article notes
300-500words content notes. example(see PDF) is provided.
11CALIFORNIA MANAGEMENT REVIEW VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU
The Emergence and
Evolution of the
Multidimensional
Organization
J. Strikwerda
J.W. Stoelhorst
“In terms of its impact, not just on economic activity, but also on human life as a
whole, the multidivisional organizational design must rank as one of the major
innovations of the last century.”—John Roberts1
T
he multidivisional, multi-unit, or M-form, is widely acknowledged
as the most successful organization form of the twentieth century.2
Firms that employ the M-form organize their activities in separate
business units and delegate control over the resources needed to
create economic value to the managers of these units. This organization form is
widespread, is central to the “theory in use” of managers, and serves as the basis
of most accounting systems. However, the organization of productive activities
in many contemporary firms violates the principle that is central to the M-form:
that business units are self-contained. The quest for synergies that has been high
on the corporate agenda since the late 1980s has resulted in the widespread
adoption of corporate account management, shared service centers, and matrix
organizations. As a result, most business units now depend at least in part on
resources that are controlled by other units. This raises fundamental questions
about the status of the M-form in contemporary firms.
Questioning the status of the M-form is not merely a theoretical fancy,
but is high on the agenda of managers as well. In this article, we report on
research that was commissioned by the Foundation for Management Stud-
ies, a Dutch organization of management executives. These practical men and
women shared a fundamental uneasiness about structuring their organizations.
On the one hand, many of them experienced problems with the M-form: high
employee costs, internal battles over resources, lack of standardization, lack of
cooperation, and loss of market opportunities. On the other hand, they did not
The Emergence and Evolution of the Multidimensional Organization
UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU12
see any viable alternatives to the multi-unit organization form. The need to
exploit synergies across business units was widespread, but it was unclear which
organizational designs are most appropriate to achieve this. This led to a research
project to explore the ways in which leading Dutch organizations, including
subsidiaries of foreign multinationals, have adapted the M-form to better exploit
synergies across business units.
As we expected, the results of the study vividly illustrate the fundamen-
tal tension between the need for contemporary firms to exploit synergies and
their need for clear accountability. However, an additional and unexpected
finding was that a number of firms in the study have evolved an organiza-
tional form that signals a new way of resolving this tension. These firms are
organized around multiple dimensions (e.g.,
region, product, and account) and simultane-
ously hold different managers accountable for
performance on these dimensions. This mul-
tidimensional organization form is based on
different principles than the M-form, the most
notable of which is that resources and market
opportunities are organized separately, so that
unit managers are deliberately made depen-
dent on each other to achieve their objectives.
The multidimensional organization also differs from the matrix organization. In
particular, it avoids the situation where employees have two bosses. This is made
possible by a different way of organizing information and by a planning and
control process in which the customer—rather than any one of the dimensions
for which managers are held accountable (e.g., country or product line)—is seen
as the main profit center.
First, however, a discussion of the M-form and its inherent limitations is
in order. This will clarify why changes in the economic context in the second
half of the twentieth century have put a strain on the way large businesses are
typically organized. The significance of the multidimensional organization is
best understood against the backdrop of the evolution from a resource-centric
industrial economy that was focused on exploiting tangible physical resources,
to a customer-centric service economy that is focused on exploiting intangible
knowledge resources. Multidimensional organizations can be interpreted as
attempts to implement a team-based approach to economic value creation that
seems particularly well adapted to exploiting the distributed nature of knowl-
edge that is arguably the defining characteristic of modern economies.
The Rise and Fall of the M-Form
Economic historian Alfred Chandler famously documented the emer-
gence of multidivisional organizations in the first half of the twentieth century.3
Economist Oliver Williamson labeled this type of organization the M-form to
distinguish it from the U-form that it replaced.4 In the U-form, or unitary form,
J. Strikwerda is a Professor of Organization
and Change at the Amsterdam Business
School, University of Amsterdam and
Director of the Nolan Norton Institute at Zeist,
Netherlands.
J.W. Stoelhorst is an Assistant Professor of
Strategy and Organization at the Amsterdam
Business School, University of Amsterdam.
Marcia Ruben
Marcia Ruben
The Emergence and Evolution of the Multidimensional Organization
CALIFORNIA MANAGEMENT REVIEW VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU 13
the firm is a single profit center that is organized along functional lines. The
large industrial firms that Chandler described realized that a unitary organiza-
tion stood in the way of their growth strategies. Instead of using functional
departments such as production and sales as the main dimension along which to
organize, these firms broke up into separate divisions, each of which was itself a
U-form. A “corporate parent” acting as headquarters coordinated the divisions.
This organization design is based on the following four principles:
The firm is organized in separate business units—Each division targets a spe-
cific market. The specific scope of the divisions can be defined on the basis
of such criteria as geography, product, customer, or distribution chan-
nel. The divisions operate as strategic business units, meaning that they
can pursue a competitive strategy that is geared to the specific market on
which they focus. Each business unit is a profit center, so that, in contrast
to the U-form, the firm now consists of multiple profit centers.
Business unit managers are accountable for creating economic value—The cor-
porate parent holds business unit managers accountable for creating eco-
nomic value. This accountability goes hand in hand with the delegation of
authority. Within the business scope defined for each unit, and apart from
financing its operations, the authority to make the necessary strategic,
tactical, and operational trade-offs to achieve business objectives is del-
egated to the business unit managers.
Resources are allocated unequivocally to business units—To be able to create
economic value, business units control all the resources they need to
pursue a focused competitive strategy, with possible exceptions such as
research and development funds. This control allows business units to
respond to market requirements with a minimum of coordination with
other business units or corporate headquarters.
The task of the corporate parent is to add value to the activities of the business
units—Headquarters defines the scope of the business units, allocates
resources, and coordinates activities where necessary. Each business unit
is an investment project in itself and the task of the corporate parent is to
support the business units in creating economic value. The turnover of
the firm is the sum of turnovers of the business units, corrected for inter-
nal deliveries. The income of the firm is the sum of the incomes of the
business units, minus the costs of the corporate parent.
These organizing principles have been applied widely in the United States
and Europe, and successfully so.5 There are two reasons for the M-form’s popu-
larity and success:
By creating an internal capital market the M-form stimulates entrepreneurship—
For the corporate parent to coordinate the activities of the different busi-
ness units, it is in principle sufficient to define the business scope of each
unit by specifying its target market.6 After the scope of the business units
is defined, corporate headquarters essentially manages an internal capital
market to allocate financial resources to the business units. In addition,
corporate headquarters may exercise control by providing overall strategic
The Emergence and Evolution of the Multidimensional Organization
UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU14
direction: approving financial and non-financial objectives; controlling
performance against objectives; appointing, assessing, remunerating, and
dismissing managers; and imposing corporate policies. However, despite
these possible additional roles for headquarters, the main principle of the
M-form is that business unit managers are responsible for creating eco-
nomic value and control the resources that allow them to do so. By orga-
nizing resources on the basis of markets served and delegating control of
these resources to business unit managers, firms that use the M-form can
better respond to market opportunities. The M-form stimulates entrepre-
neurship and creates opportunities for individuals to develop into general
managers without the need to provide capital.
The M-form offers a simple way to exploit synergies—In terms of management
accounting, the M-form is a simple organization that is nevertheless able
to exploit some synergies across business units. The M-form is simple in
the sense that accounting and control follow one dimension: the perfor-
mance of the business units. The efficiency of the firm as a whole can
be assessed through its break-up value: the value of the firm must be
higher than the sum of the values of the business units. This is achieved
by exploiting synergies, provided these synergies do not breach the quasi-
autonomy of the business unit managers. Such synergies can take the
form of financial synergies and economies of scope. Williamson made a
further distinction between the H-form, or financial holding, in which
the corporate parent only pursues financial synergies, and the M-form,
in which the corporate parent pursues both financial synergies and econ-
omies of scope.7 Financial synergies may result from spreading the risks
of investment across business units or reducing the costs of capital of the
firm. The sources of economies of scope include corporate R&D and man-
agement development programs that benefit multiple business units.
Despite its success during much of the twentieth century, by the late
1980s the M-form was under attack. The critique of the M-form focused on the
added value of the corporate parent to its business units.8 From the perspective
of outside investors, corporate headquarters adds costs that an investor could
avoid by directly investing in the business units. On this view, it is clear that the
overhead costs of a corporate layer of management should be offset by the value
that the corporate parent adds to the activities of its business units. If the par-
ent is able to increase the ability of its business units to create economic value,
the value of the firm as a whole will be higher than the sum of the values of its
business units. However, in many cases it could be demonstrated that the over-
all value of the firm was in fact lower than its break-up value. In other words,
rather than creating shareholder value, many parents were destroying it.
The limited success of many corporate parents in adding value to their
business units raised some fundamental questions about the M-form that both
managers and theorists have been struggling with ever since the issue was raised
some twenty years ago. It may be clear that the only source of added value is the
ability of the parent to exploit synergies of some sort. For much of the twentieth
The Emergence and Evolution of the Multidimensional Organization
CALIFORNIA MANAGEMENT REVIEW VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU 15
century, the relative efficiency of the internal capital markets of the H-form and
M-form allowed firms to reap financial synergies. One of the main causes of cap-
ital market inefficiencies is information asymmetry between shareholders and
managers. Outside investors may not have access to all the inside information
that is needed to assess the true value of investment opportunities. In an inter-
nal capital market, this problem is reduced because headquarters has the power
to conduct financial and strategic audits of the business units. However, by the
1980s, external capital markets had become much more efficient and there was
little room left to add value through financial portfolio management alone.
With the potential for financial synergies much reduced, the H-form
became much less popular and M-form firms increasingly focused on exploiting
economies of scale or scope. However, in doing so, they also ran into the limita-
tions of the multi-unit design. The need to exploit synergies across business units
has led to a variety of responses. On the market side, key account management
systems are a common solution to exploit customer synergies. On the resource
side, shared service centers are a common solution to exploit synergies in pro-
duction, delivery, and a variety of (support) functions. Over the years, many
firms have experimented with different types of matrix organizations. What all
these responses have in common is that they reduce the independence of busi-
ness units. This, in turn, goes against the very idea of the M-form.
At its heart, the M-form assumes that each of the firm’s customers only
needs to deal with one business unit, and that each of the firm’s business units
can control all resources needed to serve its market. It is only on these two
assumptions that business units can truly operate independently. These assump-
tions are violated as soon as there are opportunities for cross-selling or system
integration across the products of the different business units, complementarities
among the resources of the different business units, or economies of scale in the
use of resources across business units. In other words, there is a crucial trade-off
involved in choosing between the unequivocal resource allocation and lines of
authority that have led to the success of the M-form, on the one hand, and the
creation and the exploitation of the kind of synergies that product and financial
markets increasingly require, on the other.
In Search of Alternatives for the M-Form
The tension between the need to create synergies and the organizing
principles of the M-form explains why the Dutch Foundation for Management
Studies commissioned a study into the status of the M-form among large firms
in the Netherlands (see the Appendix, “About the Research”). Interviews at 36
large Dutch organizations, including a number of subsidiaries of non-Dutch mul-
tinationals and a number of non-profit organizations, led to five main conclu-
sions about the status of the M-form.
The Emergence and Evolution of the Multidimensional Organization
UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU16
The M-form Still Dominates the Corporate Landscape
In 29 of the 36 firms interviewed, the internal organization was based on
one dimension. These firms were organized around units that were defined in
terms of either regions, products, markets, product-market combinations, or in
some cases distribution channels (e.g., intermediaries in the insurance indus-
try). An interesting case among these 29 firms was the “split business chain”
employed by Philips Medical Systems, in which development and manufactur-
ing are organized globally in divisions based on products, while marketing, sales,
and services are organized on the basis of regions. However, with the exception
of Philips Medical Systems and the seven multidimensional firms identified
below, the dominant way of organizing firms in the sample was on the basis
of the principle underlying the M-form: around units that are defined in terms
of one specific dimension.
The M-form Is Central to the “Theory in Use” of Executives
A second conclusion is that the traditional multi-unit organization is cen-
tral to the “theory in use” of executives.9 Executives’ comments on organization
were typically framed in terms of the organizing principles that underlie the
M-form. Clearly defined accountabilities and performance targets at the level
of business units are seen as the norm against which organizational solutions
are to be judged. As one respondent remarked, “When I was appointed CEO
of this firm, the organization was a complete mess. There was only one way to
clear this up: to organize it strictly in business units and divisions, without com-
promise.” Another illustrative comment by a CEO was: “My first philosophy is
to decentralize until the bitter end, which should result in clearly identifiable
entities for entrepreneurship. My second philosophy is that entrepreneurship
is by far more important than achieving synergies. My third philosophy is that
if the market changes, the organization needs to be adapted.” That the M-form
dominates the thinking of executives about organization is reinforced by the
fact that the multi-unit form is also the basis of the accounting systems of most
companies.
The Matrix Organization Is a Negative Mental Anchor
In contrast to their frequent recourse to the principles of the M-form
when discussing their firm’s organization, executives had nothing positive
to say about the organizing principles of the matrix organization. The interviews
made it very clear that the concept of a matrix organization has very negative
connotations. This is despite the fact that all respondents acknowledged that a
firm typically cannot be managed on only one dimension. A remark that was
made, in slightly different terms, in multiple interviews, was the following:
“You cannot run a company like this along a single dimension, you need to
manage along multiple dimensions—but one thing is for sure, I never again
want to work with a matrix organization.” Executives associate the matrix
organization with unclear responsibilities, a lack of accountability, and political
battles over resources, resulting in risk-averse behavior and loss of market share.
The Emergence and Evolution of the Multidimensional Organization
CALIFORNIA MANAGEMENT REVIEW VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU 17
On the basis of the interviews, it seems that negative experiences with matrix
organizations even prevent top executives from asking the crucial question that
is central to recent scholarship on designing complex organizations “are there
ways to make the matrix organization work?”10
Virtually No Business Unit Is Self-Contained
Although the M-form still dominates both organization charts and execu-
tives’ mental maps, at the same time, the interviews showed that virtually no
business unit is self-contained. In contrast to the ideas underlying the M-form,
all firms are organized on the basis of business units that depend on resources
outside the unit to achieve their objectives, albeit in varying degrees. This is in
large part the result of the use of synergy mechanisms. Both shared service cen-
ters (26 out of 36 organizations) and corporate account management (15 out of
36 organizations) are widespread. In other words, while the M-form may still
dominate the thinking about organization, the actual practice of organizing has
taken firms away from the underlying logic of the M-form.
Mental Anchoring to the M-form Creates Problems
When Implementing Synergy Mechanisms
A number of firms—such as ARCADIS, an engineering firm with world-
wide operations—were wrestling with the organization of corporate account
management. While ARCADIS has historically operated very successfully on
the basis of independently operating business units, its corporate account man-
agement program is one of its most successful growth platforms. A corporate
account is typically a customer who is served by multiple business units, so that
corporate account management cuts across business units. The question that
firms like ARCADIS face is whether or not to grant corporate account manag-
ers profit-and-loss responsibility. Project driven firms such as construction com-
panies face a similar dilemma with respect to project management. In a firm
such as Van Hattum & Blankenvoort (a division of one of the largest construc-
tion companies in the Netherlands, the VolkerWessels group), large projects are
typically the profit drivers of the firm, yet there is also a need to monitor the
profitability of the business units that not only deliver goods and services to the
projects, but also to their own external customers. One of the problems with
respect to giving corporate account managers or project managers profit-and-
loss responsibility is opposition by business unit managers. They typically per-
ceive such responsibilities as reducing their own status, power, and autonomy.
In fact, in five of the firms interviewed, the mental anchoring to the M-form
resulted in a failure to successfully implement account management or project
management.
Together, these five conclusions confirm the reality of the tension that
executives face when organizing their firms. Most firms seem to be “stuck in
the middle” between the principle of self-contained units that is central to the
M-form, on the one hand, and the need to create synergies across business units,
on the other. However, our research also unexpectedly turned up a number of
The Emergence and Evolution of the Multidimensional Organization
UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU18
firms that seem to have found a new way to balance the demands for synergies
with clear accountability and control mechanisms.
Multidimensional Organizations
Seven of the firms that were interviewed create and exploit synergies
across their business units by organizing along multiple dimensions, and five
of these firms were studied in more detail (see Table 1). One of these firms is
PricewaterhouseCoopers Netherlands (PwC), the professional service firm for
accounting, tax, and management consulting. This firm is organized on the basis
of three dimensions: industries (including key accounts), professional services,
and support functions such as HR, IT, and facility management. This means
that, in addition to operating shared service centers for the support functions,
PwC has made different managers responsible for pursuing market opportuni-
ties and for managing resources. The “market managers” of industries and key
accounts have top-line responsibility. They are accountable for turnover, market
position, and customer retention. However, these managers control very few
resources. To reach their targets, they depend on the “resource managers” of the
professional service units. In addition to controlling most of the resources, these
resource managers also have bottom-line responsibility.
The crux of PWC’s organization is that pursuing market opportunities is
organized separately from managing resources. In doing so, the firm knowingly
violates the organizing principle that is at the heart of the traditional M-form:
that resources are unequivocally assigned to unit managers so that they can
use these resources to pursue market opportunities. What is interesting is that
PwC’s violation of this principle does not result in wheeling and dealing among
Firm
Number of
Dimensions Dimensions
ABN AMRO 4 (+1) Regions, Global Clients, Market Segments,
Products, (Support Functions)
Ahold
(Albert Heijn Company)
8 Time, Place, Formula, Category, Customer’s
Loyalty Card, Receipt, Regions, Branch/Store
ASML 2 (+1) Products, Accounts, (Support Functions)
IBM 4 (+1) Product/Solution, Regions, Accounts, Distribution
Channels, (Support Functions)
Microsoft 4 Products, Regions, Applications, Market Segments
PricewaterhouseCoopers 2 (+1) Industries, Professional Services, (Support
Functions)
Van Hattum & Blankevoort 2 Business Units, Projects
TABLE 1. The Multidimensional Firms from the Sample
The Emergence and Evolution of the Multidimensional Organization
CALIFORNIA MANAGEMENT REVIEW VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU 19
the market managers and resources managers. Instead, the inherent conflict
between developing new market opportunities and an efficient utilization of
resources is deliberately brought to the table of PwC’s executive board. To fruit-
fully exploit the tension between innovation and efficiency, the task of the board
is twofold. On the one hand, it must reduce risk-averse satisficing behavior
among the resource managers by confronting them with the market opportu-
nities identified by the market managers. On the other hand, it must confront
any overly optimistic judgments about market opportunities among the market
managers.
The example of PwC highlights three of the six main characteristics of
multidimensional organizations that we identified. Multidimensional organi-
zations: simultaneously report their performance on two or more dimensions
at multiple levels in the organization; simultaneously hold different managers
accountable for the contribution of their dimension to the firm’s overall perfor-
mance; and organize resources in such a way that the managers who are respon-
sible for the different dimensions are dependent on each other for the resources
they need to achieve their performance objectives. What is essential is that in
multidimensional organizations, the reconciliation of grasping market oppor-
tunities and using resource efficiently is a corporate issue that is visible to all.
Trade-offs are made in light of their effect on overall firm performance.
A possibly paradigmatic example that illustrates in more detail how mul-
tidimensional organizations operate is IBM. When Gerstner took over as CEO
in the early nineties, IBM was a product-centric firm with a focus on hardware
products such as mainframes. Its internal organization was based on a geograph-
ical model: the key positions outside the United States were the country manag-
ers. Today, IBM offers products, services, and solutions and is organized around
four dimensions: regions, products and solutions, industries and accounts, and
distribution channels. Contrary to his predecessor Akers, who intended to split
IBM up into a number of autonomous companies, Gerstner implemented a strat-
egy aimed at offering integrated services, including servicing a number of global
key accounts. Palmisano, the current CEO, has extended this strategy with his
concept of the “Globally Integrated Enterprise.”11
To operate as an integrated enterprise, IBM simultaneously holds dif-
ferent managers accountable for the results of products, accounts, regions, and
distribution channels. Product managers are accountable for turnover, margin,
market share, and market penetration of specific products or solutions. Account
managers are accountable for client satisfaction (which is measured twice a year
by an independent agency), turnover, and margin for specific accounts. Account
managers have staff for industry expertise and architecture design, but are oth-
erwise dependent on staff and expertise from the product groups. Region man-
agers are accountable for turnover, margin, and market penetration for specific
products, but which products will be offered in a region is beyond the decision
authority of the region manager. Distribution channel managers are accountable
for turnover, return on sales, and customer satisfaction for their channel. Prod-
uct, account, region, and distribution channel managers all depend on shared
The Emergence and Evolution of the Multidimensional Organization
UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU20
services organized in “Globally Integrated Support Functions,” including finance,
HR, legal, communications, and sales support.
A crucial building block of IBM’s ability to operate as an integrated enter-
prise is its management information system. Before 1994, in keeping with IBM’s
geographical organization, IBM Finance was decentralized. Management infor-
mation systems were geared to the needs of the local business units, cost allo-
cations were subject to gaming among business units, and consolidation of the
necessary information for financial reports was tedious. Today, all IBM’s trans-
actions are recorded according to one set of common data definitions and pro-
cesses and they are consolidated in one global general ledger. This has created
a trusted central source of accounting information that can be simultaneously
reported in terms of the multiple dimensions along which IBM is organized. In
addition, IBM operates a CRM system that enables all managers to consult the
database for orders and leads and specifies their contribution to customer profit-
ability. For instance, a distribution channel manager has access to information
about the percentage of total sales to individual customers through her specific
channel, and thus about her contribution to IBM’s overall profit with this cus-
tomer. IBM’s management information systems are the basis of a management
process that is designed to facilitate cooperation between the managers who are
accountable for results on each of the different dimensions.
Interestingly, the main profit centers in IBM’s organization are not the
units that bear responsibility for one of the four dimensions for which individual
managers are held accountable. The main profit center is the customer and
the primary task of all of the unit managers is to optimize IBM’s position with
its customers. To balance customer demands and the efficient use of resources
and to be able to respond to tactical buying behavior of customers that attempt
to increase their bargaining position vis-à-vis different IBM units, product and
account managers confer each month. This is done on the basis of management
information provided by IBM Finance from its accounting and CRM systems.
All managers within IBM receive the same information so that horizontal infor-
mation asymmetries (across dimensions) and vertical information asymmetries
(across layers in the hierarchy) are eliminated. For new leads, product managers
and industry consultants jointly write a business case. Depending on the situ-
ation, more weight may be given to account management or product manage-
ment, but the criterion to decide on the right balance is always the contribution
to the overall performance of IBM. If product and account managers cannot
agree, the matter is escalated to region managers, or in exceptional cases to cor-
porate headquarters.
In addition to the three characteristics of the multidimensional form spec-
ified above, the IBM case illustrates three more features that are common to the
seven firms in our sample that we identified as multidimensional organizations.
Multidimensional Firms Have Multidimensional Market Positions
The primary reason for organizing firms along multiple dimensions is that
multidimensional firms have identified multiple dimensions that are critical to
The Emergence and Evolution of the Multidimensional Organization
CALIFORNIA MANAGEMENT REVIEW VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU 21
their market position. Decision rights are allocated in line with the importance
of these dimensions in the market. IBM’s multidimensional organization is the
result of its philosophy that it should be able to conduct business with its cus-
tomers in the way that these customers prefer. Some customers prefer to do
business through product-based sellers, while others prefer industry-based sales
teams, solutions-based sales teams, intermediaries, or direct channels such as call
centers and the Internet. As a result, IBM has defined its market in terms of no
less than six segments that have significant overlap (global accounts, regional
accounts, midsized customers, industry-specific solutions, discrete products, and
distribution channels). While various commentators initially criticized IBM for
the complexity of its market definition and suggested that it would need to con-
centrate on only one dimension, this criticism was silenced by IBM’s success in
serving the market along these different dimensions.12
Multidimensional Firms Focus on the Customer as the Profit Center
The customer-centric nature of multidimensional firms is further
enhanced by the practice of treating customers as profit centers. In fact, although
all the managers that carry responsibility for a particular performance dimension
typically have profit responsibility, multidimensional firms see customers as the
primary profit center. Multidimensional firms create economic value creation by
pursuing market strategies on the basis of integrated product-and-service offer-
ings that maximize customer profitability.
An example of this approach is how ABN-AMRO allocates individual
customers to specific unit managers. ABN-AMRO is organized along four dimen-
sions: regions, market segments, products, and global clients. Profit is reported
for each of these dimensions, but also for each customer. This is made possible
by a worldwide CRM system, in which all customers (corporate accounts, SME,
or retail) are recorded down to the level of daily business and profitability. On
the basis of the specific profile of the customer, quarterly decisions are made
to allocate each customer to the unit manager that is best placed to optimize
the profitability of the customer. For instance, an SME firm would typically be
allocated to the SME manager in the firm’s country of residence. However, if
the owner of such a firm decides to sell his business, the market manager for
private equity clients will typically be much better placed to profitably serve this
customer. In the past, it was left to the initiative of the customer to become a
private equity client with ABN AMRO. Now, on the basis of the information col-
lected by the account manager of the client (in this case the SME manager) and
recorded in the CRM system, the quarterly meeting on customer reviews decides
to move the customer into the custody of the private equity manager. The SME
manager is rewarded by a referral fee, and the private equity manager takes on
the responsibility for cross-selling products and services other than his own pri-
vate equity service.
The Emergence and Evolution of the Multidimensional Organization
UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU22
Multidimensional Firms Eliminate
Information Asymmetries and Transfer Pricing
In multidimensional firms, corporate headquarters owns the transaction
data and customer data. External and internal transaction data are recorded on
multiple characteristics in one general ledger and are shared across the firm. The
general ledger allows for consolidation along multiple dimensions as well as for
reports at the level of individual customers. By operating one general ledger,
multidimensional firms create a single trusted source for performance data, and
by making these data available to all, multidimensional firms eliminate informa-
tion asymmetries. Also, because the general ledger records all external and inter-
nal transactions, transfer prices between units and the attendant negative effect
of double marginalization on the performance of the firm are eliminated.
The crucial importance of information systems in allowing firms to oper-
ate as multidimensional organizations is illustrated by one of the firms in our
sample that is moving towards the multidimensional form. This multinational
company, which operates four divisions that are active in around sixty coun-
tries, has been running a global data system for some twenty years. The system
reports along the product-driven divisional organization as well as the legal
dimension of its organization (the operating companies within the divisions,
as well as the national subsidiaries that act as holdings for the local sales orga-
nizations). When the firm changed its strategy to include global key account
management, it discovered that the global data system could not report the nec-
essary information. Sales to key accounts were locked up in local databases that
could only report consolidated financial figures per product division, which was,
after all, the main dimension along which planning and control had historically
proceeded. When the firm also decided to establish a project dimension that
cuts across its four divisions to offer integrated services to the hotel market, it
ran into further difficulties, as the product divisions were hesitant to make the
necessary investments and transfer prices undermined the profitability of the
projects. The challenge that the firm is currently facing is threefold: to allow the
global data system to report profitability on key accounts and projects, to give
the key account managers and project managers profit-and-loss responsibility,
and to use the global general ledger to eliminate transfer prices.
The Evolution of the Multidimensional Form
The ways in which multi-business firms can be organized to reap the
benefits of synergies across their business units has long been a central topic in
the management and strategy literature. As a theoretical concept, the idea of a
multidimensional organization is not entirely new. In fact, the idea that the M-
form should exploit economies of scale and scope through financial synergies,
corporate management development, or R&D programs led to a line-and-staff
organization that can already be seen as multidimensional, albeit in a very lim-
ited way. In the line-and-staff organization, functional managers not only report
to the general managers of their business unit, but also to corporate functional
The Emergence and Evolution of the Multidimensional Organization
CALIFORNIA MANAGEMENT REVIEW VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU 23
managers, so that management information needs to be made available along
both the line and the staff dimensions. However, the planning and control pro-
cesses in the M-form are strictly one dimensional, with the business units as the
only profit centers.
In the late 1970s, there was some theoretical interest in the potential of
more explicitly organizing multi-business firms along several dimensions in a
number of publications that were concerned with the changing nature of multi-
national corporations (MNCs).13 These publications are from a period in which
European multinationals were transforming their country-based international
operations, and U.S. multinationals their international sales divisions, into trans-
national organizations. The typical result of these transformations was a matrix
organization, rather than a full-fledged multidimensional design. As an empirical
phenomenon, the multidimensional organization as we describe it is new. While
it certainly has its precursors in well-designed matrix organizations, such as the
much celebrated global matrix that ABB operated in the 1990s, or in so-called
“network organizations,” it has a number of crucial features that signal a new
phase in the evolution of multidimensional organization designs.14
In Table 2 we use the dimensions of Galbraith’s “star model” for organiza-
tion design to summarize the main differences between the traditional M-form,
the typical two-dimensional matrix organization, and the multidimensional
form.15 The table highlights the differences between the M-form and the multi-
dimensional form and also shows that the matrix organization is in many ways
an intermediate form that may share more features with either the M-form or
the multidimensional form, depending on how well it is designed. In fact, one
could easily conceive of a matrix organization as a two-dimensional organiza-
tion, and a multidimensional organization such as IBM could conversely be seen
as a very complex matrix organization. However, there are also three important
differences between the typical matrix organization and the organization of the
multidimensional firms in our sample.
Strategy
In keeping with Chandler’s dictum “structure follows strategy,” the
emergence of the multidimensional organization is best understood against the
backdrop of the shift from the physical production model (that was central to
the industrial revolution) to the knowledge exploitation model (that is central
to a post-industrial service and experience economy). Multidimensional firms
have fully acknowledged the age-old marketing wisdom that their profitability
ultimately depends on their ability to create value for customers. They have
also acknowledged that the sources of their ability to create this value are shift-
ing from tangible physical assets and codified knowledge to the tacit personal
knowledge of creative knowledge workers. The result is strategies that are cus-
tomer-centric instead of resource-centric and aimed at knowledge exploitation
rather than physical production.
The Emergence and Evolution of the Multidimensional Organization
UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU24
Organization
Customer-centric strategies based on knowledge resources demand team-
work. Perhaps the main difference between the M-form and the multidimen-
sional organization is that the executive board no longer sees its task in terms of
portfolio management, but in terms of running an integrated firm. This is why
the efficient use of resources and the pursuit of market opportunities are orga-
nized separately, so that managers become dependent on each other. The firm is
no longer seen in terms of one dominant dimension along which resources are
allocated to quasi-autonomous managers, but in terms of multiple dimensions
that cooperate toward the common goal of creating value for customers. This
unlocks scarce knowledge resources from self-contained business units, so that
they can be used across the firm.
Planning and Control Process
The multidimensional organizations in the research sample have all
defined the customer as the primary profit center in their accounting systems,
and have translated this choice into their management control processes.16 This
stands in contrast to most firms, where the logic of the M-form is hardwired
M-form Matrix Form Multidimensional Form
Strategy Physical Production Model
Resource Centric
(Intermediate)
(Intermediate)
Knowledge Exploitation Model
Customer Centric
Organization Portfolio of Units
Single Dimension
One Boss
Autonomy
(Intermediate)
Multiple Dimensions
Two Bosses
(Intermediate)
Integrated Firm
Multiple Dimensions
One Boss
Teamwork
Planning
and Control
Process
Focus on Tangible Resources
Resource Allocation
Single Dimension
Transaction Data Owned
by Units
Unit Primary Profit Center
(Intermediate)
(Intermediate)
Multiple Dimensions
at Unit Level
Transaction Data
Owned by Regions
Product or Region
Primary Profit
Center
Focus on Intangible Resources
Resource Mobilization
Multiple Dimensions at All Levels
Transaction Data in Trusted
General Ledger
Customer Primary Profit Center
Rewards Individual Performance
Targets
(Intermediate) Team and Individual Performance
Targets
People Unit Oriented
Hierarchical
Motivated by Control of
Resources
(Intermediate)
(Intermediate)
(Intermediate)
Firm Oriented
Cooperative
Motivated by Contribution to the
Success of the Firm
TABLE 2. A Comparison of Different Organization Forms
The Emergence and Evolution of the Multidimensional Organization
CALIFORNIA MANAGEMENT REVIEW VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU 25
into the accounting systems, and performance measurement and control typi-
cally proceed along one dimension, taking the business unit or division as profit
center. More often than not, this one dimension is a poor proxy for the firm’s
position with customers. A necessary condition for operating a multidimensional
organization is that performance data is recorded and reported over multiple
dimensions and at all levels of the organization. Only a central accounting sys-
tem that is seen as a trusted source of financial data can eliminate information
asymmetry and the need for transfer prices between units, both of which are
essential for running an integrated customer-centric firm. Trade-offs between
dimensions are visible to all involved and a clear planning and control process
makes sure that these trade-offs are made with an eye to improving the devel-
opment and exploitation of knowledge resources across the firm and optimizing
the firm’s position with customers.
Rewards
The essence of the multidimensional organization is that it turns on the
principles of “team play.” This means that all players know the game and their
roles in this game, share information, cooperate towards a common goal, and
are rewarded on the basis of their contribution towards realizing this common
goal. To be able to reward the collective effort of team play, remuneration is pri-
marily based on people’s contribution to the common goal. This stands in con-
trast to the remuneration systems that dominated in the traditional M-form and
that reward managers in proportion to their position in the vertical hierarchy.
People
Multidimensional firms select managers for their motivation to make a
visible contribution to the overall performance of the firm. Organizing a firm
on the principle of teamwork calls for another type of manager than the one
that typically thrives in the M-form. Whereas the traditional business unit man-
ager is likely to be extrinsically motivated by strong financial incentives and the
status conferred by controlling resources, the emphasis on teamwork in the mul-
tidimensional organization calls for managers that are intrinsically motivated by
their contribution toward a common goal. Multidimensional firms put informa-
tion systems in place that disrupt the monopoly on information that managers
could use to control their subordinates in the traditional Weberian bureaucracy.
Interestingly, as a female manager at IBM remarked, this development may well
benefit women because they are known to be more likely to share information
and to solve problems collectively than men. The hiring and promotion prac-
tices of a firm thus have an important role to play in making a multidimensional
organization work.
While the differences between the M-form and the multidimensional
organization may be clear, the differences between the matrix organization and
the multidimensional form are subtler. While a poorly designed matrix organiza-
tion resembles the M-form without the attendant advantages of clear account-
ability, a well-designed matrix organization may in many ways resemble a
The Emergence and Evolution of the Multidimensional Organization
UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU26
multidimensional organization. However, there are nevertheless three important
differences between a multidimensional design and the matrix.
The first difference is in terms of organization. In a matrix organiza-
tion, the “node” on the organization chart where the dimensions meet is the
employee, who reports to two bosses that each have their own objectives. In a
multidimensional organization, the “node” in the organization is no longer the
employee, but the customer. In multidimensional organizations, most employees
are in fact employed in specific units and report to a single manager. Rather than
sharing employees, the managers who are responsible for specific dimensions
(say, product and region) share customers.
The second difference is in terms of the planning and control process.
Rather than defining one of the dimensions as the main profit center, multidi-
mensional organizations are primarily oriented on the profitability of customers.
The profitability on the different dimensions is seen as a derivative of customer
profitability, and although each of the managers of the different dimensions typi-
cally has some form of profit responsibility, the profit on his dimension is made
subservient to overall profitability with customers.
The third difference is that to be able to avoid the two bosses of the tradi-
tional matrix, the multidimensional organization employs information systems
that can simultaneously report performance on the different dimensions at all
levels in the organization, down to individual customers. These systems allow
the multidimensional organization to eliminate information asymmetries and
transfer pricing and to truly operate as an integrated customer-centric firm.
In hindsight, the multidimensional firms in the research suggest that the
root of the problems that many firms encountered with the matrix organization
was its focus on authority and power, whereas the solution to making an organi-
zational design along multiple dimensions work lies in a focus on the firm’s joint
goals with customers and information systems that allow firms to operate along
multiple dimensions without the ambiguities that are inherent in the two-boss
system.
Conclusion
“In the knowledge society, managers must prepare to abandon everything they
know.”—Peter F. Drucker17
For most of the twentieth century, the organizing principles of the M-
form served firms well. However, contemporary economic conditions increas-
ingly call for the creation and exploitation of synergies; and this is not something
for which the M-form was conceived, or can be adapted easily. In their search
for alternatives to the M-form, many firms in our sample have experimented
with and subsequently discarded the matrix organization. Instead, the most
common organization design is the M-form combined with synergy mechanisms
such as corporate account management and shared service centers. This particu-
lar combination creates tensions because these synergy mechanisms go against
the basic design principles of the M-form. However, a limited but substantial
The Emergence and Evolution of the Multidimensional Organization
CALIFORNIA MANAGEMENT REVIEW VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU 27
number of firms have evolved towards multidimensional designs that allow
them to better exploit the intangible resources that are increasingly becoming
the main source of competitive advantage in contemporary economies. The mul-
tidimensional organization is an alternative to the M-form and the matrix orga-
nization, and it is explicitly based on design principles that facilitate the creation
of synergies across units to serve increasingly fragmented markets.
An important question is if the multidimensional organization is efficient.
Ultimately, this question can only be answered by observing the future financial
performance of multidimensional organizations.18 However, the multidimen-
sional form does seem to be particularly well adapted to the economic logic of a
knowledge society. Knowledge-driven production calls for firms that are able to
integrate distributed and tacit knowledge. Because no single individual holds all
the knowledge that is required to produce the complex products and services of
most contemporary firms, both the exploration and exploitation of productive
knowledge requires teamwork. Seen in this light, the emergence of the multidi-
mensional organization can be understood as a way to facilitate the teamwork
that is needed to successfully create and exploit productive knowledge.
Our findings show that firms have evolved towards a multidimensional
design as a result of the need to simultaneously optimize the proactive exploita-
tion of market opportunities and the efficient exploitation of resources. On the
market side, the main rationale for adopting a multidimensional organization
is that many markets are no longer one-dimensional. Customer preferences
have become much more fragmented and as a result products and services are
increasingly sold through multiple distribution channels. The retail market that
Ahold faces may be seen as an extreme case. Individual customers are likely to
shop in different Albert Heijn stores (Ahold’ s main brand in the Netherlands):
a traditional medium-sized neighborhood Albert Heijn supermarket for utility
shopping, a small “Albert Heijn ToGo” shop at a railway station for convenience
products, or an “Albert Heijn XL” for leisurely shopping at the weekend. This
means that the traditional organization design in which individual stores were
the main profit centers can no longer serve as an accurate proxy for the com-
pany’s position with customers. In fact, Ahold has realized that individual cus-
tomers may have different sets of preferences depending on the time of day, the
day of the week, or the location where they shop, so that in some sense even
individual customers further fragment into distinct consumer behavior profiles
that may be triggered at different moments. On this view, Ahold’s ultimate chal-
lenge is to increase the company’s profitability for different “clouds of consumer
behavior.” The eight dimensions along which Ahold’s planning and control pro-
cesses proceed are an attempt to do just that.
Another reason for the multidimensional nature of markets is that indus-
tries are increasingly networked. As a consequence, the locus of innovation has
shifted from the individual company to the network in which it operates. In the
case of IBM, the integration of components into a system may be a task that the
customer wants to perform in-house, it may be a task that the customer wants
to outsource to an independent third party, or it may be a task that the customer
The Emergence and Evolution of the Multidimensional Organization
UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU28
wants IBM to fulfill. That IBM is organized along four dimensions reflects the
fact that it wants to serve all three types of customers and illustrates Ashby’s
“Law of Requisite Variety”: to control a market, a firm’s internal organization
should at least match the complexity of the external environment.
On the resource side, the central reason for adopting a multidimensional
organization is that it allows firms to make better use of personal knowledge
resources. This both increases the firm’s ability to increase economies of scope
and makes the firm more attractive for knowledge workers. The individual
expertise of knowledge workers is increasingly becoming the most valuable
resource of firms, and by organizing market opportunities and resources sepa-
rately, individual expertise is no longer locked-up in specific business units.19
Instead, it can be applied in the products and services for the customers who
most value the expertise. This is not just an advantage for the firm, but also for
the knowledge worker, whose personal market is increased. This, in turn, should
give multidimensional organizations a competitive advantage in the market for
knowledge workers compared to the M-form. As Drucker already emphasized,
in the knowledge economy, “organizations have to market membership as much
as they market products—and perhaps more.”20 Knowledge workers, especially
the more creative kind, are known to pursue as large a personal market for their
knowledge as possible, and on this aspect the multidimensional organization
clearly outperforms the M-form.21
It is, of course, one thing to conclude that the multidimensional orga-
nization has advantages for knowledge-driven firms that operate in complex,
interrelated markets, but quite another to make a multidimensional organiza-
tion work. This is where the main source of corporate added value lies. In a
multidimensional organization, the role of headquarters is not merely to manage
a portfolio of investments, but to create the conditions that make it possible for
the firm to operate as an integrated team. The first step towards creating these
conditions is to overcome the mental barriers that are the legacy of the M-form.
Both the firm’s top executives and, equally importantly, its business unit manag-
ers will have to give up on some deeply engrained notions about organization
design. Instead of unequivocally allocating resources, the interdependence of
units is explicitly designed into the firm. The second step is to reorganize the
firm’s information systems, planning processes, and reward schemes. The crucial
enablers for a successful multidimensional organization are systems and pro-
cesses that eliminate information asymmetries and allow employees to jointly
focus on creating economic value for customers.
APPENDIX
About the Research
Interviews were conducted at 36 organizations. They are listed below,
with the seven multidimensional firms highlighted in bold. Half of the inter-
views were with the CEO of the firm, while the other half were with the CFO
The Emergence and Evolution of the Multidimensional Organization
CALIFORNIA MANAGEMENT REVIEW VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU 29
or the controller. In addition to assessing the status of the multi-unit organiza-
tion as well as the use of account management and shared service centers, the
interview protocol focused on questions such as: “Which alternatives to the
multi-unit organization are used?” and “Which trade-offs are made in decid-
ing between familiar and new organization forms?” The question that led to the
unexpected discovery of the multidimensional organization form was “Along
which axis is accountability for turnover and profit organized in your organiza-
tion?” After the interviews, a number of multidimensional firms were selected
for detailed case studies (ABN-AMRO, Ahold—Albert Heijn, IBM, PwC, and Van
Hattum & Blankevoort). These case studies were co-authored with representa-
tives of the firms and reported back to the firms before being authorized for
publication.
Firm Industry
Corporate
Account
Management
Shared
Service
Centers
Profit /
Non-Profit
1. ABN-AMRO Financial Services X X P
2. Eureko – Achmea Insurance X P
3. Ahold—Albert Heijn Food Retail X P
4. Akzo-Nobel Chemicals X P
5. ARCADIS Engineering (X) X P
6. ASML Hi Tech
Equipment
X X P
7. Ballast Nedam Construction P
8. Bollegraaf Recycling Equipment
Engineering
P
9. Carante Groep Care X NP
10. Cordaris Financial Services X NP
11. Royal Cosun Food P
12. DSM Chemicals X X P
13. Essent Energy Pa
14. Evean Groep Care X NP
15. IBM—Netherlands IT Equipment and
Services
X X P
16. ING Financial Services X P
17. KLM Cargo Air Transport X X P
18. KPN Telecommuni-
cation
X X P
The Emergence and Evolution of the Multidimensional Organization
UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU30
Notes
1. John Roberts, The Modern Firm: Organizational Design for Performance and Growth (Oxford:
Oxford University Press, 2004), p. 2.
2. Oliver E. Williamson, The Economic Institutions of Capitalism (New York, NY: The Free Press,
1985), p. 279.
3. Alfred D. Chandler, Strategy and Structure: Chapters in the History of American Enterprise (Cam-
bridge, MA; MIT Press, 1962).
4. Oliver E. Williamson, Markets and Hierarchies (New York, NY: The Free Press, 1975).
5. Neil Fligstein, “The Spread of the Multidivisional Form Among Large Firms, 1919-1979,”
American Sociological Review, 50 (1985): 377-391.
6. Alfred P. Sloan, My Years with General Motors (Hammondsworth, UK: Penguin Books, [1962]
1986).
Firm Industry
Corporate
Account
Management
Shared
Service
Centers
Profit /
Non-Profit
19. Microsoft—Netherlands Software and IT
Services
X X P
20. Ministry of Interior Government X NP
21. Ministry of Defense Government X NP
22. Nationale Nederlanden Insurancec P
23. PGGM Financial Services NP
24. Philips Electronics Electronics X X P
25. PricewaterhouseCoopers Professional
Services
X X P
26. Rabobank Financial Services X X Pb
27. Rodamco Europe Real Estate X P
28. Sabic Europe Chemicals X X P
29. Sanoma Publishing X X P
30. Shell Oil and Energy X P
31. SNS Reaal Financial Services X P
32. TNT-Post Postal Services X P
33. Unilever Food X X P
34. UWV Social Security NP
35. Van Hattem & Blankevoort Constructiond P
36. Vitens Public Water
Supply
Pa
a. Shareholders are public bodies
b. Cooperative with a statutory injunction on distributing profit to its members
c. Division of ING
d. Division of VolkerWessels
The Emergence and Evolution of the Multidimensional Organization
CALIFORNIA MANAGEMENT REVIEW VOL. 51, NO. 4 SUMMER 2009 CMR.BERKELEY.EDU 31
7. Williamson (1975), op. cit.
8. Michael Goold and Andrew Campbell, Strategies and Styles: The Role of the Centre in Managing
Diversified Corporations (Oxford: Basil Blackwell, 1987); Michael E. Porter, “From Competitive
Advantage to Corporate Strategy,” Harvard Business Review, 65/3 (May/June 1987): 43-59.
9. For the concept of “theory in use,” see Donald A. Schön, The Reflective Practitioner: How Profes-
sionals Think in Action (Aldershot, UK: Arena, 1991).
10. Jay R. Galbraith, Designing Matrix Organizations That Actually Work (San Francisco, CA: Jossey-
Bass, 2009).
11. Samuel J. Palmisano, “The Globally Integrated Enterprise,” Foreign Affairs, 85/3 (May/June
2006): 127-136.
12. Jay R. Galbraith, Designing the Customer-Centric Organization: A Guide to Strategy, Structure, and
Process (San Francisco, CA: Jossey-Bass, 2005): 112.
13. Russell L. Ackoff, “Towards Flexible Organizations: A Multidimensional Design,” Omega,
5/6 (1977): 649-662; Christopher A. Bartlett, “How Multinational Organizations Evolve,”
The Journal of Business Strategy, 3/1 (Summer 1982): 20-32; William C. Coggin, “How the
Multidimensional Structure Works at Dow Corning,” Harvard Business Review, 52/1 (Janu-
ary/February 1974): 54-65; C.K. Prahalad, “The Concept and Potential of Multidimensional
Organizations,” in F. Stevens, ed., Managing Managers (Eindhoven: N.V. Philips’ Gloeilam-
penfabrieken, 1980), pp. 159-176; C.K. Prahalad and Yves, L. Doz, “Strategic Reorientation
in the Multidimensional Organization,” Graduate School of Business Administration, The
University of Michigan, Working Paper No. 195, 1979.
14. For well-designed matrix organizations, see Galbraith (2009), op. cit. For ABB, see Christo-
pher A. Bartlett and Sumantra Ghoshal, “Beyond the M-Form: Toward a Managerial Theory
of the Firm,” Strategic Management Journal, 14 (Special Winter Issue 1993): 23-46. For more
in-depth and critical discussions, see Christian Berggren, “Building a Truly Global Organiza-
tion? ABB and the Problems of Integrating a Multi-Domestic Enterprise,” Scandinavian Jour-
nal of Management, 12/2 (1996): 123-137; Winfried Ruigrok, Leona Achtenhagen, Mathias
Wagner, and Johannes Ruegg-Sturm, “ABB: Beyond the Global Matrix Towards the Net-
work Multidivisional Organization,” in Andrew Pettigrew and Evelyn Fenton, eds., Processes
and Practices of New Forms of Organizing (London and Thousand Oaks, CA: Sage, 2000). For
network organizations, see Michael Goold and Andrew Campbell, “Structured Networks:
Towards the Well-Designed Matrix,” Long Range Planning, 36/5 (October 2003): 427-439.
15. Jay R. Galbraith, Organization Design (Reading, MA: Addison Wesley, 1977). See also Gal-
braith (2009), op. cit. Note that we focus on the planning and control process, which is
essential to the operation of the multidimensional organizations we studied. We do not
discuss operational processes, which differ widely across the firms.
16. See also Galbraith (2005), op. cit.
17. Peter F. Drucker, “The New Society of Organizations,” Harvard Business Review, 70/5 (Sep-
tember/October 1992): 95-104.
18. Among the seven multidimensional firms in the sample, six firms are performing well. ABN
AMRO is the exception. Under pressure from activist shareholders that were dissatisfied
by the performance of its shares, it has recently been taken over by a consortium of three
competitors and broken up. This illustrates that the multidimensional organization, like any
form of organization, is certainly no panacea.
19. C.K. Prahalad and Gary Hamel, “The Core Competence of the Corporation,” Harvard Business
Review, 68/3 (May/June 1990): 79-91; Bartlett and Ghoshal, op. cit.
20. Drucker (1992), op. cit., p. 100.
21. Richard Florida, The Rise of the Creative Class (New York, NY: Basic Books, 2004); Sherwin
Rosen, Markets and Diversity (Cambridge, MA: Harvard University Press, 2004).
4/24/2020 onlinetext.html
file:///Users/matthewfisher/Downloads/MKTG064903-S20R-Article Notes The Metrics that Marketers Muddle-359053/Marina Hamagaki_504182_assignsubmission… 1/3
Article Notes 3
Bendle, N. T., & Bagga, C. K. (2016). The metrics that marketers muddle. MIT Sloan Management
Review, 57(3), 73-82.
Despite their widely acknowledged importance, some popular marketing metrics are regularly misunderstood and
misused. One major reason for marketing’s diminishing role is the difficulty of meaning its impact: The value marketers
generate is often difficult to quantify. The main goals of this article are to understand how these marketing metrics are
used and understood and to develop ideas to help marketers unmuddle their metrics. The authors conducted surveys
from managers from all functions across the business-to-business and business-to-consumer industries.
5 Best Known Marketing Metrics:
– Market share
–
Net Promoter Score (NPS)
–
The Value of a ‘Like’
–
Consumer Lifetime Value (CLV)
–
Return on Investment (ROI)
Market Share
Market share is a popular marketing metric. One reason for why manager value market share is that research
from the 1970s suggested a link between market share and ROI; however, the linkage may be less clear: the
studies have found it is often correlational rather than causal. The survey found that there were two ways
managers used market share: as an ultimate objective or as an intermediate measure of success. Increasing
market share is not a meaningful ultimate objective for maximizing shareholder value and stakeholder
management: If the aim is to maximize the returns to shareholders, increased market share offers no benefits
unless it eventually generates profits. In some markets, bigger can be better; however, economies of scale do not
automatically apply all markets.
Unmuddling Market Share:
The authors suggest a simple set of rules for the appropriate use of the market share metric:
– Managers should not consider market share as the ultimate objective or as a proxy for absolute size.
– Managers should evaluate it from the competitors’ and consumers’ point of view. If an increase in market
share is not going to get positive feedback from competitors and consumers, then an increase in market share
will not lead to a productive result.
– Managers should analyze whether market share drives profitability in your industry. Companies with
superior products tend to have high market share and high profitability because product superiority causes both.
4/24/2020 onlinetext.html
file:///Users/matthewfisher/Downloads/MKTG064903-S20R-Article Notes The Metrics that Marketers Muddle-359053/Marina Hamagaki_504182_assignsubmission… 2/3
This means that the two metrics are correlated, BUT it does not necessarily mean that increasing market share
will increase profits.
Net Promoter Score (NPS)
This metric is used to measure customer loyalty to a firm. Companies among diverse industries have embraced
NPS as a way to monitor their customer service operations while NPS also has been seen as a system that allows
managers to use the scores to shape managerial actions.
One of the advantages of NPS is its simplicity: It is easy for managers and employees to understand the goal of
having more promoters and fewer detractors. However, there are weaknesses: E.g., in the net promoter literature,
a customer’s worth to Apple has been described as the customer’s spending, ignoring the costs associated with
serving the customer. It is also easy to imagine how to increase the net promoter score (such as making
customers happier) while destroying even to-line growth (by slashing prices). Another problem with NPS as a
metric is the classification system: The boundaries between scores of 6 and 7 (detractors and passives) and 8 and
9 (passive and promoters) seem somewhat arbitrary and culturally specific.
Unmuddling NPS:
The value of NPS depends on whether a manager sees it as a metric or as a system. The authors suggest that the
NPS metric cannot change the marketing performance. However, they advise using this metric as a part of a
system employed in evaluating the performance which might lead to a cultural shift within the organization.
The Value of a ‘Like’
This metric is used for measuring the social media capital of the company. New approaches are being developed
all the time and they have the potential to aid understanding of how social media creates value. It is measured as
the difference between the average value of customers endorsing the company and the average value of the
customers who are not endorsing the company. The majority of managers link between their social media
spending the value of a ‘like’. However, it does not mean that the cause of the differences in users’ value is
attributable to a company’s social media strategy. And the reason that social media strategy shouldn’t be seen as
the driver of value difference between fans and nonfans is because customers who are social media fans will
differ from nonfans for reasons unrelated to the company’s social media strategy.
Unmuddling the Value of a ‘Like’:
This difference between two groups of consumers does not suggest an effect of online marketing activity or lack
thereof. It should be investigated thoroughly by the managers. If the management is using the revenue to
measure customer value, then this marketing metric does not give a good estimate. However, if the company
does want to understand the impact of social media marketing, they should use randomized control experiments
to derive causal answers.
Consumer Lifetime Value (CLV)
Consumer lifetime value (CLV), which is the present value of cash flows from a customer relationship, can help
managers in decision making related to investment in developing customer relationships, as it is used to measure
the value of the current customer base. If the management is using the customer value in their decision-making
process, then CLV is a useful tool for them.
Unmuddling CLV:
4/24/2020 onlinetext.html
file:///Users/matthewfisher/Downloads/MKTG064903-S20R-Article Notes The Metrics that Marketers Muddle-359053/Marina Hamagaki_504182_assignsubmission… 3/3
The authors suggest that CLV calculations should not include the customer acquisition cost and the estimated
CLV should be compared to the estimated acquisition cost to derive conclusions. The bigger the difference
between the estimated CLV and the estimated acquisition cost, the better the acquisition campaign.
Return on Investment (ROI)
Return on investment is a popular and potentially important metric allowing for the comparison of disparate
investments. A critical requirement for calculating ROI is knowing the net profit generated by a specific
investment decision. According to the authors, there is confusion within management over the use of ROI.
However, as ROI is understood across disciplines, it is a powerful metric to communicate across the
organization.
Unmuddling ROI:
The authors advise that if a manager is assessing the financial return on an investment, then ROI is an
appropriate metric and can be calculated by dividing the incremental profits by the investments. Agribusiness
marketing managers who are passionate about establishing the credibility of the value created through marketing
should be thorough in their use of metrics. Most importantly, they should be able to understand the metric, its use
and what it represents.