02 Nov 1999  Research & Ideas

Companies, Cultures and the Transformation to the Transnational

Often overlooked in the move into the international arena, a comapny's heritage can have a major impact on how it adapts to the new environment. In this excerpt from the second edition of their pioneering book Managing Across Borders: The Transnational Solution, HBS Professor Christopher A. Bartlett and Sumantra Ghoshal examine one aspect of that heritage: the influence on a company of its nation's history, infrastructure and culture.

 
Book Cover: Managing Across Borders

The influence of a nation's history, infrastructure, and culture permeates all aspects of life within the country, including the norms, values, and behaviors of managers in its national companies. Nationally influenced behavioral characteristics become an ingrained part of each company's "way of doing things" and shape its international organization structure and processes.

Business historian Alfred Chandler has traced the influence of the cultural values and social structures on British management practice. For reasons related to Britain's unique geography, political economy, legal structure, social history, and educational system, companies developed under a system of family management that emphasized personal relationships more than formal structures, and relied more on broad-gauged financial controls than on coordination of technical or operational details. Until World War II, according to Chandler, the management processes in most large British companies were dominated by "family capitalism." As these companies expanded abroad, family members or handpicked "trusted company servants" were often sent to manage off-shore operations. Control was achieved largely through the bond of family membership or the personal loyalty of appointees. The family patriarch might take an annual voyage to visit key foreign holdings, and would perhaps also correspond with the appointed heads of those operations. Apart from such contacts, however, the overseas businesses were often treated as a portfolio of investments rather than an integrated worldwide business.

Such cultural influences were very evident in Lever Brothers and later Unilever, where the important overseas operations were managed by an inner circle of trusted managers who reported directly to William Lever. After his death, the Overseas Committee became the institutional embodiment of this paternalistic oversight role. Philips too conformed to this model: the Philips family dominated the company's top management until well after World War II. Overseas operations were managed by a group of trusted appointees (known internally as the "Dutch Mafia"), whose understanding of Philips technology, commercial objectives, and overall strategy provided the major link between the parent company and its dispersed national organizations.

The cultural forces influencing management of U.S. companies were completely different, marked by the pioneering spirit and sense of limitless opportunity that pervaded American society in the late nineteenth and early twentieth centuries. The United States had emerged as an egalitarian society, without the European concentration of wealth and power in a small socio-economic class. Such an environment was less tolerant of the elitism and paternalism found in large, family-dominated companies in Britain. A corporate meritocracy emerged that fostered the development of a new class of professional managers, to whom owners delegated the authority of running the business. Chandler described this management culture as "managerial capitalism.

"Owners' delegation of responsibility to professional managers established a corporate norm that was then carried down through the organization. The product diversification trend that began in the United States in the 1920s required still greater delegation of responsibility to managers of diverse businesses. Such delegation could succeed only if top management retained access to information as a means of control.

Thus developed the classic American management processes built around divisionalized structures, which were transferred worldwide as U.S. companies expanded abroad. This combination of delegation of responsibility to professional management and coordination and control through sophisticated management systems proved immensely powerful. To Jean-Jacques Servan-Schreiber, U.S.-based companies' enormous international success was due to "something quite new and considerably more serious [than financial or technological strength]—the extension to Europe of an organization that is still a mystery to us.

"We saw the influence of sophisticated systems and controls in all three of the American companies we studied. GE's use of strategic planning systems became the model for companies worldwide, as did Procter & Gamble's use of clear policies and practices (the Procter way) and one-page memos as a means of control. But ITT best illustrated this delegation of responsibility and counterbalancing management control. Harold Geneen's influence combined with culturally shaped norms to make this company an archetype (some would say a caricature) of a systems-dominated, control-oriented American company.

In contrast to European family capitalism and American managerial capitalism, the Japanese cultural heritage fostered a form of management Chandler called "group capitalism." As many observers have noted, the homogeneity of Japanese society, its isolationism during the Tokugawa period, and the influence of Eastern religions and philosophies have reinforced strong Japanese cultural norms that emphasized group behavior and valued interpersonal harmony. Such values carried over into the country's commercial organizations and helped shape distinctive management styles and organizational practices.

At a corporate level, the group-oriented values were reflected in the zaibatsu and other enterprise groups, which paternalistically watched over their affiliated companies. Within the organization, such values were evident in the widespread norm of lifetime employment commitments—by both employer and employee—and such managerial practices as nemawashi or ringi, which institutionalized information sharing and joint decision making.

These influences bound managers and corporations together into a very culturally dependent system, which many companies found an impediment as they expanded internationally. Management systems were so communications intensive and relationship dependent that they did not function well when operating units were separated by substantial time and distance barriers.

In addition, language and cultural barriers made it difficult to integrate non-Japanese into the ongoing management process. And lifetime employment commitments and the need to promote employees within the organization further encourage Japanese companies to expand operations at home while reaching foreign markets through zaibatsu-linked trading companies or offshore sales affiliates. The net effect was to encourage Japanese companies to retain decision making and control at the center, where they could be managed by those who understood the subtleties of the system.

Kao's international expansion was impaired by such a culturally influenced management philosophy, and while less of a handicap, the administrative heritage in both NEC and Matsushita was also strongly influenced by the Japanese culture. In Japan, Matsushita was well known for its decentralized management style. Yet, even into the 1980s, its overseas operations were highly dependent on the parent company for products (over 90 percent of manufacturing was concentrated in Japan); and all technology and new product development came from headquarters. The delegation of responsibility and authority was more constrained than at either Philips or General Electric, and was usually achieved only when Matsushita could extend its culturally linked system abroad. Then Japanese managers in foreign locations engaged in nemawashi and ringi by intensive telephone contact and frequent exchanges of visits between headquarters in Japan and the overseas units.

Excerpted from Managing Across Borders: The Transnational Solution, 2nd Edition. HBS Press, 1999.

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