Managing the Global Firm (RLE International Business)

Christopher Bartlett, Yves Doz, Gunnar Hedlund, Christopher A Bartlett

• Publisher: Routledge
• Year: 2013
• Print ISBN: 9780415639187
• eBook ISBN: 9781135134914
• Edition: 1
• Topic: Economía
• Subtopic: Negocios en general

This volume assesses the situation for multinationals at the beginning of the 1990s, bringing together contributions from academics recognized as world leaders in the field and from practitioners with wide experience in international management. Drawing on perspectives from Europe, the USA and Japan, the contributors outline the shape of the global firm of the future. They focus squarely on the development of the corporation as a whole, rather than on the narrow management of individual foreign subsidiaries, and they also explore the specific implications for areas such as strategic planning systems, financial management, information systems and R & D management.

Part One

Conceptions of Global Management

Chapter One

Action in Heterarchies — New Approaches to Managing the MNC

Gunnar Hedlund and Dag Rolander

New developments in the international business environment pose exciting challenges for the management of multinational corporations (MNCs). More ambitious global strategies necessitate closer co-ordination of activities. The diffusion of technological and managerial competence internationally gives rise to more vigilant competition, but also creates opportunities for scanning for new ideas by MNCs. As the task of managing becomes more complex, there are signs that currently prevailing models for organizing and controlling international operations do not suffice. Most experienced MNCs wrestle with striking a balance between straightforward but perhaps simplistic structures, on the one hand, and sophisticated but perhaps unwieldy ones, on the other. The dominating archetype in terms of formal organization structure — the global product division — shows signs of weakness.

A reassessment of current notions is needed in managerial practice as well as in research and theory. This chapter contains some suggestions for new approaches to two issues of crucial importance. First, it will be argued that the organizational structure and mode of control in highly international MNCs is shifting, and should shift, towards a model which we call heterarchy. This entails a geographical diffusion of core strategic activities and coordinating roles, a break with the notion of one uniform hierarchy of decisions as well as organizational positions, and an increased focus on normative control mechanisms. Second, frames of reference for the understanding of the MNC’s relationship to its environment are proposed. Traditional views of strategy as building on analysis of given strengths and weaknesses, with a strong focus on the immediate competitive environment, are discussed and found to be too restrictive. It will be argued that stronger emphasis should be put on learning and the search for opportunities, and on action aimed at reshaping the environment. With this emphasis, our conception of ‘strategy’ is different from some predominant views in the strategy field. Elements of an alternative framework will be put forth.

The chapter is divided into four parts. The first section summarizes and discusses an important stream of research which originates in the hypothesis that ‘structure follows strategy’. We group this research under the label of the strategy-structure paradigm (SSP). This paradigm has been very influential in both research and MNC practice, sometimes through intermediation by academics and consultants, but largely in an implicit, unconscious way. We will debate some basic characteristics and critical assumptions inherent in the approach. The subsequent section outlines an alternative framework and discusses, in turn, ‘structure’, ‘strategy’ and ‘environment’. In spite of a wish to depart from relational logic (Angyal 1941), an attempt is also made to discuss the complex relationships between these three parts. The third section gives illustrative empirical support for our theoretical arguments. Most of the examples are taken from Swedish MNCs. Finally, the chapter is summarized and avenues for further research are suggested.

The Strategy–Structure Paradigm

The kind of business history research pioneered by Chandler (1962) has been an important basis for much thinking on international business management. One basic concluion was that changes in the environment of the firm lead to changes in its strategy, which in turn generated changes in the internal structure of the corporation. Each step required time, and the lag in response was often long, sometimes too long to secure survival of the firm. ‘Strategy’ was conceived of in terms of four main dimensions: growth, degree and type of vertical integration, geographical extension, and degree of product diversification. The definition of ‘structure’ encompassed both formal and informal aspects, and the focus was on lines of authority and communication on the one hand, and information and data flows on the other. Environmental developments mentioned by Chandler are changes in population, income, and technology. The weaving together of the elements of the framework provided a rich, vivid and convincing picture of the emergence of the giant multi-divisional corporation in the United States. The story is further documented and refined in ‘The Visible Hand’ (1977).

Chandler’s work, it should be noted, is not normative, but a description and explanation of business developments in the US over a period of a century. The causal relationships suggested are observations in the history of managerial capitalism and important as such. When we join in the following debate with the strategy–structure paradigm, it is a debate with the notion that a firm should act as if there was a clear causal chain from the environment, over strategy to structure; and with the notion that the firm should conceptualize its ‘strategy’ and ‘structure’ along the dimensions chosen by Chandler.

Later works, such as Teece (1977), Caves (1980), Chandler and Daems (1980), Williamson (1981), and Chandler (1987), analyse also non-US firms, concentrating on the emergence of MNCs, and provide theoretical arguments from (mainly) the transaction cost tradition.

Before turning to applications in the area of multinational business strategy and management, it is of interest to highlight some aspects of Chandler’s (1962) work which are important for the further discussion and of particular relevance for understanding the MNC.

• First, there is a definite sequence in time and with regard to causality. Environment leads strategy, which leads structure. Empirical evidence suggested that the reverse order of causality was not common.
• Second, there were significant time lags in adapting to new realities.
• Third, developments were uniform, in the sense that similar environmental and strategic factors impacted on all firms, and in the sense that a given set of such factors tended to produce similar structural responses in different firms.
• Fourth, the strategy dimensions were all ‘expansionary’: growth, not decline; vertical integration, not disintegration; diversification, not concentration; geographical expansion, not contraction.
• Fifth, and reflecting a mode of analysis as well as practice and thinking in corporations, strategy and environment were broken down into separate dimensions or variables, and archetypes of structure adapted to the combined changes along these dimensions were formulated (such as the functional structure and the divisionalized structure.)

These points will be discussed below, and it will be argued that the reality of the modern MNC can be interpreted in ways radically different from the reality documented by Chandler. Consequently, a conceptual framework for describing and understanding strategic processes of the MNC can be developed along lines different from those underlying the SSP.

A stream of thoughts related to the SSP is the ‘contingency school’. The basic idea is that management systems and corporate structures do and should depend on environmental and strategic ‘contingencies’. The literature abounds with suggestions of critical contingencies, and no summary will be attempted. Suffice it here to note that one important part of research focuses on the degree of uncertainty and complexity of the environment. The causal link implied is often from environment straight to structure, conceived of in terms rather different from Chandler’s (organic-mechanistic, such as in Burns and Stalker 1961; or mechanisms of differentiation and integration, such as in Lawrence and Lorsch 1967). Corporate strategy as an intervening variable has also been introduced, however, and managerial choice of strategy is emphasized by some writers (Child 1972).

A good summary of developments in the SSP and contingency paradigms is found in Galbraith and Nathanson (1978). The importance of the nature of information flows for the design of organizational structure, in the broad sense of the words, is emphasized here. The informational complexity facing the firm, rather than broader environmental or strategic factors, is seen as determining the way the firm is managed. (Thompson [1967] is an important source and developer of such ideas.) The hypothesis of consistency between structural elements as crucial is also discussed. The consistency view gives a less deterministic picture of corporate structure than the SSP (including contingency) views.

In international business research, Stopford and Wells (1972) is an example of the adoption of the SSP. The most important strategy dimensions, geographical spread and product diversification, are related to structural archetypes such as the mother-daughter structure, the international division structure and the global product division. Many studies have followed similar paths. Franko (1976) is one of the most important. Egelhoff (1984) is interesting in that the volume of foreign manufacturing (not only sales) is explicitly considered as a strategy dimension.

Although some injustice is done to the authors within the field, we think it is fair to say that international business research has dealt with a fairly low number of strategic dimensions. There is not much to be found on two of Chandler’s four variables — growth and vertical integration — as far as more detailed implications for managerial practice are concerned. Theoretical work on the reasons for the existence of MNCs does focus on these dimensions. (See, for example, the literature inspired by transaction cost theory, such as Buckley and Casson 1976.) Later conceptions of strategy dimensions and ‘generic strategies’ (such as in Porter 1980) have not really been discussed thoroughly as to the structural implications in MNCs. Fombrun (1983) investigates the association between Porter’s generic strategies and structural solutions, but does not find any strong relationships.

The problems of deriving appropriate structures from given strategies is illustrated already in Stopford and Wells’ (1972) discussion of what happens when both geography and product scope is very diversified. A number of responses are suggested, but no clear archetype emerges. Practising managers also often find reasoning in SSP terms somewhat restrictive, and often — in our experience — claim ‘historical’ or ‘personal’ factors as equally important. They also find living with supposedly ill-adapted structures easier than the theorists of strategic ‘fit’ would expect. (See Hedlund 1978, 1984 for illustrations in the Swedish context.)

Recent contributions to the discussion of management of the MNC tend to stress the indeterminacy of structural response. Bartlett (1986) emphasizes that national administrative heritage, in addition to task demands, influences the structure. He also argues for a more flexible organizational form and more flexible management systems in general. Work by Doz and Prahalad (1986) also emphasizes the importance of organizational capability to deal simultaneously with global and local challenges, in a way stressing internal over — but not unrelated to — external factors. Furthermore, they stress the importance of ‘balance’ and ‘balanced individuals’. Thus, there are indications both from practice and in academic writings that there are some fundamental problems in applying the strategy–structure framework to the task of effectively managing the MNC. Four such important sets of problems can be identified and are discussed below. (Most of the points have been made by other authors. Good discussions of the issues involved are found in, for example, Weick 1969; Miles and Snow 1978; Hall and Saias 1980; Child and Kieser 1981; Peters 1984. Rarely, however, are MNCs the prime object of analysis.)

Problems with the SSP Approach

First, the SSP approach leads to contradictory contingencies. On the one hand, you need to co-ordinate over product lines, on the other over geographical territories ….’ There are no clear predictions of structural solutions, and in practice a multitude of patterns can be observed. This may have to do with a too narrow interpretation of strategic demands. Some of the contingency school’s conceptions give less ambiguous predictions. Returning to analysis of the effects of environmental uncertainty may therefore prove fruitful. However, the conclusions are rather abstract (like proposing organic vs mechanistic structures), and the empirical support from MNCs is not overwhelming. Environmental heterogeneity also gives contradictory signals to managers who try to adapt their structure according to the SSP. Growth is not to be found everywhere, vertical integration makes sense in some countries and industries and not in others, the degree of environmental uncertainty varies over the globe, etc.

Second, the dimensions of strategy and structure covered by the SSP do not easily capture important aspects of the reality of MNCs. There are frequent calls for richer conceptualization of strategy and structure (see, for example, Caves 1980), but actual research is more limited. There are many issues for which few clear answers exist.

The ‘informal structure’ of the MNC is one example of this. It has frequently been noted that the formal organization chart (which can be classified using archetypical structures) does not reflect the management processes considered most important. How to relate diffe...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Contents
• List of contributors
• Preface
• Acknowledgements
• Introduction: The changing agenda for researchers and practitioners
• Part I: Conceptions of global management
• Part II: Management of multinational processes and systems
• Part III: Innovation and R&D in the MNC
• Part IV: The concepts in use
• Index