The Impact of the Multi‐divisional Structure on Organizational Slack: The Contingency of Diversification Strategy
| Date | 01 September 1998 |
| DOI | http://doi.org/10.1111/1467-8551.00085 |
| Published date | 01 September 1998 |
| Author | Ahmed Riahi‐Belkaoui |
Introduction
American corporations have been experimenting
with various forms of organizational structure. The
M-form or multi-divisional structure has evolved
as the more popular solution to the problems of
managing growth and diversity within a central-
ized structure. It is generally presented as provid-
ing information processing advantages, as well as
better performance in large multi-product firms
(Teece, 1981). As a result the relationship between
corporate diversification and firm performance
has been at the forefront of issues relating to cor-
porate strategy (Hoskisson, 1987). However, al-
though implied by Williamson (1970) and Ezzamel
(1985), the impact of the M-form implementation
on organizational slack remains unexplored. This
study examines the proposition that the impact of
the implementation of such structure on organ-
izational slack should vary with the diversification
strategy adopted.1More specifically, given the
trade-offs between control-system emphasis in
various diversification strategies, certain controls
are better suited at reducing certain types of
slacks in certain strategies. The next section
covers the M-form hypothesis, the third, the
organizational slack. Diversification strategy is
discussed in the fourth section, before a presenta-
tion of the central proposition in the fifth. The next
two sections set out the empirical results, and the
paper ends with a final discussion, section 8.
The multi-divisional form hypothesis
The multi-divisional form structure was adopted
as a response to the increasing complex admin-
istrative problems encountered within a central-
ized functional structure as firm size and diversity
increased (Chandler, 1962). Building on Chandler’s
analysis, Williamson (1970) suggested that be-
cause of two problems encountered by ex-
panding multi-product firms cumulative control
loss and confounding of strategic and operating
British Journal of Management, Vol. 9, 211–217 (1998)
The Impact of the Multi-divisional
Structure on Organizational Slack:
The Contingency of Diversification
Strategy
Ahmed Riahi-Belkaoui
Department of Accounting, College of Business Administration, University of Illinois at Chicago,
601 South Morgan Street, Chicago, IL 60607-7123, USA
This study examines the relationship between multi-divisional (M-form) structure and
organizational slack. Findings based on longitudinal analysis data from 62 firms in-
dicate that M-form implementation increases the firm’s capacity to manage absorbed
slack in the cases of vertically integrated and related diversified firms, and unabsorbed
slack in the case of unrelated diversified firms.
© 1998 British Academy of Management
1It follows from other studies showing the contingency
of diversification strategy on the relationship between
multi-divisional structure and performance (Hoskisson,
1987; Riahi-Belkaoui, 1997) and between multi-divisional
structure and capital structure (Riahi-Belkaoui and
Bannister, 1994).
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