abstract:We propose a compensatory misfits theory which holds that an "over-fitting" organization structure can compensate for an "under-fitting" structure, thereby reducing the total misfit. In organizations, over-fit occurs when structural features misfit the core contingencies because the structural level is too high to fit the contingencies. An under-fit occurs when structural features misfit the contingencies because the structural level is too low. When an under-fit is compensated by an over-fit, the combination can produce performance outcomes that approximate those from fit. The reason inheres in information processing being a higher level factor that cuts across different contingencies and structural features that are mis-fitted to each other, so that compensation is possible. We identify the specific conditions that must be fulfilled for compensation to occur, and we discuss implications for organization design theory and practice.Keywords: Over-fit; under-fit; misfit; fit; compensatory misfits; compensatory effect; contingency theory; information processing Organization design follows the idea that the best design for an organization is one that fits its situation (Donaldson, 2001). Achieving fit means aligning organizational features to contingency factors such as uncertainty (Burns & Stalker, 1961;Lawrence & Lorsch, 1967), strategy (Miles & Snow, 1978; Rumelt, 1974), and size (Child, 1975). The resulting design will be the best in the sense that it will allow the organization to meet its goals, including that of high performance. The emphasis in organization design, therefore, is on identifying misfits and changing them into fits. We suggest, however, that sometimes misfits may produce outcomes that begin to approach the same positive outcomes as fits. Furthermore, it may be better to retain misfits rather than change them into fits because changing the organization's design may incur substantial costs. Such "beneficial" misfits only occur in certain situations, and we identify them in this conceptual article.Our compensatory misfits theory is based on the information processing perspective which has long served as the theoretical foundation of organization design (Galbraith, 1974). Contingencies are viewed as the information-processing requirement, while organization structure is viewed as the information-processing capacity to meet that requirement (Burton, Lauridsen, & Obel, 2002Egelhoff, 1991;Keller, 1994;Tushman & Nadler, 1978). When information-processing capacity matches the information-processing requirement, there is a fit. Otherwise, if information-processing capacity is not equal to the informationprocessing requirement, there is a misfit. Under-fit occurs when information-processing capacity provided by the structure is lower than the information-processing requirement of the contingency. In contrast, over-fit occurs when information-processing capacity exceeds the information-processing requirement. Our compensatory misfits theory adopts the information processing perspective in identif...