I worked at a major company that had several divisions that had nothing to do with each other. You can easily come up with “synergy” arguments to not justify a spin-off, but what I found about these arguments is that they tend to radically overestimate the costs of keeping things apart and radically underestimate the costs of splitting things apart. What happens is that if you come up with an argument that suggests keeping things together, that argument becomes part of the conventional unspoken wisdom. If you have an argument against keeping things together, then people will “analyze that argument to death.”

And if there really are good reasons not to break up a company, why create an internal market instead of a centrally planned hierarchy? Once you have divisions competing against each other in an internal market, then this can (and in the case of the company I am familiar with did) kill any sort of internal cooperation or joint management of shared assets. What you ended up with is all of the transaction costs of a full market without the benefits of flexibility and large networks.

The issue with MBM is that there are sometimes internal corporate reasons for this. Splitting up a company removes an entire layer of management, which is a bad thing if you happen to be in that layer of management. At the same time, imposing centralized control, kills a lot of the fiefdoms within a large company.

Getting back to the topic. This institutional bias might be why there is so little criticism of MBM in the business literature. Bringing up the problems with MBM, might strongly conflict with the institutional interests of the people who are interested in MBM, since the decision to go with MBM may be the result of internal corporate politics rather than a rational economic analysis.

This is fine when a company is profitable. However, if a company starts seriously losing money, Wall Street will come in and take the decision out of the hands of management (which is what is happening in the major company I’m familiar with.)

In the case of Koch Industries, it would seem to me that the only point of having MBM is so that Koch can keep his empire in one piece, and given that to be the case, what he is doing is probably not a bad idea, but whether it is generalizable to situations where people don’t have these non-economic motivations and where there is a liquid market of control is questionable. There are parallels here to the situation with Chinese state-owned enterprises.

My experience with having companies “make employees act like entrepreneurs” is not very good. The problem is the same as MBM. If the company wants the employee to act like an entrepreneur they can and should provide seed capital for the employee to start their own company, and be a “real entrepreneur” rather than a pseudo-entrepreneur. The trouble with pseudo-entrepreneurship is that you often end up with the worst aspects of a company (small company risk with big company bureaucracy).

My professor Dr. Richard Baskerville said I should see the theory on MBM as the story i was telling him about my work in establishing an internal IT service delivery mangagement for the ING bank in its entry into the new indian market seemd remarkably similar.

I am very excited about what I have read about the theory and woudl like to meet any one who has applied this theory to the management of Internal IT groups within a regulations driven banking environment.