There’s a New Form in Town

The M-form (a.k.a. multi-divisional) type of corporate governance began to replace the U-form post WWI. (Scott & Davis) The old U-form, which was found in companies like railroads and large industrial firms, was becoming outdated. Thus, firms like du Pont, GM, Sears, and Standard Oil decided to create a new form. It consists of a general office HQ and several regional divisions, each of which performed different functions. The form was found to perform well in diverse markets. The M-form describes a type of organizational structure consisting of a relatively large number of relatively small units, which are controlled mainly by the setting of goals from a corporate headquarters. By the late 1970s, nearly 9 out of 10 companies utilized the M-form concept to divide the company into divisions based on the output produced. (Scott & Davis) It really makes sense, too. Companies need upper management guidance for the long-term, and this can only be harnessed if they are not bogged down with the daily needs of the company.

Thus, the company’s different sectors are organized and headed by a representative (a.k.a. vice president) who reports to an overseer of the entire company. However, the latest development is actually an entirely new form of governance – the N-Form. Network form describes a type of organizational structure in which several smaller companies representing different stages in the production process establish informal links with one another rather than joining together in vertical integration. Unlike Carnegie Steel of the early 20th century, a much looser network is created between entities. This is obviously aided by technological advance. These networks can be much easily fostered due to advances in communication as compared to those available in the early 1900s. Companies have also begun to exploit the greater efficiencies that the N-form has to offer over the M-form. Instead of housing all production under one company, the network allows individual companies to focus in one or two tasks, thereby creating more synergy and economies of scale more so than just simple vertical integration.

During the rise of the M-form, it is interesting to note that no other nation was following the same methods. Of the many reasons, the two that were dominant were the fact that the US was a continent-wide market and that the US operated under a ban of cartels. In contrast, Germany actively supported cartels, assuming that they would be able to support export markets in this manner. Likewise in France, government bureaucracy created large firms that were run by veterans of governmental posts. However, the N-form has taken more of a global approach. With the exception of third-world economies, the N-form is much more marketable as a global idea. With communication as easy as it currently is, companies can now work with other organizations from around the world, making it even easier to build the synergy it intends to create. In short, the N-form is the newest generation of governance that I do not believe will completely replace the M-form (as the M-form has the U-form), but will complement it well in the future. It will help companies concentrate on the future of the company, and use a network of other organizations to help do so.

Note:  This is my answer for question 5 of the concept paper.

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