Organizational Responses to Product Cycles
We use daily administrative data from a leading automobile manufacturer to study the organizational impacts of introducing new models to the auto assembly line. We first show that costly defects per vehicle spike when new models are introduced. As a response, the firm trains in problem-solving skills and promotes lower- and mid-level employees to solve the more complex problems that arise, thus moving to a less pyramidal knowledge hierarchy with fewer layers. We develop an extension to the classic theory of knowledge-based hierarchies that reconciles our novel empirical results by allowing the firm to also invest in its training resources.
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