Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Chapter 5:Creating Worldwide

Innovation and Learning

Exploiting Cross-Border Knowledge Management

Why Transnational Strategy?

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•Global companies tend to not be responsive to local needs and do not foster the ability to gain local for local

innovation. Unable to respond to national competitors or to sense locally important market info.

•Multinational companies tend to not be able to diffuse local innovation across the company. Independent

branches could be picked off one by one by coordinated global companies.

•Transnational companies are an attempt to both take advantage of local innovation as well as diffuse that

knowledge across the company.

Worldwide Innovation: The New Competitive Battleground

• Competitors achieving parity in scale and responsiveness

• Competitive battles shifting to innovation area• Three key capabilities:

• Sensing• Responding• Implementing

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Worldwide Innovative Capability:MNC’s Competitive Advantage

S Sensing Capability

R Response Capability

I Implementation Capability

Central, Local & TransnationalInnovation

• Two classic processes• Center-for-global: new opportunity sensed in home

country, centralized resources brought to bear, implemented globally

• Local-for-local: subsidiary-based knowledge development, used primarily in local market

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Problems Associated with Each Model

• Center-for-global innovation• Risk of market insensitivity, imperialism

• Local-for-local innovation• Risk of duplication, reinventing wheel

• Locally leveraged innovation• Threatened by not-invented-here

• Globally linked innovation• High coordination costs

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Central Innovation in Centralized Hub

I

I

I I

I

I

S-R-I

• Headquarters senses world-wide opportunities

• Centralized assets and resources favor unitary global responses

• Implementing strategy decided centrally and executed locally

Making Central Innovations Effective:Lessons from Matsushita (Panasonic)

• Gain subsidiary input• Through multiple personal linkages

• Respond to different national needs• Give subsidiary units resources to influence

how central R&D money is spent• Manage responsibility transfer

(from research to manufacturing to marketing)• Move people with specific projects

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Local Innovation in Decentralized Federation

S-R-IS-R-I

S-R-I S-R-I

S-R-I

S-R-IS-R-I

• National units sense local needs

• Distributed assets and resources allow local response

• Local-for-local implementation

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Local for Local Innovation

S - RIS - R

IS - R

I

Each market effectively innovates and responds to local needs….

…but fails to create transnational innovations.

…with dispersedresources andcapabilities...

Making Local Innovations Efficient: Phillips

• Empower local management• Link local managers to corporate decision-

making processes: At Phillips many of the best managers spend most of their careers in national operations—working for 3-4 years in a series of subsidaries

• Integrate subsidiary functions: project team integrates commercial and technical, product group team coordinates cross functional, Senior Management Committee oversees.

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Make Transnational Processes Feasible

• Three simplifying assumptions have blocked progress with transnational processes:• Assumption that subsidiaries are symmetrical (”the

United Nations syndrome”)• Assumption that HQ-subsidiary relationship is

based on pattern of dependence / independence• Assumption that corporate management exercises

control uniformly

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Beyond the Simplifying Assumptions

• From Symmetry to Differentiation (Unilever)• Each unit has own distinct role

• From Dependence or Independence to Interdependence (Ericsson)• Through inter-unit integration mechanisms

• From Uni-dimensional Control to Differentiated Control• Make better use of social control mechanism

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Unilever’s Transformation

Following WWII Unilever managed a strongly decentralized company in a similar way across all product lines (packaged foods, chemicals, detergents)

Starting in the 1980’s, this company began to manage more centrally to control costs.

Finally management began to differentiate by product, function and geography.

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Locally Leveraged Innovation:Unilever’s Fabric Softener

I

I

I

II

I

S - RII

…then diffused rapidly worldwide under local brands

Developed in response to a locally sensed opportunity ...

I

From Dependence or Independence to Interdependence: Ericsson

Develop a configuration of resources that is neither centralized nor decentralized but is both dispersed and specialized.

Build inter-unit integration mechanisms. Inter-unit cooperation requires good interpersonal relations among mangers.

Erricsson will routinely send teams of 50-100 engineers and managers for a year or two to an overseas assignment.

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Example: Ericsson’s AXE Switch

I

RS

I SI

ISR

I

SR

I

I

Diverse market stimuli…...

…linked to create a transnational product

Organizational Capabilityfor Worldwide Innovation

• Making transnational innovations possible: lessons from Ericsson—Locally Leveraged

• Interdependence of resources and responsibilities: Maintaining balance through constant adjustment

• Inter-unit integrating devices: Operating systems, people-linking processes, joint decision forums

• National competence, worldwide perspective: Managers who can think globally and act locally

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From Uni-dimensional Control to Differentiated Control

Three Flows are important to the Transnational: Flow of Goods—Formalized management process Flow of Resources—Coordinate by centralization Flow of Information and Knowledge—Socialization

In other words the company must have elements of both centralization and

decentralization.

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Mobilizing Knowledge Through Socialization

Complexity of Market Knowledge

Complexity of Technical Knowledge

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Linking & Leveraging Resources

Decentralized Federation

The Integrated Network

Coordinated Federation

Centralized Hub

• Locally Leveraged

Innovation - Breaking down

the “NIH” syndrome

• Globally LinkedInnovation

- Building up collaborativeinterdependence

Innovation at the Edges

Give seed money to subsidiariesBalance between short term results and freedom to pursue

new ideas

Use formal requests for proposalsTreat subsidiaries as freelance contractors

Encourage subsidiaries to be incubators Build international networks

Link personnel moves to practical business initiatives.

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