The architecture of attention: Group structure and subsidiary autonomy

Research Summary: This paper examines the relationship between strategic decision-making at the subsidiary level and organizational structure. In many organizations, headquarters and subsidiaries are separated by intermediate subsidiaries. Building on the attention-based view of the firm, we argue that the greater the “organizational distance” of a focal subsidiary from headquarters (measured by the number of intermediate subsidiaries separating the subsidiary from headquarters), the lower the attention that headquarters devote to the subsidiary. Thus, subsidiary autonomy from headquarters increases with organizational distance. Using a large comprehensive dataset on the structure of corporate groups in Western Europe, we provide several pieces of evidence consistent with these hypotheses. By contrast, we find little support for the view that tall pyramids are created to magnify the voting control of large shareholders. Managerial Summary: Corporate groups—confederations of legally independent firms linked via ownership ties—are common around the world. An important function of headquarters in corporate groups is to allocate resources among member firms. We argue that, because headquarters mostly focus on allocating resources among units that they directly own, subsidiaries near the top of the group perform differently in response to changing external conditions than similar unaffiliated firms. This difference declines as one moves down the group pyramid, as lower-level affiliates receive less attention from headquarters. An analysis of a large comprehensive dataset on the structure of corporate groups in Western Europe supports these predictions. The paper suggests that the legal organization of groups is a useful instrument to channel limited headquarters attention to selected affiliates.