Further theories of MNE organization

The Stopford and Wells model

By the late 1960s, Stephen Hymer (see Chapter 9) and Alfred D. Chandler had already identified how multinational enterprises evolve from a U-form globally organized along functional lines to an M-form comprised of different divisions divided into semi-autonomous units. Subsequent analysis by Stopford and Wells (1972) then broke the M-form down into two new categories (product and geographic structures), along with a third hybrid variant (the matrix structure) combining the first two. Like Hymer and Chandler, Stopford and Well recognized the existence of an ongoing relationship between an MNE's frontline divisions units, on one hand, and its more functional headquarters-based units, on the other. The novelty lay in their model's incorporation of certain empirical realities, such as the difficulties that an MNE organized along geographic lines faces when trying to coordinated activities along product lines, and vice versa. The fact that each product and/or geographic division in the M-form company has been established as a profit centre means that little attention is paid to inter-divisional co-ordination. It is true that the Mform's more decentralized approach reduces the 'transaction' costs incurred in a more formal structure characterized by defined reporting duties. On the other hand, the 'governance' costs of getting M-form divisions to work together can also be high. Chandler, A. (1966), Strategy and Structure, New York: Doubleday. Chi, T. et al (2003), Knowledge, Scope and Internal Organization of the Multinational Corporation, available at http://sbm.temple.edu/, accessed 19 April 2009. Academic research on MNE structures has largely changed in focus since the 1970s. Whereas theorists such as Stopford and Wells mainly concentrated on countries, business units, and functions, nowadays greater attention is paid to other variables shaping MNEs' organizational decisions. Examples include studies (by George Yip among other theorists) analysing the organizational measures that companies take to coordinate the services they offer to global customers simultaneously in different countries and across different business lines. There is also greater focus nowadays on the way in which MNEs (particularly ones active in the professional services sector) try to develop structures conducive to the external marketing of whatever types of knowledge are being developed internally. Lastly, there is general interest in MNEs' efforts to maximise flexibility, as witnessed in the work teams that are sometimes assembled and dissembled on an ad hoc work basis in an attempt to offer customers tailor-made solutions to specific problems - one example being the kind of R&D project teams that European engineering company ABB puts together, comprised of professionals originally attached to one or the other of its product groups. Birkinshaw, J. and Terjesen, S. (2003), The Customer-Focused Multinational: Revisiting the Stopford & Wells Model in an Era of Global Customers, available at http://de.scientificcommons.org/ accessed 18 April 2008. Lichtenthaler, U. (2005), 'External commercialisation of knowledge: Review and research agenda', International Journal of Management Reviews, Volume 7, Issue 4.

Yip and the rise of global customer management

George Yip's contribution to the study of MNE structures helped theorization advance from the earlier 'multi-local' vision of more or less independent subsidiaries each dealing with customers

in its own way, to the more unified business interactions that characterised the late 1990s / early 2000s and featured a greater need for global customer management. The emphasis here is on globally integrated strategies, and on MNEs that adopt structures enabling them to pursue a unified global approach to decisions such as pricing, production standardization and account management. The starting point for Yip's vision of structure as the lynchpin of global strategy was the growing adoption by the world's leading companies of global contracts specifying, for instance, 'multi-unit' purchases where the supplier committed to servicing the customer on many locations simultaneously. Clearly, this kind of relationship has major implications for the way that both supplier and customer must structure their internal organizations. It is also very significant in terms of their relationship, with key suppliers increasingly expected to get involved more deeply (and earlier) in their customer's activities, above all in their innovation efforts. To fulfil this new role, suppliers increasingly designate global account managers responsible for catering to any one customer's global needs. The physical location of these global customer relation managers within their own organizations is variable. By definition, a MNE prioritising a global customer focus will organise itself less in terms of its own strategic vision and more according to perceived (and variable) external requirements. This has paved the way for a more cross-departmental approach in many MNEs, one where ad hoc flexible teams increasingly replace structural boundaries. Yip, G. (2007), Managing Global Customers: An Integrated Approach, Oxford University Press.