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Managing Across Borders: The Transnational Solution by Sumantra Ghoshal, Christopher A. Bartlett
kxowledge's review against another edition
5.0
Foreign markets offer highly diverse sources of information and other resources. They may also have highly diverse product needs and different operating norms. This prompts many firms to consider decentralizing R&D to take advantage of local information and tailor innovation activities to the local market. However, innovations developed in this decentralized manner might never be diffused to the other divisions. The customization of products and processes to the local markets makes them particularly difficult to transfer to divisions serving different markets. Divisions that are accustomed to developing their own innovations may be reluctant to share them with others for fear of giving away their proprietary knowledge. They may also be reluctant to adopt other divisions’ innovations because of the belief that innovations that are not developed locally will not suit their local market needs (not-invented-here syndrome). However, much of the value creation potential of a multinational is the opportunity to leverage technological innovation and other core competences in multiple markets.
Bartlett and Ghoshal identify four primary strategies used by firms:
(1) The centre-for-global strategy which entails conducting all innovation activities at a centralized hub. These innovations are then deployed globally throughout the company. The centralization of innovation enables management to: tightly coordinate all R&D activities across both functions and projects, achieve greater specialization and economies of scale in R&D activities while avoiding duplication of activities in multiple divisions, develop and protect core competences, and ensure that innovations are standardized and implemented throughout the company. Managers are more likely to choose a centre-for-global approach to innovation when they have a strong desire to control the evolution of a technology, when they have strong concerns about the protection of proprietary technologies, when development activities require close coordination, or when there is a need to respond quickly to technological change and dispersed efforts are likely to create inefficiencies. However, a centre-for-global approach tends to not be very responsive to the diverse demands of different markets. Furthermore, the divisions that serve these markets might resist adopting or promoting centrally developed innovations. As a result, innovations developed centrally may not closely fit the needs of foreign markets and may also not be deployed quickly or effectively.
(2) The local-for-local strategy is the opposite: each national subsidiary uses its own resources to create innovations that respond to the needs of its local market. A local-for-local strategy takes advantage of access to diverse information and resources, and it customizes innovation for the needs and tastes of the local market. Managers are likely to choose this strategy when divisions are very autonomous and when markets are highly differentiated. There are several downsides to the strategy however: it can result in significant redundancy in activities and each division may suffer from a lack of scale in R&D activities and there is a risk that valuable innovations will not be diffused across the firm.
(3) A locally leveraged strategy i.e. when each division or subsidiary of the firm conducts its own R&D activities, but the firm attempts to leverage resulting innovations throughout the company, thus enabling the firm to take advantage of the diverse ideas and resources created in local markets. This can be very effective if different markets that the company serves have similar needs. In the locally leverages strategy, the decentralized R&D divisions are largely independent of each other and work on the full scope of development activities relevant to the regional business unit in which they operate. However, to ensure that the best innovations are leverages across the company, the company sets up integrating mechanisms (such as holding regular cross-regional meetings or establishing a liaison such as international brand custodian) to encourage the divisions to share their best developments with each other.
(4) The globally linked strategy which entails creating a system of decentralized R&D divisions that are connected to each other and are centrally coordinated for the global needs of the corporation by assigning to each geographically decentralized division a different innovation task. Thus, while innovation is decentralized to take advantage of resources and talent pools offered in different geographic markets, it is also globally coordinated to meet companywide objects, thus enabling the learning accrued through innovation activities to be diffused throughout the form. It is however expensive in both time and money as it requires intensive coordination. In this strategy, the R&D divisions are decentralized, but they each play a different role in the global R&D strategy and instead of working on all development activities relevant to the region in which they operate, they specialize in a particular development activity. The role of the division should exploit some local market resource advantage. This strategy attempts to take advantage of the diversity of resources and knowledge in foreign markets, while still linking each division though well-defined roles in the company’s overall strategy.
Bartlett and Ghoshal argue that, overall, the multinational firm’s objective is to make centralized innovation activities more effective (that is, better able to serve the various local markets) while making decentralized innovation activities more efficient (that is, eliminating redundancies and exploiting synergies across divisions). They propose that a firm should take a transnational approach wherein resources and capabilities that exist anywhere within the firm can be leveraged and deployed to exploit any opportunity that arises in any geographic market. They argue that this can be achieved by: encouraging reciprocal interdependence among the divisions of the firm (that is, each division must recognize its dependency on the other divisions of the firm), utilizing integration across the divisions such as division spanning-teams / rotating personnel across divisions / etc, balancing the organization’s identity between its national brands and its global image.
Bartlett and Ghoshal identify four primary strategies used by firms:
(1) The centre-for-global strategy which entails conducting all innovation activities at a centralized hub. These innovations are then deployed globally throughout the company. The centralization of innovation enables management to: tightly coordinate all R&D activities across both functions and projects, achieve greater specialization and economies of scale in R&D activities while avoiding duplication of activities in multiple divisions, develop and protect core competences, and ensure that innovations are standardized and implemented throughout the company. Managers are more likely to choose a centre-for-global approach to innovation when they have a strong desire to control the evolution of a technology, when they have strong concerns about the protection of proprietary technologies, when development activities require close coordination, or when there is a need to respond quickly to technological change and dispersed efforts are likely to create inefficiencies. However, a centre-for-global approach tends to not be very responsive to the diverse demands of different markets. Furthermore, the divisions that serve these markets might resist adopting or promoting centrally developed innovations. As a result, innovations developed centrally may not closely fit the needs of foreign markets and may also not be deployed quickly or effectively.
(2) The local-for-local strategy is the opposite: each national subsidiary uses its own resources to create innovations that respond to the needs of its local market. A local-for-local strategy takes advantage of access to diverse information and resources, and it customizes innovation for the needs and tastes of the local market. Managers are likely to choose this strategy when divisions are very autonomous and when markets are highly differentiated. There are several downsides to the strategy however: it can result in significant redundancy in activities and each division may suffer from a lack of scale in R&D activities and there is a risk that valuable innovations will not be diffused across the firm.
(3) A locally leveraged strategy i.e. when each division or subsidiary of the firm conducts its own R&D activities, but the firm attempts to leverage resulting innovations throughout the company, thus enabling the firm to take advantage of the diverse ideas and resources created in local markets. This can be very effective if different markets that the company serves have similar needs. In the locally leverages strategy, the decentralized R&D divisions are largely independent of each other and work on the full scope of development activities relevant to the regional business unit in which they operate. However, to ensure that the best innovations are leverages across the company, the company sets up integrating mechanisms (such as holding regular cross-regional meetings or establishing a liaison such as international brand custodian) to encourage the divisions to share their best developments with each other.
(4) The globally linked strategy which entails creating a system of decentralized R&D divisions that are connected to each other and are centrally coordinated for the global needs of the corporation by assigning to each geographically decentralized division a different innovation task. Thus, while innovation is decentralized to take advantage of resources and talent pools offered in different geographic markets, it is also globally coordinated to meet companywide objects, thus enabling the learning accrued through innovation activities to be diffused throughout the form. It is however expensive in both time and money as it requires intensive coordination. In this strategy, the R&D divisions are decentralized, but they each play a different role in the global R&D strategy and instead of working on all development activities relevant to the region in which they operate, they specialize in a particular development activity. The role of the division should exploit some local market resource advantage. This strategy attempts to take advantage of the diversity of resources and knowledge in foreign markets, while still linking each division though well-defined roles in the company’s overall strategy.
Bartlett and Ghoshal argue that, overall, the multinational firm’s objective is to make centralized innovation activities more effective (that is, better able to serve the various local markets) while making decentralized innovation activities more efficient (that is, eliminating redundancies and exploiting synergies across divisions). They propose that a firm should take a transnational approach wherein resources and capabilities that exist anywhere within the firm can be leveraged and deployed to exploit any opportunity that arises in any geographic market. They argue that this can be achieved by: encouraging reciprocal interdependence among the divisions of the firm (that is, each division must recognize its dependency on the other divisions of the firm), utilizing integration across the divisions such as division spanning-teams / rotating personnel across divisions / etc, balancing the organization’s identity between its national brands and its global image.
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