Professional Documents
Culture Documents
PIERRE ROMELAER
AND
HANANE BEDDI
This leads to the M-Form organizational structure, in which strategic decisions are centralized at HQ and operational responsibilities are decentralized
and delegated to strategic business units (SBUs). It stands in contrast to functional structure (U-Form), in which top management is overwhelmed by
operational details. A variant of the M-Form, the centralized multi-divisional
(CM-Form) structure (Hill 1988; Hill and Hoskisson 1987; Hill, Hitt, and
Hoskisson 1992) adds selective involvement of the corporate center in SBUs,
in particular to harness synergies or to transfer competences across SBUs.
According to these authors, the CM-Form structure is appropriate for groups
pursuing policies of related diversification, and the M-Form structure suits
groups pursuing policies of unrelated diversification.
Many other models have since been developed with the aim of going
beyond the M-Form. Six of these are outlined below. The first model, the
global integration/local responsiveness grid, classifies industries and then
strategies into three categories: locally responsive, global, and multi-focal
(Prahalad and Doz 1987). Similarly, Porter (1986) took industries as the unit
of analysis, distinguishing global and multi-domestic industries (as did Yip
1989) that, respectively, lead to pure global and country-centered strategies.
White and Poynter (1990) identified intermediate strategies based on combinations of globally and locally based advantages and opportunities, leading
them to define five organizational structures. In another model, Bartlett
and Ghoshal (1989) used the notions of global efficiency, national responsiveness, and worldwide learning to distinguish between four types of MNC:
international, multinational, global, and transnational. The second model
is based on another perspective: the degree of multinationality of the firm.
Perlmutter (1969) and Heenan and Perlmutter (1979) identified four different
states of mind or attitudes from which both strategy and structure follow:
the MNC can be home-country oriented (ethnocentric), host-country
oriented (polycentric), regionally oriented (regiocentric) or world oriented
(geocentric). The third model considers the creation and leveraging of dispersed knowledge (Hedlunds 1986; 1994) and offers the heterarchy and
N-Form as more organic and decentralized, and less hierarchical than the
M-Form. Later, Doz, Santos, and Williamson (2001) presented a model also
focused on knowledge, with a structure less vertical than the M-Form, but
more structured than the N-Form. What they called the metanational corporation is organized around three tasks: sensing knowledge, turning it into
products/services, and leveraging new knowledge. The fourth model considers product diversity and the proportion of foreign sales to total sales at different stages of international expansion. On this basis, Stopford and Wells
(1972) identified four structures: worldwide product divisions, area structure,
international division structure, and global matrix structure. The fifth model
recognizes the limits of uni-dimensional structures and offers a progress
toward matrix organizations (Goold and Campbell 2003). The authors
Doz 1989; Frost and Zhou 2005; Kostova and Roth 2003; Malnight 2001;
Pudelko and Harzing 2008).
In addition, defining features of an MNC entails structural indeterminacy
within the diversified MNC because of the need to deal with multiple stakeholders, both externally and internally, and multiple perspectives in choices
and decisions (Doz and Prahalad 1991). This necessity leads researchers to
promote an interorganizational network perspective (Ghoshal and Bartlett
1990). The MNC is then seen as an interdependent, differentiated system
(Nohria and Ghoshal 1997). The MNC aims both to integrate all the entities
in the organization as a whole and adapt subsidiaries to the specificities of
their local environment. These models are often described as network-based
(Malnight 1996; 2001; Andersson and Holm 2010), as opposed to decentralized (high LR/low GI) or centralized (high GI/low LR).
Looking beyond hierarchical models and the I/R dichotomy, networkbased models characterized by high levels of both integration and responsiveness deserve some closer attention. They correspond to the models located at
the top right side in Figure 1, which we examine in the next section.
question, which involves power and control: Should decisions for a subsidiary be made by HQ managers and staff or by subsidiary management? The
issues are summed up in Figure 2 below, which shows that the two dimensions can, to some extent, vary independently.
Figure 2 allows for four possibilities. We look more closely at two of these.
In Cell A, the firm is very much like a company owned and run by an active
capital investment fund, where the label active means that HQ imposes
strategic decisions, specific to each of its companies, and possibly intervenes
at the operational level, to some extent. An example is Global Investment
Partners, a joint venture between GE and Credit Suisse, which acquires large
utilities and boosts their performance with the (presumably superior) competency GE has built up in the management of service activities.7 It could be
said that each SBU is managed from the outside.
The situation in Cell D is close to impossible. It is hard to see how independent SBUs could spontaneously develop common objectives and strategies, have processes to adjust them, and accept a common agreement on
discipline. Even scholars who equate MNCs with networks find it unclear
how firm-level goals will arise without some hierarchy (Egelhoff 2010, 418).
What also appears from Figure 2 is that fairly extreme cases cannot work
in practice without the addition of other dimensions. For example, in Cell A,
it is hard to imagine HQ really conducting completely local optimization: HQ
decisions will be influenced by HQ managers and staff competencies, values,
culture, norms, and styles (hence, five additional dimensions). Furthermore,
it is hard to imagine that SBUs have no de facto influence if HQ depends on
local people for local information and relationships with local agents (two
dimensions). HQ may try to reduce the asymmetry of information by
employing a variety of management methods (hence, adding still more
dimensions8 to the initial I/R perspective).
Figure 2. The I/R grid for power and control and/or optimization.
When it comes to mental maps and cognitive schemes, there are many
activities where the professional milieu9 includes people and entities from
several countries. In such cases, local maps, schemes, and knowledge cannot
be called entirely local. That local maps are influenced by the local context
of their knowledge site is true (Foss, Doz, and Santos 2008), but local
individuals also refer to geographically distant people and knowledge items.
Thus, in both economic and knowledge activities, we should move on from
the notion of geographically local to the notion of cognitively/socially
connected: decision-making communities, communities of practice, and
knowledge systems are as important as groups of people in the same
country.
Our fifth disagreement is with the views that partly emanate from the I/R
perspective: HQ has a global vision and knowledge and subsidiaries have
local views and knowledge. Two arguments may support our view. The first
argument is that metanational firms are not homeless as stated in Foss,
Doz, and Santos (2008, 14). Just like national subsidiaries and national
knowledge sites, HQ is influenced by its local conditions. Although the geocentric or the metanational may be thought of as optimizing worldwide
operations, in reality the optimization is colored by the point of view of
the country of origin: Huawei, Cemex and Google are not only global, they
are also, to some degree, Chinese, Mexican, and American firms. The second
argument is that the conditions influencing local knowledge do not come
only from the country concerned. They also include the professional cultures
we mentioned above, the nationalities of the local people, and the experiences that local people have had in various parts of the firm (and outside
it) over many years. For example, French cement-maker Lafarge has a technical center in Austria where staff from fifty different countries work daily in
direct contact with subsidiaries within a thousand-kilometer radius. Could it
be said that knowledge in this unit is influenced only by the Austrian
environment? Our answer is no. We think it can be misleading to assert
thatmuch knowledge that is commercially relevant to MNCs is contextdependent and rooted in local circumstances (Foss, Doz, and Santos
2008, 9). This situation becomes true only if there are full and precise definitions of the words relevant, context, and local.
The sixth difference we have identified is with another aspect of many of
the network approaches presented above. Many models claiming that the
MNC is a differentiated network provide no detailed descriptions of activities
useful to obtain integration of the whole, to guide the firm as a whole, to conduct changes, and, when necessary, to coerce. Some of themsuch as those
concerning strategy, objectives, values, and the density of internal relations
can play an important role in achieving high integration and high responsiveness, at the same time, in a given stream of activity.10 We look at this more
closely in the next section.11
Conclusion
The I/R (integration/responsiveness) perspective is a very useful tool, allowing
us to compare nearly thirty types of organizations for multinational or multibusiness firms described in the literature. The I/R perspective also enables us
to identify commonalities and differences among recent network models.
To move a step further than the I/G grid, the analysis we conducted leads
to what we can call the strategy-power perspective, which has several
Notes
1. As illustrated in some recent publications, e.g.,: By adding an additional
geographic dimension, and by recognizing the variable relationships national
subsidiaries are likely to have both between themselves and with their multinational
centers, the international business literature is well-placed to develop a much
more differentiated and internally-complex picture of organizational structure
(Whittington 2002, 120).
2. Many attempts have been made to extend or test these models, among them
Harzing (1999; 2000), Malnight (1996; 2001), and Birkinshaw and Morrison (1995).
Some researchers focus on the industry involved as one (or the most) important factor
explaining strategy and structure. Following Devinney, Midgley, and Venaik (2000),
we do not share the determinism of these approaches and focus on MNCs rather than
industries.
3. There are many different SBU typologies, as illustrated by White and Poynter
(1984), Bartlett and Ghoshal (1989), Jarillo and Martinez (1990), Gupta and
Govindarajan (1991), Roth and Morrison (1992), Ambos and Reitsperger (2004), and
Drrenbcher and Gammelgaard (2006). Many researchers have also tried to test or
compare their typologies (Birkinshaw and Morrison 1995; Harzing and Noorderhaven
2006; Paterson and Brock 2002; Taggart 1998; Tsai, Yu, and Lee 2006; and Yu 2005). A
tentative common framework was proposed by Enright and Subramanian (2007).
4. This quote and the following two are from Doz (2004, 25).
5. Close to Doz, Harzing saw that much research on MNC implicitly or
explicitly refers to a continuum of integration/coordination/globalization advantages
versus differentiation/responsiveness/localization advantages (1999, 103).
6. We thank the reviewer who suggested we also include the notion of control.
Indeed, we aim at involving both the act of deciding and being able to impose ones
views (we call this power), and the act of verifying that what has been done
conforms to what was agreed upon (we call this control). We search, then, to go
beyond only the social-psychological aspects.
7. One of GIPs investments is Gatwick Airport in the UK, acquired for US$2
billion.
8. These may concern, among other things, personal envoys, expatriates,
information systems, reporting, control, education and socialization of local people
with HQ people, regular communications between HQ and local people, scope for
subsidiary managers to discuss HQ demands (although HQ decides in the last
resort), and trust between HQ and SBUs.
9. A professional milieu may include people in several countries, with good
professionals and stars. It may also include companies active in the field, great universities and labs, well-known consulting firms, high-level suppliers, professional
journals and events, journalists, blogs, groups in social networks, and other
communities.
10. Some research refers to these coordination forces, at least implicitly. Foss,
Santos, and Doz explained that knowledge items from distant places can be combined without being transferred or shared across locations by providing relatively
similar internal contexts to the local units (2008, 9). However, the notion of context
is not developed further. Doz (2004, 1516) argued that the firm may prevent newly
created global business units from destroying local knowledge and motivation
through a re-weaving of the organizational fabric, that is, breaking monolithic
organizations into smaller [units] . . . [that use] less formal arrangements . . . such as
communities of practice and various ad hoc integration tools, around project management, quality deployment disciplines, and common platforms. Many organizational tools referred to in Bartlett and Ghoshal (1993) are similar, although they
are closely connected with other detailed roles of HQ and divisional executives.
11. There are several limitations to the use of the I/R grid not mentioned here for
lack of space.
12. We identified many other dimensions not presented here for lack of space.
Among them is the fact that I/R issues have a different slant depending on prevailing
conditions (market turbulence) or for different functions (production, information
systems) in all national cultures. Firms also have to realize that the value of innovation and of diversification is not positive and high in all sectors, in all regions,
and at all times.
13. It is interesting to note the theoretical reason given by Bartlett and Ghoshal
for these lateral relations: they are necessary because knowledge is situated in
front-line units (1993, 32). Arguments here are very close to those we saw above
in Doz (2004) and Foss, Santos, and Doz (2008), but they go even further, asserting
that lateral relations are also necessary because the firm needs vertical decentralization to create an environment in which this scarce knowledge can be developed and
applied most appropriately (Bartlett and Ghoshal 1993, 32).
14. Interestingly, data also show that things are not as dichotomous as might be
thought: direct HQ involvement is not the opposite of local autonomy in decision
making. The correlation is 0.25.
15. To take this a little further, research found knowledge flows in MNCs to be
positively related to the use of socialization mechanisms (Gupta and Govindarajan
2000) and the existence of close relationships among MNC subsidiaries (Szulanski
1996; Tsai and Ghoshal 1998). The use of less formal mechanisms is related to a high
level of interdependencies within the MNC.
16. The results we have discussed, interesting as they are, should not lead to the
conclusion that all the questions have been answered. Some recent research with
appealing hypotheses has yielded meager results. Examples include Teigland and
Wasko (2009) and Dinur (2009).
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