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CPOIB 3,4

ICT and MNE reorganisation: the paradox of control
Mo Yamin and Rudolf R. Sinkovics
Manchester Business School, Manchester, UK
Abstract
Purpose – The purpose of this paper is to highlight the ICT-enabled enhancement of control capability in MNEs. The literature on MNE structures acknowledges the role of ICT as a support system, but the specific changes facilitated by ICT have remained significantly underdeveloped. The paper seeks to address this issue conceptually and link contemporary ICT advancement with changes in MNE strategy or structure. The paper further posits that certain applications of ICT may paradoxically reduce a key advantage of multinationality. Design/methodology/approach – The paper is of conceptual nature and critically examines and develops literature to generate insight on the implications of ICT applications for MNE development. Specifically the focus is on enterprise resource planning systems (ERPs) and the impact of enhanced visibility of remote operations to headquarter management. Findings – The finding is that ICT application entails a possible trade-off. It may facilitate an enhancement of control capability for MNE headquarters, however, potentially entails the risk of lessened adaptive capability of subsidiaries, thus potentially constraining the long-term viability of MNE operations: Practical implications – Whilst ICT applications may improve coordination and control for the MNE, a level of subsidiary autonomy and initiative taking is still beneficial for MNE strategic and organisational development. ICT applications should not go so far as to suppress it. To this end, managers may be advised to purposefully “blur” subsidiary visibility, by, e.g. allowing the use of different ERP systems. Originality/value – The main contribution is the integration of literature on ICT advancements, specifically the application of enterprise resource planning systems (ERP), into the IB literature. Keywords Multinational companies, Communication technologies, Manufacturing resource planning, Organizational structures, Adaptability Paper type Conceptual paper

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critical perspectives on international business Vol. 3 No. 4, 2007 pp. 322-336 q Emerald Group Publishing Limited 1742-2043 DOI 10.1108/17422040710832577

1. Research problem and motivation Traditionally multinational enterprises have developed structures that resembled federative rather than unitary organisations (Yamin and Forsgren, 2006), implying significant degrees of autonomy for nationally focussed subsidiaries (Birkinshaw and Hood, 1998; Ghoshal and Bartlett, 1990). The overall outcome has been an organisational tussle over strategic control between the centre and divisional and subsidiary units as a key feature of multinational enterprises. The underlying issue is the “invisibility” of the operational context and network embeddedness of the subsidiaries creates knowledge “deficit” at the centre thus undermining headquarter “fiat”. Put in another way, the “invisibility” reflects the difficulty of fashioning an information system which transmitted full information to the centre However changes in the broader landscape of international business have increased the imperative for central control in multinational enterprises. More specifically key globalisation dynamics, namely growing liberalisation and advances in information and communication technologies (ICT) have enabled major shifts in the strategy and

1995. Both dimensions are based on increasing modulations and significant ICT support systems. 2002. While there is a consensus in the literature that ICT advances have been a major factor in the restructuring of multinational enterprises (Birkinshaw et al. The structure of the paper is as follows: In section 2 we comprehensively discuss the departure from the federative multinationality. Forsgren and ¨ m(2007) discuss the relevance of traditional views on internationalisation for Hagstro internet-related firms. enabling. 2001. 2007). etc. Set against the classic Uppsala model of firm internationalisation. there is less focus on the enhancement of strategic control capability as an important dimension of the restructuring. such studies have not demonstrated or made a strong linkage between the development of ICT and the particular changes in MNE strategy or structure.. The literature has credited ICT and the role of the internet with removing some barriers to growth and international scope of small businesses (Bell. This paper has two objectives. Lituchy and Rail. Nor is there any discussion of the implications of such restructuring in terms of the “nature” of multinationality. 2. the growth of global account management or the “slicing” of specialised activities under relocation in particular countries which again requires greater information system management. The literature on MNE structures generally acknowledges. some analysts have suggested that enterprise resource planning (ERP) ` -vis systems such as SAP/Oracle.. First we articulate the ICT – enabled enhancement of control capability in MNEs. Rugman and D’Cruz. Yamin and Sinkovics (2006) explore the effects of internationalisation via online media on psychic distance perceptions of firms. 2004). the disintegration of subsidiary value chains and the growth of outsourcing. A key facilitator has been the application of various ICT mechanisms to significantly upgrade the monitoring capability at the centre and thus to engender much greater “visibility” in the vertical information system of the organization. Our second and more important objective is to argue that in enabling much greater central control in MNEs. from the ICT perspective. 2000). Section 4 concludes the paper by considering limitations and implications for future research. e. the application of ICT may paradoxically reduce a key advantage of multinationality: the long term viability of genuinely multi-national enterprises may thus be at jeopardy. However. Since the 1980s globalisation drivers have dramatically intensified both the desire and the ability to control operations from the centre of the MNE so that the structure has been evolving away from the traditional federative system. it may have a detrimental effect on the development of adaptive capability in the organization. This entails two key dimensions.structure of multinational enterprises (MNEs) with increasing emphasis on global integration of operational activities (Buckley and Ghauri. More specifically there is no discussion of how tighter control over strategy may undermine the very advantage of multinationality. greatly increase the power of the centre vis-a subordinate units and have labelled it as a “return of big-brother” (Le Loarne. Structural change and control enhancement in MNE: the role of ICT Advancements in ICT are routinely seen as a background for environmental and strategic changes in International Business (Sinkovics and Yamin. 2003). 2005).g. but without elaborating in any detail. Nolan et al. ICT ICT and MNE reorganization 323 . In section 3 we develop the argument that although ICT applications may enhance the control capability of the MNC centre. the role of ICT as a critical support system. On the other hand.

2002. MNEs are more likely to operate as federative rather than unitary organizations. Embeddedness entails mutual adaptations in developing processes and products between a focal subsidiary and a small number of host country counterparts (customers. The key difference between unitary and federative organizations is that in the former “fiat” is a fully effective control mechanism whereas in the latter “fiat” is only partially effective. through their linkages in host countries. Wu et al. it cannot be governed as a unitary organization. 2004). Ghoshal and Bartlett (1990) outlined the theoretical case for viewing the MNE as a federative rather than a unitary organization.. In the following section we provide a brief overview of the MNE as a federative organisation and in the subsequent subsection we demonstrate the specific structural changes that have been affected to reassert central control over strategy. 2005. Kim et al. Mudambi and Navarra. This was premised on the view that. . Sturgeon. away from the traditional federative system towards more tightly integrated and controlled entities. Subsequent studies have shown that subsidiaries grow progressively closer to local host country networks (Phene and Almeida.. in fact.1 The nature of structural change in multinational companies The assertion of central control in multinationals is a generally challenging phenomenon. 2002.The multinational enterprise is inherently an arduous organisational context for control retention. Ghoshal and Bartlett (1990) observed that “the efficacy fiat is particularly limited in the case of multinationals not only because some of the subsidiaries are very distant and resource rich but more so because they control critical linkages with key actors in their local environments”. 2002). Consequently. while a number of studies have explored the implications of subsidiary “embeddedness” for MNE management (Andersson et al. Thus. 2006). 2007.2.2 The MNE as a federative organisation: Network invisibility and implications for strategic control 2. in particular the literature on subsidiary autonomy indicates that. ICT advancement facilitates significant structural changes in multinational enterprises. Thus a central issue in MNE management literature has been the practical difficulty of maintaining the separation between strategic and operational domains. some subsidiaries gain access to strategic resources and therefore power (Andersson et al. 2003).. which may reinforce centralizing tendencies in MNE hierarchies (Cowling and Tomlinson. Subsidiary embeddedness has two related consequences with profound implications for the ability of the headquarters to retain exclusive control over strategy. the separation between strategic and operational domains in MNEs can frequently become fuzzy. suppliers.. Some recent research has suggested that the internet and digitalization facilitates radical changes in the structure of big business. research centres and universities) with whom the subsidiary has developed lasting business relationships.CPOIB 3. 2. In this section we provide an overview of this change and examine the role of the ICT in it. 2002). because the MNE is embedded in different economic and institutional domains. 2003) and strengthen the dominant position of the largest multinationals (Nolan et al.1 Subsidiary embeddedness and headquarter knowledge “deficit”..4 324 has recently also been linked to organisational performance (Jean. 2.

although this may also happen. So Zander. MNE’s upper echelon tends to have at best a fuzzy and rather vague understanding of the subsidiary’s network and this undermines their ability to control the subsidiary. ICT and MNE reorganization 325 .First.. Birkinshaw and Ridderstrale.. thus overcoming their knowledge deficit. Moreover.3 The retreat from federative multinationality – enhancing organisational visibility and the role of ICT Whilst management scholars have implicitly recognised that the MNE’s federative nature is inimical to the MNE’s controlling elites.. the intolerance towards “control loss” has been increasing The crux of the control problem in the federative structure is the invisibility of subsidiary networks and the resultant knowledge “deficit” for the centre. 1995. MNE headquarters have sought either to destroy subsidiary networks and/or to “penetrate” them. Mudambi and Navarra. the efficacy of the MNE’s formal communication system is limited. value or “culture” based methods in overcoming the hurdles ¨ lvell and that the federative structure creates for control (Forsgren et al. it allows these to put subsidiary networks under surveillance. Such resources are typically outside the control of the MNE headquarters and increase the subsidiary’s power and hence its scope for independent action s and initiatives (Andersson et al.. Propelled by pressures emanating from financial markets. the most critical consequence of subsidiary embeddedness is that it creates a “knowledge deficit” for the centre with regards with the subsidiaries operating environment and hence its resource and power base. Forsgren et al. 1998). we focus on structural changes that have effectively destroyed subsidiary networks. Second and perhaps even more important is that the subsidiaries’ locally rooted networks are largely “invisible” to the MNE centre (Holm et al. ICT has “enabling power” (Barnes.g. they have overestimated the effectiveness of the softer. notably the shift in the governance regime highlighted in the introduction of this paper.. These sources of power enable the subsidiary to influence how the centre’s strategy is implemented but do not generate resources for the subsidiary independent of the centre. even though such communication increasingly benefits from rapid technological progress (e. Furthermore due to broader socio-political changes. 1995). 2002. This is not simply an agency problem whereby the local mangers may deliberately hide relevant information from their principals further up the MNE hierarchy. Thus. 2005). 2004). This can also be explained using Foucault’s panopticon metaphor in connection with information systems (Silva. 1988) for MNE headquarters. Here. 2002. 1999). The invisibility of the subsidiary’s network is the inevitable consequence of embeddedness and is due to the opaqueness of network relationships and interdependencies to outsiders. Yamin and Forsgren (2006) explain the preponderance of regional MNEs in terms of the centre’s need for proximity to its important subsidiaries and as a manifestation of the network penetration tactic. Also. because the required knowledge relates primarily to subsidiary network context and would lack transparency to outsiders. 1999. a state of conscious and permanent visibility that strengthens central control and enacts power. embeddedness is a source of strategic power and is distinctive from other forms of power such as those identified by Ferner (2000) which stem from the subsidiary’s position as the “interpreter” of the local environment. and enabled by radical advances in ICT. a subsidiary’s embeddedness generates (knowledge-based) resources rooted in its relationships with external partners (Andersson et al. greater use of electronic communication and the Internet). 2.

CPOIB 3. National responsiveness was generally regarded as an important requirement for competitive advantage and this entailed that subsidiaries develop the local knowledge and organisational capability to coordinate a number of value adding activities to serve local demands effectively. 2007) in the form of ERP. The result is that the national subsidiary no longer exists in most developed countries. Table I. 2.3.1 Drastic reduction in subsidiary value chain scope. thus increasing subsidiary capability and ` -vis parent strategic and operational decision making. Retreat from federative multinationality – the facilitating role of ICT . p. national subsidiaries were an important part of the organisation. Instead there is a series of discreet value adding activities (a sales operation.4 326 The demise of the federative MNC is associated with two developments. the drastic reduction in subsidiary value chain scope and increasing offshoring and outsourcing of core activities. particularly ICT-integration and IT-advancement activities (Jean. In the federative MNE. According to Birkinshaw (2001) national subsidiaries are now an “endangered species”: Most MNCs have now moved towards some variant of the global business unit structure in their international operations and a corresponding dilution in the power and responsibilities of the country manager. own emphasis). Figure 1 illustrates this development. an R&D centre) each of which reports through its own business unit or functional line (Birkinshaw. p. (B) points at a autonomy vis-a reduced value chain scope for individual subsidiaries. 1993. 2001. 458). We posit that both developments are facilitated by substantial technological advancements. However this is increasingly not the case. Figure 1. 281. While the original configuration (A) involved substantial embeddedness of the host country subsidiary in local networks. a manufacturing plant. The perspective taken in the Figure is the host country perspective. A survey of MNE CEOs in the late 1980s reported a high degree of agreement with the statement that “the primary role of our overseas units is to find out and take advantage of opportunities within the countries in which they operate” (Leong and Tan.

3. Thus. 2005) and increasing ability at the centre to deploy ICT based support systems to achieve global integration of the supply chain at the corporate or divisional (as opposed to national subsidiary) level. The relevance of outsourcing in terms of the demise of the federative MNC is that. R&D. (2002) document the extension of coordination and planning by “systems integrator” firms with “aligned” upstream “first tier suppliers” regarding production location. The important point is that even if a particular host country is chosen as an optimal location for several value adding activities they are not integrated “horizontally” within the same country but vertically within a global business unit usually managed from outside of the host country. Nolan et al. Outsourcing involves the delegation of non-core functions previously handled in-house. 2004. Farrell. i. in sharp contrast to the typical federative structures. This process is depicted in the “reporting and communication links to corporate or regional HQs” in Figure 1 above. Whilst the above relates mostly to intra-MNC developments. Shi et al. 2001.2 Outsourcing and offshoring activities. 83. emphasis added). Coordination no longer requires communication of highly tacit knowledge and essentially enhances the “visibility” of subsidiary operations through electronic integration (Grover and Saeed. The production system is increasingly modularised. the MNC centre shifts from invisible networks around subsidiaries to visible networks controlled by the centre itself. equally significant is the greater degree of externalization. through outsourcing.3. In one sense this is not new. Levy. Yamin. facilitated through a machine based and highly codified knowledge system. 2001. p. with the objective of reducing costs or mitigating risks. 2006.Buckley and Ghauri (2004) observe a similar phenomenon and point out that MNE strategies now revolve around the disintegration of the value chain: The managers of MNEs are increasingly able to segment their activities and to seek the optimal location for increasingly specialised slivers of activity (Buckley and Ghauri. 2007. there is now a highly developed global market for outsourced provision of goods and services. but there is a significant difference between the traditional subcontracting or buying relations and ¨ to ¨ nen and Ruokonen. linking of headquarters. The disintegration of host country based value chains is itself a function of two inter-related developments. The facilitating role of ICT in the information exchange between headquarters and subsidiaries will be discussed further in the following section 2. subsidiaries and other external networks of suppliers brings out an increased visibility of subsidiary behaviour and achievements. 2007).. The MNC develops long term contracts with large scale providers of a variety of intermediate and final inputs. ICT and MNE reorganization The disintegration of subsidiary value adding activities clearly undermines the scope for the development of external linkages by the subsidiary. 2005). 2005).e. The electronic integration. 327 . namely the growth of “global” customers (“global accounts” or clients) (Birkinshaw et al. Whereas contemporary outsourcing (Ha subcontracting involves the performance of an activity by an outside supplier. including a shift of significant amount of decision-making to outside suppliers (Espino-Rodriguez and Padron-Robaina. 2005).3 below. subsidiaries are increasingly “networked” internally within the MNC of which they are part and decreasingly “networked” with the national economies in which they are located (Birkinshaw.. 2.

. 2002. It is clear that this perspective can similarly be used in the federative MNE-subsidiary context. 2006). where the above changes are premised on an elaborate “internal support system” (Birkinshaw et al. Both of the above changes have in similar – though not identical – ways been facilitated by the implementation of enterprise resource planning systems. 1994). Today’s ERP packages have evolved significantly from material planning systems and manufacturing resource planning and tightly couple such processes as financial. planning their new plants. primarily with a focus on the restructuring of vertical supply-chain relationships (Jean. the production system is increasingly modularised. customer relationship management (CRM). making organisational integration processes difficult. 2. 2001. ERP systems have developed towards a suite of integrated business . and with “downstream” distribution and maintenance. supply chain management (SCM) and support for electronic marketplaces. human resources. 2000). information sharing and monitoring and control.CPOIB 3. The objective of ERP implementations is therefore typically to replace these legacy systems into a coherent single system.3. organizing their R&D. 2001). With extensions to include World Wide Web capability. core firms within the value chain exercise tight control over firms across the value chain. 2005). mutual investment in relationship-specific assets. distribution and even marketing management.4 328 product development.. 201). Firms which wish to be selected as “aligned” or “integrated” partner suppliers must agree to cooperate with the core firm in opening their books. p. They develop a multidimensional construct of electronic integration which includes coordination of decision and operation integration. Coordination no longer requires communication of highly tacit knowledge and essentially enhances the “visibility” of subsidiary operations through electronic integration (Grover and Saeed. Strange and Newton. Earlier. planning their production schedules and delivering their products to the core firms (Nolan et al. both upstream and downstream.3 Implementing electronic integration – ERP as a facilitator of recentralisation. The idea is that ICT-enabled alignment and coordination capabilities are firm-specific and hard to copy for outsiders. An ERP application entails an enterprise-wide software package that tightly integrates a variety of necessary business functions into a single system with a shared database (Lee and Lee. Thus. thus contributing to the generation of sustained advantage (Wu et al. Furthermore. In both respects.. especially in large federative MNEs. externalization actually helps shift the balance of power in favour of control and planning by the MNC centre (Nolan et al.. The concept of electronic integration has emerged in the context of buyer-supplier relationships and defined as a form of quasi-integration. Most commercial functions of any organisation in varied sectors are now represented in ERP software. assisted through a machine based and highly codified knowledge system. 2007). 2002). where it is suggested that enterprise resource planning software “(ERP) has created an opportunity to distance the power to influence operations actions from the location of the function” (Jenkins. 2006). Facilitated by advances in ICT. the perspective of dramatically reduced subsidiary value chain scope is supported in the operations management literature. Zaheer and Venkatraman. 2007. Kim and Umanath (2005) see ICT as an important technological breakthrough in independent partnerships. since it radically changes the technological landscape of cooperation and allows partners to exploit ICT capabilities (Kim and Umanath. many incompatible legacy systems and processes coexisted.

1998. on the one hand. 2000. is not considered to be an easy and seamless task. A key selling proposition for ERP systems is that these offer cheaper acquisition and running costs than custom-built applications. acknowledging that each national context was more or less unique and required a tailored rather than a uniform approach from the MNE. p. The value of exploratory activities is therefore that they help to create adaptive capabilities for the organisation. SAP offer a multitude of business reference models from different industries. In this process of mapping a reference model to their organisation. and culture” (Davenport.1 Subsidiary isolation and adaptive capability in MNEs A number of management scholars have highlighted the relevance of exploration in the strategic activities of firms (Hedlund and Rolander. on the other (Doz and Prahalad. p. they are often the preferred replacement for legacy computer systems (Shanks and Seddon. It is generally agreed that in most organizations “exploitation drives out exploration” (Ahuja and Lampert. 68). “imposes its own logic on a company’s strategy. Popular ERP software such as. They demonstrate that human resource issues are often examples of organisation elements which do not conform to the design of the original organisational structure and thus require some sort of reconfiguration to match the requirements of the ERP packages (Clemmons and Simon. 282). hence. However. 1991). Managers in the ERP adopting firm thus have to decide which reference model to use and consequently map this to their organisations business. coordination and their trade-offs including Bartlett and Ghoshal’s (1990) typology of firm strategy. whereas exploitation is the utilisation. 1991). 1993. organisation. ICT and MNE reorganization 329 . The ICT-enabled changes in the organisation of the MNE in effect amount to a radical decline in the importance of national responsiveness as a strategic imperative in MNCs. exploration is the search for alternative capabilities that may underpin future exploitative potential. This is due to a lengthy implementation process of customisation and the need to align business processes with the functionality provided in the ERP software. What is more. 2000). Levinthal and March. 3. included in the package.g. and the need for national responsiveness. Thus. e.processes. refinement and extension of existing capabilities. 3. although the decline in the position of the nationally focussed subsidiaries has “benefited” the MNE by increasing its control capability. To this end. p. the key strategic issue for MNCs was the handling of the tension between the imperative of global integration. March. Responsiveness reflected the essence of multinationality. the demise of the federative MNE is at root a process in which the power and the position of national subsidiaries in the MNE is radically declining. Clemmons and Simon (2001) have reviewed the concepts of control. ERP system implementation however. ERP packages embody established ways of doing business (Lee and Lee. Costs of implementation are often reported to be five to ten times the cost of software licences (Davenport. Implications for the nature and advantage of multinationality As already noted. a key advantage of the multinational organisational form. the downside is arguably a reduction in its adaptive capability. 2000. process knowledge is transferred. the adoption and implementation of ERP is usually connected with significant changes in organisational knowledge and learning processes. 1990. 122) and requires tailoring to an organisation and the organisational infrastructure that affects how people work. 2001). Traditionally.

The importance of autonomous behaviour is that new strategic directions are often charted through initiatives by the operational and middle level mangers. 1994. 67) suggests. strategy making should not be considered purely as a prerogative of the top decision-makers. from the operational locus. p. Burgelman. as Burgelman (1983. in companies where autonomous activities are strong. 1975). Birkinshaw and Ridderstrale.. In this sense. some leeway or opportunity is likely to exist for these managers to undertake autonomous activities unnoticed by top decision-makers. In Burgelman’s words. because by the very nature of their position in the organisation. Dutton et al. operational and middle-level managers are naturally sensitised or exposed to exploratory stimuli because. 1994. Furthermore. And. 1999. Thus even in apparently dynamic and progressively managed companies. strategic activities by operational and middle-level managers that are not authorised or even encouraged by top level decision-makers in the firm (Birkinshaw and Hood. As Birkinshaw and Ridderstrale (1999) convincingly argue. The reason for this is that top decision-makers are likely to have a strong commitment to the firm’s current concept of strategy and thus a preference for activities that are “consistent” with it. develop initiatives around these ideas and hence generate new “local” competencies is severely curtailed. This phenomenon has been recognised by authors with quite diverse perspectives on the organisation (Teece. they are too distant or removed both spatially and cognitively. Burgelman. By comparison. In such corporations exploratory capability is likely to be low. as Burgelman (1983.. 1998. 67). to a large extent. In fact. Rather. the operational locus is where the opportunities and pressures for change are most keenly felt (Brown and Duguid. given the multi-layered structure of large organisations. because top managers have an inflexible stance in relation to current strategy. the ability of sub-units to detect new ideas. 1993. In tightly controlled multi-unit organisations. top executives display a high degree of attachment to the status quo (Hambrick et al. Top managers are deprived from this important source of exploratory stimuli. exploratory capability is at least partly a consequence of the “weakness” of the centre to control the behaviour of sub-units. their “capacity to deal with substantial issues pertaining to new technological and market developments can be expected to be low”. top management’s inflexible adherence to the current concept of corporate strategy inevitably implies that it overlooks or even suppresses non-canonical knowledge at the “periphery” or at the operational domain.CPOIB 3. there is a remarkable degree of inertia in official corporate strategy. p. 1991. 1997). strategy making should be viewed in terms of an . 1983. Top level commitment to current strategy remains strong even when environmental changes have eroded the value of the competencies that underlined the strategy (Burgelman. exploratory activities are often manifested as “autonomous behaviour” – that is. Linking an organisation’s exploratory potential with its sub-units’ ability to undertake initiative reflects the premise that exploratory initiatives are unlikely to stem from the centre. Consequently. 1991). 1998. corporations develop a strong “immune system” the function of which is to repel or resist initiatives even though they may promise an improvement in performance.4 330 2001. top managers rely “on the structural context to bring autonomous behaviour under control” (Burgelman. 1993). 2002) suggests. Thus some autonomous behaviour is inevitable in complex organisations. And. 2002). It can be argued that the ability of “subsidiary” units within an organisation to undertake initiatives independently of the centre is an indication of that organisation’s exploratory capabilities. March. 1983). Typically. Williamson. Levinthal and March.

given that environmental changes will inevitably undermine the value of competencies that underpin any current strategy. then alternative proven competencies. 1999).. This risk is clearly attenuated in an MNC to the extent that it may avoid the need to generate wholly new competencies. that this is an undesirable outcome. As argued elsewhere (Yamin.. Thus the relatively weak control structure of federative MNEs helps both to generate and maintain differentiation within the MNE. which can become the basis of a new strategic direction for the MNE may well exist within the network. From this perspective. By comparison sub-units of a national firm will have capabilities more closely tied to that of the parent unit and thus the national firm will display a lower degree of differentiation in terms of competencies. institutional. Leonard-Barton. Furthermore. 2002). Regner. “exploitation drives out exploration” holds that both these statements are true. and . 1999). the view that. Thus. The evolution of each national subsidiary reflects a unique combination of market. 2002). the existence of alternative capabilities within the firm enhances adaptive capabilities. 1995). a key advantage of multinationality is that its dispersed structure inadvertently creates conditions conducive to entrepreneurial and innovative activities by the subsidiaries. McNamara and Baden-Fuller. the hierarchical structure of large firms tends to frustrate entrepreneurial and innovative activities at the “periphery”. Such transformation is by no means an easy process. 1998). The notion that in most organisations. In this ICT and MNE reorganization 331 . due to the organisational isolation ` -vis the parent (and hence operational and network invisibility) of the subsidiary vis-a there is a greater scope for exploratory and entrepreneurial activities in the multinational enterprise than in otherwise similar uninational enterprises. This means that the MNE possesses a richer internal selection environment. 1997. McNamara and Baden-Fuller. The danger that core competencies become core rigidities may be somewhat reduced (Dutton et al.“intra-organisational ecology” or internal selection environment in which autonomous initiatives offer strategic choices to top management (see also Ghoshal and Bartlett. a fact confirmed by recent case studies (Burgelman. 2001. multinationality can be captured in the following statement: multinationality evens out the odds between exploitative and exploratory aspects of firm activities. But the prior existence of a wider range of alternative competencies within an MNE compared to a national firm gives the former a potential advantage. 1992). An immediate advantage of this is that considering simultaneous alternatives may reduce excessive commitment to any one strategic option. 2003. Yamin. and network influences that give the subsidiary distinctive market and technological capabilities (Geppert et al. A major obstacle facing organisational renewal is the risk associated with abandoning current competencies when new competencies are not fully operational (Kogut and Zander. In particular. This is a valued characteristic of the MNE as a generic organisational form if one accepts: . The existence of differentiated competencies potentially provides the MNE with a wide range of strategic choices. 1994. subsidiaries that have successfully gained global mandates through their own initiatives will have broadly-based competencies that can underpin a new strategic direction for the MNE as a whole (Birkinshaw and Hood. If major technological or market changes undermine the value of the MNE’s currently dominant technology. 2003. 1992.

and Lampert. References Ahuja. facilitated by the application of advanced ICT have had the consequence of improving the control capability of MNE centres and thus removed or drastically reduced the operational and network invisibility of national subsidiaries. However. Initially. Vol. An obvious implication is that ICT tends to undermine the – arguably desired – feature of multinationality. by the same token the extensive application of ICT can damage the MNCs explorative potential. This could be achieved by allowing multiple-vendor ERP systems which are linked together. it must be acknowledged that organisations cannot focus exclusively on either exploitation or exploration and that maintaining an appropriate balance between exploration and exploitation “is a primary factor in system survival and prosperity” (March. C. With specific reference to ICT application and ERP systems. 22 Nos 6-7. (2001). 332 . Managers may be advised to build organisational contexts and routines which protect and retain appropriate levels of autonomy. the perspective of subsidiary managers may provide most useful insights into the organisational changes. we recognise the rather tentative nature. managers may purposefully want to “blur” subsidiary visibility. p. our paper points out that ICT application may improve coordination and control for the MNE. but not overly tightly coupled. There is a clear danger that the balance between exploitation and exploration in the MNCs has gone too far in the direction of the former. 4. a dyadic study. Whilst our arguments about major organisational shifts due to ICT application are derived from extant literature. a level of subsidiary autonomy and initiative taking is still beneficial for MNE strategic and organisational development. 1991. ICT improves the exploitation capability of MNCs as by improving overall operational coordination it could enhance the efficiency in the MNC. G. Returning to the theme of exploitation versus exploration. 521-43. as it will allow elaborating the consequences of heightened MNE control power and visibility of the subsidiary ` -vis the parent.4 sense. From a practical and managerial perspective. We have also argued that an inherent feature of MNEs as an organisational structure is that it encourages intra-organisational diversity and hence adaptive capability or potential. 71). Conclusions In this paper we have argued that major organisational changes within the MNC. ICT application should not go so far as to suppress these initiatives. From this perspective. as perceived by the subsidiary.CPOIB 3.M. However. we suggest undertaking case studies and expert interviews with managers from MNEs and their subsidiaries which have adopted enterprise wide ICT applications (ERP systems) in the past. pp. Ultimately. Strategic Management Journal. Both long-time adopters and recent adopters of ERP systems may provide insights into the nature of organisational change which was introduced as part of ERP introduction and implementation. it can be said that organisational isolation may enhance the survival prospects of an MNE. “Entrepreneurship in the large corporation: a longitudinal study of how established firms create breakthrough inventions”. As a logical next step to overcome this limitation. vis-a including both subsidiaries and MNE headquarters may allow a comprehensive picture.

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