Thursday, March 15, 2012

How TCT applies to Multidimensional form organization

In the last blog, we looked at the application of TCT to understand vertical integration. In today's blog we look at the application of TCT in understanding the Multidimensional (M) -Form of organizations.

When functionally organized organizations expand their operations, size and diversity increases. The top management at such a juncture would find it extremely hard to deal with such operations; the interdependence of the various functional units makes it difficult to assign responsibilities for the outcomes of the business. 

The M form of organization resolves these difficulties by organizing the firms into product or geographical divisions where operational decisions and performance accountability are assigned to the divisional manager. The top management retains only the strategic decision making. This way the source of such a problem - bounded rationality of the top managers at the corporate office is resolved.

Another side-effect of this structuring is - the firm could function like a miniature stock market. The highest revenue generating unit would get a larger budget in the next cycle. The top management is also free to look out at diversification, acquisition and other activities of that nature. 

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