Businessweek reports: During a routine January 2007 patrol in Anbar province, in a town along the Euphrates called Tuzliyah al Gharbiyah, a unit of U.S. Marines stumbled on a cache of nine documents in a roadside ditch. They included financial records, payrolls, supply purchase records, administrative records, and other details of fund flows into and out of a single local cell in Anbar of a group then calling itself the “Islamic State of Iraq.” Not long after, Iraqi militiamen working with the U.S. stormed a home in a town farther down the Euphrates. They found a computer hard drive holding ledgers with 1,200 files detailing the finances and operations of provincial-level managers overseeing the cell and others like it across Anbar province.
Taken together, the Anbar records allowed for a forensic reconstruction of the back-office operations of a terrorist insurgency from its local level up to its divisional headquarters. The data were handed over to the National Defense Research Institute of Rand Corp., a U.S. Department of Defense-funded think tank based in Santa Monica, Calif. Seven researchers set out to determine what the ledgers, receipts, memos, and other records meant. What they concluded in a 2010 report, written for then-Defense Secretary Robert Gates, should be familiar to students of business management: The group was decentralized, organized, and run on what’s called the “multidivisional-hierarchy form” of management, or M-form for short.
It’s the structure that started taking root in the corporate world in the 1920s, thanks to Alfred Sloan’s decision to reorganize General Motors. After becoming GM’s president in 1923, Sloan began transforming the company by creating semiautonomous divisions ordered largely around geography, freeing him and other top leaders from daily decision-making so they could focus on strategy and overall performance. Divisions also were largely self-financed. Scholars credit his model for the company’s extraordinary growth in the early 20th century. It contrasted sharply with what had been the dominant “unitary form” of management, where control is centralized. In a pioneering study, the late Pulitzer Prize-winning historian and Harvard business professor Alfred Chandler Jr. held up the success of GM and others as a triumph of the M-form structure of corporate management, as did Oliver Williamson, winner of the Nobel Prize for economics in 2009.
According to the Rand study, Islamic State of Iraq was set up along the lines of the best multinationals studied by Chandler and Williamson. (The researchers even cited the Nobel Prize winner’s work.) The Anbar provincial division offered influence, oversight, and some financing to smaller, semiautonomous cells within the province, closely monitoring their books and their results. But it left day-to-day decisions to the local commanders. The cells carrying out the group’s daily functions were organized into units such as finance, intelligence, military, medical, media, logistics, and even a courier arm called the “mail” division. Bosses for each specialty at the headquarters for Anbar province monitored performance of their local divisions, sometimes relying on detailed reports from the field. But command decisions appear to have been left largely to the locals, Rand found.
The seized hard drive containing 1,200 files was especially valuable. It appeared to belong to the man who was akin to Islamic State of Iraq’s divisional auditor. The group maintained strict accounting procedures, and its financial functions were organized in the same semiautonomous model of the M-form structure. [Continue reading…]