The Customer-Focused Multinational: Revisiting the Stopford & Wells Model in an Era of Global Customers

Abstract

There is a well-established line of thinking on strategy and structure in the MNE, beginning with John Stopford's doctoral thesis work (Stopford and Wells, 1972) and moving through the work of Egelhoff (1982), Daniels Pitts and Tretter (1984) and others to Ghoshal and Nohria (1993). However, since the early 1990s this line of research has almost dried up. There continue to be occasional studies of strategy and structure in the MNE (e.g. Wolf and Egelhoff, 2001), but for the most part MNE research has moved on to other issues, such as the changing roles of foreign subsidiaries, knowledge flows in the MNE, and studies of the evolution of the MNE. This paper argues that we need to revisit issues of strategy and structure in the MNE, but rather than focusing on the classic contingency factors such as number and diversity of countries, we need to start looking more broadly at other dimensions around which MNEs are now structuring their activities. The main structural dimensions of the 1970s and 1980s were countries, business units, and functions. Today we can identify a number of other dimensions that appear to be equally valid. One is the global account structure for customers who expect to be supplied in a coordinated and consistent way across multiple countries and business lines. A second is the industry sector structure, commonly seen in professional services firms, for servicing a set of customers in a focused and knowledgeable way. And a third is the solutions-based structure in which the customer-facing unit pulls together the offerings of various business units and third parties to provide greater value-added for the customer. We will discuss each of these types of structure in detail, looking at the reasons why it has emerged, how it works, and its costs and benefits. We will also address the broader question of why the emphasis in MNE structures has shifted over the last decade towards these customer-focused designs. The primary reason, we argue, is that the opportunities for growth and increased profitability are shifting downstream, towards the provision of value-added services and solutions for customers. Many large MNEs have undertaken this shift in emphasis, including GE, ABB, Ford and Unilever, and while some have failed, others have made the transition very effectively and have been rewarded with superior margins. This broad shift in emphasis has two important consequences, both of which will be discussed in some detail. The first is the risk of creating an organization structure that becomes so complex it is unworkable. Often these new dimensions of structure - global accounts, industry sectors - are placed on top of the existing organization structure, resulting in a four- or five-dimensional matrix. This creates complexity, blurring of roles, and administrative overload. As a result, many MNEs are experimenting with ways of simplifying their structures - they are looking for ways of reducing their portfolio of businesses, outsourcing major activities, and making use of market-like mechanisms for structuring internal relationships. The second consequence is the potential decline in the importance of geography as a design variable. Many MNEs almost completely disregard the traditional country unit of operation (particularly in the developed world), as other structural dimensions become more important. Our belief is that there are major risks in going this route, and we will examine some of the approaches MNEs are using to counteract this tendency. This paper is in four parts. First, we undertake a brief review of the literature on strategy and structure in the MNE. Next we look at the various factors that are driving MNEs to shift their emphasis towards customer-focused structures, and we identify some of the common themes that are emerging. Third, we put forward an organising framework to categorise and explain the different approaches MNEs are adopting. We will present a number of case studies in this section to illustrate how the emerging structures work in practice. Finally, we will revisit some of the broader themes and offer some concluding comments