The “M-form hypothesis” and Concluding Remarks

Although the M-form structure was initially devised and imitated as a means by which to correct local conditions of inefficiency and subgoal pursuit, it has subsequently had pervasive systems consequences. These systems effects are partly attributable to competition in the product market; unadapted firms have found it necessary, as a survival measure, to eliminate slack so as to remain viable. But the effects of takeover threats from the capital market are also important. The conglomerate variant on the M-form structure is of particular interest in this connection — which is the subject of the next chapter. Focusing, however, strictly on direct effects, which is sufficient for our purposes here, the argument comes down to this: The organization and operation of the large enterprise along the lines of the M- form favors goal pursuit and least-cost behavior more nearly associated with the neoclassical profit maximization hypothesis than does the U-form organizational alternative.1′

But more than mere divisionalization is needed for these effects to be realized. It is also necessary that a separation of operating from strategic responsibilities be provided. The former are assigned to the operating divisions while the latter are made the focus of the general management. Moreover, such a partitioning does not, by itself, assure strategic effective- ness; for this to obtain requires that the general management develop an internal control apparatus, to assess the performance of the operating divisions, and an internal resource allocation capability, which favors the assignment of resources to high yield uses.

That divisionalized enterprises sometimes, and perhaps often, fail to meet these stipulations is suggested by Ansoff and Brandenberg, who observe that the performance potential in divisionalized firms frequently goes unrealized because general managements “either continue to be overly responsive to operating problems | that is. nonstrategic but interventionist] or reduce the size of the corporate office to a minimum level at which no capacity exists for strategic and structural decision making” ( 1971, p. 722). An effort to assess internal controls in divisionalized enterprises and to distinguish among the several types is accordingly indicated if tests of the M- form hypothesis are to be attempted. To facilitate such testing a six-way classification scheme is set out in the appendix.

Source: Williamson Oliver E. (1975), Markets and hierarchies: Analysis and antitrust implications, A Study in the Economics of Internal Organization, The Free Press.

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