The value-adding role of the corporate headquarters in innovation transfer processes: The issue of headquarters knowledge situation.

Author:Lind, Christine Holmstrom
Position:RESEARCH ARTICLE - Report
 
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Abstract The aim of this study is to investigate the value-adding role of corporate monitoring and corporate involvement in 'sticky' inter-subsidiary innovation transfer environments. The value added role of these two managerial approaches is viewed in terms of their impact on innovation transfer efficiency and effectiveness. Based on the network view of the MNC, our research builds on the notion that the corporate headquarters (CHQ) is ill-informed and may suffer from a radical uncertainty about what it actually knows and needs to know. By using a data sample containing 87 innovation transfer projects in 25 multinational companies, we test six sets of hypotheses. Overall, our findings show that the value added of CHQ monitoring as well as an active CHQ involvement is considerably constrained. However, contrary to our expectations, the results show that CHQ monitoring gives rise to an increase in both transfer efficiency and effectiveness when the 'stickiness' is based on tangible resource constraints. The results imply that when it comes to CHQ involvement during the innovation transfer processes, the choice between a handsoff and a hands-on approach has to be understood in the light of the CHQ's knowledge situation.

Keywords Multinational corporations . Headquarters role . Corporate headquarters . Innovation . Innovation transfer

1 Introduction

Scholars have long been concerned with the role of the corporate headquarters (CHQ), particularly in the context of diversified and differentiated multinational companies (MNCs) (Chandler 1962, 1991; Penrose 1959). Past research confirms that the management of important value-creating activities occurring at the subsidiary level, such as the transfer of knowledge and innovations, is crucial for the competitiveness of modern MNCs (Bartlett and Ghoshal 1989; Forsgren and Holm 2010; Hedlund 1986). However, several scholars propose that we still lack an understanding of to what extent and under what conditions the CHQ actually contributes to and add value to such activities (Ambos and Mahnke 2010; Chiabuschi et al. 2012a; Egelhoff 2010; Tallman and Koza 2010).

In the literature, two basic but rather contrasting roles or managerial approaches of the CHQ have been discussed. The first so called 'monitoring' role (cf. Foss 1997), emphasizes that main task of the CHQ is to work against opportunistic behavior (Williamson 1975) and to provide incentives toward common organizational goals. The dominant research has been on this monitoring role of the CHQ (see detailed analysis by Foss 1997) and the issue of whether the CHQ should use a hands-off strategy in terms of different means of supervision (cf. Alfoldi et al. 2012; Bjorkman et al. 2004). In contrast to this loss preventing role of the CHQ (e.g., Chandler 1991; Foss 1997), another stream of research emphasizes that the CHQ should have a more active and value adding role (Ambos and Mahnke 2010; Chandler 1991; Collis et al. 2007; Egelhoff 2010; Foss 1997; Foss et al. 2012). This would include responsibilities such as the facilitation of organizational learning and knowledge transfer, which implies the CHQ as an active participant in value-creating processes at the subsidiary level (Forsgren and Holm 2010). Hence, a more recent stream of research emphasizes how an actual hands-on strategy by the CHQ is necessary (Goold and Campbell 2002; Goold et al. 1998) and suggests a more active involvement of the CHQ in subsidiary level activities (Ciabuschi et al. 2012b; Egelhoff 2010; Yamin et al. 2011).

There is little doubt in the literature that the CHQ is motivated to add value to the overall MNC network and is perceived as such by other units in the MNC (Anderson and Holm 2010; Ciabuschi et al. 2012a; Egelhoff 2010). However, recent research emphasizes the notion of the headquarters' 'knowledge situation' in network-like MNCs (cf. Forsgren and Holm 2010) in which the value added of the CHQ's managerial efforts has been questioned (Alfoldi et al. 2012). In the received literature on the network MNC it has been suggested that the CHQ has a limited access to relevant knowledge that are useful for subsidiary level activities. This implies that the CHQ is rather ill-informed (Foss et al. 2012) and consequently may suffer from behavioral liabilities such as an "outsidership" (Johanson and Vahlne 2009; Vahlne et al. 2012), a "radical uncertainty" about what it actually knows and what it needs to know (Forsgren and Holm 2010; Chiabuschi et al. 2011; Tsoukas 1996), and a liability of reliability (Verbeke and Greidanus 2009). Such managerial liabilities may give rise to managerial errors not only in terms of the implementation of badly designed supervision but also poorly developed value added participation (Forsgren and Holm 2010; Foss et al. 2012). Hence, from this perspective it can be expected that the opportunities for the CHQ to add value to innovation processes may be considerably constrained.

Due to CHQs lack of appropriate knowledge to involve themselves in transfer activities at the subsidiary level (Forsgren et al. 2005; Chiabushi et al. 2012b), it has been suggested that there is a need for research on how such liabilities may have an impact on such activities (cf. Foss et al. 2012). There has also been a call among International Business (IB) scholars for investigations to enhance our understanding about the particular circumstances under which the CHQ can add value to innovation transfer processes within MNCs (cf. Miao et al. 2016; Dellestrand and Kappen 2012). This paper contributes to these calls and enrich the literature by developing a framework that incorporates aspects of the 'knowledge situation' of CHQ to shed light on the value added role of CHQ management in innovation transfer processes, in particular under "sticky" transfer conditions.

Innovation transfer processes often become problematic and "sticky" due to the occurrence of a variety of transfer constraints (e.g., Simonin 1999). In this paper these constraints are categorized into three broad categories; knowledge-related constraints, contextual constraints, and resource-related constraints. Not only has much of the received research failed to simultaneously examine all of these antecedents, the role of the headquarters in transfer processes is lacking a deeper understanding (Chung 2014). Hence, the research question is: What is the value added role of CHQ monitoring and CHQ involvement in 'sticky' inter-subsidiary innovation transfer processes? For the simplicity of the paper, the value added of these two managerial approaches is viewed in terms of its' impact on the performance of the innovation transfer processes. A distinction is made between transfer efficiency and transfer effectiveness (Brown and Eisenhardt 1995; Ciabuschi et al. 2012b; Perez-Nordtvedt et al. 2008, 2015). The transfer efficiency relates to the actual transfer process in terms of the costs and the speed of the process (cf. Szulanski 1996; Teece 1977; Zander and Kogut 1995), whereas the transfer effectiveness is related to the level of completion and the satisfaction of the transfer process (Kostova 1999; Kostova and Roth 2002).

The paper is organized as follows: the next section presents the conceptual framework and the relating hypotheses. First we present the issue of sticky transfer processes, after which we discuss the role of the CHQ and its knowledge situation in network MNCs. After that we develop a set of hypotheses on the value added of CHQ monitoring and CHQ involvement in transfer processes in situations where the transfer process is constrained by knowledge- contextual- and resource related barriers. The next section presents the method, including our research design, the data collection, the sample, and the operationalization of variables. In the following section we present the results of the OLS regression analysis. In the final section, a concluding discussion is presented including implications for management and future research.

2 Sticky Innovation Transfer Processes

The literature on knowledge transfer varies in how knowledge transfer has been conceptualized. One stream of literature presents knowledge transfer as a linear, mechanical process in which knowledge is relocated and added to the knowledgebase of another actor (Kogut and Zander 1992; Spender 1996). Another stream of research puts emphasis on knowledge transfer as a highly complex and interactive process dependent on the beliefs, values and circumstances of the actors involved in this process (Nonaka 1994). Recently, considerable knowledge transfer research has adopted a source and a recipient model (Ko et al. 2014; Patriotta et al. 2013). From this perspective, knowledge transfer is viewed as a dyadic exchange between a source and a receiving unit involved in a transfer event. This is similar to Szulanski (1996, p. 28) stating that knowledge transfer is to be considered as "dyadic exchanges of organizational knowledge between a source and a recipient unit". In line with these views, we adopt the notion of knowledge transfer as a transfer process that takes place between senders and receivers within an MNC. The paper is specifically concerned with inter-subsidiary knowledge transfer where a subsidiary (the sender) transfers an innovation developed by the subsidiary to another subsidiary (the receiver) within the MNC. The transfer is thus viewed as a dyadic, targeted and deliberate process between a source and a receiving unit involved in a transfer event (Patriotta et al. 2013). Furthermore, the transfer process involves transfer of subsidiary generated innovations, where 'innovation' implies the result of the technological development by a firm or as a result of the combination of the firm's existing technologies and know-how in a novel way (Teece 1986). Hence, in this study innovation transfer is viewed as a specific knowledge transfer process. In the following, knowledge transfer and...

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