Organizational Structure and Economic Performance: A Test of the Multidivisional Hypothesis

By Henry Ogden ArmourDavid J. Teece
1977| Working Paper No. 416

This paper empirically investigates the proposition that the organization and operation of the large enterprise along “M-Form” multidivisional lines favors goal pursuit and least cost behavior more nearly associated with the neoclassical profit maximization hypothesis than a number of alternative organizational forms. Using a sample of petroleum firms during the period 1955-1977, a relationship between M-Form structure and superior profit performance is observed during the period in which the M-Form innovation was being diffused. The results provide support for the “markets and hierarchies” paradigm but additional studies are needed to affirm the generality of the finding.