1. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 5: Creating Worldwide Innovation and Learning Exploiting Cross-Border Knowledge Management

2. Why Transnational Strategy? 1-2 Global companies tend to not be responsive to local needs and do not foster the ability to gain local for local innovation. Unable to respond to national competitors or to sense locally important market info. Multinational companies tend to not be able to diffuse local innovation across the company. Independent branches could be picked off one by one by coordinated global companies. Transnational companies are an attempt to both take advantage of local innovation as well as diffuse that knowledge across the company.

3. Worldwide Innovation: The New Competitive Battleground Competitors achieving parity in scale and responsiveness Competitive battles shifting to innovation area Three key capabilities: Sensing Responding Implementing 5-3

4. 5-4 Worldwide Innovative Capability: MNC’s Competitive Advantage S Sensing Capability R Response Capability I Implementation Capability

5. Central, Local & Transnational Innovation Two classic processes Center-for-global: new opportunity sensed in home country, centralized resources brought to bear, implemented globally Local-for-local: subsidiary-based knowledge development, used primarily in local market 5-5

6. Problems Associated with Each Model Center-for-global innovation Risk of market insensitivity, imperialism Local-for-local innovation Risk of duplication, reinventing wheel Locally leveraged innovation Threatened by not-invented-here Globally linked innovation High coordination costs 5-6

7. 5-7 Central Innovation in Centralized Hub I I II I I S-R-I Headquarters senses world-wide opportunities Centralized assets and resources favor unitary global responses Implementing strategy decided centrally and executed locally

8. Making Central Innovations Effective: Lessons from Matsushita (Panasonic) Gain subsidiary input Through multiple personal linkages Respond to different national needs Give subsidiary units resources to influence how central R&D money is spent Manage responsibility transfer (from research to manufacturing to marketing) Move people with specific projects 5-8

9. 5-9 Local Innovation in Decentralized Federation S-R-I National units sense local needs Distributed assets and resources allow local response Local-for-local implementation

10. 5-10 Local for Local Innovation S - R I S - R I S - R I Each market effectively innovates and responds to local needs…. …but fails to create transnational innovations. …with dispersed resources and capabilities...

11. Making Local Innovations Efficient: Phillips Empower local management Link local managers to corporate decision-making processes: At Phillips many of the best managers spend most of their careers in national operations—working for 3-4 years in a series of subsidaries Integrate subsidiary functions: project team integrates commercial and technical, product group team coordinates cross functional, Senior Management Committee oversees. 5-11

12. Make Transnational Processes Feasible Three simplifying assumptions have blocked progress with transnational processes: Assumption that subsidiaries are symmetrical (”the United Nations syndrome”) Assumption that HQ-subsidiary relationship is based on pattern of dependence / independence Assumption that corporate management exercises control uniformly 5-12

13. Beyond the Simplifying Assumptions From Symmetry to Differentiation (Unilever) Each unit has own distinct role From Dependence or Independence to Interdependence (Ericsson) Through inter-unit integration mechanisms From Uni-dimensional Control to Differentiated Control Make better use of social control mechanism 5-13

14. Unilever’s Transformation  Following WWII Unilever managed a strongly decentralized company in a similar way across all product lines (packaged foods, chemicals, detergents)  Starting in the 1980’s, this company began to manage more centrally to control costs.  Finally management began to differentiate by product, function and geography. 1-14

15. 5-15 Locally Leveraged Innovation: Unilever’s Fabric Softener I I I I I I S - R I I …then diffused rapidly worldwide under local brands Developed in response to a locally sensed opportunity... I

16. From Dependence or Independence to Interdependence: Ericsson  Develop a configuration of resources that is neither centralized nor decentralized but is both dispersed and specialized.  Build inter-unit integration mechanisms. Inter- unit cooperation requires good interpersonal relations among mangers.  Erricsson will routinely send teams of 50-100 engineers and managers for a year or two to an overseas assignment. 1-16

17. 5-17 Example: Ericsson’s AXE Switch I R S I S I I S R I SR I I Diverse market stimuli…... …linked to create a transnational product

18. Organizational Capability for Worldwide Innovation Making transnational innovations possible: lessons from Ericsson—Locally Leveraged Interdependence of resources and responsibilities: Maintaining balance through constant adjustment Inter-unit integrating devices: Operating systems, people-linking processes, joint decision forums National competence, worldwide perspective: Managers who can think globally and act locally 5-18

19. From Uni-dimensional Control to Differentiated Control  Three Flows are important to the Transnational:  Flow of Goods—Formalized management process  Flow of Resources—Coordinate by centralization  Flow of Information and Knowledge—Socialization In other words the company must have elements of both centralization and decentralization. 1-19

20. Mobilizing Knowledge Through Socialization l Complexity of Market Knowledge l Complexity of Technical Knowledge 1-20

21. 5-21 Linking & Leveraging Resources Decentralized Federation The Integrated Network Coordinated Federation Centralized Hub Locally Leveraged Innovation - Breaking down the “NIH” syndrome Globally Linked Innovation - Building up collaborative interdependence

22. Innovation at the Edges  Give seed money to subsidiaries Balance between short term results and freedom to pursue new ideas  Use formal requests for proposals Treat subsidiaries as freelance contractors  Encourage subsidiaries to be incubators  Build international networks Link personnel moves to practical business initiatives. 1-22