Power and conflict are ubiquitous in organizational life. Power struggles should be particularly pronounced in hierarchical, multi-divisional organizations. Based on this notion, sociologists and social psychologists have primarily studied conflict between different sub-units of multi-divisional organizations, including departments within universities, government agencies, school districts, departments in firms, and local service agencies. .
Similarly, in the economics and finance literature, conflict is primarily viewed as a problem in multi-divisional firms. Division managers squabble over compensation packages and the produced surplus, respectively. More generally, firms with more hierarchy layers are viewed as having greater influence problems, the reason being that they have more executives that can be influenced. With new levels of executives having authority, there are greater possibilities for self-interested interventions. The opportunities for influence costs to arise also expand.
Divisionalization of the overall conflict into many small, intra-division conflicts reduces the prize in each conflict and hence the marginal return to influence activities. On the other hand, Divisionalization adds an extra round of wasteful conflict, as the divisions must first compete for divisional shares of the overall prize. Let's consider two different forms of inter-division conflict: division managers" fight on behalf of their divisions and the members of each division collectively fight for a greater divisional share. As fighting for a greater divisional share is a public good, expending resources in the inter -division conflict is subject to free-rider problems. This effect is reinforced by the fact that a dollar going to a division yields less than a dollar to the division's members, since part of it is dissipated away in the subsequent intra-division conflict. Conflict is viewed as normal or at least customary in political organizations.
