The Strategy Process: Headquarters and Subsidiaries

How can Leaders help Organizations Learn?

De Wit & Meyer (2010: Ch 9, The Organizational Context)

n  The organizational leadership perspective (Kotter 1990: What Leaders Really Do. Harvard Business Review, 68, 3: 103-111): organizations thrive when a strong leader runs them well

n  Develops a distinctive vision

n  Inspires others, often by acting heroically

n  and uses central control to ensure that plans are implemented

n  The organizational dynamics perspective (Stacey 2007): whether leaders like it or not, they are involved in an interdependent relationship with their followers: they struggle to make a difference

n  Outcomes (decisions) emerge through the interplay of intentions

n  This interplay happens through myriad local interactions

n  Order emerges as a set of organising principles

n  Leaders can help by setting simple rules

n  and the process works most effectively as organized chaos

When Leaders Listen to Followers, Organizations can Learn – and Act

The Value of Emergence in MNEs

Kim and Mauborgne (1993), Making global strategies work

n  Research on the motivation of subsidiaries’ top managers

n  What motivates them to execute or to defy their companies’ global strategic decisions?

n  Formal control mechanisms (pay, budgeting and financial reporting systems) – less effective

n  Easy to manipulate

n  Symbols of subordination

n  Due process (consultation, communication, consistent application of company-wide rules) – very effective

n  Builds understanding

n  Uses talents

n  Shows respect

We can link to UH Professor Ralph Stacey’s ideas:

                Head Office (central leaders) can choose to acknowledge the reality of local interactions, and engage openly with subsidiary heads.

                If they try to exert control, they may experience subversion and sabotage

Emergence and Configurations

n  Not all existing MNEs are configured in ways that promote learning – and empower subsidiary heads to deliver national responsiveness (Bartlett and Ghoshal 1986)

n  Many have top-down structures and attitudes reflecting a range of administrative heritages

n  In such cases it can be difficult for subsidiaries (local managers) to display active agency e.g. to influence the process of new product design (Saka-Helmhout and Geppert 2011)

n  Bartlett and Ghoshal urge MNE headquarters managers to move beyond structural fit: that is, a top-down contingency approach designed to engineer the firm to suit a market-driven strategic plan

n  Chief executives should configure the firm’s unit groupings and integrating devices to create a healthy organism within which strategy continuously emerges through a flexible integrative process, balancing the many paradoxes of management (Bartlett and Beamish 2011: Ch 4)

Frynas & Mellahi (2011: Ch 9): 

A Contingency Approach

• Focuses on organizational structures
•    Analyses these to explain how the firm

v     organizes its resources and capabilities into specific tasks

and

v     achieves coordination among these tasks

•    Key idea: the firm should achieve a fit  

     between strategy and structure

v     business processes should be organised in ways that support the business model

The Business Model

1)      Customer Value Proposition

n  Who are your target customers?

n  What is the problem or need you will help them with?

n  How will you meet their needs?

2)      Key Resources (needed to deliver the CVP)

3)      Key Processes (Porter’s Value Chain activities)

4)      Profit Formula (costs and revenues)

Managers look at how these factors will vary

n  as the SCALE of output rises

n  over TIME – lead times, throughput, cash flows

n  over SPACE – do you need to adapt the business model when you move beyond your home market?

(Johnson, M.W., Christensen, C.M. and Kagermann, H. (2008) Reinventing Your Business Model. Harvard Business Review. 86/12 p: 50)

But Frynas and Mellahi Look at Configurations Too... (p. 297)

Holding Company Structure

(Multi-domestic: Links to B&B’s Decentralized Federation)

 Export Structure 

(Links to B&B’s Co-ordinated Federation)

 A ‘Network Structure’ supporting a transnational strategy

Network Structure

Under What Conditions do the Various Configurations Emerge?

n  Frynas & Mellahi (2011: Ch 7)

n  Subsidiaries may play a ‘support and implementation’ role (in the language of Saka-Helmhout and Geppert 2011, displaying ‘passive agency’)

n  OR they may be autonomous (especially in decisions about the business model for a specific product or service; in the language of Saka-Helmhout and Geppert 2011, displaying ‘active agency’)

n  Autonomy is more appropriate when there are...

n  High pressures for local responsiveness

n  High environmental uncertainty

n  Very specialised technologies and/or expertise in local use, so that the subsidiary earns a ‘global product’ mandate (ibid, p. 221)

When Subsidiaries are Autonomous, Certain Decisions May Still Belong at HQ

n  Frynas & Mellahi (2011: Ch 8)

n  Many MNEs are business groups headed by a corporate parent company (ibid, pp. 240-242)

n  Financial controls may be used to review and compare the performance of all subsidiaries

n  Decisions that must be made centrally include

n  The mission, values and overall strategic direction of the group

n  The scale and scope of business activities engaged in (emerging MNEs tend to be more diversified than established MNEs: ibid, pp. 255-256)

n  The extent of offshoring and outsourcing

n  The ways in which co-ordination and learning are promoted within the group