Y Qian et al./ European Economic Review 43(1999)1085-1094 TOp M Manager I Manager 2 Task 1A Fig. 1. A U-form organization Top Manager Task IA Task 1B Task 2B Fig. 2. An M-form organization organization always prefers to use a new blueprint in the next period rather than to retry the old one A U-form organization is set up along functional lines'(see Fig. 1). Two middle managers i(i= 1, 2) are responsible for collecting information about shocks in tasks iA and iB. Because the two tasks which need attribute matching are not assigned to the same middle manager, the two middle managers have to report the information to the top manager, who, after receiving information from the two managers, matches attributes between tasks lr and 2r(r= a, B). An M-form organization is set up along geographical lines'(see Fig. 2 ). The middle manager r(r= 1, 2)is responsible for collecting information about shocks in tasks Ir and 2r. Because the two tasks which require attribute matching are assigned to the same manager, and no attribute matching needed between the tasks across units, the middle managers can match at tributes between tasks Ir and 2r locally by themselves. The top manager provides a blueprint for change Under the M-form, setup costs must be incurred in each unit since attribute matching is done separately in each product unit. This leads to duplication in setup costs. For example, both managers need to be trained to coordinate the changes. In contrast, under the U-form, only the top manager matches at- tributes in a centralized way. Therefore, the setup cost is correspondingly smaller. For simplicity, we will assume that only one setup cost is required when only one manager coordinatesFig. 1. A U-form organization. Fig. 2. An M-form organization. organization always prefers to use a new blueprint in the next period rather than to retry the old one. A U-form organization is set up along &functional lines' (see Fig. 1). Two middle managers i (i"1, 2) are responsible for collecting information about shocks in tasks iA and iB. Because the two tasks which need attribute matching are not assigned to the same middle manager, the two middle managers have to report the information to the top manager, who, after receiving information from the two managers, matches attributes between tasks 1r and 2r (r"A, B). An M-form organization is set up along &geographical lines' (see Fig. 2). The middle manager r (r"1, 2) is responsible for collecting information about shocks in tasks 1r and 2r. Because the two tasks which require attribute matching are assigned to the same manager, and no attribute matching is needed between the tasks across units, the middle managers can match at￾tributes between tasks 1r and 2r locally by themselves. The top manager provides a blueprint for change. Under the M-form, setup costs must be incurred in each unit since attribute matching is done separately in each product unit. This leads to duplication in setup costs. For example, both managers need to be trained to coordinate the changes. In contrast, under the U-form, only the top manager matches at￾tributes in a centralized way. Therefore, the setup cost is correspondingly smaller. For simplicity, we will assume that only one setup cost is required when only one manager coordinates. Y. Qian et al. / European Economic Review 43 (1999) 1085}1094 1089