Managing Across Borders: New Organizational Responses

IN A COMPANION ARTICLE (Summer 1987), we described how recent changes in the international operating environment have forced companies to optimize efficiency, responsiveness, and learning simultaneously in their worldwide operations. To companies that previously concentrated on developing and managing one of these capabilities, this new challenge implied not only a total strategic reorientation but a major change in organizational capability, as well.

Implementing such a complex, three-pronged strategic objective would be difficult under any circumstances, but in a worldwide company the task is complicated even further. The very act of “going international” multiplies a company’s organizational complexity. Typically, doing so requires adding a third dimension to the existing business- and function-oriented management structure. It is difficult enough balancing product divisions that bring efficiency and focus to domestic product-market strategies with corporate staffs whose functional expertise allows them to play an important counterbalance and control role. The thought of adding capable, geographically oriented management— and maintaining a three-way balance of organizational perspectives and capabilities among product, function, and area—is intimidating to most managers. The difficulty is increased because the resolution of tensions among product, function, and area managers must be accomplished in an organization whose operating units are often divided by distance and time and whose key members are separated by culture and language.

From Unidimensional to Multidimensional Capabilities

Faced with the task of building multiple strategic capabilities in highly complex organizations, managers in almost every company we studied made the simplifying assumption that they were faced with a series of dichotomous choices.1 They discussed the relative merits of pursuing a strategy of national responsiveness as opposed to one based on global integration; they considered whether key assets and resources should be centralized or decentralized; and they debated the need for strong central control versus greater subsidiary autonomy. How a company resolved these dilemmas typically reflected influences exerted and choices made during its historical development. In telecommunications, ITT’s need to develop an organization responsive to national political demands and local specification differences was as important to its survival in the pre- and post-World War II era as was NEC’s need to build its highly centralized technological manufacturing and marketing skills and resources in order to expand abroad in the same industry in the 1960s and 1970s.

When new competitive challenges emerged, however, such unidimensional biases became strategically limiting.

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1. The findings presented in this article are based on a three-year research project on the organization and management of multinational corporations. A description of the three-phase study and of the nine American, European, and Japanese MNCs that made up the core of the clinical research stage is contained in the companion article, “Managing across Borders: New Strategic Requirements” (Summer 1987). Complete findings will be presented in the forthcoming book, Managing across Borders: The Transnational Solution (Boston: Harvard Business School Press, forthcoming).

2. This global integration/national responsiveness framework was first applied to the analysis of MNC tasks by Prahalad. See C.K. Prahalad, The Strategic Process in a Multinational Corporation” (Boston: Harvard Business School, unpublished doctoral dissertation, 1976).

3. Working with a group of Swedish companies, Hedlund has come to similar conclusions. He describes MNCs with dispersed capabilities and differentiated operations as “heterarchies.” See G. Hedlund, “The Hypermodem MNC—A Heterarchy?” Human Resource Management, Spring 1986, pp. 9–35.

4. Rugman and Poynter have observed a similar phenomenon in the trend toward assigning mature national subsidiaries worldwide responsibility for products with worldwide markets. See A.M. Rugman and T.A. Poynter, “World Product Mandates: How Will Multinationals Respond?” Business Quarterly, October 1982, pp. 54–61.

5. This issue of differentiation in the roles and responsibilities of MNC subsidiaries has been discussed and a normative framework for creating such differentiation has been proposed in C.A. Bartlett and S. Ghoshal, “Tap Your Subsidiaries for Global Reach” Harvard Business Review, November–December 1986, pp. 87–94.

6. Such global competitive strategies have been described extensively by many authors. See, for example, T. Hout, M.E. Porter, and E. Rudden, “How Global Companies Win Out,” Harvard Business Review, September–October 1982, pp. 98–108; and G. Hamel and C.K. Prahalad, “Do You Really Have a Global Strategy?” Harvard Business Review, July–August 1985, pp. 139–148.

7. See R.M. Kanter, Tbe Change Masters (New York: Simon & Schuster, 1983).

8. The use of such internal quasi market mechanisms as a means of managing interdependencies has been richly described by Westney and Sakakibara. See D.E. Westney and K. Sakakibara, The Role of Japan-Based R&D in Global Technology Strategy,” Technology in Society 7 (1985): 315–330.

9. For a full description of the development of Eurobrand in P&G, see C.A. Bartlett, “Procter & Gamble Europe: Vizir Launch” (Boston: Harvard Business School, Case Services #9-384-139).

10. Kogut provides an excellent discussion on how multinational corporations can develop operational flexibility using a worldwide configuration of specialized resource capabilities linked through an integrated management system. See B. Kogut, “Designing Global Strategies: Profiting from Operational Flexibility,” Sloan Management Review, Fall 1985, pp. 27–38.

11. The distinction among sequential, reciprocal, and pooled interdependencies has been made in J.D. Thompson, Organizations in Action (New York: McGraw-Hill, 1967).

12. The role of headquarters management in establishing control over worldwide operations and the means by which it is done have been richly described in Y.L. Doz and C.K. Prahalad, “Headquarters Influence and Strategic Control in MNCs,” Sloan Management Review, Fall 1981, pp. 15–30.

13. The use of centralization, formalization, and socialization as means of coordination has been discussed by many authors, including P.M. Blau and R.A. Schoenherr, The Structure of Organizations (New York: Basic Books, 1971); and

W.G. Ouchi, “Markets, Bureaucracies, and Clans,” Administrative Science Quarterly 25 (March 1980): 129–141.

In the specific context of the multinational corporation, the process implications of these mechanisms were described by Bartlett in a model that distinguished “substantive decision management,” “temporary coalition management,” and “decision context management” as alternative management process modes in MNCs. See C.A. Bardett, “Multinational Structural Evolution: The Changing Decision Environments” (Boston: Harvard Business School, unpublished doctoral dissertation, 1979).

See also the contributions of G. Hedlund, T Kogono, and L. Leksell in The Management of Headquarters—Subsidiary Relationships in MNCs, ed. L. Otterbeck (London: Gower Publishing, 1981); and

Doz and Prahalad (Fall 1981).

14. See P. Haspeslagh, “Portfolio Planning: Uses and Limits,” Harvard Business Review, January–February 1982, pp. 58–73.