Multi-divisional form (also known as M-form or MDF) refers to an organizational structure by which the firm is separated into several semi-autonomous units which are guided and controlled by (financial) targets from the center.
Top management is located in the central office which acts to supervise and coordinate the divisions and develop overall strategies for the business.
Throughout the second half of the 20th century, the M-form proved to be the best strategy for many large firms that wished to expand their product diversification and sell to a wider consumer base.
Unlike the M-form, the U-form is a business structure by which the senior management of a corporation closely supervises its various component "departments" and retains control of all strategic and decision making processes.
However, as its implementation was the result of existential inventory crises in both companies, delivery proved to be as much necessity as inspiration (Alfred D. Chandler and S.
Companies that successfully diversify adopted the M-form because it proved to be the best way to manage a diversity of production lines while maintaining efficiency and maximizing profit.
The M-form, or multi-divisional form, originated in the 1920s century and, after a hiatus of twenty years, was successfully adopted in the USA in the 1960s.
In contrast to the tradition U-form (unitary form), companies that made the transition showed up to 30% increase in profits in the first year alone.
For larger corporations, however, using M-form allows the workers on all levels to specialize, while the company as a whole is still organized in a strict hierarchy (Williamson - where?).
& cf Chandler} Also, as mergers became more frequently in the US during this time, corporations needed the ability to add and drop branches of management quickly and efficiently.
General Motors, a pioneer in the adoption of the new business strategy in 1921, created a separate division for each model which existed within the larger company.
The M-form became the preferred organizational system because it combines the distinct brand and economies of scale advantages of a large conglomerate, while maintaining the operational flexibility of a small firm.
By dividing the firm based on output into several autonomous units, the M-form provides the optimal level of centralization in a company: central management could still dictate the overall direction of the firm, while each division operates autonomously to cater to its own needs, is held accountable for its own profits, and can remain productive even if the other divisions fail.
That is, while upper-management can dictate the general direction of the firm, the lower-level managers handle the day-to-day operations of the division.
Because of this flexibility, perfect coordination can always be achieved (for instance, it has been found that M-form firms increase returns through an internal labor mechanism[4]).
Soon, the alliance dominated the oil industry through sheer economic might due to both its large economies of scale and its organizational structure.
Although central management provided a general direction for the alliance as a whole, each arm was able to act individually to pursue what would maximize each division's success.
A company must take account of this and continuously analyze a cost- benefit analysis to make sure the M-form is even worth having.
After the realization that their forms of organizing were outdated, these foreign companies began implementing one of the most successful business techniques in America.
The U-form structure is specialized around functions, such as sales and manufacturing, and no aspect of it can easily stand-alone (Rumelt and Stopford).
The knowledge, attitudes, and practices required to manager entrepreneurial growth are different than the logic the holding form and financial control.
Although the U-form and H-form were options for the several companies, the fiscal and operational limitations they exhibit allow for the M-form to be the prime choice.
Since the multi-divisional form is very flexible within corporations, it allows for a wider range of organizations of all dimensions to utilize it and shape it into their own system.