Multidivisional Form

Conceptual Overview

The growth of the firm and its evolution from a national firm to a multinational corporation (MNC) includes a progressive vertical integration of downstream and upstream operations within individual product valuechains, as well as managed diversification of the initial product/service line. Part of this evolution is the internal structuring of units and operations and the positioning of these units vis-a-vis each other. The internal structuring includes operational and strategic integration of business functions that minimize costs and economize via internal coordination and control, and as such achieve governance economies.

Among the leading archetypes of organizational structures that lead to the emergence of the M-form are hierarchies (with a single line of command and control), functional organizations (with decentralized decision making), and matrix types of structures (with dual lines of coordination and control—both horizontal and vertical). The M-form represents a combination of a divisional structure with hierarchical control and functional flexibility (See Figure 1).

The main distinction between the M-form and the U-form (unitary form) of organizing is that the subunits in the M-form comprise complementary tasks, while the U-form contains subunits that comprise similar tasks. Both types are based on unitary command.

The M-form of organizing was invented in the context of the General Motors Corporation in the United States to encompass central control and ownership; vertical integration of the production; formal internal coordination through vertical and horizontal linkages between decentralized divisions; and corporate head office function and specialized staff concentrated in departments and subunits. From a historical perspective, the M-form of structure represents an evolution and [Page 930]adaptation of organizational hierarchy under the conditions of complexity and uncertainty of operations. The M-form of structure enabled the internationalization of the firm and the emergence of the transnational corporation as a complex network with centralized governance at the headquarters and modular type of coordination of activities through subsidiary units. The application of the M-form for organizing corporate activities has been based on three modes of control used by the parent over its subsidiaries and subunits—hierarchy, socialization, and price. Hennart's research concludes that the most favored mode of interunit control in MNCs is the price mechanism under most circumstances. Interunit transactions are coordinated also by a transferpricing mechanism, where value is determined by inhouse accountancy rules and decisions and therefore is not subject to a market sanction.

Figure 1 The Multidivisional Form of Organization (M-form) Under Unitary Control

Critical Commentary and Future Directions

The application of the M-form concept has taken place in three different contexts: the literature on the evolution of intraorganizational complexity (or heterarchies), the internationalization of the firm (or the multinational corporation—MNC), and the macrocoordination and control of economic activities (or the M-form society). The MNC is the most distinctive example of an M-form, where the business headquarters and individual subsidiary units represent individual subunits (divisions) with different operational capabilities that integrate business operations across a number of value chains and across different industries and different countries. Ouchi argues that similar operational integration applied across institutions can tackle the structural deficiencies of the American economy and can improve the system's performance by providing a vehicle for optimization and coordination of efforts across various governmental departments, industrial associations, and organizations. Overall, the M-form concept is associated with high levels of internal specialization, bundling and grouping of complementary operations and assets, coordination of activities, and cooperation at system and subsystem level.

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