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Articles

The Option Characteristics of Delegation Decision-making and Analysis with Models

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  • 1. Business Administration, Shan Dong Institute of Business and Technology, Shandong 264005, China;
    2. Economics and Business Administration, Chongqing University, Chongqing 400044, China

Received date: 2013-07-05

  Revised date: 2014-04-15

  Online published: 2015-08-19

Abstract

Delegation, including promotion, is an important strategic decision in organizations. It is not only an incentive for individual behavior, and what's more it is selecting the new masters for the organization's future. The fundamental accordance to delegation decision-making is the expectation of the performance that the candidate can create in the future. On account of uncertainties associating with performance all along, options are valuable in face of uncertainty according to real option theory, so the delegation decision-making is to make the most valuable choice in a series of opportunities. The real option characteristics are analyzed and the options in delegation decision-making are summarized, then the two core problems of delegation decision-making are studied, when and to whom to delegate, with real options theory. It firstly constructed a real option model and calculated the real option value of delegation and the employee's human capital value to the company by the time of delegation. Thereby, the model educed a comparable criterion for delegation decision-making, namely critical performance. It is possible to compare the candidates with different characteristics by the criterion. Then the decision schemes for three delegation conditions are discussed respectively: with both rights to choose when and to whom to delegate; with the right to choose when and with no right to choose to whom to delegate, that is to say the candidate is unique; with the right to choose to whom and with no right to choose when to delegate, namely no ideal candidate is available in a given period of time. The fundamental motivation and basis of delegation decision-making is performance: the expectation for good performance in the future is motivation, in accordance with the past performance (or experience). What counts is how to use the past performance or experience to provide information to judge the future performance. Delegation decision-making based on real option theory extracts only two parameters, the growth parameters α and the proportion variance parameters σ, from the candidate's past performance or experience, which not only simplifies the rules, but also improves the information utilization,so the different candidates' Competencies can be compared effectively to administer the considering project.

Cite this article

ZHAO Guo-qiang, XU Xiao-hui, PU Yong-jian . The Option Characteristics of Delegation Decision-making and Analysis with Models[J]. Chinese Journal of Management Science, 2015 , 23(8) : 54 -62 . DOI: 10.16381/j.cnki.issn1003-207x.2015.08.007

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