1 / 11

Organizational Structure and Economic Performance: A Test of the Multidivisional Hypothesis

Organizational Structure and Economic Performance: A Test of the Multidivisional Hypothesis. Henry Ogden Armour and David Teece The Bell Journal of Economics ( 1978). The Research Objective. Empirically test the M-Form multi-divisional hypothesis

olinda
Download Presentation

Organizational Structure and Economic Performance: A Test of the Multidivisional Hypothesis

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Organizational Structure and Economic Performance: A Test of the Multidivisional Hypothesis Henry Ogden Armour and David Teece The Bell Journal of Economics ( 1978)

  2. The Research Objective • Empirically test the M-Form multi-divisional hypothesis • That the organization and operation of the large enterprise along “M-Form” multi-divisional lines favors goal pursuit and least-cost behavior more nearly associated with the neoclassical profit maximization hypothesis when compared to a number of alternative organizational forms.

  3. What did they find? • For a sample of petroleum firms, profitability was observed between 1955-1973 • Empirical Results • Positive relationship between the M-form structure and profitability was observed during the period (1955-1968) in which the M-form innovation was being diffused • Relationship was no longer observed (1969-1973) once an organizational-form equilibrium was achieved

  4. Difficulties associated with Unitary-Form Enterprises • In-decomposability • Makes it necessary to attempt more extensive coordination among the parts • Incommensurability • Makes it difficult to specify the goals of the functional divisions in ways which clearly contribute to higher-level enterprise objectives • Non-operational goal specification • Confounding of strategic and operating decisions • Organizational purpose is compromised

  5. The M-Form • Based on robust hierarchical decomposition principles • Hierarchies commonly factor problems in such a way that “higher frequency dynamics are associated with the subsystems, the lower frequency dynamics with the larger systems,…[and] intra-component linkages are generally stronger than inter-component linkages” • M-Form is a nearly-decomposable system

  6. The M-Form Solution • The multidivisional firm as a structural organizational innovation • Involves control systems that induce appropriate goal pursuit by divisions • Achieves the separation of strategic and operating decision making ( separation of concerns) • Possesses superior internal information and control techniques when compared to the external capital market • M-form firm acts as a miniature capital market

  7. Measures • Performance measure • Rate of return on stockholders’ equity ( post-tax) • This is what managers acting in the stockholders’ best interest would seek to maximize • Organizational Structure Variables • MFORMit • =1 if the i-th firm in the t-th period is characterized by an M-Form internal structure • = 0 otherwise

  8. The Model • Rate of Returnit = f(Sizeit, Structureit, Riskit, Caputilt, Growthit) • The regression Model • Rate of Returnit = β0 + β1Sizeit, + β2MFORMit + β3FSFORMit + β4TFORMit+ β5CHFORMit + β6RISKit + β7CAPUTILt + β8GROWTHit + εit • Econometric Procedure: OLS • Regressions were run on data from two sub-sample periods: • 1955-1968 • 1969-1973

  9. Sample Details • M-form hypothesis admits the simultaneous existence of optimally organized functional firms and multidivisional firms • Existence of firms in the sample whose optimal organizational form was the functional form • Bias against the M-form hypothesis • Only M-form firms in the sample • Bias in favor of the M-form hypothesis

  10. Empirical Results • Results broadly consistent with the M-Form hypothesis • Characteristics associated with a multi-divisional form lead to superior firm performance • Organizational Innovation being diffused Possible to observe superior performance of firms • Once the multi-divisional structure has displace inferior internal forms Differential performance is not observable

  11. Discussion Question • Footnote 6 on page 109 • Discussion regarding optimally organized F-Form firms • If functional firms can be optimally organized, why would firms want to transition to the new M-form? • Or restating my concern: • Do M-form firms perform better than optimally organized F-form firms?

More Related