International Business StrategyLectorial 6MNE’s Strategic OptionsLinking this week’s learning to previous topics Having covered environmental issues atthe macro, industry and firm levels, weare now ready to consider strategicoptions available to the MNE. There aremany ways to do so, but we will focuson innovation and change managementsince these align with current markettrends This Week’s Objectives After the lecture, seminar and linked readings and reflection,to Discuss the different strategic options available to MNEs inbuilding and sustaining competitive advantage Evaluate the challenges of managing innovation andchange processes within multinational enterprises Compare and contrast incremental and transformationalapproaches to change Identify the role you would prefer to play within thechange process – do you see yourself as a manager, aleader, and/or a change agent? Changing The Business Model 1) Customer Value Proposition Who are your target customers? What is the problem or need you will help them with? How will you meet their needs?2) Key Resources (needed to deliver the CVP)3) Key Processes (Porter’s Value Chain activities)4) Profit Formula (costs and revenues)Managers look at how these factors will vary as the SCALE of output rises over TIME – lead times, throughput, cash flows over SPACE – do you need to adapt the business modelwhen you move beyond your home market?(Johnson, M.W., Christensen, C.M. and Kagermann, H. (2008)Reinventing Your Business Model. Harvard Business Review.86/12 p: 50)Innovation within the Product Life Cycle (Frynas & Mellahi 2011: Ch 11) Product innovation: the development of a new orenhanced productProcess innovation: the implementation of a new orimproved production or delivery methodThe Strategic Management Process: Supports Innovation and Change Strategic management is “the process of strategicdecision-making that sets the long-term direction forthe organisation” (Frynas & Mellahi, 2011: 8) The central thrust of strategic management is achievinga sustainable competitive advantage The strategy-making process involves ‘key decisions’made by negotiation within the organization and withits business partners and other interested parties(stakeholders – Week 5) Many MNEs are in fact business groups with interlockingshareholdings and a complex network of relationshipslinking subsidiaries incorporated separately in eachlocation – this complicates negotiations furtherCapabilities and Competitive Advantage Competitive advantage: The ability to use resourceseffectively and to deliver a combination of price and performance valued by thetarget group of buyers better than the competition generating superior profit levels for the firm Distinctive capabilities: a wide range includinginnovation, flexibility and reputation (Week 4) Must create value for customers, be rare and hard to copy If they are valuable but not rare, they are necessary orthreshold – rather than distinctive or core – resources Innovation as a capability: springs from anorganisation’s ability to manage change and to learnfrom experience and from environmental cuesThree Models of Innovation (Bartlett et al 2011: Ch 5) Central: pursuing efficiency Global strategy, centralised hub configuration, strongproduct (business) managers Local: building responsiveness Multinational strategy, decentralised federationconfiguration, strong geographic (area) managers Transnational: sharing learning Transnational strategy, integrated networkconfiguration, locally leveraged and globally linked Remember Week 6? A complex organisational form,governed by simple rules (Sull and Eisenhardt 2012) Functional managers scan globally for new ideas, bothinside and outside the organisation – and championnew ideas within the MNE Geographic managers identify the need for new ideas,develop their own and implement others locallyMNEs: Motives, Strategies and Organizational Configurations DecentralizedFederation(Europe, 1930s)Resource seeking motivesMultinational strategyIntegrated Network(worldwide, 1990s onwards)Global scanning motives Transnational strategyCoordinatedFederation (USA, 1950s)Market seeking motivesInternational strategyCentralized Hub(Japan, 1970s)Competitivepositioning motivesGlobal strategy Central Innovation (Japan 1980s) III III S-R-I • Headquarters Senses world-wide opportunities• Centralised assets and resources favour unitary global Responses• Implementing strategy is decided centrally and executed locally• Typical of centralised hub configuration, positioning perspectiveLocal Innovation (Europe since 1930s) S-R-IS-R-IS-R-I S-R-I S-R-IS-R-I S-R-I• National units Sense local needs• Distributed assets and resources allow local Response• Local-for-local Implementation• Typical of decentralized federation configuration, resource seeking approachTransnational Innovation: Two Emerging Processes Locally leveraged Local opportunity sensed – and responded to –by subsidiary Implementation carried out worldwide Globally linked Shares the resources and capabilities of manyoperations New activity is jointly created and managedThe Integrated Network: Locally Leveraged and Globally Linked Subsidiaries: Develop specialised resources and capabilitiesand then share themCentreCentre: Co-ordinates flows of people, money and informationsupporting a complex process of shared strategic decisionmakingOverall: this is a learning organisation, that is, aknowledge-creating company (Nonaka 1991)Managing Global R&D Networks (Frynas & Mellahi 2011: 370) Networking Beyond the Boundaries of the Organisation The learning organisation has its limits: tends to adopt evolutionary (small-step, or continuous) rather than revolutionary (episodic, disruptive) patterns of change Experience of Procter and Gamble (Huston and Sakkab 2006) example of Pringles potato crisps: application of radicallynew printing technology to add words and pictures P&G had adopted the integrated network configuration inlate 1980s, but couldn’t make this leap alone Networking with outsiders (entrepreneurial SMEs)supported cutting-edge new product development Markides C. And Geroski P. (2005) Fast Second. Wiley ebook:suggests that SMEs are best at creating radical new markets Established corporations are best at scaling up andconsolidation – so both sides can gain from alliancesConnection to our core text: Frynas & Mellahi (2011) Ch 10 Evolutionary, continuous change is also known asincremental change (pp. 318-9) Revolutionary, disruptive change is also known astransformational change (pp. 319-20) Our core text authors have referenced their tableon this (p. 319) to UHBS’ own Professor RalphStacey – but beware… In Stacey’s view, transformational change (inproducts and delivery methods: top down) isdifferent from transformational managementprocesses (interactions which change people’sway of thinking through conversation)Differences between Incremental and Transformational Change Incremental changeTransformational changeManagementLeadershipDoing things betteror doing more of themDoing things very differentlyor doing different thingsBottom-upTop-downFundamental beliefs unaffectedFundamental beliefs changedEfficiencyEffectiveness Transformational Conversations and Organisational LearningDe Wit & Meyer (2010: Ch 9, The Organizational Context) The organizational leadership perspective (Kotter 1990: WhatLeaders Really Do. Harvard Business Review, 68, 3: 103-111):organizations thrive when a strong leader runs them well Develops a distinctive vision and decides what to do: proposestransformational change Inspires others and uses central control to ensure compliance The organizational dynamics perspective (Stacey 2007):whether leaders like it or not, they are involved in aninterdependent relationship with their followers: they struggleto make a difference and on a good day, they engage intransformational conversations Through the interplay of intentions, people change their thinking Leaders help order to emerge by setting simple rules, influencingthe way followers think when solving problems: people use theirlearning to make better business decisions Emergent strategy develops as organized chaos (Brown andEisenhardt 1998: Competing on the edge : strategy asstructured chaos . Harvard Business School Press)Maybe it depends on their style… (Frynas & Mellahi 2011: 331-333) Or maybe it depends on the skills of the change agentswho work for them… Change Agents: Key skills(Frynas and Mellahi 2011: 325-331) Clear understanding of top management objectivesincluding how and why these change Political awareness – ability to mediate conflict Sensitivity to the views of employees including classicphases of the coping cycle (denial, defence,discarding, adaptation, internalization) Communication and negotiation Team-building and leadership Individual characteristics: energy, enthusiasm, hightolerance of ambiguity and riskMaybe it depends on changes in a firm’s industry • McGahan, suggests changes in an industry vary andtherefore a firm’s response/ innovation should be alignedto trajectory of evolution in its industry and strategicresponse will depend on what is threatened by thechange (see figure on next slide) .• The 4 trajectories of industry evolution identified byMcGahan include• Progressive• Creative• Radical• Intermediating• Unlike other models, it addresses the different types of changes andoffers insights and approaches to addressing these 4 industrychanges. Types of industry change McGahan, 2000Maybe change requires a different mindset McGrath (2013) suggests instead ofaligning strategies to changes in anindustry firms should instead focus on thecustomer;– Argues in an environment characterised by forces such asdigital revolution, weak barriers to entry and globalisation,‘firms cannot afford to spend months crafting a single longterm strategy. They need a portfolio of multiple transientadvantages that can be quickly build and abandoned just asrapidly.’– Examples of companies that have adopted this mindset includeCognizant, Brambles and Milliken & Company. The firms viewstrategy as ‘more fluid, more customer- centric, less industrybound.’Strategy for Transient Advantage -Sustainable competitive seen as an exception, not a norm;-To create a portfolio of transient advantages firms needthe following shifts in the way they operate Think about arena, not industries (industries boundaries areincreasing blurred and difficult to delineate); Set broad themes and let employees experiment (Adopted infirms like Cognizant); Adopt metrics that support entrepreneurial growth; Focus on experiences and solutions to problems; Build string relationships and networks; Avoid brutal restructuring; learn health disengagement; Get systematic about early- stage innovation Experiment, iterate, learnSource: McGrath (2013)Given all the advice from experts why is it difficult for MNEs to change Münter, 2017Disruptive Innovation (A major threat to MNEs) Münter, 2017 How firms can develop capability to compete https://youtu.be/KsJ4yTh9sMc(Watch the video to get the mostfrom this diagram Frugal Innovation With firm’s struggling to find a profitableniche some have turned to creativesolution to serve the bottom billionprofitably. This aligns well with some ofthe megatrends discussed in week 1. Watch this video for more insights(https://youtu.be/QH3p5WDpM3Q) This Week’s Objectives After the lecture, seminar and linked readings and reflection,to Discuss the different strategic options available to MNEs inbuilding and sustaining competitive advantage Evaluate the challenges of managing innovation andchange processes within multinational enterprises Compare and contrast incremental and transformationalapproaches to change Identify the role you would prefer to play within thechange process – do you see yourself as a manager, aleader, and/or a change agent?
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