SOME IMPLICATIONS OF GROWTH FOR ORGANIZATIONAL FORM AND OWNERSHIP STRUCTURE

Building on previous modeling of the separation between formal and real authority in organizations, the paper investigates some implications of growth for the scope of integration and the internal organization of firms. It stresses the role of headquarters' overload and the differential (and unmeasured) cost of internal and external units in terms of their use of a scarce corporate resource, namely headquarters attention. The paper first shows how growth or other factors leads to restructuring, for example through spin offs, move of units to the periphery, and refocus on core competencies. It then looks at the internal allocation of tasks, and studies whether overload considerations may induce a firm to create profit centers and abandon a functional or unitary form (U-form) in favor of a multidivisional form (M-form).