A Theory of Task-Based Organizations

This paper’s contribution is to explicitly model how finite sequences of tasks are assigned to a finite set of workers by a manager who must take into account internal communication. In most task-based models, it is assumed that time can be allocated smoothly. We show that with sufficiently many tasks, this approximation is essentially without loss, and the amount of information that must be communicated under any cost-minimizing organization asymptotically becomes proportional to the mutual information. The proof illustrates that this occurs because optimal organizations focus on a set of typical sequences of tasks while essentially ignoring all others. This rationalizes the idea of core competencies from the management literature. A surprising implication is that if we consider management as an input to production, it eventually has constant returns to scale.