Essay about Christopher A. Bartlett, Sumantra Ghoshal: "Managing Across Borders: The Transnational Solution"

Table of Contents

1. Summary of the book
1.1. The Transnational Challenge
1.2. Characteristics Of The Transnational
1.3. Building And Managing The Transnational

2. Opinion about the book

3. Personal example of the books idea

ESSAY: ”MANAGING ACROSS BORDERS: THE TRANSNATIONAL SOLUTION”

1. Summary of the book

The book “Managing Across Borders, The Transnational Solution” by Christopher A. Bartlett and Sumantra Ghoshal is about the challenges of international business particularly in 1980s. The authors divided the book in three main parts.

The first part, called ”The Transnational Challenge”, deals mainly with conceptual issues like the definition of multinational, global and international companies as well as structural fit and administrative heritage. Accordingly this chapter of the book tries to answer the question ”why” nowadays transnational organisations are needed.

The second part, called “Characteristics Of The Transnational”, describes mainly the three key attributes of the transnational organisation. Which are the integrated network configuration of assets and activities, flexibility due to specialised roles and responsibilities and last but not least the facilitation of learning due to multiple innovation processes. Therefore this part of the book considers the question “what” is the transnational organisation. The third part of the book, called ”Building And Managing The Transnational” prescribes mainly what managers have to do in order to build and manage an organisation that corresponds to the model of the transnational organisation. This means that, this chapter tries to answer the question “how” can a transnational organisation be build.

Not to mention there is a fourth part in the studied book, called “Appendix: Research Methology” in with the authors describe their method of research and data collection more detailed than within the first three parts of the book. Succeeding I am going to summarise the content of each part more detailed.

1.1. The Transnational Challenge

The authors argue that because of new pressures, which have transformed the global competitive environment, even the largest companies worldwide have to rethink their traditional strategies of doing international business. This means that especially these companies, but not only these companies, have to consider the adequacy of their organisational structures and processes.

During their studies Bartlett and Ghoshal investigated nine leading American, European and Japanese companies of the following three worldwide businesses: consumer electronic business (Matsushita, Philips, General Electrics [GE]), branded packaged products business (Unilever, Procter & Gamble [P&G], Kao) and telecommunications switching business (Ericsson, NEC, ITT). They argue that three of the studied companies were losers or laggards regarding the new challenges (GE, Kao, ITT) and six companies survived but were battling to maintain viable competitive positions in the new environment (Matsushita, Philips, Unilever, P&G, Ericsson, NEC). As reasons for that the authors mention the very different strategic and organisational responses of different companies in different industries as well as rather organisational deficiencies than inappropriate strategic analysis. Thus for example GE lost competitiveness because of a lack of global efficiency; Kaos internationalisation failed because of its lack of national responsiveness and ITT struggled through because of its lack of worldwide learning and innovation. This means that the problem for managers of worldwide companies was not to recognise what they had to do to enhance their global competitiveness, the challenge was rather how to do this respective how to develop the organisational capabilities to do it. In short: The answer was obvious but the way of answering was obscure. Bartlett and Ghoshal identify very different strategic characteristics of the three studied businesses during the past. Thus the consumer electronic business demanded basically global efficiency whereas the branded packaged products business required mainly national responsiveness and the telecommunications switching business called for innovations and there global transfer. Regarding the different strategic characteristics the authors distinct three models of strategy respective three types of companies in international business: multinational, global and international companies. Multinational Companies build strong local presence through sensitivity and responsiveness to national differences. Global Companies build cost advantages through centralized global-scale operations and International Companies exploit the knowledge and capabilities of the parent company through worldwide diffusion and adaptation.

The authors state, that because of the dramatically change of the strategic demands through environmental forces during the mid-1980s, the traditional approaches of managing worldwide businesses are not anymore an adequate response to the new challenges. Indeed the new solution and strategic challenge of managing a company’s worldwide operations in a highly competitive, volatile and changing business environment, is the transnational organisation. The reason for this is, that the performance of a company is no longer based on the fit of one-dimensional strategic requirements (responsiveness or efficiency or knowledge transfer) and the company’s dominant strategic capability, but rather on the ability of a company to achieve the three requirements at the same time. In order to develop these multidimensional strategic capabilities, companies have to go beyond the pure structural fit and have to increase their organisational flexibility by reshaping their administrative systems, communication channels and interpersonal relationships.

Bartlett and Ghoshal point out that the ability of companies to develop and manage the mentioned multidimensional strategic capabilities is not the same for everyone rather depends on its administrative heritage. The administrative heritage is shaped by the impact of leaders on corporate norms, the influence of home country culture on underlying values and the influence of organisational history. Thus the administrative heritage can be either an asset to protect or a constraint to overcome. Accordingly a company, that is willing to transform oneself into a more competitive company, has to protect its particular capabilities and develop those it’s currently lack. This means further that the transnational company has to make selective decisions concerning the centralisation and decentralisation of resources.

Concerning the authors, the multinational-, international- and global way of approaching different strategic tasks at the same time led to dilemmas that prevent companies from achieving anyone objective without compromising the others. In order to accomplish the strategic objectives of global efficiency, local responsiveness as well as worldwide learning simultaneously, the authors suggest the transnational model. Whereas global efficiency is a tool to achieve global competitiveness, local responsiveness is a tool to achieve flexibility in worldwide operations and a larger process of organisational learning is a means to facilitate and ensure worldwide innovation. The model of the transnational organisation and its attributes are discussed in more detail in the second part of the book.

1.2. Characteristics Of The Transnational

Due to the dramatic changes of the business environment in the studied industries in the early 1970’s, Bartlett and Ghoshal suggest an integrated network of operations as configuration for the transnational organisation. That should be the basic framework around which companies may build their worldwide operations. The author’s state that the integrated network, as basis for more efficiency and consequently more competitiveness, is characterised by dispersed assets, interdependent relationships as well as specialised operations and consequently large flows of components, products, resources, people and information.

Due to their investigations the authors found out, that the most companies mainly didn’t answer to the new challenges by trying to reach a fit through reconfiguration, but rather by gradual redistribution of assets and resources as well as restrained restructuring, which was build on existing capabilities. For example Philips and Matsushita took a far more pragmatic approach than the theorists might have prescribed by following two simple principles: First they concentrated at least as much on defending and reinforcing their existing assets and capabilities as on developing the new ones. Secondly, to the extent they had to create new capabilities, they looked first for ways to compensate for their deficiency or approximate a competitor’s source of advantage, rather than imitate the structure or processes of a competitor.

The strength of the integrated network configurations springs from its fundamental characteristics: dispersion, specialisation and interdependence. The reasons for the dispersion of assets are much more widespread since the 1980’s, since companies have not only to sense and respond highly differentiated market needs, technological trends and competitive actions as important sources of innovation but also to capitalise factor cost differentials between countries as well as to reduce political (e.g. sanctions, tariffs) and economical risks (e.g. exchange rate changes). Bartlett and Ghoshal argue that due to the specialisation of operations, overlaps and duplications in research can decrease and the working atmosphere can change from a feeling of competition and protectiveness to a sense of collegiality. By using new flexible manufacturing technologies like computer integrated manufacturing (CIM), specialised operations can also overcome the scale-flexibility dilemma. Furthermore the relationships between units in transnational organisations change from the “clear-cut dependence” or “strong interdependence” of the traditional organisational structures to self- enforcing, collaborative relationships build on interdependence. The authors point out that the integration in the network and the collaboration between the units can be self-enforcing by requiring each unit to cooperate in order to achieve its own interests.

Further Bartlett and Ghoshal state that the national organisations in the transnational organisation have different roles and dispersed responsibilities in order to develop and ensure flexibility. Regarding the authors, possible roles for the national organisations are strategic leader, contributor, implementer or black hole. The roles are depending on the level of local resources and capabilities a subsidiary has as well as on the strategic importance of the local environment. Thus for example subsidiaries with high internal capabilities located in strategically important markets can be a strategic leader regarding a certain issues, whereas subsidiaries which have just enough capabilities to maintain their local operations in a non- strategic market can act as implementers and in this manner they make it possible to capture economies of scale and scope for the whole company. The basis for these new roles is the so- called transnational mentality that considers the national subsidiaries as strategic partners whose knowledge and capabilities are vital to the companies’ worldwide competitive advantage. In addition the authors mention, that it also needs to be considered, that the national organisations develop a self-conception depending on their attributed role. Therefore the roles and responsibilities of subsidiaries are not only depending on its internal resources and capabilities and on the strategic importance of its environment but also on the organisational implications of the choice. This means that smaller or less developed units should have lead or contributing roles as well, even if for a few strategically less important products.

The facilitation of learning by multiple innovation processes is another characteristic of the transnational. Nowadays a company’s ability to innovate is the primary source of competitive advantage, because the exploitation of global scale economies, imperfections in the global labour, materials or capital markets are not sufficient anymore. In addition to central innovations, which imply the risk of market insensitivity, and local innovations, which contain the risk of needless differentiation, the authors suggest transnational innovation processes, which are locally leveraged and globally linked. Whereas locally leveraged means that these processes are based on the resources and entrepreneurship of particular subsidiaries, but leveraged to the worldwide creation and exploitation of innovations. Locally leveraged innovations comprise the not-invented-here risk, like protection of local R&D budgets. Globally linked means that all global resources and capabilities should be flexible linked worldwide, to create and implement innovations on a common basis and exploit potential scope economies and benefits of worldwide learning. Globally linked innovations contain the risk of high coordination costs and diffusion of authority. The management challenge is to improve the effectiveness and efficiency of all innovation processes as well as to create conditions, which foster innovations to come about through all processes simultaneously. In doing so the management has to overcome the dilemma between the preconditions for local and central innovations, which are dispersed resources and autonomy in case of local innovations respective centralised resources and tight central control in case of central innovations. In order to overcome this dilemma Bartlett and Ghoshal suggest that transnational organisations allocate different innovative roles to various locations of the company because subsidiaries differ widely regarding both external stimuli of their environment as well as their internal response capabilities.

The authors point out that companies which are transforming to a transnational need a culture that prizes diverse, widely dispersed perspectives and capabilities as well as a management process in which those diverse capabilities can be flexible linked and leveraged.

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