploration and stability generates interdependencies among the coordinating mechanisms. We also examine how appropriate organizational design depends on the underlying pattern of interaction among decisions. When interactions are pervasive, successful organizations shift toward internal arrangements that promote broad exploration.