Beyond Simple Configurations: The Dual Involvement of Divisional and Corporate Headquarters in Subsidiary Innovation Activities in Multibusiness Firms.

Author:Decreton, Benoit

1 Introduction

During the last decade, research on the role and function that headquarters play in complex multibusiness organizations such as multinational corporations (MNCs) has been invigorated. Recent contributions have investigated how headquarters attempt to add value to the organization (Nell and Ambos 2013), for example by transferring knowledge to their subsidiaries (e.g., Nell et al. 2016; Parmigiani and Holloway 2011), by enabling the development and the sharing of innovations within the firm (e.g., Ciabuschi et al. 2011a; Dellestrand and Kappen 2012; Un and Cuervo-Cazurra 2004), or by managing inter-divisional conflicts and uncertainty (Poppo 2003).

While this stream of literature has substantially advanced our understanding of headquarters roles and functions (also called parenting activities), it is surprisingly silent on one of the key characteristics of parenting in complex organizations--parenting configurations. Goold and Campbell (2002) are among the first to highlight that parenting in complex organizations usually goes hand in hand with a more complex structure of parenting itself. For example, in complex organizations, parenting activities are often allocated to several headquarters (Alfoldi et al. 2012; Birkinshaw et al. 2006; Nell et al. 2017) or even to subsidiaries (e.g., Centers of Excellence, cf., Frost et al. 2002). Furthermore, complex organizations experience that multiple headquarters simultaneously interact with a particular subsidiary when they attempt to add value. For example, a subsidiary in Japan, engaging in a new innovation project, might simultaneously coordinate its actions with the divisional headquarters for wind turbines in Denmark, but it might also interact and experience involvement from corporate headquarters in the United States.

Current research largely disregards these nested and interdependent headquarters' structures and instead tends to focus on individual headquarters (see Baaij and Slangen 2013; Hoenen and Kostova 2015). This is unfortunate because issues such as matrix structures and complex multiple headquarters organizations seem to re-emerge in many companies (Birkinshaw et al. 2016; Egelhoff et al. 2013; Wolf and Egelhoff 2013). Furthermore, simultaneous linkages between a subsidiary and multiple headquarters can create overlaps of authority and interaction, and maintaining such redundancies is costly (Williamson 1975). For example, the joint venture literature has shown that the involvement of a larger number of parents can have detrimental performance implications for subsidiaries (Gong et al. 2007; Luo et al. 2001) and the matrix literature has emphasized dysfunctional conflicts arising due to several intervening headquarters (Galbraith 2009). Or, as Egelhoff (1988, p. 4) puts it, "dual hierarchies involve more managers and staffs, and since the goals and strategic concerns of the two often concern the same resources, considerable managerial effort has to be put into constructive conflict resolution". Although multiple parenting structures can be harmful for the subsidiaries, we still have a limited understanding of the questions why and under which circumstances firms nevertheless opt for organizing their parenting in such a way.

This article sheds light on the issue of multiple headquarters involvement in the context of innovation development projects hosted by subsidiaries. Drawing on selective hierarchical involvement theory (Poppo 2003) and the literature on subsidiary network embeddedness (Andersson et al. 2002; Meyer et al. 2011), we investigate drivers of divisional and corporate headquarters involvement in subsidiary innovation development processes in terms of the allocation of (managerial) resources to the same innovation development projects. We refer to this phenomenon as "dual headquarters involvement" (Birkinshaw et al. 2016). We use the MNC as our research context and depict such a multibusiness firm as a complex organization with multiple headquarters and subsidiaries that are internally embedded (Meyer et al. 2011). Our overarching argument is that the way in which the subsidiary is embedded within the organization drives dual headquarters involvement. Specifically, we explore instances where the subsidiary innovation project is internally embedded in the corporate network--both within and beyond its business division--and use this as a marker of organizational complexity. Moreover, we consider the size of the subsidiary's innovation network in order to further investigate organizational complexity.

For headquarters, it is a critical task to govern inter-unit relationships within multibusiness firms and manage the development of innovations that may be critical for the competitive advantage of the organization (Edwards et al. 2015; Hong Chung et al. 2006). By focusing on the nature and role of multiple headquarters in complex organizations, we address a phenomenon that has remained largely unexplored in the literature, both from a theoretical and an empirical perspective. Consequently, our findings contribute in a number of ways. First, we contribute to the literature on parenting in complex structures (e.g. Birkinshaw et al. 2006; Foss et al. 2012; Galbraith 2009; Kostova et al. 2016; Poppo 2003). This literature predicts that dual headquarters involvement is unlikely to occur since it is costly and draws on the scarce resources and attention of headquarters staff (Ambos et al. 2010; Nell et al. 2011; Poppo 2003), since it runs counter the traditional M-form logic (Chandler 1991; Verbeke and Kenworthy 2008; Williamson 1975), and because it increases the likelihood of conflicts and coordination problems (Goold and Campbell 2002; Gong et al. 2007). Yet, we highlight circumstances under which we can expect to observe overlapping headquarters' involvement.

We find that innovation network size, rather than subsidiary embeddedness within and beyond their division (later referred to as intra-/inter-divisional embeddedness), acts as a driver of dual headquarters involvement. However, intra-/inter-divisional embeddedness is positively related to dual headquarters involvement when the innovation networks are relatively large. In this paper, we thus identify and explain a rationale for what may appear as redundant and costly headquarters-subsidiary interaction patterns. To this end, we extend what Poppo (2003, p. 405) called a "theory of selective corporate involvement" by specifying influencing factors and their interactions when explaining more than the involvement of just one single (corporate) headquarters. A second contribution of our paper is that it responds to the call for further research on internal embeddedness of subsidiaries (Garcia-Pont et al. 2009; Meyer et al. 2011). We add understanding to the issue of headquarters involvement in subsidiary activities in terms of elucidating a variation in headquarters involvement as contingent on subsidiary network elements (i.e., intra-/inter-divisional embeddedness and network size) (Saka-Helmhout 2007). Third, we contribute to the literature on the management of dispersed innovations in large diversified firms (Regner and Zander 2014). We provide support for the presence of simultaneous headquarters involvement in innovation development projects. To our knowledge, this phenomenon has received only scarce attention. Thus, we hereby extend previous work on single headquarters' involvement in innovation projects (Ciabuschi et al. 2011a; Dellestrand and Kappen 2011). Furthermore, we suggest that taking into account the involvement of several headquarters in the same innovation projects can capture a more holistic view of the innovation governance mechanisms applied within firms.

2 Theoretical Background

2.1 Parenting in the Multibusiness Firm

Multibusiness firms can be defined as organizations that operate in more than one product or geographic market and that, as a consequence, structure their corporation into separate divisions (e.g., business units with a particular product or geographic area focus) (Chandler 1962). This type of organization has been termed the "M-form" organization (Williamson 1983) and is considered one of the most important organizational innovations. The M-form organization usually goes hand in hand with the establishment of different types of headquarters such as corporate, divisional, and regional headquarters (Stopford and Wells 1972). These headquarters co-exist and it has traditionally been argued that they are responsible for a differentiated set of tasks and activities (Chandler 1991; Foss 1997). The reasoning is based on theories of information processing and transaction costs (Martin and Eisenhardt 2010). The information processing view argues that individual top managers at the corporate center suffer from cognitive limitations. In turn, delegating operational decision-making to divisions is thus considered to be efficiency-enhancing. However, the corporate center has presumably superior knowledge regarding the overall external business environment of the firm and the linkages that exist between separate divisions. For example, Martin and Eisenhardt (2010, p. 267) summarize that, "although not fully developed [...], the information processing view does suggest that corporate executives are likely to have the best information about the most valuable cross-BU collaborative opportunities and thus are likely to orchestrate the most effective cross-BU collaborations". From a transaction-cost perspective, it has been argued that divisional headquarters are better positioned to oversee and monitor activities within the division as compared to corporate headquarters but that the latter would focus on firm-wide incentives and control systems (Williamson 1975). Furthermore, Williamson (1975) claimed that in "corrupted" M-forms, corporate managers would be intensively involved in divisional affairs, which diverts them from objectively evaluating...

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