Coordinating Changes in M-Form and U-Form Organizations

Abstract

We compare organizational forms (U-form and M-form) in coordinating changes such as innovations in business firms and reforms in transition economies. In our model, organizational forms affect the information structure of an organization, and thus the way to coordinate changes and to experiment proposals for innovation. Compared to the U-form, the M-form organization achieves better coordination but also involves higher costs due to a lack of scale economies. Dynamically, the M-form has a distinct advantage in lowering the costs of experimentation. Our analysis sheds light on the effect of the organizational structure of business firms on their propensity to innovate. It also applies to transition economies where we observe strikingly different organizational structures between the Central and Eastern European and the former Soviet Union economies (the U form) and the Chinese economy (the M-form). We relate these differences in organizational structure to differences in reform strategy: the 'big-bang' reform approach in the former and the 'experimental' or 'gradual' reform approach in the latter. '

JEL Classification: D21, D23, P21