Summary
I examine how different distributions of ownership and governance rights in firms affect the optimal organization of cross-functional project teams for knowledge-intensive work. I analyze multi-method data from two competing automated manufacturing equipment engineering firms with contrasting formal power structures, one a worker cooperative with ownership and governance rights distributed across occupations and the other a conventional firm with ownership and governance rights concentrated in the hands of several senior workers in one occupational group. Contrary to prior research, my findings suggest that when collective tasks are uncertain and complex, the benefits of cross-functional interactions depend on organizations’ formal power structure: cross-functional interactions improve teams’ productivity in the context of concentrated ownership and governance rights but not when ownership and governance rights are widely distributed among workers. Fieldwork at the two firms revealed three mechanisms by which dispersed formal power decreases the productivity benefits of cross-functional interaction: it reduces status distinctions among team members, increasing the labor hours required to resolve conflicts; boosts participation in oversight and coordination processes outside teams so that workers have more access to information and less need for cross-functional interactions; and increases the distribution of knowledge-management technology, which increases workers’ autonomy and reduces the value of cross-functional interactions.