Action in heterarchies – new

approaches to managing the

MNCs

By Gunnar Hedlund and Dag Rolander

Presented by: Michelle Loon

Introductions & Overview
 Increasing diffusion of technology and managerial
competence internationally gives rise to competition and
create opportunities for scanning new ideas to manage
MNCS.
 Reassessment of current notions is needed in managerial
practice in research and theory.
 4 parts of this article:-
1. Summary/discussion of an important stream of research
on strategy-structure paradigm.
2. Outlines an alternative framework and discussion on
“structure”, “strategy” & “environment” and their
relationship.
3. Empirical support for theoretical arguments. (e.g. Swedish
MNCs)
4. Author’s Conclusion & Suggestion on avenues for further
research
Article’s overview:-
 Article suggest for new approaches to two issues of crucial
importance.
 (a) Org structure and mode of control in highly international
MNCs is shifting towards a model “heterarchy,
 Geographical diffusion of core strategic activities &
coordinating roles.
 A break away from one uniform hierarchy of decision as well
as org positions and increase focus control mechanism.
 (b) Frames of reference for the understanding of MNCs
relationship to its environment are proposed.
 Instead of analyzing strength and weaknesses on immediate
competitive environment, which was found to be too
restrictive, Author argue that stronger emphasis should be
put on learning and the search for opportunities and on
actions aimed at reshaping the environment or selecting the
environment that they want to be in.
Summary and discussion of an important stream
of research on strategy-structure paradigm.

 Change in environments => change in Strategy=>change in

structure of corporation.
 4 main dimension of Strategy
 Growth
 Degree & Type of vertical integration
 Geographical extension
 Degree of product diversification
 2 main aspect of Structure –
 Formal or
 Informal
(e.g. In areas of line of authority, communication, formation and data flow)
 Chandler (1962) Environmental factors such as :-
 Population
 Income
 Technology.
Some Literatures on SSP…
 Galbraith and Nathanson (1978) - Nature of information flows
for the design of organizational structure, informational
complexity facing the firm rather than broader environmental
or strategic factors, seen as determining the way firm is
managed
 Porter (1980) – strategy dimensions and generic strategies
 Fombrun (1983) investigates the association between Porter’s
generic strategies and structural solutions but does not find
any strong relationships.
 Conclusion: There are indications both from practice and in
academic writing that there are some fundamental problems in
applying the strategy-structure framework to the task of
effectively managing the MNC.
 For problems with SSP approach refer to pg 19-22
Traditional Approaches vs Alternative
Framework

 Traditionally , SSP approach is develop from

external environment to internal strategies
adoption and then to internal corporate
structuring (which is too restrictive)
 Alternative framework : exploitation (current
and potential – pg 28) and experimentation
(changing future potential) give rise to
organization structures and then subsequent
acting and reacting to the environment.
SSP logic and alternative
framework logic
 SPP logic
 Environment with given
common constraints
 leads to an action program
(strategy)
 leads to an appropriate type
of hierarchy in an
organisation (structure)
 From an external to internal
approach
 Alternative framework
 Programs of exploitation
(learning and searching of
current and potential
opportunities) and
experimentation (changing
future potential)
 Shapes the structure of the
organization
 Select the environment to be
in and discover what to do
using the structure of the
firm
(reacting to the environment
accordingly)
Structure as heterarchy / Alternative
framework
 9 Main Characteristic of the heterarchical MNCs
(Refer to pg 25-26)
 Action program-> aim at market creation. This
applies mostly in new or rapidly changing fields of
business
 Action programmes for the exploitation of
comparative advantages between countries and
region, the co-ordination of activities to optimize on
such, rather long-run, possibilities. – most
applicable in mature industries where global
restructuring is taking place
 Action programmes for flexible global arbitrage.
Strategy in Alternative Framework –
exploration and experimentation.
 Exploration primary aim is to seek opportunities - Aim at
capturing the current potential

 Exploitation primary focus on the effective utilization of

given resources and the appropriation of value stemming
from current activities. - Aim at changing the future
potential

 Fast experimentation in multiple direction and systems,

enables the firm to learn from experience, are crucial in a
global environment where change is fast and competition
strong.

E.g. GM/Toyota Joint Venture to manufacture Toyota

designed cars in Fremont, California, sold under the
Chevrolet brand name. is a clear e.g. of the two
intertwined processes. (find reading in pg 28)
Relationship between “Structure”,
“Strategy” & “Environment”
 7 main differences between a new model and the
traditional model (SSP) Refer pg 32-36

 E.g. of MNC practices (ref to pg 36-40)

 Swedish MNCs has both advantages and
disadvantages e.g. IKEA
 They face high degree of environmental
heterogeneity earlier in their development and
also cannot rely on one dominant market which
provides the backbone for the structure and
action of the firm (New approaches framework)
Author’s conclusion
 Dimension of both strategy and structure need to be enriched and the
relationship between them needs to be reassessed.
 Elements for revision for MNCs includes:-
 Build strategy on advantages inherent in global coverage
 Normative integration mechanism
(e.g globally coordinated core functions, a complex Heterarchyof
geographically diffused structure)
 Information processing and storage should be strongly integrated
 Alternative framework suggest that corporate actions
experimentation, entails search for opportunities and fast learning &
exploitation of historical strengths.
 Exploration of the environment in terms of its potential whereby it is
an active, selective mode instead of a passive defensive one.
Author’s Suggestion on avenues for
further research
 New efforts to create a new type of MNC, building on
global presence rather than historical and nationally
deprived strengths, need to be closely assessed.
 More research needs to be done factoring into a/cs
such as :-
 Character of the knowledge based economy
 Geographical dispersion of country’s comparative
advantages over functions in industry arena explored
 The rate of technical change
 Culture-generating capacity of the end product.
Any questions?