Beyond the M-Form Ghosal and bartlett

Strategic Management Journal, Vol. 14, 23^6 (1993)

BEYOND THE M-FORM: TOWARD A MANAGERIALTHEORY OF THE FIRMCHRISTOPHER A. BARTLETTGraduate School of Business Administration, Harvard University, Boston, Massachu-setts, U.S.A.

SUMANTRA GHOSHALINSEAD, Fontainebleau, France

Driven by a set of radical changes in their internal and external environments, large globalcorporations are innovating a new organizational form. Premised on knowledge andexpertise rather than capital or scale as the key strategic resource, this new form isfundamentally different from the multidivisional organization that had emerged in the 1920sand had become the dominant corporate model in the post-War years. In this article, wedescribe this new organization using Asea Brown Boveri (ABB) as an illustration, andhighlight its differences from the classic M-form by contrasting its structure, processes anddecision-making mechanisms against the models proposed by Chandler (1962}. Bower(1970) and Cyert and March (1963). Our conceptualization of this emerging organizationis grounded in a managerial perspective that is very different from the disciplinaryfoundations of existing economic and behavioral theories of the firm. We conclude byarguing for the need to create a 'managerial theory of the firm' that would be more attunedto the premises of the key actors within the firm so as to be able to illuminate the corporateworld as seen by managers and encompass the issues that they perceive to be important.

The post-War growth in the United States createdan extraordinary new set of opportunities andchallenges for the management of companiesoperating in that era. In turn, as companiesdeveloped new strategic approaches, createdinnovative organizational forms, and redefinedmanagement roles in response to the changingenvironment, they stimulated a wave of researchthat sought to enrich and even redefine thetheory of the firm. It was in this golden era ofresearch in the late 1950s through the 1960s thatmany of the foundations of current managementtheory were laid.

At MIT, business historian Alfred Chandlerhad become fascinated by the rapid spread ofthe new strategies and the organizations neededto manage them, and was tracing the trend toits roots in the pre-War period. His carefullydocumented research provided a richly texturedinterpretation of the new multidivisional organiza-

Key words: Complex organizations, global corpor-ation, roles and tasks of managers, theory of the firm

tion that was beginning to dominate corporatestructures in the United States and abroad(Chandler, 1962). At Carnegie Mellon, anotherextraordinary research effort was building on thefoundations laid by Herbert Simon and JamesMarch in modeling human behavior to betterunderstand how decisions were made in thecomplex new emerging corporations. Theresulting behavioral theory of the firm wasconsolidated and formalized in the work of Cyertand March (1963). Several years later, at HarvardBusiness School, Joseph Bower's research intobusiness planning and investment decision makingled to a model of the strategic processes inmultidivisional organizations, thereby creating abridge between the new corporate structuredescribed by Chandler and the theory of decision-making proposed by Cyert and March (Bower,1970).

The decade of the 1970s and the early part of1980s was a period of refinement and incrementalprogress, both for management practice and formanagement theory. While corporate managersexpanded their new diversification strategies,

CCC 0143-2095/93/100023-24© 1993 by John Wiley & Sons. Ltd.

24 C. A. Bartlett and S. Ghoshal

elaborated their new divisionalized structures,and fine-tuned their new management processes,streams of research developed behind the seminalwork of Chandler, Bower and Cyert and March,building richer and more refined versions of theirmodels and theories.

By the early 1990s, however, new environmen-tal demands—particularly those emanating fromthe globalization of competition, markets, andtechnology and the related economic and socialconsequences—were driving changes in strategy,structure, and management that were probablyas widespread and impactful as the diversification/divisionalization changes that drove the post-Warmanagerial revolution. In such an environment,some were beginning to express concern that theexisting paradigms of strategy, organization anddecision-making, developed to explain an earlierform of the corporate model, might no longerbe as relevant or as powerful as they once were(Hamel and Prahalad, 1993; Handy, 1990). Theirarguments were buttressed by the widespreadproblems in companies that had failed to adapttheir classic organizational structures and pro-cesses. Indeed, by the 1990s, at least two of thefour innovators of the multidivisional form atthe core of Chandler's study—General Motorsand Sears—were making business headlines moreas problem cases than as role models.

Over the last 5 years, we have been engagedin a research project aimed at understanding andanalyzing this recent change. While lacking thebenefit of Chandler's historical perspective, ourobjective, like his, was to identify emergingorganizational forms and their logics, rather thanto describe the average or the dominant patterns.And, just as Chandler selected his final sampleof du Pont, General Motors, Jersey Standardand Sears from a longer list because theiradministrative reorganizations were more cre-ative, their businesses were more complex anddata about them were more readily available(1962: 3), our selection of companies for detailedclinical studies was also biased toward those incomplex and dynamic businesses that wereattempting relatively more radical changes andwere willing to give us access to their managersand their files. AT&T. Andersen Consulting,Corning, Intel, Nike and 3M in the UnitedStates; Asea Brown Boveri (ABB), Body Shop,Cartier, Electrolux, ISS, IKEA, Royal DutchShell, Richardson Sheffield and 'Semco' in

Europe; and Canon, Kao Corporation, Komatsuand Toyota in Japan constituted our sample.

Our overall findings from the study suggestthat large global corporations are creating anew organizational model in the 1990s that issignificantly different from the M-form organiza-tion that has dominated corporate structures overthe preceeding five decades and that has providedthe context for much of current managementtheory. Just as there were many variations withinthe broader M-form model (Williamson. 1975;Hill, 1988), there are some significant differencesamong companies pioneering the new form. Yet,underneath those different nuances lies a broadset of commonalities in corporate structure,organizational processes and management rolesthat distinguish the new model from the di-visionalized corporation in much the same wayas a broad set of shared principles differentiatedthe divisionalized company from its functionalpredecessor.

In a forthcoming monograph, we will providea detailed report on this study and will describethis new organizational form based on a compara-tive analysis of the companies in our sample. Inthis article, our objective is to provide a summaryof some of the key features of the new modeland to highlight their differences from those ofthe classic M-form. To do so within the spacelimitations of an article and yet provide somedescriptive richness that is essential for a properappreciation of the new form, we will borrow anapproach that was most powerfully employed byAllison (1971) in his analysis of the Cuban missilecrisis. By examining a well documented situationfrom three different conceptual perspectives.Allison found that he was not only able togenerate a richer understanding of the situation,he was also able to highlight the limitations ofeach of the conceptual models. Similarly, in thisarticle, we will use the interpretative lensesof Chandler's structural perspective. Bower'sprocess model and Cyert and March's behavioraltheory to examine the organizational character-istics of Asea Brown Boveri (ABB), a 215,000employee company with worldwide operations inwhat it describes as the 'electrotechnical business'and often cited as a prime example of theemerging corporate form (see, for example,Taylor, 1991). Each of these three authorsprovides a different yet complementary view ofthe M-form organization. By assessing ABB's

Beyond the M-Form 25

organization against these three perspectives, wehope to both enrich our description of thecompany and to also show how it fundamentallydiffers from the model of the divisionalizedcorporation in which all three perspectives aregrounded.

This method of explicating our arguments isnot without ils limitations. First, given ourobjective of presenting a new model, we run therisk of presenting ABB as an ideal type. Havinggrown from $17 billion in revenues in 1988 to$30 billion in 1992 (mostly through acquisitions)and having simultaneously improved its returnon assets from less than 10 percent to almost 19percent, ABB is a vigorous and successfulcompany. But it also confronts a range ofchallenges and problems arising from the slowgrowth and overcapacity that characterizes mostof its businesses and also from the newness andfragility of its own organizational structure andmanagement processes. Our objective here is touse the company as a concrete context forframing a broad new organizational model, ratherthan to describe the company, per se. So, ourattention will be selective, highlighting attributesof the ABB organization that are relevant to ourmodel, thereby presenting only a partial pictureof this large and complex global organization.

Second, although we will view the same casethrough three different lenses, unlike Allison, wewill focus on different attributes and dimensions ofthe case in each round of analysis. To anticipateour arguments, we will contrast ABB (i) withChandler's structural description to explicate thedifferences in the company's entrepreneurialprocess from that of the M-form organization;(ii) with Bower's strategic process model tohighlight its horizontal integration process incontrast to the M-form's dominant verticalinformation processing mechanisms; and (iii)with the behavioral theory of the firm to explainthe importance of its macrolevel goal-setting andlearning mechanisms as compliments to themicrolevel processes in the M-form that werethe focus of Cyert and March s analysis. As weprogress through this sequential analysis, eachspecific element of departure from the M-formmodel may appear as an extension—a differenceof degree rather than of kind. What we hope toshow, however, is that while each of the elementsof the new model can be obtained throughadjustments of emphasis within the M-form

organization, taken together they imply a manage-ment system that is substantially different fromthe system described by Chandler, Bower andCyert and March.

Our overall conclusions from the project go astep beyond describing a new organizationalmodel. We believe that the management ofABB. and of a number of the other companieswe studied, is premised on a set of basicassumptions on the part of its managers regardingorganization structure, decision making processesand. ultimately, human behavior, that are signifi-cantly different from those that underhe theeconomic and behavioral theories that currentlydominate academic analysis of business organiza-tions. As a result, these theories are of limitedusefulness for analyzing the behaviors of andwithin such companies. This is a serious handicapfor management scholars and a major reason forthe widening gap between existing managementtheory and emerging management practice.

To overcome this gap. we believe that manage-ment scholars need to develop a new theory ofthe firm, induced, as suggested by Chandler,•from the point of view of the busy menresponsible for the destiny of the enterprise'(1962: 7), rather than being deduced from thedisciplinary premises of social scientists. Weberalso argued for the need to view a system fromthe perspective of those within it. therebydeveloping an 'interpretative understanding(Verstehen) of social behavior in order to gainan explanation of its causes, its courses, and itseffects' (1964: 29). The model we will present inthis article describes the operations of ABB asseen by its managers and in terms of their ownspecific roles and tasks. Such a managerialperspective, as reflected for example in the workof Barnard (1938). is at least as legitimate forthe construction of a theory of the firm as thoseof the economist or the social psychologist. Ourbelief is that it can provide a useful complementto existing theories for stimulating both managersand students of management to analyze mana-gerial roles, organizational tasks and even theunderlying rationale and purpose of the firm insome significantly different ways. Undoubtedly.much more work would be necessary fordeveloping such an alternative theory of the firmthat would focus on the perspective of thepractitioner and would, therefore, be more usefulfor the analysis of practice. However, we hope

26 C A. Bartlett and S. Ghoshal

that the model we will present in this article mayserve at least as a strawman to hasten thedevelopment of a richer and more rigorous'managerial theory of the firm" to respond to thenew organizational developments.

ABB FROM CHANDLER'SPERSPECTIVE: CREATINGDISTRIBUTED ENTREPRENEtRSHIF

Chandler's study of the adoption of the multidivi-sional organization structure by 50 of the largestcompanies in the United States, and his detailedexamination of four of the pioneers of thatrevolutionary structural form, led him to develophis highly influential strategy/structure thesis. Hiscentral conclusion was that companies beingdriven by market growth and technologicalchange to develop greater diversity in theirproducts and markets, were able to manage theirnew strategies efficiently only if they adopted amultidivisional organizational structure—the so-called M-form.

The reason this structural form proved sopowerful was because it defined a new setof management roles and relationships thatemphasized the decentralization of responsibilityto operating divisions whose activities wereplanned, coordinated and controlled by a strongcorporate management—the general office inChandler's terms—which also made the com-pany's 'entrepreneurial decisions' about resourceallocation. He showed how the managementprocess created by this organization allowedcompanies to apply their resources moreefficiently to opportunities created by changingmarkets and developing technologies.

Before highlighting the differences, we shouldnote that many of the attributes of ABB'sorganization,, management and even its changeprocess fit well with the model proposed byChandler. First, the proeess by which thecompany's new organization and managementapproach was designed and implemented parallelshis description of changes in the companiespioneering the M-form. In both Asea andBrown Boveri—the two companies that weresubsequently merged to form ABB—an existingmanagement of 'insiders' had been unable tochange the structure sufficiently to create efficientoperations out of their respective diversified

portfolios of electrical and power-related prod-ucts, blocked by what Chandler described as 'thepsychological hazards of adjusting to new ways,new tempos, and new duties' (1962: 320). Yetboth companies had the rational, analytic andengineering-driven 'institutional ethos' thatChandler had found conducive to organizationalchange. More importantly, in Asea there was atop level manager with exactly the profile ofChandler's classic organizational change agent—a young, analytically inclined outsider. Broughtin initially to turn around the troubled Swedishcompany, the 39-year-old Percy Barnevik hadattracted considerable attention when, within 6years, he had increased Asea's sales four foldand its profits by a factor of ten. He was thenatural candidate to lead the company createdby Europe's biggest ever cross-border merger.

At the broadest level, some of the structuralelements on which Barnevik built ABB's neworganization follow the design principles of theclassic M-form. At the corpwrate center, hereplaced the functionally oriented staff groupsthat had dominated the headquarters of the twofounding companies with a team of capablegroup executives supported by highly specializedstaffs. More important, the strong principle ofdecentralization of responsibility that Chandlersaw as central to the operation of his model, isalso central to ABB's management philosophy.As defined in the company document, ABB'sMission, Values and Policies, 'our guiding prin-ciple is to decentralize the Group into distinctiveprofit centers and assign individual accountabilityto each' (1962: 25).

Finally, a core element of ABB's approach forcoordinating and controlling its diverse operationsis in keeping with Chandler's prescription forcreating reliable information and data flows tosupport the lines of authority. The fully automatedABACUS system (Asea Brown Boveri Accountingand Communication System), designed andinstalled within 12 months of the merger, is thecenterpiece of the formalized information flow. Itnot only provides accurate and timely data to thefield operations, it is also explicitly designed tohelp the group executives evaluate performance.As the company's much used Mission. Valuesand Policies document states. 'A decentralizedorganization will only work effectively with a goodreporting system that gives higher level managersthe opportunity lo react in good time.' (1991: 42).


While the broad principles of delegation andcontrol have their roots in the organizationalmodel Chandler described, the structural formby which they are Implemented begins to divergefrom the classic M-form. ABB is structured notin the traditional multidivisional form, but arounda business/geography matrix. Figure 1 illustratesthis structure. Don Jans, the general manager ofABB's relays business in the United States,reports to both Uif Gundemark, the Sweden-based head of the company's worldwide relaysbusiness area (BA in ABB terminology), andJoe Baker, who has overall responsibility forABB's power transmission and distribution busi-ness (of which the relays business is a part) inthe United States. Gundemark, in turn, reportsto both B-O Svanholm, the Group Executiveresponsible for all of ABB's business in Sweden,and Goran Lindhal, another Group Executiveheading the company's worldwide activities inthe power transmission sector. Similarly, Bakerreports to Lindhal on the business axis andto Gerhard Schulmeyer, the Group Executiveresponsible for all ABB operations in NorthAmerica, on the geographic axis.

Yet a closer examination of this structure,by now quite common among large globalcorporations, reveals it to be simply a morecomplex form of the same basic divisionalizedmodel described by Chandler. As such, it

probably serves more to confirm the underlyingstrategy-structure thesis than to demonstrate asubstantive difference. In an industry environ-ment driven by technological and competitiveforces requiring companies to be globally inte-grated, while market and governmental pressuresdemand a more nationally responsive approach(Prahalad and Doz, 1987), ABB's strategyrequires it to manage both product and geographicdiversity. To do so, it has structured its organiza-tion around a matrix with dual reporting channelslinking front-line operating units to their globalbusiness area organization on one side and totheir national or regional managements on theother.

Despite these similarities, however, thereare some core elements in the structure andmanagement of ABB's organization that clearlydifferentiates it from the model Chandlerdescribed. Most immediately obvious are thedifferences in the extent of decentralization ofassets and delegation of responsibilities that bothreflect and reinforce a philosophical divergenceconcerning the locus of entrepreneurship withinthe organization. It is this philosophical differencethat lies at the heart of ABB's structuraldivergence from the classic M-form.

Barnevik has organized ABB around a principlehe describes as 'radical decentralization.' This ismore than just a difference of degree from the

G. Schulnwyer

Group ExecutiveNorth Amencan HoUing

Jos Bakw

PresidemU.S. Power, Transmission

and Distribution

G. LIndahl

Group ExecutivePower Transmission

B-0 Svanholm

Group ExecutiveSweden

1Ulf Gundemark

Worldwide RelaysBA Head

Group ExecutiveManagement

(top management)

Regional Segment/BAManagemerrt

{middle management)

Don Jans

General ManagerUS. Relays [division

Local CompanyManagement

(tront-line management)

Profit Centers

Figure 1. ABB's matrix organization

Profit CenterManagement


basic philosophy underlying the creation of thedivisionalized organizations at du Pont or GeneralMotors. It is a fundamental difference that isrooted in a very different organizational logic.The ABB organization is based not so much onsubdividing the corporate entity into separatedivisions to be directed and coordinated fromthe top. as it is on a concept of providing 'selfcontained and manageable units with overview."Translated into action, this philosophy hasresulted in an organizational structure and man-agement system in which the basic building blockis not the company's seven business segments(groups in Chandler's terms), nor even its 65business areas (the equivalent of Chandler'sdivisions). Instead ABB is organized as "afederation of companies"—1300 of them that arestructured as separate and distinct businessesand. to the extent possible, as free-standing legalentities. The U.S. relays business headed by DonJans (see Figure 1) is an example of such acompany. On average, each of these companiesemploys 2(K) people and generates $25 million inannual revenues. In creating such a large numberof small entities. Barnevik hoped that employeeswould lose 'the false sense of security of belongingto a big organization' and would develop the'motivation and pride to contribute directly totheir unit's success.'

Equally striking, and in marked contrast tothe classic M-form organization, is the extent towhich ABB's hierarchical structure above theindividual company level has been stripped to aleanness that Chandler would not recognize. Incontrast to the eight or nine layers of managementin its predecessor companies, in ABB there isonly one intermediate level between the corporateexecutive committee and the managers of the1300 front line companies. Also, the staff groupssupporting that shallow structure are very thin.Barnevik's rule of thumb for restructuring thetraditional organizations of the merged andacquired companies from which ABB was createdwas to remove 90 percent of all employees ateach level above the operating companies. Thoseindividuals or groups that were not required bythe companies to increase their self sufficiencywere either set up as independent service centerscharging market rates or eliminated. As a result,the entire corporate headquarters of this $30billion company including the CEO. the sevengroup executives (such as Lindhal and

Schulmeyer) who comprise the executive commit-tee, and the various corporate staff groupstogether number less than UK) people. Similarly,at the business area level, managers like UlfGundemark are supported by a staff of three tofive—typically a controller, a technical directorand a business development or marketing direc-tor, none of whom have any assistants.

This change in basic philosophy to radicaldecentralization is supported by an equallyradical redeployment of human, technologicaland fmancial resources. With the corporate HRstaff consisting of only one manager, humanresources have to be recruited and developed atthe level of the front-line companies. Similarly,rather than concentrating its technology incentralized corporate laboratories or even atlarge group or division-level research facilities.ABB allocates more than 90 percent of itssubstantial R&D budget ($2.4 billion in 1992) tosupport technology development in the front-linecompanies' centers of excellence whose expertiseare then linked with those of centers located inother companies and leveraged broadly acrossthe entire organization.

Finally, each front line company is givenresponsibility for its complete balance sheet, andit is explicit corporate policy to allow managersto inherit results over the years through changesin their company's equity. As a result, each unitmanages its own treasury function including cashmanagement, foreign exchange exposure andresponsibility for borrowing. Coupled with adividend policy that permits each company toretain a third of its net profits, this policygives front-line management substantial financialindependence by limiting their need to rely oncorporate management for funding.

Barnevik's primary objective in making sucha radical change to the classic multidivisionalstructure he inherited was to create a context inwhich the entrepreneurial activities could bemuch more widely distributed that in mostcontemporary companies or indeed in the classicmodel Chandler described. In Chandler's model,the corporate level executives were indisputably'the key men in any enterprise' due to theircentral role as resource allocators. It was thisrole that led Chandler to dub them the company's•entrepreneurs' while those lower in the organiza-tion were termed 'managers' and were assumedto focus on the operating activities required to


implement the corporate executive's entrepre-neurial decisions. Through the radical decentrali-zation of resources to 1300 front line units andthrough the dramatic reductions in the machineryof control, Barnevik has redefined these manage-ment roles to create a very different entrepreneur-ial process that represents the first level of ABB'sevolution beyond the classic M-form model.

The entrepreneurial process: Aligning andsupporting initiatives

This entrepreneurial process, framed and insti-tutionalized by ABB's new organization structureand management philosophy, is embedded in aredefined set of management roles and relation-ships. Front-line managers—the heads of the1300 little companies—have evolved from theirtraditional role of implementers of top-downdecisions to become the primary initiators ofentrepreneurial action, creating and pursuingnew opportunities for the company. Middle-levelmanagers like Baker and Gundemark are nolonger preoccupied with their historic controlrole, but instead have become a key resource tothe front-line manager, coaching and supportingthem in their activities. And top management,having radically decentralized the resources andbacked them with strong delegated responsibility,focus much more on driving the entrepreneurialprocess by developing a broad set of objectivesand by establishing stretched performance stan-dards that the front-line initiatives must meet(see Figure 2)

This fundamental difference between the ABBorganization and the classic M-form is broughtsharply into focus with the changes that occur inorganizational processes and management rolesevery time ABB acquires a company operatingin the more traditional mode. With its acquisitionof Westinghouse's North American power trans-mission and distribution business for example.ABB had to overlay its radically decentralizedstructure and its philosophy of front lineentrepreneurship on a much more hierarchicallycontrolled management system. The impact onthe management of the relays division weretypical of the changes occurring across this wholeacquired business. Because of Westinghouse topmanagement's unwillingness to support invest-ments in what was seen as a mature business,Don Jans—then heading the relays division for

Westinghouse—had been unable to convince hisbosses to invest to any significant degree in solidstate and microprocessor relays technologies,despite the fact that his aging electro-mechanicalproduct lines were coming under increasingcompetitive threat. Under ABB's ownership,however, management roles and relationshipschanged radically. The relays operation wasstructured as a separate company and wasexpected to take responsibility for its own long-term future. Jans, whom ABB retained as thegeneral manager of the company, quickly usedhis new-found strategic freedom and financialflexibility to start a small-scale effort to developmicroprocessor-based products. As the initialexperiments yielded some positive results, thescope of the activity was gradually broadenedand the company was able to develop innovativenew solid state products in time to head off anaggressive new competitor who had begun totake advantage of the product-market gap.

The stagnation occurring in Westinghouse'spower transmission business is not unusual. Ashas been documented by several observers oflarge global companies, the hierarchical and staff-led processes in the mature M-form organizationtend to dampen front-line initiatives and inno-vation (Kanter, 1983; Peters, 1992). Evidenceover the 1980s suggests that what Williamson(1975) described as the corrupted multidivisionalorganization is perhaps not an exception but thestate to which the internal dynamics of the M-form inevitably leads (see also Chandler, 1991).

One way to prevent this erosion of front-line entrepreneurship is represented by theconglomerate organization labelled by Williamsonas the holding company model or the H-form.While the entrepreneurial process developed inABB is explicitly designed to counter the M-form's tendency to reduce front-line managersto the role of operational implementers, it differssignificantly from the management processes ofthe H-form primarily because of the roles thatare played by the company's middle and topmanagements. Unlike in conglomerates, boththese groups in ABB remain involved in theoperational realities of the business and contributedirectly to the entrepreneurial process. Theiractions not only differentiate them from thehands-on substantive decision-making role of theM-form, but also from the hands-off financialcontrol role of the H-form.


—

• Creating andpursuingopportunities

~^^^SSI5^^• Reviewing, devekjping

and supportinginitiatives

. Establfshing strategicmission and performancestandards

Front-lirwManage nient

MiddleManagement

Figure 2. The entrepreneurial process

TopManagement

The role that Gundemark and Lindahl playedin shaping and supporting Jans' initiative canillustrate the point. As head of ABB's worldwideRelays Business Area (BA). Gundemark saw hisrole as supporting Jans' initiative on microproc-essor based products, incorporating it into theBA's global strategy to lead this technologicalconversion. As a member of the steering commit-tee that acted as a board for Jans' local company,Gundemark was able to ensure that the proposalwas supported and funded within a few daysrather than the months or even years it wouldhave taken in Westinghouse for the capital requestto work its way up to corporate headquarters forapproval and back. Beyond funding approval,Gundemark provided Jans with advice andsupport in pursuing a strategy that involved arisk of short term profit decline. For example,when a U.S. revenue shortfall led Jans' geographicboss, Joe Baker, to push for cuts in the £1.5million Jans had budgeted for microprocessorproduct development, Gundemark arranged toprovide the technical support from the Swedishrelays company.

At the corporate level, Lindahl worked atbuilding a shared commitment from his manage-ment team to the ambition of 'conquering theglobe in power transmission.' Expecting his BAheads and company managers to take the

leadership in developing their business strategies,he saw his role as questioning and challengingthe robustness of those strategies by testing themagainst key issues hke environmental legislationor asking them to develop scenarios for dealingwith different trade barriers. Beyond such macroexercises, ABB's top management also lived bythe motto 'what gets measured gets done.' YetLindahl saw his role as much more than definingfinancial targets; his primary focus was onembedding performance standards that wouldstretch the organization to achieve extraordinaryresults. This led him to adopt a style he describedas 'fingers in the pie' management, which hecontrasted to the 'abstract management' approachof controlling agglomerated units through sophis-ticated but remote systems. Managing in thisway, he had no problem in making direct contactwith Jans or other front-line managers to expandtheir horizons, encourage their initiatives, oroffer help when performance was slipping off-track.

The review, support and coaching provided byexperienced managers like Gundemark raises thelevels of discipline, analysis and judgment in theentrepreneurial initiatives of front-line managerslike Jans. Similarly, the strategic mission andperformance standards defined by top managerslike Lindahl ensure that those initiatives are


aligned with the company's overall strategicpriorities. This discipline, guidance and supportprovided by ABB's senior management groupswas clearly less constraining than the much moredirection- and-control-oriented roles played bysimilar management levels in Westinghouse. Atthe same time, however, they were much moreinvolved than the remote, measurement-focusedmanagement that had allowed front lineentrepreneurs to lead many H-form companiesinto their incoherent expansions in the I96()s and1970s (Chandler, 1991). These changes in theroles and tasks of senior managers not onlydistinguish the entrepreneurial process in ABBfrom those in both divisionalized and conglomer-ate organizations, they also lead to a verydifferent process for integrating the knowledge,resources and capabilities lodged in differentparts of the company. It is to an analysis of thisintegration process in ABB that we now turn.

ABB FROM BOWER'S PERSPECTIVE:INTEGRATING RESOURCES ANDCAPABILITIES

Bower's intensive study of business planning andinvestment decision making in four divisions ofa large diversified company he identified as'National Products" led him to develop a processmodel of the firm that enriched Chandler's workby challenging and expanding on several of itsdescriptions and conclusions. He presented a lessheroic view of top management than Chandler'sdescription of corporate entrepreneurs determin-ing strategy through their control over resources.Instead, Bower described a process in which theshaping of new strategic initiatives and theinvestment proposals to support them ('definition'in his terminology) were initiated by front-linemanagers. Furthermore, in his view, it was themiddle-level managers who typically made theresource commitments, since projects reachingthe executive committee level with their support(Bower used the term 'impetus') were 'almostnever rejected' (1970: 57). Thus, the majorsource of top managment's power in Bower'smodel lay in its control over what he termed the'structural context'—'the set of organizationalforces that influenced the processes of definitionand impetus' (1970: 71).

This model of the core management processes

in a large, complex organization provides a goodyet partial insight into some of the managementroles and relationships in ABB. Certainly PercyBarnevik's priorities as he set the course forthe newly merged operations were very muchoriented towards the context-defining role thatBower described as the top management job of'constitution writing' (1970: 2). Within days of themerger on January 5, 1988, Barnevik convened a3-day meeting of his top 300 managers in Cannesto describe in great detail the operation of thematrix structure, the management philosophy ofradical decentralization with strict accountability,and the behavioral expectations based on speed,fiexibility and an action orientation. His presen-tation, communicated through 198 overheadtransparencies, was formalized in a widely distrib-uted 21-page Mission, Values and Policy bookletreferred to inside the company as the 'policybible.' During the years that followed, he andthe other members of the corporate executivecommittee continued to spend an enormousamount of time elaborating on the managementphilosophy, refining the structural model, anddeveloping the corporate policies.

Goran Lindahl, member of the corporateexecutive committee, characterized the resultingmanagement philosophy as one of 'decentrali-zation under central conditions.' In this system,he described the top management role as being'to provide a framework' within which thoselower in the organization could operate andmake decisions. It is a philosophy that closelyparallels Bower's view that top management'sprimary role is to define and manage theorganization's 'structural context."

Similarly, at the front-line management level.Bower's description of managers who were theprimary developers of new strategic ideas andinvestment proposals also rings true in ABB,and detailed evidence of this was presented inthe previous section. As the 'policy bible'confirms, 'ABB's improvements are generatedby thousands of actions taken by both large andsmall profit centers. . . Every ABB managermust be a driving force for change and develop-ment' (1991: 18). One manager described hisrole running a profit center as 'white waterrafting management,' but was clear that it washis initiative that drove the agenda of his twomatrix bosses. Only partly in jest, he declared,'We are the master of two slaves!'


It is at the critical level of the middle-levelmanager—like Don Jans' 'two slaves," Joe Baker,and Ulf Gundemark—that the practices at ABBdiffer the most from Bower's process model. InBower's observation, as in Chandler's, thegrowing size and complexity of organizationsrequired middle managers to focus most of theirtime and effort on managing the two vitalprocesses of business planning and resourceallocation. The challenge at the center of thedivision manager's job was to resolve theproblems caused by the asymmetry of informationin large complex organizations by communicatingthe corporation's objectives and standards downto front-line managers and transmitting businessneeds and opportunities up to corporate levelmanagers. As Bower explained.

Once the gap between the kinds of information,analysis and choice that goes on at the twoextreme levels is recognized, it is obvious thatsome manager has to provide a consistentintegration of the parts. . . The detail necessaryfor conducting an evaluation makes it unfeasiblefor top management to accomplish the task(1970: 288).

But Bower recognized that this task involvedmore than being a two-way communicationconduit, and he saw the middle manager's keyrole being focused on the selection, screeningand interpretation of information. Like Chandler,he also viewed this task as legitimizing themultitiered, staff-supported hierarchies that weretypical of the organizations both researchersstudied. While Chandler described the primaryrole of staffs at department, division and corpo-rate levels in analytic terms—'an independentcheck on requests, proposals and estimates'(1962: 10)—Bower saw their role more from thepolitical perspective that lay at the heart of hismodel. At the division level, staff played a keyrole in helping the general manager 'evaluateprojects against their understanding of corporatecriteria for evaluating managers' (1970: 78,emphasis added). Thus, the middle managementchallenge of 'placing bets' and 'building a trackrecord' required them to focus not only on thecontent of the projects, but also on the processby which they were developed and the credibilityand commitment of those proposing them. Toensure that project initiators would 'defendtheir projects and plans vigorously' (1970: 341),

Bower's division general managers needed anexpert staff whose primary role was 'to performthe adversary role in the planning process' (1970:342).

The centrality that both Bower and Chandlergave to the resource allocation process in theirdescription of the managerial task was appropriatein describing •he organizations they were study-ing. In the rapidly expanding economy of the1920s and again in the booming markets of thepost-War decades, opportunities far exceededmany companies" ability to finance them. Yet,in today's highly competitive, technologicallydriven environment, the scarce resource thatconstrains the growth and strategic success ofcompanies like ABB is not so much capital as itis specialized knowledge and expertise, and theorganizational capability that embeds it withinthe company.

Unlike capital, knowledge is a resource that isdifficult to accumulate at the corporate leveland allocate according to top management'sevaluation of strategic need. In ABB andcompanies like it, there is an increasinglyclear recognition that those with the specializedknowledge and expertise most vital to thecompany's competitiveness are usually locatedfar away from the corporate headquarters—in the front-line units' research laboratories,marketing groups or engineering departments.By decentralizing assets and resources into thesesmall specialized operating units, these companiesare trying to create an environment in which thisscarce knowledge can be developed and appliedmost appropriately. However, this creates agreater need for a powerful horizontal integrationprocess to ensure that the entire organizationbenefits from the specialized resources andexpertise developed in its entrepreneurial units.Forced to free-up its middle managers to createand support such horizontal linkages, ABB foundit had to reduce the demands placed on them bythe intensive vertical information processing tasksand the complex politically driven decision-making processes that were at the heart ofBower's model. This led the company to createa set of alternative organizational mechanisms toaddress the problem of hierarchical informationassymetry and the need for information screening.

First, the problem of information assymetry isconsiderably alleviated by ABB's commitmentto system-wide information sharing. As Barnevik


described, 'you don't inform, you over inform.'It is a philosophy that has been implementedboth through the company's formal informationsystems and its informal communication pro-cesses. At the foundation of the company'scommitment to keep managers at all levelsequally well informed lies ABACUS—ABB'ssophisticated information system. Governed bystrict rules concerning definition, format andtiming, this democratic system ensures thatmanagers around the company receive the sameinformation at the same time regardless of theirhierarchical level. Coupled with an organizationalnorm that puts value on managing content andnot just process—refiected in Goran Lindahl's'fingers-in-the-pie management'—this infor-mation sharing approach has created a contextin which top management continuously remainsin touch with front-line operations, thus reducingthe need for middle management to constantlyplay its upward intermediating role.

Similarly, the company's intensive informalcommunication processes greatly reduce middlemanagement's need to close the information gapin the other direction. Starting with the mission,values and policies detailed in clear, direct andoften tough language in the 'policy bible,'senior management sees the communication,interpretation and elaboration of ABB's objec-tives, priorities and philosophies to the lowestlevels as a core task. Barnevik sets the standardand provides the role model for this activity,meeting annually with about 5000 managers withwhom he discusses corporate objectives andpriorities which he communicates using some ofthe 2000 overhead transparencies he carries withhim. Again, the impact is to reduce the burdenon middle management to ensure that corporateobjectives and standards are properly transmitteddown through the organization.

Beyond managing information assymetry, ABBhas had to develop mechanisms to provide analternative to the vertical information screeningprocess provided by the successive layers of staff-driven challenge and refinement in Bower'smodel. Compared to the multi-level hierarchieswhere investment proposals could be defined bymanagers 'seven or eight levels below thecorporate president' (Bower, 1970: 9), the ultralean ABB structure has only one level betweenthe executive committee and the front-linemanagers running the independent operating

companies. As a result, middle level managerslike Gundemark typically have 10 to 20 companiesreporting directly to them, yet must manage thiswide span of control without sufficient staffsupport to provide the independent expertise andadversarial challenge that drove the informationscreening process in Bower's model.

To replicate the discipline and refinement of theM-form's challenge and evaluation processes, ABBhas built into its structure a sophisticated systemof internal tension that achieves a similar effect.For every key decision, from establishing strategicpriorities and setting budget targets to making keyinvestments and restructuring business operations,managers must present, defend, and adjust theirproposals to meet the often conflicting interests oftwo matrix bosses. Through such a process, ABBsubjects the overall planning and resource allocationdecisions to a filtering and refinement process atleast as powerful as the staff driven challenges ofthe traditional model. Equally important is thecompany's extensive use of self-monitoring andself-regulating mechanisms. For example, BAmanagers routinely create 'performance leaguetables' ranking all their businesses' operatingcompanies according to the measures or standardsthat reflect the priority objectives. This creates anenvironment of internal competition that requiresfront-line managers to measure their performancesand defend their proposals against the standardsset by the best performers within the BA.

With their vertical information processing tasksreduced through such mechanisms, middle man-agers at ABB are able to focus much more oftheir attention on the horizontal integration tasks.In contrast to the planning and budgeting dominatedrole they played in Bower's model, this managementgroup spends considerably more time and effortmanaging activities such as internal benchmarking,best practice identification, and technology transer—all aimed at linking and leveraging the company'swidely distributed resources and capabilities. Thedevelopment and management of this intensivehorizontal integration process is the second majorcharacteristic distinguishing this organization fromthe classic M-form.

The integration process: Linking and leveragingcapabilities

Although this vital capability-building and-leveraging task is driven by the middle managers,


— — - _ _ _

Managing operationalinterdependencies andpersonal networks

• Creating andpursuinoopportunities

Linking skills, knowledge andresources

issiiisr———__-^. Reviewing developing

and supporting

initiatives

~—~ - _ _ _

Developing and nurturingorgnizational values

~ ~

. Establishing strategicmission and performancestandards

Front-lineManagement

MiddleManagement

Figure 3. The integration process

TopManagement

it requires intensive interaction with and supportfrom managers at all levels of the organization(see Figure 3). In ABB, the middle managers'pivotal horizontal linkage role is supported by atop management that creates a value-basedcontext to support and reward collaborativebehavior, and by a front-line management thatexploits the personal networks such horizontalrelationships facilitate. It is a very differentprocess than the vertical planning and resourceallocation process at the core of Bower's model,but a vital one for a company competing in anincreasingly knowledge-based economy.

At the top level, for example, ABB's groupexecutives devote enormous effort to create asense of shared organizational identity—whatBarnevik calls a 'glue'—to bind disparate efforts,as well as organizational norms that valuecollaboration—a 'lubricant' in Barnevik'sterminology—to facilitate the linkages that inten-sive knowledge transfers require. Without suchan organizational context, the centrifugal forcesdriving independent entrepreneurial units canquickly result in fragmentation, isolation andinterunit competitiveness to create barriers anddefenses against internal flow of resources,knowledge and expertise.

Consequently, the first section in ABB's state-ment of its values is listed as 'Corporate Unity.'

Elaborating on this core value the 'policy bible'defines clearly the expectation that individuals andgroups would interact 'with mutual confidence,respect and trust. . . to eliminate the we/theyattitude,. . . and to remain flexible, open andgenerous.' Barnevik and his colleagues in theExecutive Committee carry the primary responsi-bility for translating those values into actionthrough their selection and promotion of individualsreflecting such behaviors, their imposition ofsanctions against those violating the values, andthrough their own role modeling actions.

These strongly ingrained corporate norms andvalues have created an environment which encour-ages front line managers to develop personalnetworks and operating interdependencies, andrewards them for doing so. Their regular horizontalcontacts across formal organizational boundariescreate spontaneous transfer of knowledge andexpertise that has become a valuable capability ofthe ABB organization. The linkages are wellillustrated by events following the introduction ofa time-based management program by the U.S.relays company as a means of increasing its overallcompetitiveness in the market. This innovativeprogram, which required intensive cross functionalcoordination within the company, was highlysuccessful not only in increasing customer servicelevels but also in reducing working capital at the


same time. At a regular meeting of qualityassurance managers held in the premises of theU.S. relays company, the hosts conducted a planttour as a side event, explaining their just-in-timeinventory system and other changes made toreduce throughput time. Without any corporatedirective, this program was transfered to almostevery other major relays company in ABB withina year, solely at the initiative of the functionalmanagers and their informal networks.

However, ABB and companies like it cannotrely on such 'spontaneous combustion' to drivethe intensive knowledge sharing required in mostmodern corporations. While the top level contextsetting and the front line personal networks canprovide the enabling conditions for his vitalhorizontal process, it is the middle managers whoare the best placed to facilitate these cross-unitlinkages. Yet, historically, it has been at this levelof the organization where the highest barriers tohorizontal transfer of knowledge and expertisehas existed, largely due to the structure andmanagement philosophy behind the design of theM-form. By creating divisional managers to carryout the cross functional integrating task, thissuccessor structure to the functional or U-formorganization allowed the top management to devotethemselves to the broad corporate-level strategicpriorities. In this process, however, the M-formfragmented the company's functional capabilities,while simultaneously creating a norm of divisionalautonomy that constrained the reintegration ofthose capabilities across the divisions.

The integration process framed by ABB'sorganization structure and management philosophyattempts to overcome this problem of fragmentationof capabilities by avoiding the pitfalls of boththe U-form's centralization and consolidation offunctional departments and the M-form's decentral-ization of functions to ensure divisional self-sufficiency. Instead of dividing the company intoa small number of independent divisions, ABBhas structured itself into 1300 small companiesnone of which can ever expect to fully develop orcontrol all required functional capabilities itself.Freed of many of the demands of managing theintensive vertical planning, control and resourceallocation processes, and equipped with an intimateknowledge of all the operating companies, the BAmanagers in ABB are ideally placed to devotesubstantial time to managing the resulting horizontalinterdependencies.

For example, in order to leverage the knowl-edge and expertise developed in various entrepre-neurial units around the world, Gundemark hascreated a series of additional communicationchannels and decision making forums at severallevels of the organization. At the lowest level,he has organized functional specialists from thefront-line operating companies in the U.S.,Sweden, Finland and Germany into variousfunctional councils, encouraging them to transferbest practice from the leading edge units to theothers. At the next level, he has formed asteering committee for each operating company,nominating to these local boards individuals fromthe BA management team, the regional staff andothers within ABB who could provide the localcompany with relevant advice or experience.And at the business area level, he has created aBA board with membership drawn from thegeneral managers of his key operating companies,to pool their expertise in shaping the BA's globalstrategy, management policies and operatingobjectives. Each of these new structural mechan-isms has been managed to maximize its effective-ness as a cross-unit communication channel ordecision making forum, and the company hasdramatically increased its use of internal bench-marking and transfer of best practice.

The creation of this broad portfolio of taskforces, teams and committees have also hada broader impact on the organizational andmanagement processes: they have served todevelop management perspectives and relation-ships in ways that have helped to preventisolationism and to break down parochialism,and they have become forums in which managerscan negotiate differences and resolve conflictsthat are inherent in the matrix structure. Thesechanges in management motivations andbehaviors and their consequences for the organi-zations' goal-setting and learning processes comeinto sharp focus in the following analysis of ABBfrom the perspective of Cyert and March'sbehavioral theory of the firm.

ABB FROM CYERT AND MARCH'SPERSPECTIVE: EMBEDDING PURPOSEAND CHALLENGE

Using clinical field data, experimental studiesand computer simulations, Cyert and March


formulated a behavior-based theory of the firmthat challenged many of the economists' classicassumptions. By viewing organizations ascoalitions of participants with disparate demands,they developed a notion of goal formation infirms that was based on an internal processof bargaining among coalition members. Theobjectives developed through this process weregiven stability by internal control mechanisms,particularly by standard operating procedures,yet were adaptable to changes in the externalenvironment and to internal changes in thecoalition. To explain decision making behavior,Cyert and March developed four key conceptsabout the way in which firms set objectives,manage expectations, and make choices. In theirmodel, behavior was driven by the quasi-resolution of conflict, uncertainty avoidance,problemistic search, and organizational learning.

In a global corporation that has very consciouslydivided itself into 1300 operating companieswhich are further fragmented into more than3500 profit centers, the notion of an organizationas a coalition of diverse interests has a good dealof face validity. And, particularly with regard tothe setting of performance targets, Cyert andMarch's description of organizational objectivesbeing established through a bargaining processprovides an accurate description of ABB's system.On the basis of each business' global strategicplan, ABB's executive committee negotiatesmacrolevel targets for each BA and each geo-graphic area, defining them in terms of broadmeasures such as growth, profit and return oncapital employed. As these macrotargets aretransmitted through the organization, each BAand regional manager allocates to each operatingcompany objectives that are defined in terms ofmore microlevel targets such as new orders,revenue, profit, working capital and headcount.Operating in the matrix, a company managertypically receives different and sometimes con-fiicting objectives from a BA manager whosepriorities may be to maximize global marketshare and to rationalize worldwide sourcing, anda regional manager who may be working toincrease short-term profitability and protect localemployment. Forced to agree on a single budget,these three managers then engage in a negotiationthat exhibits many of the characteristics of quasi-resolution of confiict. They establish goals onthe basis of local rationality, using decision

rules based on satisfying rather that maximizingobjectives.

Similarly, ABB's management seems to recog-nize very clearly and explicitly that the tensionsin its fragmented organizational system need astrong set of stabilizing mechanisms to reducecomplexity, guide action, and control behavior.Rules of behavior and guidance on decisionmaking make up a large part of the company's'policy bible.' As Cyert and March suggested,these clearly defined 'rules of thumb" and'standard operating procedures' affect the goalsand perceptions of individual ABB managers, aswell as the alternatives they consider and decisionrules they use in the company's organizationalchoice process.

For example, it was largely because of itsdetailed and clearly understood policies andprocedures that the company was able to makea large number of vital rationalization decisionsin a concentrated two year period. The speedwith which the decisions were made was evenmore impressive since issues such as the allocationof production capacity and export markets amongthe companies that had historically competedagainst one another were obviously highly divisivein nature. Such strategically important andpolitically sensitive decisions could be agreed onand implemented so quickly only because therewas a clear and detailed set of rules laid out inthe 'policy bible' relating to such matters asthe full utilization of existing facilities beforeproposing new investments, the principle oflocating investments as close as possible to long-term markets, and the mechanics of determininginternal sourcing patterns and transfer prices.

Finally, the dynamics underlying ABB's dem-onstrated market responsiveness and technologi-cal adaptability can be captured, at least partially,in Cyert and March's notion of organizationallearning. There are scores of examples of theway in which the firm has adapted its practicesin response to changes in the highly complexand dynamic global power equipment market.Many of these adjustments have been sub-sequently institutionalized as new policies, guide-lines or rules. To retrieve an earlier example, in1988, the rule of thumb that guided ABB's majorrestructuring effort was that every staff groupabove the operating company level be cut to 10percent of its previous size. The prescribedguideline for the remaining 90 percent was that

Beyond the M-Form

30 percent be retired or laid off, 30 percent beassigned to independent, self-sufficient servicecenters, and 30 percent be redeployed to thedecentralized operating companies. Four yearslater, reflecting the experience of several busi-nesses able to make even deeper cuts, the ruleof thumb had changed, and managers were beingrequired to cut the staffs assigned to servicecenters from 30 percent to 15 percent, those inprofit centers from 30 percent to 20 percent, andthe remaining corporate staffs from 10 percentof their original level to 5 percent.

Yet, as insightful as many of these conceptsare in describing some of the microlevel processesin ABB, they clearly do not capture the mainthrust of its management decision making. Inparticular. Cyert and March describe an organiza-tional learning process that is fragmented inapproach ('with shifts tending to reflect theexpansionist inclinations of subunits rather thansystematic reviews by top management' [1963:112],) short-term in focus ('so long as theenvironment of the firm is unstable and unpre-dictably unstable, the heart of the theory mustbe the process of short-run adaptive reactions'[p. 100]). and incremental in nature ('becausemany of the rules change slowly, it is possibleto construct models of organizational behaviorthat postulate only modest changes in decisionrules' [p. 101]). This fragmented, short-termfocused and incremental learning process isassumed to be captured in and institutionalizedby the company's standard operating procedures(SOPs)—'the memory of an organization'(p. 101). In contrast, our observations suggestthat the simplifying nature of SOPs, and theslowness with which they change often makethem impediments rather than facilitators ofeffective renewal in the highly competitive,technologically sophisticated global environmentin which companies like ABB operate. As aresult, the process of incremental learning at themicrolevel tends to be framed by a much moremacroprocess in which top management plays akey role.

Barnevik's ability to continually shake up theinternal operations of ABB has, over the years,stimulated a much more dramatic and strategicallyfocused process of organizational learning thanthe incremental process described by Cyert andMarch. For example, his decisions to merge thepreviously separate power generation, power

transmission and power distribution businesses,to introduce a company-wide customer focusprogram, and to acquire companies that wouldleverage ABB's environmental protectiontechnologies were all initiated to force suchinternal adjustment and learning. As he stated.These efforts do not represent a one timeproject, but will push ABB in the direction ofbecoming a continuous learning organization.'(President's comments, ABB 1991 AnnualReport, p. 9).

The framing of this more macroprocess oforganizational learning occurs within a goal-setting process that is also at variance from theCyert and March model in which a company'sobjectives are defined in terms of bargainedconstraints, its aspirations determined by individ-ual's past experiences, and its actions primarilydriven by a short-term problem solving process.In contrast to this view that firms 'solve pressingproblems rather than develop long-range strategy'(1963: 119), ABB managers at all levels place agreat deal of importance on developing clear andshared strategic objectives. This process is rootedin a corporate vision that Barnevik presented atthe senior management meeting in Cannesmarking the formal merging of the two companies.While based on detailed analysis, this vision washardly the outcome of internally bargained trade-offs. Instead, it reflected Barnevik's strongly heldpersonal beliefs about the power industry andhis assessment of the resources and capabilitieswithin ABB. Some of these beliefs, such as hisstrong commitment to the then stagnant powerequipment industry, were indeed contrary to thewidely held views among ABB managers thatthe company needed to diversify away from thisbusiness. Yet, that vision became the basis for amassive acquisition activity, a major R & Dinvestment program, and a variety of relatedstrategic commitments.

To ensure the implementation of this overallblueprint, the company has created new structuresand processes to allow managers at all levels totranslate the broad objectives into specific busi-ness and market strategies. First, within thecorporate executive committee, then at BA boardmeetings, and finally in the operating companies'steering committees, managers examine the impli-cations of Barnevik's vision for their particularareas of responsibility. Overall, these processesof goal formation and organizational learning


appear to be much closer to the 'entrepreneurial"and 'consensual' models that Cyert and Marchrejected. Furthermore, at the business level,the discussions to develop a consensus aboutstrategies and priorities do not result in anoutcome that Cyert and March feared would be'rather vague objectives' under which would lie'disagreement and uncertainty about subgoals'(1963: 28). In fact, the annually updated businessstrategies become the basis for annual budgettargets broken into very specific subgoals thatare negotiated and agreed between business,geographic and company managements.

The renewal process: Creating purpose andchallenge

In sum, ABB has created a much more rationalmacroframework for goal setting and learning,capturing them both in a third core organizationalprocess we describe as the renewal process{Figure 4). Like the entrepreneurial and inte-gration processes, it is defined by a set of top,middle and front-line management roles that notonly drive the process but also embed it in theorganization's ongoing activities. But, while thefront-line managers are the key drivers of theentrepreneurial process and middle managementprovides the anchor for the integration process,

it is the top management of the company thattakes the lead in inspiring and energizing therenewal process.

This process of purposeful corporate renewalis very different from the individually based,negotiation driven process by which Cyert andMarch assumed that companies established theirgoals and aspiration levels. In fact, many ofBarnevik's earliest actions were designed tobreak the coalitions and redefine the policiesthat had made ABB's precedent companiesoperate in such a politically negotiated manner.By reassigning managers, stripping out organiza-tion layers, redefining SOPs and shifting thelocus of power towards the operating companies,he reshaped coalition membership and redefinedthe relationships among them. Rather thanwaiting for the new organization to develop andinstitutionalize new objectives and behavioralnorms through what Cyert and March describedas 'accidents of organizational genealogy' (1963:34), he intervened strongly to define a newcommon purpose and ambition to shape thoseobjectives and standards.

In doing so, Barnevik seems to reject Cyertand March's assertion that 'people have goals,collectives of people do not' (1963: 26) aswell as their complementary belief that theorganizational aspiration level is determined by

Front-lineManagement

MiddleManagement

Managing the tensionbetweeen short-termperformance and long-termambition

Managing operationalinterdependencies andpersonal networks

— - —

Creating andpursuingopportunities

RENEWAL PROCESS

Creating and maintainingorganizational trust

Linking skills, knowledge andresources

Reviewing developingand supportinginitiatives

Shaping and embeddingcorporate purpose

~~~~~

Developing and nurturingorgnizational values

Establishing strategicmission and performancestandards

TopManagenient

Figure 4. The renewal process


the attainable goals aspired to by individualcoalition members according to their perceptionsof the past. Instead, he has focused ABB on avery ambitious, future oriented sense of corporatemission that is defined with sufficient convictionand communicated with sufficient intensity thatit can result in a simultaneous raising andconvergence of individual aspiration levels withinthe company. It is an activity to which he hasdevoted an enormous amount of time, firstly indeveloping a clearly articulated sense of purpose,and then in overlaying it with a more dynamicsense of challenge.

While many companies have aspired to thevoguish objective of 'creating a shared vision,'Barnevik seems to have moved well beyond therhetoric towards making this an operating realityat ABB. He has done so through several means.The company's mission statement is designed toengage organization members worldwide and toalign their interests with ABB's broadly definedcorporate purpose 'to contribute to environmen-tally sound sustainable growth and makeimproved living standards a reality for all nationsaround the world' (1991: 6). With such astatement, Barnevik has created the sense of'public interest' and 'social welfare' that Cyertand March saw as providing the common goalof political institutions (1963: 28). However, themission statement then expands that unifyingaltruistic purpose into a more managerial objec-tive: 'to increase the value of our products basedon continuous technological innovation and on thecompetence and motivation of our employees. . .becoming a global leader—the most competitive,competent, technologically advanced and qualityminded electrical engineering company in ourfields of activity' (1991: 6). This translation ofthe broad mission to a strategic objective lendsit a sense of organizational reality and legitimacy,and gives it more managerial power and rel-evance. Barnevik has further operationalized thebroad vision by expressing the goals in financialperformance terms—10 percent operating profitand 25 percent return on capital employed bythe mid 1990s.' Such statements have not onlyprovided a common aspiration level, they havealso moved the mission statement beyond the'ambiguous goals' and 'vague objectives' that ledCyert and March to conclude that such solutionsto the goal setting problem were 'misdirected'(1963: 28).

Beyond creating a shared purpose, Barnevikhas taken on a major role in providing theorganization with a sense of ambition that, onthe one hand, legitimizes the company's stretchtargets and, on the other hand, creates sufficientstrategic turmoil to stimulate organizational learn-ing. For example, recognizing that ABB was toodependent on a stagnant European market,Barnevik set an objective of expanding its NorthAmerican sales to represent 25 percent of thecompany's total. To initiate change, he acquiredCombustion Engineering and Westinghouse'spower transmission and distribution business inthe United States, grafting these operations onto ABB's existing BAs. Not only did such amove boost the North American share of ABB'ssales from 12 percent to 18 percent, it alsoexposed the Europe dominated business toNorth American technical developments (suchas process control automation) and managementpractices (such as time based management) thatwere previously neither well understood noreffectively practiced in the ABB system.

The dual impact of a clearly defined anchor ofcorporate purpose juxtaposed against a slightlydissonant corporate ambition is felt particularlystrongly in the front-line units. It is here thatmanagers confront the gap between current per-formance and the aspiration level defined by thevisionary purpose statement and the stretchingambition. If this process is to remain in balance,however, this tension created in the front-line unitsmust be resolved. And without a high level ofcredibility and trust, such resolution can easilydegenerate into horse trading or grand compro-mises. Creating and maintaining credibility andtrust in the system, therefore, is a key requirementand these tasks define the main responsibilities ofmiddle management In the renewal process.

One important means for executing theseresponsibilities lies in their stewardship of thevarious horizontal coordination mechanisms wehave described. In contrast to Cyert and March'sassumption that 'firms do not resolve potentialconflict. . . by a procedure of explicit mediation'(1963: 27), managers like Ulf Gundemark createand manage a portfolio of boards, committeesand project teams that serve not only as channelsfor the communication and transfer of knowledge,but are also explicitly designated as forums wheremanagers can negotiate differences and resolveconflicts in an open and legitimate manner.


Middle managers also ensure the legitimacyand credibility of this tension-filled process bycreating a decision making context which is bothparticipative and transparent. To ensure thecredibility of top management's ambitious objec-tives, for example, Ulf Gundemark formed aRelays Vision 2000 Task Force of nine operatingmanagers from various front-line companies,and charged them with the task of translatingBarnevik's broad vision of ABB's place in theglobal power equipment industry into specificstrategies for the relays business. After 6 monthsof intensive effort this task force developed aset of self-funding proposals that ranged fromstrategic investments to expand into new products(like metering) and new markets (liketelecommunications), to plans for increasingemployee motivation and organizational effective-ness. With a legitimacy and credibility that camefrom being defined by peers rather than beingimposed by the top management, the strategywas accepted by front line managers like Janswho began trying to meet the ambitious challengesby expanding beyond their existing businessboundaries into the new products and marketslegitimized by Vision 2000.

The behavioral theory of the firm is, in essence,premised on the absence of leadership, whileABB's renewal process is clearly driven by highlyeffective leaders at the company's top level. Inthis specific attribute, the Cyert and Marchmodel is fundamentally different from Chandler'sconceptualization of the classic M-form organiza-tion, which was premised on a strong leadershiprole of the top management. Alfred Sloan'stowering presence in General Motors is perhapsthe best known illustration of this role, asreflected in Chandler's (1962) description of himas the architect of GM's strategy, the builder ofits structure, and the designer of its systems. Eversince Sloan and his pioneering contemporariesdiscovered how the then emerging strategy ofdiversification was facilitated by the divisionalstructure and how that structure could besupported by some tightly designed planning andcontrol systems, this strategy-structure-systemslink has become an article of faith that hasshaped top management roles in most large M-form organizations.

While it is clear that the role played byBarnevik and other top managers at ABB is notwell captured by Cyert and March's model, it is

important to understand how it also has divergedfrom the top management role described byChandler. Given their starting point in themidst of a fusion between two large worldwidecompanies. Barnevik and his colleagues in ABB'sgroup executive management initially focused onthese tasks of formulating the merged company'sstrategy, structure and systems. Over time,however, their roles have evolved to be signifi-cantly different from these classic responsibilitiesof leadership in M-form organizations. Frombeing formulators of corporate strategy, theyhave become the shapers of an institutionalpurpose with which all employees can identifyand to which they can commit. Instead of beingthe architects of formal structure, they havecome to see themselves as the developersof organizational processes that can captureindividual initiative and create supportingrelationships. And, rather than being the design-ers of systems, they have refocused on theindividual as the primary unit of analysis in theleadership task and have become the molders ofpeople.

Leadership in the M-form is fundamentallybased on the view of companies as economicentities: managers in ABB and in most of theother companies we studied have premised theirrole on the recognition that large corporationsare also complex social institutions. To capturethe energy, commitment and creativity of theirpeople, these managers are replacing the hard-edged strategy-structure-systems paradigm of theM-form with a softer, more organic model builtaround purpose, process and people. The renewalprocess we have described challenges thebehavioral theory of the firm by the veryexistence of the leadership role; but it equallychallenges Chandler's model of the M-formbecause of this basic change in the content ofthat role.

FRAMING THE MODEL: TOWARD AMANAGERIAL THEORY OF THE FIRM

Chandler. Bower and Cyert and March providedthree different and generally complementaryviews of the same phenomenon—the multidivi-sional organization that had first emerged in the1920s, growing to become the corporate modelof the 1950s and 1960s when all three studies


were undertaken, and continuing to dominatethe assumptions on which most large companiesstructured their operations into the 1990s. Inexamining the ABB organization through theperspectives of these three pioneering conceptualmodels, our objective was not only to develop aricher understanding of the subject of the analysis,but also to derive insights and ideas that wouldprovide the basis for a new model of the large,complex firm more appropriate for companieslike ABB.

This new organizational model we have pro-posed is a product of two interrelated butseparate factors, and in this concluding sectionof the paper we will examine the implications ofboth. First, it reflects changes in the phenomenonbeing studied. Over the last decade or so, theoperating environments of large global firmshave changed significantly, requiring managersnot only to rethink the structures and processesof their companies but also their own underlyingmanagement philosophies. The model we havepresented here describes these emerging organi-zational characteristics and the new managerialassumptions on which they are built. In otherwords, the new model represents a real changein the organizations of large firms caused bythe changes in their environments and taskdemands.

But our model also reflects a different researchperspective. Despite the obvious fact that organi-zations are social structures that shape and areshaped by the relationships among actors withintheir social systems, organizational analysis hashistorically focused on abstract generalizationsof relationships represented by its formal struc-ture. In contrast, in Figure 4. we have definedour model in terms of three core processes thatare built around a specific set of relationshipsamong the front-line, middle and top manage-ments of a company. In this way, we havepresented a conceptualization of organizations,not as a scheme for dividing the overall corporateactivities among a group of subunits, but as acluster of roles and their interrelationships. Fromthis perspective, it is the behaviors and actionsassociated with each of these roles that collectivelydefine the social structure of a company withinwhich its management processes are embedded.Thus, the new model is also the product of adifferent way of viewing and conceptualizingorganizations.

Changes in the phenomenon

Based on his retrospective analysis of businessorganizations. Chandler concluded that 'histori-cally, administrators have rarely changed theirdaily routine and their positions of power exceptunder the strongest pressures. Therefore, a studyof the creation of new administrative forms andmethods should point to urgent needs andcompelling opportunities both within and withoutthe firm' (1962: 2). Indeed the stability andinstitutionalization of the M-form organizationover more than six decades has provided somesignificant confirmation of this observation.

In the late 1980s and early 1990s there wereseveral new forces in the environment that weredriving firms to develop a different managementapproach. In many industries, growth wasoccuring more slowly than earlier optimisticexpectations, leaving most firms to contend withserious overcapacities and intensifying their needto reduce costs as a way to protect profits.At the same time, technological change wasaccelerating, reconfiguring industry structuresand boundaries, and increasing the need for speedand flexibility at the firm level. Simultaneously,information processing technologies were trans-forming internal organizational activities andmanagement roles.

The combined impact of this slowing marketgrowth, accelerating technological change andtransforming organizational process was to shiftthe focus of many firms from allocating capitalto managing knowledge and learning as the keystrategic task. And, in this overall context ofan increasing dependence on knowledge andexpertise, the ability to attract and retain thebest people was increasingly becoming a keysource of competitive advantage. Collectively,these factors created the 'urgent needs andcompelling opportunities' that have forced compa-nies like ABB to challenge the basic assumptionsabout corporate structure and management pro-cesses that lay at the core of their multidivisionalorganizations.

Concerned by the cost of supporting the heavilystaffed, multitiered configuration into which suchorganizations had evolved (for example. Bower'sresearch site showed eight layers of generalmanagement from the CEO to the product groupmanager; ABB's predecessor company. BrownBoveri, had nine), and frustrated by the slowness


and inflexibility it caused in decision making, themost obvious target companies focused on wastheir basic organizational structure. Managerslike Percy Barnevik began to challenge theconventional wisdom that the classic muhidivi-sional hierarchy was the structural model ofchoice for large, diversified companies. In doingso, they began to question the basic philosophyunderlying that venerable organization form.

Because the M-form typically succeeded thefunctionally organized U-form company, it builton a management model in which responsibilityand authority were concentrated at the apex ofthe organization in the hands of its only generalmanager, the CEO. In creating the multidivisionalstructure, companies were literally dividing thesingle corporate entity into several entitiesappropriately called divisions. The new structuralunits were given legitimacy and power throughthe allocation of resources and delegation ofresponsibility to general managers created at thislevel. In short, the M-form was created througha philosophy of devolution of assets and account-ability from the corporate to the division level.

The new organizational model we havedescribed, however, represents a radically differ-ent structural philosophy. Conceptually, it isbased on an assumption that the organizationneeds to be developed and managed on a principleof proliferation and subsequent aggregation ofsmall independent entrepreneurial units from thebottom up, rather than one of division anddevolution of resources and responsibilities fromthe top. This structural philosophy implies asignificantly different distribution of corporateassets and resources. In contrast to the classicM-form where control over most resources isheld at the corporate level, in the new model,resources are decentralized to the front-line unitswhich operate with limited dependence on thecorporate parent for technological, financialor human resources, but with considerableinterdependence among themselves. In turn, thisapproach allows a drastic reduction in supervisorylayers (like Barnevik at ABB, Jack Welch'sobjective has been to reduce the number oforganizational layers at GE from 10 to 4) andthe size of staff groups each level of managementneeds.

Beyond driving these changes in the macro-structure, the environmental shifts have also ledmanagers in the new organizations to focus on a

very different kind of organizational processcompared to those that dominated the operationsof traditional divisionalized companies. Chand-ler's structural perspective concentrated his atten-tion on a set of processes he identified as strategicand tactical decision making. Bower's model ofthe firm as a political organism led him to focuson hierarchical information processing activitiesthat influenced resource allocation decisions.And Cyert and March's view of the firm as acoalition of participants negotiating to achievetheir disparate objectives drew their attention tothe microlevel processes of setting and adjustingobjectives. While shaped by the perspectives oftheir research, this focus on planning, resourceallocation, and objective-setting also reflected theemphasis managers of multidivisional companiesplaced on these processes. The common charac-teristics of all these processes was that they wereadministrative in their focus and function, andwere designed primarily to reflect the verticalinformation processing and decision makingcapabilities of the M-form structure. Yet. eventu-ally it was the complexity and inefficiency ofthese internally-focused planning, allocating andcontrolling activities that forced many companiesto make radical changes to their organizations.

In the emerging organizational model, theelaborate planning, coordination and controlsystems have been drastically redesigned andsimplified as management time and attention hasshifted towards the creation and management ofprocesses more directly related to adding valuethan on facilitating internal administrative activi-ties. It was this shift in focus that led tothe widespread implementation of process-basedactivities such as total quality implementation,new product development, or customer focusedmanagement for example. At the most strategiclevel, this has resulted in the development of thethree core processes that are at the heart of ourmodel. In many ways, these three processesprovide a necessary counterbalance to the biasesand limiting assumptions that were increasinglycausing difficuhies in the classic M-form organiza-tion. The entrepreneurial process highlights theneed to supplement top management's directionand control with front-line initiative and flexi-bility; the integration process creates a horizontalinformation processing capacity at least asefficient as the previously dominant verticalmechanisms; and the renewal process imposes a


dynamic tension into the organization that pre-vents it from developing strategic commitmentat the cost of organizational adaptability. It is aprocess management orientation quite differentfrom the classic one of ensuring that the allocationof resources matched the strategic priorities andthat operating performance met the budgetedobjectives.

Just as the largest companies of the time likeGeneral Motors, du Pont. Sears and Jersey Oil,were the pioneers of the new M-form organizationin the 192()s and 1930s because they experiencedthe emerging environmental shifts most acutely,so too are the largest global companies of todaylike General Electric, ABB, 3M, Toyota andCanon acting as the pioneers of the neworganizational form we have described. They areoften the first to experience the strains becausetheir existing organizations are stretched so thinby the 'urgent needs and compelling opportuni-ties' arising from the emerging internal andexternal environmental demands.

Documenting a change that had occurred afew decades earlier. Chandler could both describethe multidivisional organization quite preciselyand provide some clear evidence of its advantagesover the functional form. Not having the benefitof such a retrospective perspective, our descrip-tion of the new organizational model is consider-ably less rigorous. However, as we will show ina forthcoming monograph, we observed severalcompanies in our sample independentlydeveloping similar organizational characteristics,leading us to conclude that the changes beingmade at ABB are not an Idiosyncratic experiment.Our hypothesis is that these companies andothers are laying the basic foundations of anemerging organizational form for large complexcorporations.

A different research perspective

Over the last two decades, organizational theoryhas come to be increasingly dominated by aremote, reified and pessimistic view of largeorganizations. The remoteness is manifest intheories such as population ecology and trans-action cost analysis in which the focal level ofanalysis either lies in gross aggregations such asorganizational populations or in the microleveldetail of specific transactions. With such distantfoci, in these theories, organizations have been

reduced to reified abstractions, stripped of allthe concreteness of social actions and relationsthat define them. At the same time, thesetheories have presented a view of individual-organization interactions that is grounded in theassumption that the human role in organizationsis essentially passive and pathological. Thisnegative assumption about human agency ismanifest in the extreme determinism in popu-lation ecology (Hannan and Freeman, 1977), thepowerful forces of isomorphism that have virtuallyreplaced the role of leadership in institutionaltheory (contrast, for example, DiMaggio andPowell, 1983 and Selznick, 1957), the denial ofpurpose and direction in behavioral theory ofthe firm (Cyert and March, 1963) and theassumptions about shirking, opportunism andinertia in organizational economics (Williamson,1975; Alchian and Demsetz, 1972). The organiza-tional model we have presented here representsa different perspective on both organizations andon individual-organization interactions.

An organization is fundamentally a socialstructure. Even though actions of and withinorganizations may be motivated by a variety ofeconomic and other objectives, they emergethrough processes of social interactions that areshaped by the social structure. Over 35 yearsago, Merton provided a framework for theanalysis of such interactions based on thedefinitions of statuses and roles within the socialstructure. As argued by Merton 'status' impliesa position in a social system involving designatedrights and obligations and 'role' defines thebehavior oriented to the patterned expectationsof others. "In these terms, status and rolesbecome concepts serving to connect culturallydefined expectations with the patterned conductand relationships which make up a social struc-ture' (Merton. 1957: 110). Weick (1969) hassimilarly defined the structure of an organizationin terms of 'interlocking behaviors' which arereciprocal actions that are repeated over time.As summarized by Nelson, 'if behaviors betweentwo or more parties are repeated over time tothe point where those behaviors are taken forgranted as normal or expected, the resultingrelationship or tie has become part of theorganization structure' (1986: 75). Despite thisclearly relational nature of the concept, however,an increasing preoccupation with structural formshas resulted in most organizational analysis


focusing not on the network of roles andrelationships that define a social structure buton constructs such as centralization, formalizationor divisionalization which, at best, represent somebroad generalizations about those relationships.

In contrast, in Figure 4 we have defined thenew organizational model in terms of threecore positions within a company's managementstructure—the front line, middle and top-levelmanagers—^and the behaviors and actions associ-ated with each of them. Each of the three coreprocesses is structured around a specific set ofrelationships across these three roles; the threeprocesses coexist because of the overall symbiosiswithin and across those roles. In this way, wehave defined the structure of the organization,not in terms of how subunits are composed anddecomposed but as a cluster of statuses andassociated roles that collectively define the socialstructure of a company within which its coremanagement processes are embedded.

In explicating its differences from the M-form's structure, processes and decision-makingmechanisms, we could have built our argumentsnot by focusing on the three processes in thenew organizational model but by highlighting thevery different roles that front-line, middle andtop-level managers play in companies like ABB(see Figure 5). In Chandler's model, the top

management is the entrepreneur and resourceallocator, middle managers are the administrativecontrollers, and front-line managers are theoperational implcmenters. For Bower, the top-level manager is the creator of a company'sstructural context, the middle manager is thevertical information broker, while the front-linemanager is the initiator of operating decisions.In Cyert and March's analysis, top-level manage-ment is the dominant coalition that establishesthe standard operating procedures and resolvesconflict, middle managers are the champions andadvocates of subunit preferences based on localrationality, while front-line managers are theorganization's problem solvers. In the organiza-tional model we have described, while all thethree management groups have key roles to playin each of the three core processes, top-level managers are primarily the creators oforganizational purpose and the challengers ofthe status quo, middle level managers are thehorizontal integrators of strategy and capabilities,and the front-line managers are the organizationalentrepreneurs.

The second difference in our research perspectiverelates to the assumptions that are made aboutthe nature of human motivations and interpersonalbehavior within organizations. Particularly in com-parison to economic theories that assume a human

Top management

Middle management

Front-tine management

Chandler

Entrepreneur andresource allocator

Administrativecontroller

Operationalimplementer

Bower

Creator ofstructuralcontext

Verticalinformationbroker

Initiator

Cyert andMarch

Establisherof SOP-sand resolverof conflicis

Advocate ofsub-unit goals

Problemsolver

New Model

Creator ofpurpose andchallenger ofstatus-quo

Horizontalinformationbroker andcapabilityir)tegrator

Entrepreneurand performancedriver

Figure 5. Roles and tasks of management


propensity towards shirking, opportunism andinertia (Williamson, 1975; Alchian and Demsetz.1972), the managers in the firms we studied tooka much less pathological view of human nature.The new model developed from managementperspectives reflects that orientation.

The more positive view of human nature onwhich this model is built, however, does not relyon a fundamental premise of altruism as a stablehuman disposition. Instead, it reflects more of arelativist view of personal attributes, and moreof a situationalist perspective on human behavior(see Kenrick and Funder. 1988 for a recentreview of this perspective). Its assumption, basedon our interpretation of the views most managerswe interviewed expressed, is that human beingsare capable of both initiative and shirking,that they are given to both collaboration andopportunism, and that they are constrained byinertia but are also capable of learning. Withina firm, actual behavior is determined in part bythe prior disposition of actors (i.e., the locationon the spectrum of personal characteristics ofthe particular individuals involved) and in partby the situation they face (i.e., how the firm'scontext influences their behavior) (see Figure 6).

This model assumes that companies ensurepositive individual characteristics both by se-lecting and promoting those whose personalcharacteristics predispose them toward the

desired norms of behavior, and by creating aninternal context that encourages people to act inthe way they would as a member of a functionalfamily or a disciplined sporting team. Thus, theentrepreneurial process is built on the assumptionthat individuals have the capacity of personalagency and initiative, then creates the selectiondevices and support mechanisms to elicit andencourage such behavior. Similarly, the inte-gration process both assumes and shapes collabo-rative behavior, and the renewal process isdesigned to capitalize on the human motivationto learn while creating a context that drives themto do so. In short, the same managerial actionsthat drive the three processes also help createan organizational context that reinforces theeffectiveness of the processes by inducing organi-zational members to take initiative, cooperate andlearn. This interactive and mutually reinforcingdevelopment of management action, organiza-tional context and individual behavior is of centralimportance to the model we have presented hereand we will elaborate and illuminate theseinteractions more thoroughly in a forthcomingarticle (Ghoshal and Bartlett, 1994).

Toward a managerial theory '

We call ours a managerial model for two reasons.First, it describes the firm in terms of the

Initiative andCreativity

Collaboration

Learning

Free-riding andShirking

Opportunism

Inertia

OrganizationalContext

Figure 6. Shaping individual behavior: The role of context


managerial roles necessary to develop and managethe three core processes. Equally important,however, is the fact that the model was developedby analyzing the operations of a firm from theperspective and in the language of the managerswho live within the system. In this sense, ourmodel is very different from currently dominanttheories of the firm which are grounded in theperspectives and languages of different socialsciences. The managerial perspective in ourmodel, we believe, is at least as useful forilluminating organizational phenomena as thosegenerated by economists describing the firm in thecontext of market failure or social psychologistsdescribing it as a higher order aggregation ofindividual and group behavior that are typicallytheir focal level of analysis. It is this managerialperspective that we would like to see legitimizedin a new theory of the firm that would focus onthe distinctive characteristics of large businessorganizations and illuminate issues that managersof such firms perceive to be important. As weacknowledged in the introductory section, clearlya lot more work has to be done before this initialeffort of describing a new organizational formcan progress to the stage of presenting analternative theory of the firm. Our hope is thatthe model we have proposed in this article mightprovide some energy to that agenda.

ACKNOWLEDGEMENTS

The authors would like to thank Richard Cyert,Yves Doz, Mitchell Koza, Peter Moran, NitinNohria, Richard Rumelt and Jeffrey Williamsfor their helpful comments on earlier drafts ofthis paper.

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