We argue that the study of information technology (IT) impacts on organizations has been hindered by the shortage of formal models from which empirically testable implications of such impacts can be derived. This article demonstrates the feasibility and usefulness of this approach by constructing and analyzing optimization models of the organizational design problem for a restricted class of hierarchical organizations. The literature suggests that two organizational characteristics likely to be affected by IT are organizational “flexibility”; and the nature of organizational control problems. Thus, first, a particular concept of flexibility is defined and parameterized. Second, organizational design is formalized as an optimization problem having parameters for flexibility and control effects. Third, probable effects of four broad classes of IT on the model's parameters are spelled out and then analyzed via comparative statics and numerical experiments. One general result is that some types of IT impacts could have significant industry‐level effects since large changes in the optimal organizational scale under profit maximization may result. Some specific hypotheses regarding the impacts of monitoring IT are also derived. Fourth, suggestions for the formulation of empirical models are given. The model shows that a careful understanding of the effects of a particular system is vital to predicting its impacts; for example, monitoring systems of different types can have impacts that are the opposite of one another. The model suggests that short, medium, and long‐run effects of a given IT type can differ from one another, so that lagged effects of IT investments should be studied carefully, allowing for the possibility of different directions of change for different lags.