Structuring, Learning, and Innovating Multi-Nationally Dr. Ellen A Structuring, Learning, and Innovating Multi-Nationally Dr. Ellen A. Drost

Objectives The strategy–structure relationship Multinational strategies and structures A comprehensive model of multinational structure, learning, and innovation Worldwide learning, innovation, and knowledge management Debates and extensions Implications for strategists

The Strategy-Structure Relationship Organizational Structure The firm’s formal reporting relationships, procedures, and controls Strategy and structure: A reciprocal relationship Strategy drives organizational structure; structure can also enable and constrain strategy. 3

Multinational Strategies and Structures: Balancing Cost Reductions and Local Responsiveness The Integration-responsiveness Framework The framework on how to simultaneously deal with: International and domestic cost pressures calling for global integration. The need to be responsive to local market conditions. Being locally responsive Makes local customers and governments happy. But increases costs The interest in marketing a “global” version of products and services is driven by cost pressures However, attempts to standardize offerings on a world-wide basis have often backfired (e.g., MTV) – see Ch. 1

Multinational Strategies and Structures: Four Strategic Choices Figure 10.1: Four strategies, four structures There is no optimal strategy. Trend to favor transnational strategy has its significant organizational challenges.

Multinational Strategies and Structures: The Integration–Responsiveness Framework Figure 10.1

Four Strategic Choices for Multinational Enterprises Table 10.1

Multinational Strategies and Structures: Four Organizational Structures Four organizational structures that are appropriate for the four strategic choices: International division Geographical area Global product division Global matrix

International Division Structure at Cardinal Health Source: Based on author’s interview and www.cardinal.com (accessed August 10, 2004). Cardinal Health is headquartered in Dublin, Ohio. Also see Integrative Case 3.1. Figure 10.2

Multinational Strategies and Structures: Organizational Structures (cont’d) International Division Typically set up when firms initially expand abroad, often when engaging in a home replication strategy. Problems: Foreign subsidiary managers in the international division are not given sufficient voice relative to the heads of domestic divisions. International division activities are not coordinated with the rest of the firm, which focuses on domestic activities Firms often phase out this structure after their initial overseas expansion.

Geographic Area Structure at Ispat Source: Adapted from www.ispat.com (accessed June 30, 2004). Ispat is headquartered in London, United Kingdom. Also see Chapter 3 Closing Case. Figure 10.3

Multinational Strategies and Structures: Organizational Structures (cont’d) Geographic Area Structure Organizes the MNE according to different geographic areas (countries and regions). Is the most appropriate for a multidomestic strategy. Its ability to facilitate local responsiveness is both a strength and a weakness. Problems: While being locally responsive can be a virtue, it may also encourage the fragmentation of the MNE into highly autonomous, hard-to-control “fiefdoms” SIA 10.1: Nestle

Global Product Division Structure at European Aeronautic Defense and Space Company (EADS) Source: Adapted from www.eads.com (accessed June 30, 2004). EADS is headquartered in Munich, Germany and Paris, France. Figure 10.4

Multinational Strategies and Structures: Organizational Structures Global Product Division Structure Supports a global strategy in treating each product division as a stand-alone entity with full worldwide— as opposed to domestic—responsibilities for its activities. Facilitates attention to pressures for cost efficiencies in allowing for consolidation on a worldwide (or regional) basis and reduction of inefficient duplication in multiple countries. Problems: It is the opposite of the geographic area structure: Little local responsiveness.

A Global Matrix Structure Figure 10.5

Multinational Strategies and Structures: Organizational Structures Global Matrix Is often used to alleviate the disadvantages associated with both geographic area and global product division structures. Is intended to support the goals of the transnational strategy—in practice, it is often difficult to deliver. Problems May add layers of management, slow down decision speed, and increase costs while not showing significant performance improvement.

Multinational Strategies and Structures: Evolution of Organizational Structures The Stopford and Wells model (Figure 10.1): Evolution of the Multinational Organizational structures typically evolve from the simple international division through either geographic area or global product division structures. Firms may finally reach the global matrix stage as they grow from having limited international presence to being sophisticated global players. Not all MNEs experience all these structural stages. The evolution is not necessarily in one direction (e.g., ABB’s withdrawal from matrix)

Worldwide Learning, Innovation and Knowledge Management: Setting The Terms Straight What is Knowledge? A fluid mix of skills, experiences, and insights that provides a framework for evaluating and incorporating information. Knowledge Management The structures, processes, and systems which actively develop, leverage, and transfer knowledge.

Worldwide Learning, Innovation and Knowledge Management: Knowledge Management in MNEs Knowledge management is considered by some writers the defining feature of MNEs. Explicit knowledge (e.g., a driving manual): Captured by IT Tacit knowledge (e.g., knowledge about how to drive) Its acquisition and transfer require hands-on experience From a resource-based perspective, explicit knowledge is strategically less important. Capabilities to manage the hard-to-codify and -transfer tacit knowledge—often embodied in informal social relationships—are more important.

Pathologies and Solutions in Knowledge Management Tacit Knowledge Strongly resists codification into formal bureaucratic practices. MNEs are forced to rely on many informal integrating mechanisms: Facilitating management and R&D personnel networks among subsidiaries through joint teamwork, training, and conferences. Promoting strong organizational (that is, MNE-specific) cultures and shared values and norms for cooperation among subsidiaries.

Knowledge Management in Four Types of Multinational Enterprises Sources: Adapted from (1) C. Bartlett & S. Ghoshal, 1989, Managing Across Borders: The Transnational Solution (p. 65), Boston: Harvard Business School Press; (2) T. Kostova & K. Roth, 2003, Social capital in multinational corporations and a micro-macro model of its formation (p. 299), Academy of Management Review, 28 (2): 297–317. Table 10.2

Worldwide Learning, Innovation and Knowledge Management: Globalizing Research and Development A crucial arena for knowledge management. Driven by the intensification of competition for innovation. Provides a vehicle for access to, or extract benefits from, a foreign country’s local talents and expertise. SIA 10.2: Shiseido smells at innovations in France The resource-based view: A fundamental source for competitive advantage is being different (the assumption of heterogeneity). Decentralized R&D work performed by different locations and teams around the world means that there will be persistent heterogeneity (differences) in the solutions generated (e.g., GSK).

Debates and Extensions The New Age of Innovation, CK Prahalad N=1 R=G 4

Implications for Strategists: Fundamental Questions in Strategy How do MNEs behave? The structural arrangements that MNEs put in place both help them accomplish certain strategies and constrain them from pursuing other strategies—unless they unleash strategic changes, structural changes, or both. Why do firms differ in their structure, learning, and innovation? Do their different strategies fundamentally drive these activities? Or, do their different structures fundamentally drive these activities?