By Erin Bass
If adaption is necessary for survival, why is it so hard?
We tackle this question in our article titled, “Dynamic Capability Development in the MNE: Reconciling Routine Reconfiguration Between the Headquarters and Subsidiaries”. Given recent changes firms across the globe have encountered—from public health and supply chain issues related to COVID-19 to the Black Lives Matter Movement for racial justice and equity—firms need to be able to adapt and survive now more than ever. Many changes are global issues. Therefore, we zero in on multinational enterprises (MNEs) that must adapt to (and survive) numerous changes simultaneously because they operate across multiple geographic contexts. Below we outline four major challenges we identify in our research, and what survivors do to adapt to these challenges.
Challenge 1: MNEs—and the problems they face—are complex.
MNEs—especially those with many global touchpoints—operate with one headquarters but many (globally dispersed) subsidiaries. The headquarters is interested in knowledge that helps it manage operations across geographic locations (i.e., internationalization breadth). This could be key information related to global competitive characteristics or its potential to increase future business prospects abroad. Subsidiaries, however, are interested in knowledge that helps manage market commitments (i.e., internationalization depth). This could be useful for managing interactions with local partners and stakeholders to access regional and local ecosystems. This conflict in interests could be critical to create new ideas and initiatives in response to opportunities in the local environment.
What Survivors Do: Use this complexity to gain diverse knowledge.
The headquarters and subsidiaries have different roles and need different knowledge to fulfill these roles. The knowledge sources for, and how knowledge is acquired by, the headquarters and subsidiaries is (and should be) different. MNEs can better adapt when they recognize and leverage these differences.
Challenge 2: New knowledge sometimes means conflicting information.
The headquarters and subsidiaries have their own ways of doing things, or routines. New knowledge acquired about changes to the business environment should help the headquarters and the subsidiaries adapt and survive. However, simply getting knowledge is not enough to be able to use and integrate it. Additionally, some of this new knowledge might conflict with the headquarters’ or subsidiaries’ existing routines. What prevails—the existing way of doing things or new knowledge that could make the existing routines obsolete?
What Survivors Do: Learn, unlearn, and reconfigure routines.
Headquarters and subsidiaries that are able to use and integrate new knowledge are better able to adapt and survive. Through learning, the headquarters and subsidiaries augment existing routines that improve interactions with strategic international partners, governments, or institutions (for the headquarters) or local partners and stakeholders (for the subsidiaries). Through unlearning, the headquarters and subsidiaries use new knowledge to identify and discard misleading or obsolete routines. In essence, learning and unlearning help the headquarters and subsidiaries reconfigure routines, which changes how things are done.
Challenge 3: Different routines exist across the MNE.
Because of the complexity raised in Challenge 1, MNEs have reconfigured routines for the headquarters and subsidiaries but operating without any synergies between the two can actually hinder, rather than help, survival. Some of the routines might overlap (creating redundancies), while others can pull the MNE in opposing directions (creating divergence). The challenge for the MNE is to reconcile the routines of the headquarters with those of the subsidiaries to enable the organization as a whole to adapt and survive.
What Survivors Do: Aggregate and assimilate to reconcile routines.
MNEs have at least two options for reconciling routines from the headquarters and those from the subsidiaries. The first option is to aggregate routines. In this option, the MNE clusters or links up complementary, but not redundant, routines. The second option is to assimilate routines. In this option, the MNE absorbs the routines (or parts of the routines) that have relevance for the entire organization.
Challenge 4: Sharing routines across geographies can be tough.
The reconfigured routines from Challenge 2 should improve the way things are done in the MNE. But once those routines are aggregated and assimilated in the MNE, how are they shared? That is, a routine that is developed by the subsidiary in Southeast Asia stays with that subsidiary unless the MNE has a way for that routine to be shared with other subsidiaries in North America, Europe, and Africa.
What Survivors Do: Develop capabilities to capture and share routines.
MNEs must have capabilities that can capture and share routines across the organization. We call these sharing capabilities “brokering capabilities” that describe how routines are orchestrated across the MNE. Brokering capabilities preserve critical information of the routines but remove contextual cues that may be irrelevant. The headquarters brokering capability works vertically to channel routines from the subsidiaries to the headquarters, and vice versa. The subsidiary brokering capability works to laterally channel routines between subsidiaries.
Finally, MNEs that are able to develop dynamic capabilities—that is, capabilities that generate and modify routines to adjust to the changing business environment—can address each of the challenges identified here and are better able to adapt and survive.
This blog post is based on the following publication:
Riviere, M., Bass, A.E. and Andersson, U. (2020), DYNAMIC CAPABILITY DEVELOPMENT IN MNES: RECONCILING ROUTINE RECONFIGURATION BETWEEN THE HEADQUARTERS AND SUBSIDIARIES. Global Strategy Journal. Accepted Author Manuscript. doi:10.1002/gsj.1389
Erin Bass is an Associate Professor of Strategic Management and the James R. Schumacher Chair of Ethics at the University of Nebraska Omaha. She researches and teaches how firms gain and develop resources and capabilities, and how this influences relationships with stakeholders.