• outsourcing;
  • organization structure;
  • knowledge-based view;
  • task complexity;
  • governance choice

Knowledge issues are central to governance choice. Organization structure influences knowledge flows and costs of knowledge creation and exchange inside the firm. Yet the question of how a firm's internal structure affects its governance choice for new activities has received scant empirical attention. We examine the role of internal structure, specifically unit autonomy and lateral coordination, in a firm's governance decision for new, knowledge-intensive activities. The findings show that internal structure is a ‘shift parameter’ that affects governance choice by moderating the relationship between task complexity and degree of integration. The empirical setting is the U.S. banking industry and its adoption of Internet banking. Copyright © 2013 John Wiley & Sons, Ltd.