The Student Spotlight is back with a great essay by Nikhail Vaswani, a second year student studying International Politics. Well done!
The M-Corporation (M-Form), is a theoretical framework which explains the corporate structuring of firms and its benefits. Produced by Alfred D. Chandler, Jr., it was first acknowledged within his book “Strategy and Structure” (1962) and was built upon in his essay “Corporate Strategy and Structure” (1991). The theory is posited upon processes of diversification, decentralisation, and ‘divisionalization’ as means for corporate success.
Chandler argues that corporate structure has shifted, ‘from a centralized, functionally departmentalized structure (the U Form)’, the Unitary Form, ‘to a multi-divisional one with a corporate office and a number of product or geographic divisions (the M Form)’, the Multidivisional Form. (Chandler, 1991, pp.35) I use Chandler’s theory to analyse the Mitsubishi Corporation (MC), a Japanese transnational corporation which forms part of the Mitsubishi Group of Companies (MG).
I argue that Chandler’s theory is relevant due to conceptual analysis upon Mitsubishi’s corporate structure and strategy, as witnessed through the three processes occurring within the corporation and group. However, the case study partially diverges from Chandler’s theory, in that MC’s chronological development did not follow Chandler’s American corporations, on which the theory is based. Despite this, the relevance of the theory is still supported thanks to the benefits reaped by the MC, outlined by Chandler and his critics.
Chandler’s M-Corporation
Chandler begins focussing upon 20th century American corporations engaging in a process of decentralization. This came in the form of the allocation of corporate responsibilities, over goods or geographical areas, to separate entities. (Chandler, 1991) This elicited a response in corporate structure, through the proliferation of new corporate divisions. This was a response, rather than an innovation in management, to increasing responsibilities and roles falling upon the shoulders of top tier managers, as a result of ‘the rapid expansion into distant or unrelated businesses’, known as diversification. (Chandler, 1991, pp. 37).
Due to the antecedence of diversification in relation to decentralization and divisionalization, I choose to highlight the importance and causes of diversification, proposed by Chandler, before analysing the further two processes.
Diversification was due to reasons both of legislative and market-oriented nature. The decision of the US Supreme Court in 1911 to break up ‘the original Standard Oil Company into a larger number of independently operating firms.’ heralded the start of diversification. Similarly, geographical shifts in demand, such as an increase in urban population, led to the proliferation of retail ‘chain stores’. (Chandler, 1991, pp. 36).
These observations make evident that a movement into new business operations, led to a situation in which business ‘structure thus had as much impact on strategy as strategy had on structure.’ It also highlights the ‘interconnections’ which Chandler enshrines as being fundamental in corporate success. (Chandler, 1991, pp. 36)
These were the creation of new divisions and, in tandem, decentralisation. However, a series of issues were presented with these processes. The increase in decision making didn’t only affect structure and strategy, but it also led to changes in corporate culture. This was seen when, ‘top managers no longer had time for personal contacts with the head of operating divisions.’ Accompanied by a greater potential for miscommunication, the divisionalization process which once appeared to be a cost-effective solution to accommodate diversification, now represented a more complicated and confusing organisational structure ‘than before the invention of the multi-divisional form’. Chandler himself predicted this, stating that the new organisational structure, ‘was no panacea for corporate success.’ (Chandler, 1991, pp. 36 – 38).
This was a turning point for the M-Form of the modern corporation, as after this, a period of ‘long-term strategic planning’ took place in order to simplify the complex structure. (Chandler, 1991, pp. 38) The moment was also a harbinger for the emergence autonomous divisions, in order to enhance communication.
There was now a simpler structure in which division numbers were reduced, in order to ‘end the separation between top and operating managers’. This created a two-level structure in which a ‘corporate office’ supervised a series of ‘operating divisions’. Each division would be responsible for certain services or goods, and could also be distinguished through their regional operating areas. The benefit of this was in specialisation, through which each division could tailor its strategy to maximise ‘functional capabilities’. While moving into new regions fostered competition, it allowed certain corporations to succeed in the international sphere, thanks to improved information collection. (Chandler, 1991, pp. 37 – 38) These benefits are enshrined by critics who argue that the emergence of divisions and contracting new personnel for them, has led to improved organization and communication. (Ichiishi and Sertel, 1998)
Further critics attest to the benefits of the M-Form. Amongst these, are studies on corporate performance founded on knowledge-based criterion. Holian finds that ‘the M-form allows for the use of local knowledge.’ through improved communication between divisions and with higher tiers of management. This validates his conclusion that ‘M-Form structures will usually outperform’ other types of corporate structures. (Holian, 2010, pp. 7)
Thus, I agree with Chandler’s idea that the corporation’s ‘organizational arrangements’ and ‘the underlying structure has remained much the same’ since the times of his analysis to today. (Chandler, 1991, pp. 38) I will demonstrate how this is supported through analysing how the MC fits the M-Form in two dimensions, both as an independent corporation, and as part of the MG.
The Mitsubishi Corporation
The MC was born out of the MG, as an independent and autonomous corporate entity. The MG traces its origins to 1870, as a shipping firm. Prior to this, it operated as a traditional Japanese corporation, based on a regional clan system. However, this form of organisation was outlawed in 1873. Due to this legislative change, the emergence of a new organisational form was adopted, known as a ‘zaibatsu’. The ‘zaibatsu’ ensured that all business activity revolved ‘around a single family’, and ‘might operate in all the major areas of economic activity.’ including bank ownership for the purposes of capital mobility. The Mitsubishi Zaibatsu thus operated in this form until 1945. However, during the 72 years prior to 1945, a series of changes emerged within the zaibatsu which are of important analytical value. These include processes of diversification and divisionalization. (Britannica Website) (MG Website)
In 1881 diversification took place with the firm moving into mining, through the acquisition of the ‘Takashima Coal Mine’ and the development of ‘new mining technology’. This is evidence for diversification of the firm’s operations. early on in its history. Alongside this, was the acquisition of the ‘Nagasaki Shipyard’ in 1884 to complement the initial maritime sector of the firm, representing a form of vertical integration. However, the most important change was the introduction of business divisions. This allowed the structure of the firm to resemble that of a modern-day corporation. Divisions led to an increase in ‘both efficiency and profitability as a corporate enterprise.’ Furthermore, the modernization of the firm was cemented in 1945 with the abolition of all zaibatus, due to their influence over regional economies. Post the ban, Mitsubishi turned into a series of ‘independent companies’ which weren’t allowed to use the Mitsubishi name due to its ties to the initial clan system. However, in 1952, the San Francisco Peace Accord, allowed the re-instating of ‘zaibatsu trade names and logos.’ In 1954 the MG is formed, a ‘single-entity’ made up of its three largest internal companies, and their affiliates, including the MC. (MG Website)
The MC adopted its name in 1971 and involved itself in a variety of economic sectors ranging from ‘coal projects in Australia and Canada’ to ‘salt field businesses in Mexico’. In the 1980s, the MC created a new management plan to ‘streamline’ its business operations in order to increase efficiency and profitability. Today, MC operates across a larger range of economic activities and has a presence within all continents and markets. Furthermore, it has introduced a new regional structure which allows for interrelationships between the MG’s businesses and the MC’s various groups, or divisions, to be enhanced and streamlined. Overseeing these divisions are regional offices in ‘New York, London and Singapore to shore up the growth and independence of MC’s operating companies.’ (Brochure, pp. 4) (MC Website)
The Mitsubishi Corporation and the M-Form
In terms of conceptual analysis between Chandler’s M-Form and the MG and MC, there is a great degree of resemblance. Just like American corporations, both the MG and MC have undergone the three structural and strategic processes. This was witnessed through MG’s decentralization in 1873, diversification in 1881, and divisionalization in 1908. MC similarly experienced its diversification in the late 1960s, accompanied by decentralisation in the mid 1980s, and divisionalization, starting in the late 1980s, and recently updated in 2010, through the establishment of ‘the Global Environment Business Development Group and Business Service Group’. (MC Website)
Chandler’s idea that successful corporations are diversified, stems from the principle of spreading risk, so as to accommodate for a variety of different markets. This insight, can be compared to conglomerates, as they are a business form composed of distinct businesses. (Britannica) The M-Form is of great relevance here, as it has allowed for the mould of the conglomerate to be adapted in the modern-day. This is replicated by the MG and its companies, including the MC, as they are both heavily diversified as witnessed through their various groups.
Thus, in terms of conceptual analysis, Chandler’s M-Form remains of great relevance and is applicable to the case study.However, in chronological analysis, there is a discord between Chandler’s American corporations and the MG and MC in Japan. Chandler observed that diversification led to the decentralisation of responsibilities and ultimate divisionalization. He uses firms such as DuPont to show this, albeit, at times the processes of decentralisation and divisionalization often intertwined themselves. Nevertheless, Chandler highlights the precedence of diversification as the cause for the further two processes. (Chandler, 1962)
In the case of the MG, this temporal concept does not apply. The MG, in fact experienced a period of decentralisation at first, before implementing diversification in its activities, exactly the same as the MC. I argue that the reason for this is due to insights made by Chandler on the legislative nature of decision making on corporate structure. This was made evident through the outlawing of the traditional zaibatsus in Japan, eliciting a response in the form of a new structure; one which involved a series of smaller independent businesses. When comparing this to legislation in the US, such as the 1911 US Supreme Court ruling, there is a high level of resemblance, as it caused collectives to be turned into independent firms. (Chandler, 1991)
Thus, the chronologies of the processes creating the M-Form are different when comparing firms of the global East and West. However, despite this temporal divergence, I argue that concepts within Chandler’s M-Form Theory are of great relevance as all three processes are clearly observed in the case studies of the MC and MG. (Chandler, 1962)
When analysing the structure of the MC, there is a further testament to the relevance of the M-Form. The MC operates through an internal hierarchical structure which closely resembles that of Chandler’s corporations. The MC’s ‘General Meeting of Shareholders’, ‘Board of Directors’, ‘President and Chief Executive Officer’ and ‘Executive Committee’ operate as the top tier of the structure. These groups and individuals are thus supervisors of MC’s internal divisions, also known as ‘Groups’. As of 2020, the MC has 10 autonomous groups with clear delineations of their respective brands and roles within the corporation. They operate across industries ranging from ‘Natural Gas’ to ‘Automotive & Mobility’ to ‘Food Industry’. This links to the M-Form, resembling a conglomerate, which in turn resembles the MC’s structure. (MC Brochure, pp. 6)
However, this structure has been adapted by appointing committees and departments which oversee the groups and act as intermediaries between both levels. (Figure 1)
This resembles Chandler’s ideals as divisions are mechanisms which allow for efficiency, one of the M-Form’s goals. Furthermore, the maintenance of regional operating offices, such as the one in London, allowed for ‘information gathering’ and coordination, ‘rather than a window into a market or supply source’. (Rudlin, 1970 quoted in Blackford, 2001) This supports the benefit of the M-Form, geographically, as it emphasises the value of regional separation, in tailoring corporate strategy.
Critics support divisions by stating that ‘interim contracting and re-contracting in an organization.’ can lead to improved coordination. (Ichiishi and Sertel, 1998, pp. 523) This is applied to the MC as the collective’s goals are reflected in the goals and projects of its groups. An example of this is the attainment of ‘United Nations Sustainable Development Goals’, being considered by the ‘Corporate Sustainability and CSR Dept.’, thus enhancing the relative success of the corporation as a whole. Similarly, the divisions themselves have cooperative ‘missions’, outlined by the top tiers of management within the MC. (MC Brochure, pp. 6 – 10)
Within the groups there is evidence of elements, which allow for corporate success. One of these, is integration, both vertical and horizontal. (Chandler, 1962, Ch. 4) The MG had already been involved in this process, through bank ownership which represented a form of forward vertical integration in their provision of services.
This is replicated today through the Mitsubishi UFJ Financial Group, one of MG’s companies which manages ‘the affairs of its subsidiaries within the group and the business of the group as a whole along with all relevant ancillary business.’ via the MUFG Bank, which is also ‘Japan’s largest bank.’ There is evidence of horizontal integration within the bank through a ‘strategic alliance’ with Morgan Stanley in the US, with the purpose of security holdings. (MUFG site)
Within the MC, there is a great degree of diversification as well. An example of this is the Natural Gas Group of the MC which is involved in ‘Shale Gas Development and Production in Canada.’ In 2020, it furthered its involvement within this project through participating in ‘marketing the gas locally in North America.’ (Brochure, pp. 12) This demonstrates the corporation’s diversity, plus vertical integration between primary and tertiary sectors, through development and marketing respectively.
Conclusions
In conclusion, I argue that Chandler’s theory of the M-Corporation, is relevant to a great extent today. This is because when corporate structure, outlined by Chandler, is applied to a modern-day transnational corporation, the MC and the MG, the framework fits their moulds. Despite mild chronological divergence, the three processes related to Chandler’s M-Form are evident.
In addition to the process of diversification, there is evidence for integration, another prescription made by Chandler for corporate success.
Furthermore, the theory is of increased relevance as it operates on two levels of analysis, within MC and the MC as part of MG. This is enshrined through Chandler’s critiques who not only confirm the theory’s relevance but enhance it through their analysis of the benefits brought about by the M-Corporation, including more efficient communication and coordination.
Bibliography
Blackford, M.G. 2001, The History of Mitsubishi corporation in London, 1915 to the Present Day, Frank Cass & Company Ltd.
Chandler, A.D. 1991, “Corporate strategy and structure: Some current considerations”, Society (New Brunswick), vol. 28, no. 3, pp. 35-38.
Chandler, A.D. 1962, “Strategy and Structure: Chapters in the History of Industrial Enterprise”, MIT Press (Massachusetts)
Holian. M.J. 2010, “Understanding the M-form Hypothesis” Journal of Industrial Organization Education
Ichiishi, T. & Sertel, M.R. 1998, “Cooperative Interim Contract and Re-Contract: Chandler’s M-Form Firm”, Economic theory, vol. 11, no. 3, pp. 523-543.
Weblinks
https://www.britannica.com/topic/zaibatsu (accessed on 1/12/20)
https://www.britannica.com/topic/conglomerate-business (accessed on 2/12/20)
https://www.mitsubishi.com/en/profile/ (accessed on 4/12/20)
https://www.mitsubishicorp.com/gb/en/about/mc.html (accessed on 24/11/20)
https://s3.amazonaws.com/arena-attachments/705027/a973f694aaaee0173aeb1cfce037f3b11.pdf (accessed on 24/11/20)
Mitsubishi Corporate Brochure, 2020, https://www.mitsubishicorp.com/jp/en/ir/library/cguide/ (accessed on 24/12/20)
Figures
Figure 1 – Organizational Structure of the Mitsubishi Corporation obtained from Mitsubishi Corporate Brochure, 2020, pp. 6