The Multidivisional Structure: Theory of the M-Form
          The Multidivisional Structure: Theory of the M-Form
               Efficiency advantages of the multidivisional firm:
          •    Recognizes bounded rationality—top management has limited 
               decision-making capacity
          •    Divides decision-making according to frequency:
                      —high-frequency operating decisions at divisional level
                      —low-frequency strategic decisions at corporate level
          •    Reduces costs of communication and coordination: business 
               level decisions confined to divisional level (reduces decision 
               making at the top)
          •    Global, rather than local optimization:- functional organizations 
               encourage functional goals. M-form structure encourages focus 
               on profitability.
          •    Efficient allocation of resources through internal capital and labor 
               markets
          •    Resolves agency problem-- corporate management an interface 
               between shareholders and business-level managers.
                   The Divisionalized Firm in Practice
                   The Divisionalized Firm in Practice
       •   Constraints upon decentralization. 
            – Difficult to achieve clear division of decision making between 
               corporate and  divisional levels. 
            – On-going dialogue and conflict between corporate and divisional 
               managers over both strategic and operational issues.
       •   Standardization of divisional management
            – Despite potential for divisions to develop distinctive strategies and 
               structures—corporate systems may impose uniformity.
       •   Managing divisional inter-relationships
            – Requires more complex structures, e.g. matrix structures where 
               functional and/or geographical structure is imposed on top of a 
               product/market structure.
            – Added complexity undermines the efficiency advantages of the M-
               form
         The Functions of Corporate Management
          The Functions of Corporate Management
    Managing the         —Decisions over diversification, acquisition,
      Corporate              divestment 
       Portfolio         —Resource allocation between businesses.
    Managing the          — Business strategy formulation
      individual          —Monitoring and controlling business
     businesses                performance
      Managing 
       linkages           —Sharing and transferring resources and
       between                  capabilities
      businesses
   The Development of Strategic Planning Techniques: 
    The Development of Strategic Planning Techniques: 
          General Electric in the 1970’s
          General Electric in the 1970’s
     Late 1960’s: GE encounters problems of direction, 
     coordination, control, and profitability
     Corporate planning responses:
      Portfolio Planning Models —matrix-based frameworks 
      for  evaluating business  unit performance, formulating 
      business strategies, and allocating resources
      Strategic Business Units —GE reorganized around 
      SBUs (business comprising a strategically-distinct 
      group of closely-related products 
      PIMS —a database which quantifies the impact of 
      strategy on performance. Used to appraise SBU  
      performance and guide business strategy formulation
                     Portfolio Planning Models: Their 
                      Portfolio Planning Models: Their 
                         Uses in Strategy Formulation
                         Uses in Strategy Formulation
         •   Allocating resources-- the analysis indicates both the 
             investment requirements of different businesses and their 
             likely returns
         •   Formulating business-unit strategy-- the analysis yields 
             simple strategy recommendations (e.g..: “build”, “hold”, or 
             “harvest”)
         •   Setting performance targets-- the analysis indicates likely 
             performance outcomes in terms of cash flow and ROI
         •   Portfolios balance-- the analysis can assist in corporate  
             goals such as a balanced cash flow and balance of growing 
             and declining businesses.