Following the chain of command? How managers balance benefits and risks in granting autonomy to employees

Abstract

We investigate how managers trade off the benefits of delegating authority to their employees with the risk of loss of control. Organizational economics theory identifies specific knowledge of subordinates and monitoring possibilities for the manager as determinants of delegation. Social learning theory predicts that when unit managers are themselves granted more authority, they will pass this on to their employees. This cascading of authority reduces the fear of loss of control associated with delegation. Using a survey among 215 unit managers in professional services firms, we find that managers delegate more authority to employees in their unit when those employees have more specific knowledge, when there are more exceptions in employee tasks, and when monitoring costs are lower. We also find support for the cascading effect: decentralization to the manager is positively related to autonomy granted to employees, while it moderates the effects of specific knowledge and monitoring costs.