Divisional strategy : value creation and relatedness within the multidivisional firm

From an economic perspective the value of a group of related businesses under one management is derived from the potential for synergy, based on the exploitation of underlying economies of scope. To realise this inherent economic value, organisational theorists have argued that a purposively cooperative pattern of structures, systems and processes must be put in place. Divisions of modem multidivisional companies are internal, quasi-corporations of related businesses and, as such, theoretical economic/organisational rationales would posit divisions as cooperative enterprises. Using a sample of divisions purposively chosen to comprise businesses that were highly related, this thesis set out to explore the extent to which divisional managing directors expressed views and initiated organisational dynamics consistent with a cooperative perspective. Semi-structured interviews with senior divisional personnel in 12 divisions and with business and functional level staff in 2 of these provided the prime source of data which served as a basis from which a case study was written for each division. The cases were analysed in terms of the membership benefits (value) the divisional managing director was attempting to optimise for the component businesses and the extent to which he expressed a cooperative orientation and was overseeing cooperative structures, processes and systems. Two categories of division are identified. The 'cooperative' grouping is consistent with the theoretical view of economies of scope and cooperative structures but a larger number of divisions are categorised as 'non-cooperative' with perspectives, systems etc. consistent with a traditional M-form orientation of autonomous, non-interacting businesses. Reasons for this mismatch of theory and practice are discussed with the existence of non-cooperative divisions being explained as the consequence of a variety of organisational contingencies. Implications for divisional management and practice in multidivisional firms are suggested