Multi-Divisional Organizational Form

In order to attempt to answer the question on as to why the multi-divisional organizational form spread amongst large US firms, first the term itself needs to be defined.

Multi-divisional organizational form is a “decentralized management structure” (Fligstein, 1985) and “a form, which organizes tasks according to the product or geographic markets to which outputs are directed and separates tactical from strategic decision making” (Palmer et al., 1993).

This question is quite challenging to answer unequivocally, as the spread of this form of organization was influenced by complex of several factors. These factors include institutional, political and economic causes that somehow pushed organizations to change its form throughout years.

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For example, in oil industry all accompanying products like dry/liquid gas, sulfur, etc. apart from oil as a main product have to be processed and delivered to buyers in the market. Multi-divisional form helped to separate and coordinate different product lines. Transaction-cost analysis theory

As firms grew in size, expands the business, management and control became extremely important function in firm’s development. Multi-divisional organizational form helps to avoid information asymmetries and opportunism which is inherent in man.

As per Williamson (1985), multi-divisional form is an efficient internal capital market in which information asymmetries are reduced by effective monitoring and agents (divisional managers) have their goal structure altered in favour of enterprise-wide considerations (in Willman, 2014). Indeed, such form is a better system of control and management as each division has its own director who is responsible for its performance. Consequently, CEOs have more time for other strategic goals they should be focused

Secondly, firms tend to imitate other successful firms especially under state of uncertainty. And finally, as this form becomes accepted by most firms, it considered being an appropriate organizational behavior. Besides, as argued by Palmer et al. (1993), those firms whose CEOs had degrees from elite business schools were likely to adopt multi-divisional organization form.

Population-ecology theory

Though this theory does not have a direct link to multi-divisional organizational form it is assumed that this form is considered to be a “new” form replacing old ones. As stated by Hannan and Freeman (1984), when firms age and perform reliably, they are inevitably come to a state of structural inertia (in Fligstein, 1985).

Multi-divisional organizational form is characterized by the distribution of strategic and tactical functions of the firm and provides certain independence to its divisions. This form helps to plan and allocate resources as well as control business divisions.

Provided above arguments based on different theories provides a clearer picture of these forms