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Specialization versus Transparency

In a firm, what is the relationship between transparency of information and specialization of work? 

Increasing specialization means that individuals over time deepen a relatively narrow set of skills and knowledge required for these, in response to the opportunities and problems they are responsible for. There are organizational structures that evidently encourage specialization, such as functional organization. In general, and independently from any organizational structure, the very creation of positions in a firm, and the assignment of stable (even if vague) sets of responsibilities through these positions, will inevitably result in specialization of the people occupying those positions.

Specialization is a response to incentives. For example, in a functional organization, the individual is in a team tasked with delivering specific services inside or outside the firm, and it is normally expected that the team should become better over time at these services, and getting better will be rewarded – in reputation, financially, or in some other way; it is therefore reasonable to develop skills and knowledge required to improve the delivery of these services. In other words, it is of interest to specialize.

In practice, to specialize is to learn something that is useful for the skills and knowledge that help deliver better the functions one specializes in. Since time to learn is limited, specialization influences the judgment of which information is relevant and which isn’t – that is, specialization focuses attention.

The observation that specialization focuses attention implies that even if information is available, incentives that stimulate specialization will also result in information simply not being sought, and therefore, not an input to decision making.

Consider the question again: In a firm, what is the relationship between transparency of information and specialization? If specialization influences attention, then it also influences the range of information that an individual seeks when preparing a decision. It follows that even if transparency increases, and more information becomes available, it may not be used because of attention being driven by specialization. This should not lead to the conclusion that increasing transparency is not beneficial, but only to dampen expectations of its impact: as long as incentives are set in such a way that specialization narrows attention, then however high transparency may be, increasing it may not have an observable effect on the quality of decisions within each specialty.

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