u-vs-m-form-organizational-structure

U vs M-form Organizational Structure

A U-form (unitary form) organizational structure describes a company managed as a single unit along functional lines such as marketing and finance. Conversely, an M-form (multidivisional) structure describes a company divided into multiple semi-autonomous units. Financial targets from a central authority control each unit.

Understanding the U-form organizational structure.

The U-form organization relies on a functional approach to departmentalization and is often used to implement a single-product strategy. Developed during the railroad boom of the mid-19th century, the U-form structure was a great feat of organizational achievement. It helped rapidly growing companies manage their operations as scale and complexity increased. This gave rise to the first salaried managers with technical expertise and specialization.

This now conventional structure features a central management unit with several functionally organized departments. Decision-making is somewhat decentralized. Together with higher line authority, managers have the authority to delegate functional tasks to subordinates.

Since the U-form organizational structure emphasizes functional activities, coordination between each is crucial.

Advantages

  • Productivity. Functional specialization increases productivity through effective division of labor. For example, marketing specialists improve the performance of the marketing function and allow the company to expand through increasing managerial capacity. In turn, this reduces the workload of the CEO who is free to concentrate on more critical issues.
  • Cost savings. Compared to other configurations, the costs of staffing each department in a U-form structure are significantly lower. The U-form structure facilitates a wide span of management, where single managers or supervisors oversee a large number of subordinates. This also helps the firm centralize authority.

Disadvantages

  • Control loss. As the company grows larger, there is a progressive reduction in the ability of management to control it. As information is passed down through various levels of management, it can be subject to deliberate or accidental distortion.
  • Narrow focus. Since each senior manager is concerned with the efficient operation of their own functional area, they tend to devote less thought to wider company strategy. Worse still, senior managers may behave in such a way as to further their interests at the expense of others.

Understanding the M-form organizational structure

The M-form organizational structure became popular in the United States during the 1960s.

In the preceding decade, the post-war consumer boom saw the creation of new global mass markets for consumer goods. As a result, most organizations wanted to cash-in on this rapid growth by expanding into new markets and diversifying their product range.

This could only be achieved by utilizing the decentralized multidivisional business model seen in the M-form structure. Here, each business has a central office. But unlike the U-form structure, each functional division is allowed to make its own operational decisions.

History will show that the M-form structure allowed companies to manage a diverse range of products while maintaining efficiency and maximizing profit. The structure also enabled businesses to implement a corporate strategy of related diversification. 

Pioneered by General Motors and DuPont, the multidivisional form is now the most widely used among large modern firms.

Advantages

  • An optimal level of centralization. Larger firms that enjoy distinct branding and economies of scale can also enjoy the operational flexibility of a much smaller firm. While a central authority still dictates general organizational direction, each division operates as its own entity. In other words, it is responsible for making a profit and catering to its own needs. This means it – and by extension, the company – can still operate if another division fails.
  • Incentivization and accountability. If a specific division is underperforming then it is easy to hold a manager accountable. Increased accountability encourages management to perform, particularly when such performance is actively and transparently measured against competing divisions.

Disadvantages

  • Cost of management. With a greater number of managerial staff comes increased wage expenditure. This problem is exacerbated when one considers that the M-form structure favors specialization and expertise. While these qualities can drive growth, they also demand regular pay raises, bonuses, and other incentives.
  • Function duplication. The duplication of functions can also increase operating costs by diluting the benefits of economies of scale. In some cases, the duplication of functions leads to a lack of standardization when one division undercuts another to receive performance incentives.

Key takeaways:

  • A U-form (unitary form) organizational structure is used to implement a single-product strategy. Companies using this approach are managed as a single unit along functional lines such as finance and marketing.
  • An M-form (multidivisional form) organizational structure describes a company divided into multiple functional divisions. Each division has some degree of autonomy from a central authority.
  • During the post-war consumer boom, the M-form began to replace the U-form as the organizational structure of choice. This occurred as the M-form structure gave businesses the ability to expand into new markets with a diversified product range and maximize profits.

Read Next: Organizational Structure.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"