Stopford and wells were right! MNC matrix structures do fit a "high-high" strategy: in memoriam for Professor John Stopford (1940-2011), pioneer of international strategy-structure research.
| Verfasser | Qiu, Jane X.J. |
| Posten | RESEARCH ARTICLE |
Abstract:
* This paper seeks to address a primary question about matrix structures: under which strategic condition should multinational companies (MNCs) use matrix structures instead of other structures? To answer this question, the seminal Stopford and Wells Model (1972) is re-examined.
* Stopford and Wells (1972) predicted in their model that MNCs tend to use matrix structure to implement high levels of dual strategies--foreign product diversification and area diversification. Their prediction, however, has remained theoretically unclear and empirically unproven.
* To address this gap in the strategy-structure literature, we re-examine and revise the Stopford and Wells Model to explain the strategic condition in which MNCs tend to use matrix. The key of the revision is to use "'corporate integration" instead of "foreign product diversification".
* The revised model is preliminarily supported by the data from a study of German MNCs. This suggests that corporate integration, together with area diversification, are the two over-riding strategies that lead to MNCs' use of matrix.
Keywords: Multinational company. Matrix structure. International strategy
Introduction
A matrix is defined as any structure that employs a multiple command system, in which employees report to two or more bosses simultaneously (Davis and Lawrence 1977). It originated in the aerospace projects in the U.S. in 1950s (Mee 1964) and has been broadly studied in various academic contexts (Wilemon 1973; Larson and Gobeli 1987; Ford and Randolph 1992). In the context of international business, Stopford and Wells (1972) and Franko (1976) provided early observations of the global matrix, one of the macro structures used by multinational companies (MNCs) to control their foreign subsidiaries. Researchers suggested that matrices, by having dual structural dimensions, provide an advantage over ordinary structures when MNCs encounter dual strategic demands (Davis and Lawrence 1977; Galbraith and Kazanjian 1986). Because of this advantage, matrices are embraced by global leaders such as ABB (Bartlett 1993), Proctor and Gamble (Piskorski and Spadini 2007), General Motors (Garvin and Levesque 2006) and IBM (Galbraith 2009).
Following its popularity in the corporate world (Goggin 1974), matrix has attracted substantial research attention (Kolodny 1981; Galbraith and Kazanjian 1986; Galbraith 2009). Matrix as an important organizational concept has become standard fares in today's textbooks (Daft 2001; Jones 2001; Hill et al. 2004). However, the research in this area has produced inconclusive findings and many questions remain unanswered. A primary concern shared by both academics and practitioners is: when and why MNCs use matrix? Although it is widely understood that matrices are used to pursue dual strategies simultaneously (e.g., Davis and Lawrence 1977), it is unclear which strategies these dual strategies are. Traditionally, the answer to this question was suggested by Stopford and Wells (1972): to pursue the dual strategies of foreign product diversification and area diversification, MNCs tend to use a matrix. In their seminal study, Stopford and Wells (1972) predicted that, in a two-dimensional model formed by foreign product diversification and area diversification, MNCs with a matrix would concentrate in the "high-high" quadrant (the upper right-hand corner), where both strategies are high. However, this prediction was not supported in their study, which contained only three MNCs using a matrix and these MNCs were not all located in the "high-high" quadrant. In subsequent studies, the association of matrix to the "high-high" combination of foreign product diversification and area diversification remains unproven empirically (Daniels et al. 1985; Egelhoff 1988a; Wolf et al. 2007).
Based upon previous research, this paper seeks to address a primary question about matrix: under which strategic condition should MNCs use matrix instead of other structures? To answer this question, we suggest that the Stopford and Wells Model needs to be revised to locate matrix structures in the "high-high" quadrant. Equally, revising the model reveals that only matrix structures are in the "high-high" quadrant. The key to the revision is using "corporate integration" as a strategy dimension instead of "foreign product diversification", to form a two-dimensional strategy model with "area diversification" as another strategy dimension. This is because matrices are used by MNCs to implement high corporate integration, by fostering the management of interdependence; while simultaneously implement high area diversification, by advancing the expansion into differentiated areas worldwide. Foreign product diversification, on the other hand, is best facilitated by the worldwide product divisions structure, but not by the matrices.
The focus of this paper is to advance the idea that corporate integration is one of the dual strategies that lead to the use of matrix. This focus, however, does not imply that MNCs pursuing corporate integration will adopt a matrix regardless. It is the coexistence of corporate integration and area diversification that leads to the use of matrix. Our finding is consistent with the intuition of Stopford and Wells that matrix caters for high levels of dual strategies, which together constitute a "high-high" strategy, though it changes which are the dual strategies.
The paper is organized as follows. We first review the Stopford and Wells Model and develop a revised model to explain the strategy-structure fit of matrix. Two hypotheses, one describing the Stopford and Wells Model and the other describing the revised model, are developed to tentatively test and compare the two models. We then test the hypotheses against the published data from a study of 95 German MNCs (Wolf and Egelhoff 2002). The empirical result shows that the matrix part of the Stopford and Wells Model is not supported, whereas the revised model is supported. In the revised model, all matrices and only the matrices are associated to the "high-high" combination of corporate integration and area diversification. This finding answers our research question: MNCs use matrix instead of other structures to handle the dual strategies of corporate integration and area diversification.
Theories and Hypotheses
This paper follows the international strategy-structure paradigm and focuses on structures used by MNCs (hereinafter referred to as "MNC structures"). In this paradigm, an MNC structure is usually studied as the macro structure through which the headquarters controls the foreign subsidiaries (Stopford and Wells 1972; Davis and Lawrence 1977; Egelhoff 1982, 1988a, b, 1991; Daniels et al. 1985; Wolf and Egelhoff 2002; Wolf et al. 2007; Donaldson 2009). MNC structures can be categorized into two groups: the elementary structures and the matrices. The elementary structure is a one-dimensional structure, because it contains only one single basis of differentiation, e.g., the worldwide geographical divisions structure. The matrix is a multi-dimensional structure, because it contains multiple elementary structures and thus multiple bases of differentiation. A two-dimensional matrix is composed of two elementary structures, e.g., the functional-geographical matrix. A three-dimensional matrix is composed of three elementary structures, e.g., the functional-product-geographical matrix. An elementary structure contained in a matrix is referred to as a structural dimension in that matrix. For example, the functional-geographical matrix is composed of two elementary structures: the worldwide functional structure and the worldwide geographical divisions structure. When contained in the functional-geographical matrix, the worldwide functional structure becomes "the functional structural dimension", and the worldwide geographical divisions structure becomes "the geographical divisions dimension". In an MNC with a functional-geographical matrix, the heads of its foreign subsidiaries report to two set of global managers in the headquarters: the functional managers coordinating global activities within each function (e.g., marketing): and the regional managers coordinating activities within each region (e.g., Asia-pacific).
In this paper, we follow Wolf and Egelhoff (2002) and consider five elementary structures (the domestic structure, the international division, the worldwide functional structure, the worldwide product divisions and the worldwide geographical divisions) and four matrices (the product-geographical matrix, the functional-product matrix, the functional-geographical matrix and the functional-product-geographical matrix). We follow Wolf and Egelhoff (2002) because, in comparison with many other strategy-structure studies (Egelhoff 1982, 1988a, b; Daniels et al. 1985; Habib and Victor 1991; Pla-Barber 2002), Wolf and Egelhoff (2002) considered a more comprehensive range of MNC structures.
Re-Examining the Stopford and Wells Model
One of the most widely used strategy-structure models for MNC structures was proposed by Stopford and Wells (1972), by using two international strategies: "foreign product diversification" (the extent to which an MNC diversifies its product lines in the foreign market) and "area diversification" (the extent to which an MNC expands its business into different geographical areas) (see Fig. 1). In Stopford and Wells (1972, p. 37), foreign product diversification is operationalized as foreign product diversity (the number of product lines offered for sale in foreign countries), and area diversification as foreign sales (percentage of sales occurred in foreign countries) (p. 53). They proposed that certain strategy-structure patterns will emerge when these two strategies are examined simultaneously. When an MNC follows the strategy of low foreign product diversification and low area diversification, it tends to use an international division structure...
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