Practice coordination by principles: a contemporary MNC approach to coordinating global practices

2.1 The dissemination of practices within the multinational corporation

As mentioned by Björkman and Lervik (2007), research within the IB field has long sought to delineate how MNCs align, coordinate and/or transfer management practices, predominately human resource management (HRM) practices (Edwards et al., 2007). In the multinational context, the transfer and diffusion of HRM practices can be classified into three types or directions: forward (from the parent to subsidiaries); horizontal (amongst subsidiaries); and reverse (from subsidiaries to the parent) (Edwards and Ferner, 2004). Although the terms “transfer” and “diffusion” are often used interchangeably in IB, some authors (Chiang et al., 2017) suggest that distinctions should be made to yield more nuanced findings. Szulanski (1996), for example, understands diffusion as the flow of practices that gradually disseminate or occur in many different steps, whereas transfer is a one-time event. A wide-ranging view in the literature is that transferring management practices within the MNC is problematic (Becker‐Ritterspach et al., 2010), often resulting in different outcomes across the globe (Gamble, 2010; Szulanski et al., 2003).

Kostova and Roth (2002) conceptualise practice adoption in two dimensions – implementation and internalisation. Implementation is expressed in the objective behaviours and actions required or implied by the practice and internalisation is the state in which the employees at the recipient unit view the practice as valuable for the unit and become committed to the practice. An implemented but not internalised practice faces the risk of being decoupled or only adopted ceremonially (Bjerregaard et al., 2016; Meyer and Rowan, 1977). Lozeau et al. (2002) further found that decoupling was more likely if coercion (i.e. imposition of practice by HQ) was the diffusion mechanism as disallowing local adaptation could reduce the motivation of local management (Morschett et al., 2015). In contrast, adapting management practices in line with different contextual specificities, preferably using informal and subtle coordination mechanisms (Martinez and Jarillo, 1989), can reduce decoupling and increase acceptance of the practice (Ansari et al., 2014). Other factors that influence the degree of local adaptation or mechanisms used when transferring a management practice are the resources available to HQ management to identify and implement its practices (Kostova, 1999), the perceived necessity or desire to diffuse standardised practices (Edwards and Rees, 2006) and the subsidiary’s dependence on its HQ (Farndale et al., 2010). The same is true for the subsidiary’s strategic role within the MNC (Bouquet and Birkinshaw, 2008) and the size and performance of the subsidiary (Ferner et al., 2011).

Whilst there has been much discussion of the de-centred or networked nature of contemporary MNCs (Andersson and Holm, 2010), an authoritative central HQ remains the norm in the above mainstream IB literature (Ferner et al., 2012). However, recent research has emphasised that the structures of MNCs have become more complex and fragmented (Mudambi and Navarra, 2004). In contrast to mainstream IB, there is a growing critical perspective on power and politics within MNCs that offers a deeper understanding of micro-political processes and power relations in the MNC based on a more bottom-up and actor-centred approach (Dörrenbächer and Geppert, 2017). This bottom-up trajectory suggests that we study MNCs as “contested terrains” (Edwards and Bélanger, 2009) or as “societies” (Morgan and Kristensen, 2009) with not just one central power unit but diverse power centres each with a different set of influential actors and where subsidiaries perpetually bargain with HQs that have little ability or interest to exert full control. Although studies on power within the MNC primarily focus on the power of subsidiaries (Bouquet and Birkinshaw, 2008; Dörrenbächer and Gammelgaard, 2011; Rego and Steger, 2019), few studies focus on how the HQs manage their subsidiaries without formal authority (the right to decide).

The IB literature has also treated management practices as monoliths without considering the intrinsic components that constitute these practices. However, management practices are multidimensional by nature (Yu and Zaheer, 2010), consisting of people, products and processes (Kedia and Bhagat, 1988) or having a technical or social nature (Kostova, 1999). Yu and Zaheer (2010) argue that considering the underlying dimensions of a management practice is important because different dimensions have different characteristics, which require different mechanisms for adaptation. Ansari et al. (2014) even suggest that management practices should be designed to facilitate transfer and local adaptation. Their line of thinking is similar to Winter and Szulanski’s (2001) concept of an arrow core – the attributes of a practice that are replicable and add value according to the business model. As long as the arrow core is transferred, such a partial transfer of practices will give the anticipated and desired results.

Similarly, Lillrank (1995) suggests a three-category model for identifying the different aspects of a practice that should be considered when transferring practices, a perspective used in this study. In an effort to explain why diffusion of management practices is often slow and complicated on an inter-firm diffusion level across countries, Lillrank (1995) argues that the transfer of management practices includes three components: principles, organisational structures and tools. Principles consist of the normative values concerning what is important. From the perspective of Agile, this means, for example, frequent deliveries, teamwork and responding to change rather than following a plan. Organisational structures refer to the organisational structures required for the practice. For example, a practice focussing on flexibility requires an organisation to handle short cycle times and low inventory levels. In addition, this component includes organisational roles such as cross-disciplinary teams, project sponsors and team leaders. Tools refer to practical aides such as statistical quality control and software. These three components are complementary and interdependent, so the successful transfer of one component requires support from the other two components. Because the component Tools has rather clear-cut applications requiring little abstraction, it is applicable in most types of organisations. In contrast, the component organisational structures require a high level of abstraction, making it difficult to transfer, particularly when the geographical and cultural distances are large. The larger the variations between a management practice’s institutional context of origin and destination, the more meaning is lost due to misunderstandings. The model by Lillrank (1995) is relevant to this study, as it specifically concerns translations of management ideas across institutional contexts. Further, it has been shown that the model can aid understanding of the transfer process within the MNC context, e.g. in a study by Rolfsen et al. (2014) the model by Lillrank was used to explain the unintended consequences from implementation of Lean at a Norwegian subsidiary of a German MNC. Firms rarely develop their management practices in the house; in many cases, management practices are based on fashionable management ideas such as Lean or Agile (Sturdy et al., 2019). Bort (2015) makes a temporal distinction between management ideas and practices: When an organisation has implemented a management idea, it becomes a management practice. Agile development, for example, can be perceived as both a management idea and a management practice when implemented (Sturdy et al., 2019).

2.2 The power dynamics of management ideas

Building extensively on neo-institutional theory, recent research has focussed on the global dissemination of new management ideas. This literature highlights the fashion-like character of this process, with new ideas gaining rapid popularity and then equally rapidly fading from view only to be replaced by new fashions (Abrahamson, 1996). As management ideas spread, projecting ideas about efficiency, neutrality and universality, they turn into powerful and (nearly) taken-for-granted “regimes of truth” (Salles-Djelic, 2019). However, management and management ideas are not the natural habitats of humanity. Instead, they are historically inscribed and socially constructed institutions, and therefore neither neutral nor de-politicised. An important aspect concerning the dissemination of management ideas is the power dynamics between societal actors such as management gurus, business schools and the business press, which determine what constitutes legitimate business knowledge, and therefore what becomes fashionable. O’Mahoney and Sturdy (2016), for example, use McKinsey as a case to show how the dissemination and translation of management ideas are enabled and constrained by the exercise of power. Management ideas can also shift the power distribution within organisations. Birkinshaw (2017) reports that the management idea of Agile can be difficult for executives at established companies, as it shifts power away from those at the top to those closest to the action. Studies on management ideas have been criticised for neglecting MNCs and the power dynamics between their internal actors (Sturdy et al., 2019). Furthermore, Neo-institutional theory, which much of the literature on management ideas is based, has been subject to criticism for underplaying and taking for granted the broader power dynamics on a macro-level (Ferner and Tempel, 2006; Kostova et al., 2008), for instance, the dominance effect put forward by Smith and Meiksins (1995).

Smith and Meiksins (1995), taking a macro-perspective, argue that which practices are perceived as best and most likely to disseminate, depends on the practices’ country of origin and its position in the international economic system. Their theoretical framework – system, society and dominance effects – explains how organisations are shaped by macro factors including the nature of the capitalist economic system, the societal features of an organisation’s location and the characteristics of the economically dominant nation and MNCs. The theory includes a global dominance effect, which recognises a (shifting) hierarchy amongst nations, allowing some of them to influence the developments of others. Hence, the international economic system ultimately determines what constitutes best practices and shapes how these practices are disseminated. Dominance effects also shape systems of meaning as the dominant power becomes hegemonic. On the one hand, dominance effects create a presumption by actors from dominant countries and firms that their practices have superior efficacy, providing a motive for transfer. On the other hand, dominance effects may be shared by actors in the host country, including policymakers, subsidiary managers and workforces, increasing receptiveness to adoption. Thus, the transfer is smoothed because practices are accorded legitimacy by a wide range of MNC actors and are regarded as global “best practices”. As a result, ideas flow mostly from the most economically dominant nations. That is, mostly neo-liberal ideas from western countries, especially the USA, are promoted and spread (Smith and Meiksins, 1995).

Despite the typically de-centred or network-based nature of the contemporary MNC, the extant debate on the coordination of practices within MNCs is based on studies with predominantly hierarchical MNCs with authoritative central HQs. Furthermore, we argue that an overly simplified depiction of practices as monoliths has been applied and that the above literature neglects intrinsic components of practices. This paper shows how the principles of management practices play an important role in the coordination of a global practice within a contemporary MNC.

3.1 Research context

This study focusses on the research and development (R&D) organisation of a global high-tech firm headquartered in Sweden (the MNC). At the time of the study, this MNC’s globally distributed R&D organisation consisted of approximately 30 development sites located in different subsidiaries. Whilst there were some foreign nationals, the vast majority of the employees at the subsidiaries were locals, for example, at a subsidiary in China with approximately 400 employees a small minority of only 1% were of non-Chinese origin. The orientation of the MNC was primarily geocentric (Perlmutter, 1969), as the subsidiaries’ focus was on worldwide, as well as local objectives and an international mindset was aimed for in HQ decisions. However, the MNC’s orientation in terms of practices was more polycentric, as the subsidiaries held a high level of practice autonomy and the HQ perceived practice heterogeneity to some extent as necessary. Software development, one of the firm’s core processes, had in the past years become informed by the management idea of Agile development.

In contrast to the more well-known management idea Lean production, which focusses on efficiency, Agile development aims to make the software development process more flexible and customer-oriented. Compared to the traditional sequential waterfall model for software development (Rigby et al., 2016), Agile development gives more power to the developer, is less coercive, is more team-oriented and aims to develop in an iterative manner. For example, in Agile development, programmers have increased autonomy and closely collaborate with customers. This tilt in power balance towards programmers has contributed to Agile gaining traction within the programming community. Similar to how Lean development has become the de facto standard in the automotive industry, Agile development has become the de facto standard in software development (Meyer, 2014). According to Lillrank (1995), management ideas such as Agile development can be divided into three components: principles, organisational structures and tools. The principles of the Agile management idea are formulated in a document called the Agile Manifesto (Agilemanifesto.org).

3.2 Methodological choice

During another study that we conducted at the MNC, we realised that the MNC coordinated its management practice in a novel approach that had been neglected in the literature. As we had good access to the firm, we decided to explore how the MNC coordinated its software development practices through a set of principles. Hence, the exploratory nature of the study led us to use a single-case study approach (Easton, 2010; Siggelkow, 2007; Yin, 2003). Once we decided to study the approach in detail, we made the first round of data collection focussing on developing a chronological reconstruction of the trajectory of decisions that led to the new form of practice coordination within the MNC (Langley, 1999). During this first round of interviews (marked in bold in Table 1), the respondents were asked to tell their story of the introduction of the Agile management practice with a focus on the various steps taken.

In the next step of our abductive journey, we reviewed the literature on coordination of management practices within MNCs in more detail (summarised in 2.1). From our first round of interviews, we realised that the different components of management practices played an important part in our case, especially principles. However, the extant literature in IB on the coordination and transfer of management practices is predominately based on a simplistic perception of management practices as monoliths, ignoring their intrinsic components. Thus, we broadened our search for relevant literature and learned that some scholars in related disciplines such as Economic Geography and Organisational Studies, understand practices to consist of several components. We became particularly inspired by Lillrank (1995), who argues that a management practice consists of three components (principles, organisational structures and tools), which differ in their degree of transferability. Drawing on Lillrank (1995) and the insights from our first round of interviews, we started to elaborate on an initial defining understanding of the Coordination by Principles approach used by the studied MNC. Next, we used the second round of interviews to refine and enrich our evolving conceptualisation of Coordination by Principles and explored the motives and implications of the approach. Hence, the questions were more specific as they focussed on understanding why the MNC used a Coordination by Principle approach and its implications. Here, insights from our detour to the literature on MNC practice management were essential. Following Dubois and Gadde (2002), we stopped the data collection and searched for useful theories after we felt that we had a final conceptualisation that matched the theory with the data.

As noted above, we collected the data in two main rounds. In total, we interviewed 36 respondents covering all major roles in the R&D organisation. We also held shorter follow-up interviews with several respondents. Hence, 46 interviews were conducted. To obtain an industry perspective on software development practices, we also interviewed two senior software developers outside the MNC. The focus of each interview was largely determined by the responses and emergent themes, but an interview guideline provided the core questions and was adjusted continuously. The interviews were conducted in either English, Shanghainese, Mandarin or Swedish, lasted between 55 and 80 min and were all recorded with permission. Irrespective of the language, all interviews were translated into English (resulting in approximately 380 pages of transcription) in preparation for collective analysis in Nvivo. Reflection notes were taken during each interview and observation. Table 1 summaries the conducted interviews, including the role of the interviewees, their locations (due to anonymisation requirements only broadly depicted) and interview date.

In addition, observations were conducted at two subsidiaries, one in China and one in Sweden. At each site, one of the authors was provided a work desk between two Agile teams. During six weeks in spring 2016 (Sweden: two days per week for three months in spring 2016; Shanghai: five days per week for three weeks in March 2016), the author shadowed the daily work of the teams and attended all their meetings (Gherardi, 2006). The ability to both collect the data and analyse it in its real setting offered the opportunity to think of aspects that might not have been possible to identify solely through interviews (Barley and Kunda, 2001). This combined observation method (i.e. combining interviews with overt observations) can be compared to what Czarniawska (2007) refers to as shadowing people during their daily work. The use of ethnographic approaches in researching management practices in the context of the MNC is also suggested by Diana Sharpe (2018). Our third source of data was internal documents from the firm’s intranet (256 pages of material). Because the study is partly retrospective, the three sources, as well as a large number of interviews allowed for triangulation, reducing the risk of posthoc rationalisation of previous actions, thoughts and decisions, as well as problems related to memory (Bryman and Bell, 2011). Furthermore, to strengthen the study’s reliability, respondent validation (van de Ven and Poole, 1990) was applied by discussing the findings with change agents at the company as work progressed.

The analysis of our collected data can be divided into two mains steps. Firstly, using Nvivo, we chronologically coded our findings from our first round of data collection as we wanted to write a case narrative and construct a timeline of the process that led to the existing development practices and how they were coordinated. As mentioned above, this initial data also provided us with insights that we used to sketch a preliminary conceptualisation of the HQ’s approach to coordinating practices. In our second round of interviews, we asked specific questions to gradually refine the preliminary conceptualisation. The second step of our analysis took place after the second round of interviews where several cycles of data coding were performed by one of the authors. Analysis progressed from descriptive codes (Lillrank’s (1995) three components) to aggregating them to broader concepts and emerging themes, which clustered around the antecedents and implications discussed in Section 5.

5.1 Antecedents for coordination by principles

As we discuss in detail below, we identify four antecedents (Table 2) for Coordination by Principles in our case study: the nature of the MNC, the presence of a management idea with a high degree of legitimacy within the industry, HQ’s ability to perceive the variety of components of the management practice and the characteristics of the management idea.

5.2 Implications on implementation and internalisation

We derive three related implications of coordination by principles from our study. Firstly, barriers related to the institutional context are reduced. Secondly, internalisation of new practices is facilitated as a result of the autonomy of subsidiaries to enact principles. Thirdly, coordination by principles inevitably decreases global integration compared to coercively imposing a standardised management practice. These three implications are elaborated on below.

Firstly, we suggest that coordination by principles has the potential to reduce barriers to the new practice related to the local institutional context. When management ideas travel between institutional contexts, unexpected consequences have shown to be common when they are implemented due to barriers of various nature (Mantalay and Chakpitak, 2014). Barriers related to the institutional context of the host country are called institutional barriers by Zimmermann and Bollbach (2015) and can consist of formal institutions (such as governmental and educational institutions), as well as informal institutions such as the cognitive and normative dispositions that guide the behaviour of the members of the institutional context. These institutional barriers can be mitigated using coordination by principles. Drawing on Lillrank (1995), we conclude that the HQ only standardised the principles component of the practice, a move that provided the subsidiaries autonomy for the other two components, organisational structures and tools. We see organisational structures and tools as actionable enactments of the principles and argue that these two components are not ends in themselves, so these two components should vary to suit the institutional context, particularly the organisational structure component.

Our second implication suggests that coordination by principles facilitates internalisation of practice compared to traditional transfer of a standardised full practice, as this strategy increases subsidiary managers’ sense of local ownership. Similarly, Kostova and Roth (2002) found that imposed practices risk being ceremonial (Meyer and Rowan, 1977) as internalisation is more challenging than the implementation of practices. As our case shows, internalisation of the practice principles amongst the MNC’s software developers was not an issue, as they were based on the Agile idea, which already held legitimacy within the global software development community. This implication is also in line with findings from Ansari et al. (2014): subsidiaries have given greater latitude to adopt a standardised management practice exhibited a greater sense of local ownership. Ansari et al., argue that having a sense of local ownership is necessary for building organisational and individual commitment to implement a management practice throughout the MNC. Our argument is also in line with Yu and Zaheer (2010): adaptation of standardised management practice can further increase the effectiveness of the practice as it helps people accept the new practice. In our case, the HQ of the MNC only provided the product development principles as a platform and allowed each vertical organisational layer to specify the new development practice. As presented in the findings, the practice became increasingly specified further down in the organisational hierarchy. This joint practice specification gave subsidiaries the mandate to design the components of Organisational Structure and Tools themselves, which facilitated internalisation by decreasing the risk of the not-invented-here syndrome (Birkinshaw and Ridderstråle, 1999).

A third apparent implication of only transferring the principles component of management practice is a decreased degree of global integration. With this implication in mind, the literature does not advocate that all business functions of the MNC should be globally integrated into the same manner or degree. In their study of how integration modes of MNC business functions contribute to financial performance, Kim et al. (2003) conclude that for the global integration of R&D, coordination through people and information systems is more effective than centralised decision-making and standardisation of work procedures, rules, policies and manuals. Thus, MNCs should not coordinate their global R&D operations through standardisation of practices but coordinate through a shared vision, values, norms and trust. The necessity of an equal degree of global integration amongst all functions is also absent in the contemporary view of MNC (Faulconbridge, 2010; Hedlund, 1986). Nonetheless, our case illustrates that there are methods HQ can apply to strengthen global integration. The HQ of the firm applied two methods to strengthen the alignment of the practice on a global level: global training of managers with HQ representatives as teachers and dissemination of practice knowledge through the intranet. Without these two informal coordination methods, it is our belief that the development practices may have sprawled beyond all control.