M is for Multidivisional Structure

17 August 2015 at 8:38 am 1 comment

| Dick Langlois |

As a student of Alfred Chandler, I was excited to see Google’s conversion into Alphabet – which is essentially a multidivisional conglomerate. Chandler chronicled the development of the M-Form structure in the days of the Second Industrial Revolution, beginning with DuPont, and it remains an interesting question whether the same pattern will eventually take shape among the dominant firms of the Third Industrial Revolution.

Generally speaking, a move to the M-Form reflects a maturing of a technology and an industry, when information flows and incentives within a specialized unit – a module, if you wish – become more important than widespread and more flexible information flows within a functional organization. The more radically innovative the company, the more important these widespread information flows. Apple is organized in a functional form, and Microsoft famously returned to a functional form after a few years as an M-Form precisely in order to become more radically innovative in the face of declining revenues from Windows. Of course, Google remains as a functional entity within the Alphabet conglomerate, and the technologies in Alphabet’s other divisions are arguably less related to one another than in, say, the divisions into which Microsoft was once divided. Moreover, Alphabet will keep the two-tiered structure of stockholding that gives considerable power to the three founders, which makes Alphabet less like a vanilla conglomerate and more like the kind of widely diversified pyramidal holding company common around the world but essentially illegal in the United States.

Entry filed under: - Langlois -, Business/Economic History, Corporate Governance, History of Economic and Management Thought.

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