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

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

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

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  1. Structuring, Learning, and Innovating Multi-NationallyDr. Ellen A. Drost

  2. 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

  3. 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.

  4. 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

  5. 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.

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

  7. Four Strategic Choices for Multinational Enterprises Table 10.1

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

  9. 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

  10. 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.

  11. 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

  12. 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

  13. 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

  14. 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.

  15. A Global Matrix Structure Figure 10.5

  16. 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.

  17. 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)

  18. Worldwide Learning, Innovationand 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.

  19. Worldwide Learning, Innovationand 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.

  20. Pathologies and Solutions inKnowledge 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.

  21. 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

  22. Worldwide Learning, Innovationand 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).

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

  24. 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?

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