Making Global Strategies Work

It is hardly a novel insight that global competitive forces compel multinationals to fully leverage the distinctive resources, knowledge, and expertise residing in their subsidiary operations. Questions of what are “winning” global strategic moves for the modern multinational have increasingly intoxicated international executives.1 Yet for all the fanfare about global strategies and their increasingly undeniable link to multinational success, little has been said or written about how to make global strategies work. The key question we address here is just that: What does it take for multinationals to successfully execute global strategies?

Our research results paint a striking picture of the importance of the strategy-making process itself for effective global strategy execution. Over the last four years, we have done extensive research to understand how multinationals can successfully implement global strategies. Because subsidiary top managers are the key catalysts for, or obstacles preventing, global strategy execution, we asked them directly just what it was that motivated them to execute or to defy their companies’ global strategic decisions.

Subsidiary top managers were quick to rattle off a series of well-established implementation mechanisms: incentive compensation, monitoring systems, and rewards and punishments. They were equally quick to add that they did not believe these control mechanisms alone to be either sufficient or that effective. The general consensus was that these mechanisms were not particularly motivating and were easy to dodge and cheat. Even more recurrent in our discussions, however, were the dynamics of the global strategic decision-making process itself. When deciding whether or to what extent to carry out global strategies, subsidiary top managers accorded great importance to the way in which those strategies were generated. Their overriding concern involved a deceptively simple though evidently profound principle: due process should be exercised in the global strategic decision-making process.

In practical terms, due process means: (1) that the head office is familiar with subsidiaries’ local situations; (2) that two-way communication exists in the global strategy-making process; (3) that the head office is relatively consistent in making decisions across subsidiary units; (4) that subsidiary units can legitimately challenge the head office’s strategic views and decisions; and (5) that subsidiary units receive an explanation for final strategic decisions.

In short, we observed that, in the absence of these factors, subsidiary top managers were often upset and negatively disposed toward resulting strategic decisions. However, in the presence of these factors, the reaction was just the reverse.

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References

1. For an excellent review of the literature on global strategy, see:

S. Ghoshal, “Global Strategy: An Organizing Framework,” Strategic Management Journal 8 (1987): 425–440.

2. For an extensive discussion on our field study, see:

W.C. Kim and R.A. Mauborgne, “Implementing Global Strategies: The Role of Procedural Justice,” Strategic Management Journal 12 (1991): 125–143; and

W.C. Kim and R.A. Mauborgne, “Procedural Justice Theory and the Multinational Organization,” in Organization Theory and the Multinational Corporation, eds. S. Ghoshal and E. Westney (London: MacMillan, 1993a).

3. The Q-sort technique was used to define the meaning of due process in global strategic decision making. For a detailed explanation of this process, see:

Kim and Mauborgne (1991 and 1993a).

4. B. Kogut, “Designing Global Strategies: Comparative and Competitive Value-Added Chains,” Sloan Management Review, Summer 1985, pp. 15–28; and

M.E. Porter, “Competition in Global Industries: A Conceptual Framework,” in Competition in Global Industries, ed. M.E. Porter (Boston: Harvard Business School Press, 1986).

5. G. Hamel and C.K. Prahalad, “Do You Really Have a Global Strategy?” Harvard Business Review, July–August 1985, pp. 139–148; and

W.C. Kim and R.A. Mauborgne, “Becoming an Effective Global Competitor,” The Journal of Business Strategy, January–February 1988, pp. 33–37.

6. T. Levitt, “The Globalization of Markets,” Harvard Business Review, May–June 1983, pp. 92–102; and

G.S. Yip, “Global Strategy...In a World of Nations?” Sloan Management Review, Fall 1989, pp. 29–41.

7. C.K. Prahalad and G. Hamel, “The Core Competence of the Corporation,” Harvard Business Review, May–June 1990, pp. 79–91.

8. For an extensive discussion of these two forms of compliance, both the conceptual distinction between them and their theoretical root, see:

C. O’Reilly and J. Chatman, “Organizational Commitment andPsychological Attachment: The Effects of Compliance, Identification, and Internalization on Prosocial Behavior,” Journal of Applied Psychology 71 (1986): 492–499; and

P.M. Blau and W.R. Scott, Formal Organizations (San Francisco, California: Chandler Publishing Company, 1962), pp. 140–141.

9. That a reliance on instrumental approaches to compliance leads to utilitarian contractual attitude toward involvement relations finds strong support in the award-winning article:

J. Kerr and J.W. Slocum, “Managing Corporate Culture through Reward Systems,” Academy of Management Executive 1 (1987): 99–108.

10. C.A. Bartlett and S. Ghoshal, “Managing across Borders: New Strategic Requirements,” Sloan Management Review, Summer 1987, pp. 7–16; and

S. Ghoshal and C.A. Bartlett, “Creation, Adoption, and Diffusion of Innovations by Subsidiaries of Multinational Corporations,” Journal of International Business Studies, Fall 1988, pp. 365–388.

11. K.J. Arrow, “The Organization of Economic Activity,” The Analysis and Evaluation of Public Expenditure: The PPB System (Joint Economic Committee, Ninety-first Congress, First Session, 1969), pp. 59–73.

12. For a brilliant discussion on the distinctive powers of hierarchy and internal organization, see:

O.E. Williamson, Markets and Hierarchies: Analysis and Antitrust Implications (New York: Free Press, 1975).

13. See the perspicacious article by Hedlund for further support for this argument:

G. Hedlund, “The Hypermodern MNC-A Heterarchy?” Human Resource Management 25 (1986): pp. 9–25.

14. For an extensive discussion on the ways in which interdependencies and joint efforts confound accountability and create monitoring difficulties, see:

G.R. Jones and C.W.L. Hill, “Transaction Cost Analysis of Strategy-Structure Choice,” Strategic Management Journal 9 (1988): 159–172.

15. For an excellent discussion on the inverse relationship between power and dependence, see, for example:

R.M. Emerson, “Power-Dependence Relations,” American Sociological Review 27 (1962): 31–41.

16. For a discussion on the ways in which centrality affects power relations, see:

L.C. Freeman, “Centrality in Social Networks: Conceptual Clarification,” Social Networks 2 (1979): 215–239.

17. That business units’ or divisions’ accumulation of distinct capabilities and tasks reinforces distinct values and behavioral norms was empirically validated. See:

P.R. Lawrence and J.W. Lorsch, Organization and Environment (Boston: Harvard University Press, 1967).

18. See Hedlund (1986) for further elaboration of this point.

19. That the exercise of due process or, as it is often referred to, procedural justice, has the power to effectuate the higher-order attitudes of commitment, trust, and social harmony finds theoretical and empirical support in other settings. See, for example:

S. Alexander and M. Ruderman, “The Role of Procedural and Distributive Justice in Organizational Behavior,” Social Psychology Research 1 (1987): 177–198; and

R. Folger and M. Konovsky, “Effects of Procedural and Distributive Justice on Reactions to Pay Raise Decisions,” Academy of Management Journal 32 (1989): 115–130; and

E.A. Lind and T.R. Tyler, The Psychology of Procedural Justice (New York: Plenum, 1988).

20. This “cushion of support” effect not only finds support in the existing procedural justice literature but is recognized to be one of the most important effects of procedural justice or due process. See, for example:

Lind and Tyler (1988); and

T.R. Tyler, Why People Obey the Law: Procedural Justice, Legitimacy, and Compliance (New Haven, Connecticut: Yale University Press, 1990).

21. We examined and confirmed the statistical difference in the due process effect between the favorable outcome and the unfavorable outcome group for organizational commitment, trust in head office management, and social harmony. This was done using what econometricians call the Chow test, which is able to examine the statistical significance in slope differentials between the groups. In our case, test statistics of F values for all three salutary attitudes were significant at the 1 percent level and hence indicated to reject the null hypotheses that no slope coefficient difference exists between the favorable outcome and the unfavorable outcome group. For a detailed discussion on the Chow test, see:

G.C. Chow, “Tests of Equality between Subsets of Coefficients in Two Linear Regression,” Econometrica (1960): 591–605.

22. The F value for compulsory execution was significant at the 5 percent level and hence indicated to reject the null hypothesis that no slope coefficient difference exists between the favorable outcome and the unfavorable outcome group. Ibid.

23. The F value for voluntary execution was not significant (p>.10) and hence indicated not to reject the null hypothesis that no slope coefficient difference exists between the favorable outcome and the unfavorable outcome group. Ibid.

24. Variance analysis was employed to assess the statistical significance in the mean difference between the groups.

25. For an extensive discussion on the design and administration of our mail questionnaire, see:

Kim and Mauborgne (1991 and 1993a).

26. For an extensive discussion on the design and administration of the second-wave questionnaire of our longitudinal study on subsidiary top managers’ strategy execution, see:

W.C. Kim and R.A. Mauborgne, “Procedural Justice, Attitudes, and Subsidiary Top Management Compliance with Multinationals’ Corporate Strategic Decisions,” Academy of Management Journal, forthcoming, June 1993b.

27. Kim and Mauborgne (1991 and 1993a).

28. We averaged the scores for these multiple items to estimate our due process measure. The same procedure was used for all of our other multi-item measures: organizational commitment, trust, social harmony, and strategic decision outcome favorability. For a detailed discussion on why this simple averaging approach yields an unbiased estimate, see:

H.M. Blalock, “Multiple Indicators and the Causal Approach to Measurement Error,” American Journal of Sociology 75 (1969): 264–272.

29. The Cronbach’s coefficient alpha indicates the internal consistency reliability of a scale. Generally, a multi-item scale can be judged to be reliable when the value of its Cronbach alpha exceeds 0.70. Notice here that besides our due process measure, all of our other multi-item scales can be said to be reliable. For a detailed discussion on a measure’s reliability, see:

J. Nunnally, Psychometric Methods (New York: McGraw-Hill, 1978).

30. The nine-item measure used to assess organizational commitment was developed by:

R.T. Mowday, R.M. Steers, and L.W. Porter, “The Measurement of Organizational Commitment,” Journal of Vocational Behavior 14 (1979): 224–247.

31. The items used to measure trust were drawn from the interpersonal trust measures of:

W.H. Read, “Upward Communication in Industrial Hierarchies,” Human Relations 15 (1962): 3–15; and

R. Likert, The Human Organization (New York: McGraw-Hill, 1967).

32. The indicators used to measure social harmony were drawn from the cohesiveness index developed by:

S.E. Seashore, Group Cohesiveness in the Industrial Work Group (Ann Arbor: University of Michigan Press, 1954); and

C. Cammann, M. Fichman, G. Douglas, and J.R. Klesh, “Assessing Attitudes and Perceptions of Organizational Members,” in Assessing Organizational Change, eds. S.E. Seashore, E.E. Lawler, P.H. Mirvis, and C. Cammann (New York: John Wiley & Sons, 1983).

33. The four-item measure used to assess strategic decision outcome favorability was originally developed by:

Kim and Mauborgne (1991).

34. The use of a multidimensional approach with criterion weights to measure both compulsory and voluntary execution is in line with Steer’s advice and seemed particularly appropriate for taking into account subsidiary top managers’ different levels of involvement in carrying out these activities and hence their different levels of contribution to the execution of these activities in accordance with their formal job requirements. See:

R.M. Steers, “Problems in the Measurement of Organizational Effectiveness,” Administrative Science Quarterly 20 (1975): 546–558.

35. Ibid.

Acknowledgments

Special thanks are due to Sumantra Ghoshal, Philippe Haspeslagh, and Michael Scott Morton. Their comments greatly improved this paper. Special thanks are also due to INSEAD, especially Associate Dean Yves Doz, for generous financial support of this research.