SUMANTRA GHOSHAL
Australian-born, Christopher Bartlett was born in 1943. He is Professor of Business Administration at Harvard Business School.
Sumantra Ghoshal (born 1948) is Robert P.
Bauman Professor of Strategic Leadership at London Business School. He joined London Business School in 1994 and was formerly Professor of Business Policy at INSEAD and a visiting professor at MIT’s Sloan School. He is also the author of Transnational Management: Text, Cases and Readings (1990); Organization Theory and the Multinational Corporation (with Eleanor Westney, 1993) and The Strategy Process: European Perspective (with Henry Mintzberg and J.B. Quinn, 1995).
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hristopher Bartlett and Sumantra Ghoshal have emerged as perhaps the most complete commentators on the global business stage. Their work is carefully argued and contains a strong historical perspective.
They poignantly and persuasively describe the new world order of the late 1990s, putting it in the context of the post-war business environment as a whole. Bartlett and Ghoshal point out that the 1990s are characterized by slow growth and overcapacity in many crucial industries – they calculate that there is 40 percent overcapacity in automobiles, 100 percent in bulk chemicals, 50 percent in steel, and 140 percent in computers.
In such an environment, mapped out in Managing Across Borders, historical solutions no are no longer applicable. For example, Bartlett and Ghoshal point to the difficulties in managing growth through acquisitions and the dangerously high level of diversity in businesses which have acquired companies indiscriminately in the quest for growth. Also obsolete in the 1990s is the assumption of independence among different businesses, technologies and geographic markets which is central to the design of most divisionalized corporations. Such independence, say Bartlett and Ghoshal, actively works against the prime need: integration and the creation of ‘a coherent system for value delivery’.
Bartlett and Ghoshal observe – and celebrate – the demise of the multi-divisional form championed by Alfred P. Sloan among others. They recognize, however, that ‘the multi- divisional organization was perhaps the single most important administrative innovation that helped companies grow in size and diversity far beyond the limits of the functional organization it replaced’.
The multi-divisional form, they say, is handicapped by having ‘no process through which institutionalized wisdoms can be challenged, existing knowledge bases can be overturned, and the sources of the data can be reconfigured.
In the absence of this challenge, these companies gradually
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become immobilized by conventional wisdoms that have ossified as sacred cows, and become constrained by outmoded knowledge and expertise that are out of touch with their rapidly changing realities’.
They describe the multidivisional approach as a ‘doctrine – it is more than a mere specification of the organization structure: it also describes the roles and responsibilities of corporate, divisional and business unit level managers; relative status and norms of behavior of staff and line functionaries;
machinisms and processes for allocation of resources; and, in general, “the rules of the game” inside the company. Over the last ten years, a variety of changes in market, technological and competitive contexts has rendered this doctrine obsolete and the problems large corporations are facing stem, at least in part, from sticking to this past success formula well beyond the limit of its usefulness’.
Bartlett and Ghoshal, unlike others.’ suggest that new, revitalizing, organizational forms can – and are – emerging.
Crucial to this is the recognition that multinational corporations from different regions of the world have their own management heritages, each with a distinctive source of competitive advantage.
The first multinational form identified by Bartlett and Ghoshal is the multinational or multidomestic firm. Its strength lies in a high degree of local responsiveness. It is a decentralized federation of local firms (such as Unilever or Philips) linked together by a web of personal controls (expatriates from the home country firm who occupy key positions abroad).
The global firm is typified by US corporations such as Ford earlier this century and Japanese enterprises such as Matsushita. Its strengths are scale efficiencies and cost advantages. Global scale facilities, often centralized in the home country, produce standardized products, while overseas operations are considered as delivery pipelines to tap into global market opportunities. There is tight control of strategic
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decisions, resources and information by the global hub.
The international firm is the third type. Its competitive strength is its ability to transfer knowledge and expertise to overseas environments that are less advanced. It is a coordinated federation of local firms, controlled by sophisticated management systems and corporate staffs. The attitude of the parent company tends to be parochial, fostered by the superior knowhow at the center. This is the heritage of many American and some European firms. Bartlett and Ghoshal argue that global competition is forcing many of these firms to shift to a fourth model, which they call the transnational. This firm has to combine local responsiveness with global efficiency and the ability to transfer knowhow – better, cheaper, and faster.
The transnational firm is a network of specialized or differentiated units, with attention paid to managing integrative linkages between local firms as well as with the center. The subsidiary becomes a distinctive asset rather than simply an arm of the parent company. Manufacturing and technology development are located wherever it makes sense, but there is an explicit focus on leveraging local knowhow in order to exploit worldwide opportunities.
With these differing organizational forms available, Bartlett and Ghoshal argue that companies should do whatever makes sense for their business rather than following the organizational models of the past with the two extremes of centralization and decentralization.
Bartlett and Ghoshal also believe that companies possess
‘organizational psychology’ – ‘a set of explicit or implicit shared values and beliefs – that can be developed and managed just as effectively as the organizational anatomy and physiology. For companies operating in an international environment, this is a particularly important organizational attribute’. In transnational organizations Bartlett and Ghoshal say that there are three techniques crucial to forming an
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organization’s psychology. First, there must be ‘clear, shared understanding of the company’s mission and objectives’.
Second, the actions and behavior of senior managers are vital as examples and statements of commitment. Third, corporate personnel policies must be geared up to ‘develop a multi- dimensional and flexible organization process’.
Since Managing Across Borders, Bartlett and Ghoshal have developed their concepts still further and now describe an emerging organizational model: the entrepreneurial corporation. This is built on three core processes. The entrepreneurial process which drives the opportunity- seeking, externally focused ability of the organization to create new businesses. The integration process allows it to link and leverage its dispersed resources and competencies to build a successful company. The renewal process maintains its capacity to challenge its own beliefs and practices and to continuously revitalize itself so as to develop an enduring institution.
Each process, say Bartlett and Ghoshal, demands certain organizational infrastructures and mechanisms. Managing all three simultaneously requires a management mindset that is fundamentally different from the one that has been shaped so firmly over the last five decades by the doctrine of the multidivisional enterprise.