Horizontal or Vertical? Managerial Attention and Organizational Structure

Abstract

This paper analyzes the relative efficiency of horizontal and vertical organizational structures modeled as communication networks under limited managerial attention. In this framework, workers receive noisy signals about the state of the world and communicate reports to a decision-maker whose meeting time relatively more constrained. The clarity of each report depends endogenously on meeting lengths and the workers' heterogeneous communication and processing abilities. When workers possess identical communication abilities, the horizontal structure is always optimal because it allows the decision-maker to weight signals optimally without compounding transmission noise. Conversely, when workers have asymmetric communication abilities, the attention constraint of the decision-maker induces a structural switch. Under these constraints, the vertical structure becomes preferred because the decision-maker can delegate the time-intensive task of information aggregation to the superior communicator, balancing the loss from transmission noise against the premium on the decision-maker's scarce time. Under the assumption of homogeneous processing abilities I derive the analytical threshold for the n-worker model.