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Prahalad & Doz An Approach to Strategic Control in MNCs

Prahalad & Doz An Approach to Strategic Control in MNCs. Ruth Aguilera September 2008. Prahalad & Doz An Approach to Strategic Control in MNCs. Dilemma : Centralization vs. decentralization

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Prahalad & Doz An Approach to Strategic Control in MNCs

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  1. Prahalad & Doz An Approach to Strategic Control in MNCs Ruth Aguilera September 2008

  2. Prahalad & Doz An Approach to Strategic Control in MNCs Dilemma: Centralization vs. decentralization “Subsidiaries mature and become autonomous with respect to strategic resources, such as technology, capital, management, and access to markets, the HO’s ability to control the strategies of subsidiaries is significantly reduced” (p. 5).

  3. An Approach to Strategic Control in MNCs • What’s strategic control for the HO? • influence over a subsidiary concerning decisions that affect their strategy • monitor subsidiary’s progress • What are the typical decisions reflecting the strategy of a subsidiary? • choice of technology • definition of product market • emphasis in different product lines • allocation of resources • expansion and diversification of subsidiary operations • willingness to participate in a global network of product flows among subsidiaries

  4. Why should we care? • Increasing share of sales & profits from overseas subsidiaries… need to send abroad larger part of their assets (2) Often, higher growth potential than the home country • Impact of Global Competition HO manager wants to decentralize • Impact of Host Government Demands Host gov’t demands penalize decentralization • Joint Ventures

  5. Changing Nature of HO-Subsidiary Relationship Tendency: Control TOO MUCH!!!!!! HO must depend on mechanisms other than control over strategic resources (capital, technology, management, or access to markets) as a basis for strategic control.

  6. STRATEGIC CONTROL DILEMMA: • Reciprocal dependence btw the HO and subsidiaries • Responsiveness and flexibility in strategy must coexist w/ desires for global rationalization • Strategy must be responsive to environment demands => satisfy resource commitments. • Support proactive changes in strategy => • HO and subsidiaries must perceive the legitimacy of these changes • Subsidiary dependence should NOT be the basis for strategic control (resources) • Subtle Mechanisms => Creation of an Organizational Context.

  7. Shifts in Control Mechanisms in HO-Subsidiary Relationships O1 High High S Dependence of HO on Organizational Context Dependence of subsidiary on HO for Strategic Resources M M1 M Control Gap S1 Low O Low Mature Firms New firms

  8. Figure 1: Dependence of subsidiary on HO for strategic resourcesversus Dependence of HO on organizational context for controlling subsidiaries

  9. Creating an Appropriate Organizational Context as a substitute for Substantive control: • A complex organization is an aggregation of four orientations (possibly aligned): • Cognitive • Strategic • Power • Administrative • Organizational Mechanisms that managers use to manipulate these 4 orientations. • Data Management Mechanisms • Manager Management Mechanisms • Conflict Resolution Mechanisms

  10. STRATEGIC CONTROL DILEMMA IN MNCsGoal: Coordination(Figure 2, p. 11) Organizational Context Strategic Resources

  11. STRATEGIC CONTROL DILEMMA IN MNCsGoal: Coordination(Figure 2, p. 11) Organizational Context Strategic Resources

  12. Controlling and Coordinating MNE “Kentucky Fried Chicken (Japan), Ltd.” (1) What should Dick Mayer do about Loy Weston? (2) What does it take to succeed in the fast food franchising business? (3) What implications does this have for the way KFC should manage its international operations? (4) What recommendations would you make to Dick Mayer on the issues he raises at the end of the case?

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