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CPOIB
3,4 ICT and MNE reorganisation:
the paradox of control
Mo Yamin and Rudolf R. Sinkovics
322 Manchester Business School, Manchester, UK

Abstract
Purpose – The purpose of this paper is to aim 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

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
critical perspectives on international information system which transmitted full information to the centre
business However changes in the broader landscape of international business have increased
Vol. 3 No. 4, 2007
pp. 322-336 the imperative for central control in multinational enterprises. More specifically key
q Emerald Group Publishing Limited globalisation dynamics, namely growing liberalisation and advances in information
1742-2043
DOI 10.1108/17422040710832577 and communication technologies (ICT) have enabled major shifts in the strategy and
structure of multinational enterprises (MNEs) with increasing emphasis on global ICT and MNE
integration of operational activities (Buckley and Ghauri, 2004). Since the 1980s reorganization
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. 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 323
system of the organization. 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., 2001; Nolan et al., 2002; Rugman and D’Cruz, 2003), there is less
focus on the enhancement of strategic control capability as an important dimension of
the restructuring. Nor is there any discussion of the implications of such restructuring
in terms of the “nature” of multinationality. More specifically there is no discussion of
how tighter control over strategy may undermine the very advantage of
multinationality. This paper has two objectives. First we articulate the ICT –
enabled enhancement of control capability in MNEs. The literature on MNE structures
generally acknowledges, but without elaborating in any detail, the role of ICT as a
critical support system, enabling, e.g. the growth of global account management or the
“slicing” of specialised activities under relocation in particular countries which again
requires greater information system management. On the other hand, from the ICT
perspective, some analysts have suggested that enterprise resource planning (ERP)
systems such as SAP/Oracle, etc. greatly increase the power of the centre vis-à-vis
subordinate units and have labelled it as a “return of big-brother” (Le Loarne, 2005).
However, such studies have not demonstrated or made a strong linkage between the
development of ICT and the particular changes in MNE strategy or structure.
Our second and more important objective is to argue that in enabling much greater
central control in MNEs, 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.
The structure of the paper is as follows: In section 2 we comprehensively discuss the
departure from the federative multinationality. This entails two key dimensions, the
disintegration of subsidiary value chains and the growth of outsourcing. Both
dimensions are based on increasing modulations and significant ICT support systems.
In section 3 we develop the argument that although ICT applications may enhance the
control capability of the MNC centre, it may have a detrimental effect on the
development of adaptive capability in the organization. Section 4 concludes the paper
by considering limitations and implications for future research.

2. 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, 2007). The literature
has credited ICT and the role of the internet with removing some barriers to growth
and international scope of small businesses (Bell, 1995; Lituchy and Rail, 2000). Set
against the classic Uppsala model of firm internationalisation, Forsgren and
Hagström(2007) discuss the relevance of traditional views on internationalisation for
internet-related firms. Yamin and Sinkovics (2006) explore the effects of
internationalisation via online media on psychic distance perceptions of firms. ICT
CPOIB has recently also been linked to organisational performance (Jean, 2007; Wu et al.,
3,4 2006). Some recent research has suggested that the internet and digitalization
facilitates radical changes in the structure of big business, which may reinforce
centralizing tendencies in MNE hierarchies (Cowling and Tomlinson, 2005; Kim et al.,
2003) and strengthen the dominant position of the largest multinationals (Nolan et al.,
2002; Sturgeon, 2002). Thus, ICT advancement facilitates significant structural
324 changes in multinational enterprises, away from the traditional federative system
towards more tightly integrated and controlled entities. In this section we provide an
overview of this change and examine the role of the ICT in it.

2.1 The nature of structural change in multinational companies

The assertion of central control in multinationals is a generally challenging
phenomenon.The multinational enterprise is inherently an arduous organisational
context for control retention. Thus a central issue in MNE management literature has
been the practical difficulty of maintaining the separation between strategic and
operational domains; in particular the literature on subsidiary autonomy indicates that,
through their linkages in host countries, some subsidiaries gain access to strategic
resources and therefore power (Andersson et al., 2002; Mudambi and Navarra, 2004).
Consequently, the separation between strategic and operational domains in MNEs can
frequently become fuzzy; in fact, MNEs are more likely to operate as federative rather
than unitary organizations. 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.

2.2 The MNE as a federative organisation: Network invisibility and implications for
strategic control
2.2.1 Subsidiary embeddedness and headquarter knowledge “deficit”. Ghoshal and
Bartlett (1990) outlined the theoretical case for viewing the MNE as a federative rather
than a unitary organization. This was premised on the view that, because the MNE is
embedded in different economic and institutional domains, it cannot be governed as a
unitary organization. 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. 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”. Subsequent studies have shown
that subsidiaries grow progressively closer to local host country networks (Phene and
Almeida, 2003), while a number of studies have explored the implications of subsidiary
“embeddedness” for MNE management (Andersson et al., 2002). Embeddedness entails
mutual adaptations in developing processes and products between a focal subsidiary
and a small number of host country counterparts (customers, suppliers, research
centres and universities) with whom the subsidiary has developed lasting business
relationships. Subsidiary embeddedness has two related consequences with profound
implications for the ability of the headquarters to retain exclusive control over
strategy.
 First, a subsidiary’s embeddedness generates (knowledge-based) resources rooted ICT and MNE
in its relationships with external partners (Andersson et al., 2002; Forsgren et al., 1999). reorganization
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., 2002; Birkinshaw and Ridderstrale, 1999; Mudambi and Navarra,
2004). Moreover, 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 325
subsidiary’s position as the “interpreter” of the local environment. 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.
Second and perhaps even more important is that the subsidiaries’ locally rooted
networks are largely “invisible” to the MNE centre (Holm et al., 1995). 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. This is
not simply an agency problem whereby the local mangers may deliberately hide
relevant information from their principals further up the MNE hierarchy, although this
may also happen. 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. Thus, 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. Also, because the
required knowledge relates primarily to subsidiary network context and would lack
transparency to outsiders, the efficacy of the MNE’s formal communication system is
limited, even though such communication increasingly benefits from rapid
technological progress (e.g. greater use of electronic communication and the Internet).

2.3 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, they have overestimated the
effectiveness of the softer, value or “culture” based methods in overcoming the hurdles
that the federative structure creates for control (Forsgren et al., 1995; Sölvell and
Zander, 1998). Furthermore due to broader socio-political changes, notably the shift in
the governance regime highlighted in the introduction of this paper, 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. Propelled by pressures emanating from financial
markets, and enabled by radical advances in ICT, MNE headquarters have sought
either to destroy subsidiary networks and/or to “penetrate” them, thus overcoming
their knowledge deficit. This can also be explained using Foucault’s panopticon
metaphor in connection with information systems (Silva, 2005). ICT has “enabling
power” (Barnes, 1988) for MNE headquarters, it allows these to put subsidiary
networks under surveillance, a state of conscious and permanent visibility that
strengthens central control and enacts power. 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. Here,
we focus on structural changes that have effectively destroyed subsidiary networks.
CPOIB The demise of the federative MNC is associated with two developments, the drastic
3,4 reduction in subsidiary value chain scope and increasing offshoring and outsourcing of
core activities. We posit that both developments are facilitated by substantial
technological advancements, particularly ICT-integration and IT-advancement
activities (Jean, 2007) in the form of ERP.
2.3.1 Drastic reduction in subsidiary value chain scope. Figure 1 illustrates this
326 development. The perspective taken in the Figure is the host country perspective.
While the original configuration (A) involved substantial embeddedness of the host
country subsidiary in local networks, thus increasing subsidiary capability and
autonomy vis-à-vis parent strategic and operational decision making, (B) points at a
reduced value chain scope for individual subsidiaries.
In the federative MNE, national subsidiaries were an important part of the
organisation. 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. 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, 1993, Table I, p. 458). However this is
increasingly not the case. 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. The result is that the national subsidiary no longer exists in most
developed countries. Instead there is a series of discreet value adding activities (a sales
operation, a manufacturing plant, an R&D centre) each of which reports through its own
business unit or functional line (Birkinshaw, 2001, p. 281, own emphasis).

Figure 1.
Retreat from federative
multinationality – the
facilitating role of ICT
Buckley and Ghauri (2004) observe a similar phenomenon and point out that MNE ICT and MNE
strategies now revolve around the disintegration of the value chain: reorganization
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, 2004,
p. 83, emphasis added).
The disintegration of subsidiary value adding activities clearly undermines the scope 327
for the development of external linkages by the subsidiary. 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. Thus, in sharp contrast to the typical federative structures, 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, 2001; Yamin, 2005).
The disintegration of host country based value chains is itself a function of two
inter-related developments, namely the growth of “global” customers (“global
accounts” or clients) (Birkinshaw et al., 2001; Shi et al., 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 production system is increasingly modularised, facilitated through a machine
based and highly codified knowledge system. Coordination no longer requires
communication of highly tacit knowledge and essentially enhances the “visibility” of
subsidiary operations through electronic integration (Grover and Saeed, 2007). The
facilitating role of ICT in the information exchange between headquarters and
subsidiaries will be discussed further in the following section 2.3.3 below. The
electronic integration, i.e. linking of headquarters, subsidiaries and other external
networks of suppliers brings out an increased visibility of subsidiary behaviour and
achievements. This process is depicted in the “reporting and communication links to
corporate or regional HQs” in Figure 1 above.
2.3.2 Outsourcing and offshoring activities. Whilst the above relates mostly to
intra-MNC developments, equally significant is the greater degree of externalization.
The MNC develops long term contracts with large scale providers of a variety of
intermediate and final inputs. In one sense this is not new, but there is a significant
difference between the traditional subcontracting or buying relations and
contemporary outsourcing (Hätönen and Ruokonen, 2007; Levy, 2005). Whereas
subcontracting involves the performance of an activity by an outside supplier, with the
objective of reducing costs or mitigating risks, there is now a highly developed global
market for outsourced provision of goods and services. Outsourcing involves the
delegation of non-core functions previously handled in-house, including a shift of
significant amount of decision-making to outside suppliers (Espino-Rodriguez and
Padron-Robaina, 2006; Farrell, 2005).
The relevance of outsourcing in terms of the demise of the federative MNC is that,
through outsourcing, the MNC centre shifts from invisible networks around
subsidiaries to visible networks controlled by the centre itself. Nolan et al. (2002)
document the extension of coordination and planning by “systems integrator” firms
with “aligned” upstream “first tier suppliers” regarding production location, R&D,
CPOIB product development, and with “downstream” distribution and maintenance. Thus,
3,4 externalization actually helps shift the balance of power in favour of control and
planning by the MNC centre (Nolan et al., 2002; Strange and Newton, 2006).
Facilitated by advances in ICT, core firms within the value chain exercise tight
control over firms across the value chain, both upstream and downstream. The idea is
that ICT-enabled alignment and coordination capabilities are firm-specific and hard to
328 copy for outsiders, thus contributing to the generation of sustained advantage (Wu
et al., 2006). Firms which wish to be selected as “aligned” or “integrated” partner
suppliers must agree to cooperate with the core firm in opening their books, planning
their new plants, organizing their R&D, planning their production schedules and
delivering their products to the core firms (Nolan et al., 2002).
2.3.3 Implementing electronic integration – ERP as a facilitator of recentralisation.
Both of the above changes have in similar – though not identical – ways been
facilitated by the implementation of enterprise resource planning systems. In both
respects, the production system is increasingly modularised, assisted through a
machine based and highly codified knowledge system. Coordination no longer requires
communication of highly tacit knowledge and essentially enhances the “visibility” of
subsidiary operations through electronic integration (Grover and Saeed, 2007). The
concept of electronic integration has emerged in the context of buyer-supplier
relationships and defined as a form of quasi-integration, primarily with a focus on the
restructuring of vertical supply-chain relationships (Jean, 2007; Zaheer and
Venkatraman, 1994). 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, 2005). They develop a multidimensional construct of
electronic integration which includes coordination of decision and operation
integration, mutual investment in relationship-specific assets, information sharing
and monitoring and control. It is clear that this perspective can similarly be used in the
federative MNE-subsidiary context, where the above changes are premised on an
elaborate “internal support system” (Birkinshaw et al., 2001). Furthermore, the
perspective of dramatically reduced subsidiary value chain scope is supported in the
operations management literature, 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, 2001, p. 201).
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, 2000). Earlier, especially in large federative MNEs, many
incompatible legacy systems and processes coexisted, making organisational
integration processes difficult. The objective of ERP implementations is therefore
typically to replace these legacy systems into a coherent single system. Today’s ERP
packages have evolved significantly from material planning systems and
manufacturing resource planning and tightly couple such processes as financial,
human resources, distribution and even marketing management. Most commercial
functions of any organisation in varied sectors are now represented in ERP software.
With extensions to include World Wide Web capability, customer relationship
management (CRM), supply chain management (SCM) and support for electronic
marketplaces, ERP systems have developed towards a suite of integrated business
processes. A key selling proposition for ERP systems is that these offer cheaper ICT and MNE
acquisition and running costs than custom-built applications, hence, they are often the reorganization
preferred replacement for legacy computer systems (Shanks and Seddon, 2000).
ERP system implementation however, is not considered to be an easy and seamless
task. Costs of implementation are often reported to be five to ten times the cost of
software licences (Davenport, 2000, p. 68). What is more, the adoption and
implementation of ERP is usually connected with significant changes in organisational 329
knowledge and learning processes. 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. Clemmons and Simon (2001) have reviewed the concepts of
control, coordination and their trade-offs including Bartlett and Ghoshal’s (1990)
typology of firm strategy. 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, 2001).
Popular ERP software such as, e.g. SAP offer a multitude of business reference
models from different industries, included in the package. To this end, ERP packages
embody established ways of doing business (Lee and Lee, 2000, p. 282), “imposes its
own logic on a company’s strategy, organisation, and culture” (Davenport, 1998, p. 122)
and requires tailoring to an organisation and the organisational infrastructure that
affects how people work. Managers in the ERP adopting firm thus have to decide
which reference model to use and consequently map this to their organisations
business. In this process of mapping a reference model to their organisation, process
knowledge is transferred.

3. Implications for the nature and advantage of multinationality

As already noted, 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.
Traditionally, the key strategic issue for MNCs was the handling of the tension between
the imperative of global integration, on the one hand, and the need for national
responsiveness, on the other (Doz and Prahalad, 1991). Responsiveness reflected the
essence of multinationality, acknowledging that each national context was more or less
unique and required a tailored rather than a uniform approach from the MNE. 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. However,
although the decline in the position of the nationally focussed subsidiaries has “benefited”
the MNE by increasing its control capability, the downside is arguably a reduction in its
adaptive capability, a key advantage of the multinational organisational form.

3.1 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, 1990; Levinthal and March, 1993;
March, 1991). Thus, whereas exploitation is the utilisation, refinement and extension of
existing capabilities, exploration is the search for alternative capabilities that may
underpin future exploitative potential. The value of exploratory activities is therefore
that they help to create adaptive capabilities for the organisation. It is generally agreed
that in most organizations “exploitation drives out exploration” (Ahuja and Lampert,
CPOIB 2001; Birkinshaw and Ridderstrale, 1999; Levinthal and March, 1993; March, 1991). It
3,4 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. In this sense, exploratory capability is at least partly a
consequence of the “weakness” of the centre to control the behaviour of sub-units. In
tightly controlled multi-unit organisations, the ability of sub-units to detect new ideas,
330 develop initiatives around these ideas and hence generate new “local” competencies is
severely curtailed. In such corporations exploratory capability is likely to be low.
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. 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. This phenomenon has been recognised by authors with quite
diverse perspectives on the organisation (Teece, 1998; Williamson, 1975). Typically, top
executives display a high degree of attachment to the status quo (Hambrick et al., 1993).
And, as Burgelman (1983, p. 67) suggests, because top managers have an inflexible stance
in relation to current strategy, their “capacity to deal with substantial issues pertaining to
new technological and market developments can be expected to be low”. Thus even in
apparently dynamic and progressively managed companies, there is a remarkable degree
of inertia in official corporate strategy. Top level commitment to current strategy remains
strong even when environmental changes have eroded the value of the competencies that
underlined the strategy (Burgelman, 1994; Burgelman, 2002).
By comparison, operational and middle-level managers are naturally sensitised or
exposed to exploratory stimuli because, to a large extent, the operational locus is where
the opportunities and pressures for change are most keenly felt (Brown and Duguid,
1991; Dutton et al., 1997). Top managers are deprived from this important source of
exploratory stimuli, because by the very nature of their position in the organisation, they
are too distant or removed both spatially and cognitively, from the operational locus.
Furthermore, 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. In Burgelman’s words, top
managers rely “on the structural context to bring autonomous behaviour under control”
(Burgelman, 1983, p. 67). As Birkinshaw and Ridderstrale (1999) convincingly argue,
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.
Consequently, exploratory activities are often manifested as “autonomous
behaviour” – that is, 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, 1998; Burgelman, 1983). And, given the multi-layered structure
of large organisations, some leeway or opportunity is likely to exist for these managers
to undertake autonomous activities unnoticed by top decision-makers. Thus some
autonomous behaviour is inevitable in complex organisations.
The importance of autonomous behaviour is that new strategic directions are often
charted through initiatives by the operational and middle level mangers. In fact, as
Burgelman (1983, 1994, 2002) suggests, in companies where autonomous activities are
strong, strategy making should not be considered purely as a prerogative of the top
decision-makers. Rather, strategy making should be viewed in terms of an
“intra-organisational ecology” or internal selection environment in which autonomous ICT and MNE
initiatives offer strategic choices to top management (see also Ghoshal and Bartlett, reorganization
1995). An immediate advantage of this is that considering simultaneous alternatives
may reduce excessive commitment to any one strategic option. The danger that core
competencies become core rigidities may be somewhat reduced (Dutton et al., 1997;
Leonard-Barton, 1992). Furthermore, given that environmental changes will inevitably
undermine the value of competencies that underpin any current strategy, the existence 331
of alternative capabilities within the firm enhances adaptive capabilities.
As argued elsewhere (Yamin, 2001, 2002), a key advantage of multinationality is
that its dispersed structure inadvertently creates conditions conducive to
entrepreneurial and innovative activities by the subsidiaries. This is a valued
characteristic of the MNE as a generic organisational form if one accepts:
. the view that, the hierarchical structure of large firms tends to frustrate
entrepreneurial and innovative activities at the “periphery”; and
.
that this is an undesirable outcome.

The notion that in most organisations, “exploitation drives out exploration” holds that
both these statements are true. From this perspective, multinationality can be captured
in the following statement: multinationality evens out the odds between exploitative
and exploratory aspects of firm activities. Thus, due to the organisational isolation
(and hence operational and network invisibility) of the subsidiary vis-à-vis the parent
there is a greater scope for exploratory and entrepreneurial activities in the
multinational enterprise than in otherwise similar uninational enterprises. The
evolution of each national subsidiary reflects a unique combination of market,
institutional, and network influences that give the subsidiary distinctive market and
technological capabilities (Geppert et al., 2003; Regner, 2003; Yamin, 2002). 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. Thus the relatively weak control structure of
federative MNEs helps both to generate and maintain differentiation within the MNE.
This means that the MNE possesses a richer internal selection environment. The
existence of differentiated competencies potentially provides the MNE with a wide
range of strategic choices. If major technological or market changes undermine the
value of the MNE’s currently dominant technology, then alternative proven
competencies, which can become the basis of a new strategic direction for the MNE
may well exist within the network. In particular, 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, 1998). Such transformation is by no means an easy process, a
fact confirmed by recent case studies (Burgelman, 1994; McNamara and Baden-Fuller,
1999). 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. A major
obstacle facing organisational renewal is the risk associated with abandoning current
competencies when new competencies are not fully operational (Kogut and Zander,
1992; McNamara and Baden-Fuller, 1999). This risk is clearly attenuated in an MNC to
the extent that it may avoid the need to generate wholly new competencies. In this
CPOIB sense, it can be said that organisational isolation may enhance the survival prospects
3,4 of an MNE.

4. Conclusions
In this paper we have argued that major organisational changes within the MNC,
facilitated by the application of advanced ICT have had the consequence of improving
332 the control capability of MNE centres and thus removed or drastically reduced the
operational and network invisibility of national subsidiaries. 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. An obvious
implication is that ICT tends to undermine the – arguably desired – feature of
multinationality. Returning to the theme of exploitation versus exploration, 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, 1991,
p. 71). From this perspective, ICT improves the exploitation capability of MNCs as by
improving overall operational coordination it could enhance the efficiency in the MNC.
However, by the same token the extensive application of ICT can damage the MNCs
explorative potential. 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.
From a practical and managerial perspective, our paper points out that ICT
application may improve coordination and control for the MNE. However, a level of
subsidiary autonomy and initiative taking is still beneficial for MNE strategic and
organisational development. ICT application should not go so far as to suppress these
initiatives. Managers may be advised to build organisational contexts and routines
which protect and retain appropriate levels of autonomy. With specific reference to ICT
application and ERP systems, managers may purposefully want to “blur” subsidiary
visibility. This could be achieved by allowing multiple-vendor ERP systems which are
linked together, but not overly tightly coupled.
Whilst our arguments about major organisational shifts due to ICT application are
derived from extant literature, we recognise the rather tentative nature. As a logical
next step to overcome this limitation, 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. 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. Initially, the perspective of subsidiary managers may provide most
useful insights into the organisational changes, as it will allow elaborating the
consequences of heightened MNE control power and visibility of the subsidiary
vis-à-vis the parent, as perceived by the subsidiary. Ultimately, a dyadic study,
including both subsidiaries and MNE headquarters may allow a comprehensive
picture.

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Corresponding author
Rudolf R. Sinkovics can be contacted at: www.personal.mbs.ac.uk/rudolf-sinkovics/

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