Peter Hagstrom The 'Wired' MNC The Role of Information Systems for Structural Change in Complex Organizations AKADEMISK AVHANDLING som for avlaggande av ekonomie doktorsexamen vid Handelshogskolan i Stockholm frarnlagges till offen dig granskning onsdagen den 4 december 1991 kIlO.15 i sal KA\V a hogskolan, Sveavagen 65 STOCKHOLl\1 1991 Role of Information Systems Structural Change in Complex Organizations INSTITUTE OF INTERNATIONAL BUSINESS STOCKHOLM SCHOOL OF ECONOMICS Address: Hollandargatan 32, P.O. Box 6501, 5-113 83 Stockholm, Sweden. +46 (0)8 736 9000; Telefax: +46 (0)8 319927; Telex: 16514 HHS S o Founded in 1975. o Is a research institute at the Stockholm School of Economics. o Conducts theoretical and empirical research within the area of Business Administration with emphasis on International Business. a Arranges seminars for businessmen, researchers and key people in the civil services. o Is in charge of undergraduate and graduate courses in International Business at the Stockholm School of Economics. o Publishes its research findings and results in a series of research papers, and in articles and books. lIB BOARD Professor Staffan Burenstam Linder, President, SSE (Chairman) Mr. Torbjorn Ek, Chairman of the National Swedish Organization of Small Businesses Professor Lars-Gunnar Mattsson, SSE Professor Bertil Naslund, SSE Dr. Lars Otterbeck, Executive Vice President, Axel Johnson AB Dr.h.c, Jacob Palmstierna, Vice Chairman, Nordbanken Dr.h.c. Hans Rausing, Chairman, AB Tetra Pak Mr. Bert-Olaf Svanholm, Executive Vice President, Asea Brown Boveri Ltd. Mr. Tom Wachtmeister, Vice Chairman, Atlas Copeo AB Mr. Sven Agrup, Chairman, AGA AB Professor Jan-Erik Vahlne, Director lIB Further information about current research at the Institute and its publications ca be found in a brochure, which will be mailed on request. The 'Wired' MNC Role of Information Systems tructural Change in Complex Organizations Hagstrom A Dissertation for the Doctor's Degree in Business Administration Stockholm School of Economics 1991 © lIB and the author ISBN 91-971730-0-2 gofab 94593, Stockholm 1991 Key words: Information Systems Telecommunications Computers Multinational Companies Organization Theory Firm Strategy and Structure Firm (Theory of) Economic Geography; Corporate Geography Cover illustration courtesy ofSKF/Il\1IT. Distributed by: Institute of International Business, Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden. Tel + 46 (0) 8-736 90 00 Fax + 46 (0) 8-31 99 27 To the Reader, The working title of this volume has been "Synthesis or Confusion". I remain deeply grateful to all who have provided support in times of confusion and inspiration in my pursuit of knowledge. Synthesis, however, remains elusive. The then Head of the Research Secretariat at the Swedish National Board of Trade, Per Magnus Wijkman, very generously released me from our 'suicide pact' when I was invited back to academic life. The warm welcome afforded me at the Institute of International Business will, likewise, never be forgotten. Professor Jan-Erik Vahlne took me on as a doctoral student and has remained as an important source of encouragement. The institute has continued to provide a most stimulating environment, both for research and socially. Thanks are due in rich measure to my past and present colleagues and to other members of the institute. My thesis committee has been exceptionally supportive throughout the arduous process of completing this study. Professor Gunnar Hedlund introduced me to new questions and issues and has always been able to widen my horizons, something for which I am most grateful. His insightful comments have provided much inspiration for my work. Professor Claes-Fredrik Claeson's unfailing interest has been invaluable. Docent Lars Hakanson has spent much time reviewing my drafts and has always been ready to offer constructive comments. My warmest thanks. I am also indebted to Professor Claes-Robert Julander, especially for long discussions on the basics of doing research. Professors Bruce Kogut, Ikujiro Nonaka, Charles Perrow, and Bengt Stymne have also contributed valuable comments at different points in the course of the study. vii Dr. Jessie Lokrantz read the whole manuscript and came with useful suggestions for improving the language. I want to thank General Electric Information Services in Sweden for providing seed money for the project. Generous research funding has been provided by the Swedish Council for Research in the Humanities and Social Sciences (HSFR), and by the Information Technology Research Program of the Institute for Management of Innovation and Technology (IMIT). I am most grateful. SKF deserves special thanks for making the empirical phase of the research possible. In particular, I want to acknowledge Hakan Landahl, Director, Group Information Systems for the assistance given me during various stages of the process. Without the generous and competent help of Robert Nobel and Vanja Ekberg this volume would never have seen the light of day. Computer and administrative support can be cruicial. Finally, I want to thank my family for being there. Oliver and Andrea have a natural way of making sure that I have my priorities right. Stockholm in October, 1991. Peter Hagstrom viii INTRODUCTION AND OVERVIEVV 1.. 1 Research 1 1..2 Summarv Presentational Structure 4 13 Practicalities 9 _JUlUIII~""'JI. 2e PREVIOUS NARROWLY DEFINED 11 2.. 1 Studies 11 2.2 "The Multinational Computer" 19 2.3 Implications of the State-of... the-Art 23 _1IUl_·D8I!l<"'1l 3 .. PROBLEM SURVEYED AND DEFINED 27 S,,~fpnl~ 3 e 1 Networks and 27 3.1.1 Networks 30 3.1.2 The Systems-Network Relationship 35 3.2 MNC Structure 38 3.2.1 Choice of Structure 44 3.2.2 Structural Configuration 42 3.3 and Limitations 57 3.3.1 New Information Systems and Activities 58 3.3.2 New Information Systems and Organization 63 _JllA_II''"''''lII. 4. PURPOSE AND METHOD 77 4,,1 Research ~ft~OIt"~(nJ 78 4.2 Research Practice 83 Chapter S.. RESULTS AND IMPLICATIONS 95 5.1 Main 1iI.I... _,.rtl" ....,."'""'" 96 5.1.1 Geographical Location 98 5.1.2 'Hierarchical Location' 99 5.1.2.1 Centralization/decentralization 100 5.1.2.2 'Supply' of control and coordination 102 5.1.2.3 'Demand' for control and coordination 106 5.1.2.4 Formal organization 111 5.1.3 'Institutional Location' 113 5.1.4 The Role of Information Systems in ",",V.J...UI-J'J."""A Organizations 119 5.2 The 'Wired' MNC 122 5.2.1 Conceptualizing the 'Wired' MNC 123 5.2.2 on the 'Wired' MNC 126 5.3 Broad for Further Research 129 ix REFERENCES 133 APPENDIX 1: THE ROLE OF NEW INFORMATION SYSTEMS IN THE MNC A(nother) Case Study of SKF 157 APPENDIX 2: UNSHACKLING CORPORATE GEOGRAPHY (Reprint) 415 x I. INTRODUcnON AND OVERVIEW This is a study of changing complex organization. Our overriding interest concerns both the manifestations of complexity in organizations and the process of change. Organizational complexity is a distinguishing hallmark of the multinational corporation (MNC) among the population of organizations. In addition, the MNC, arguably, represents one of the most important organizational forms in the contemporary world. Organizational change is an elusive concept. A - perhaps the - key aspect of the functioning of organizations is the organizational information flows. Recent advances in micro-electronics technology have dramatically altered the ways in which information can be handled. In turn, the question of how, and if, organizations change with the arrival, and use of modern information technology clearly becomes pertinent. This introductory chapter first clarifies the research issue further and indicates what the whole excercise has led to. Second, the chosen structure of the whole study is described together with a brief summary of its contents. Specifics concerning presentation and some guidance for the reader are given in the last main section. 1.1 Research Scope The existence and spread of multinational corporations (MNCs) are a poignant manifestation of the rapid internationalization of the world economy in the 20th century. This development has been closely associated with the coming of modern methods of transportation and communication. The most recent example is the application of new information technology to international communications. The combination of telecommunications with electronic computing, in effect, constitutes a novel method for transport of information. 1 MNCs and new information systems have prompted much attention and research separately, the intersecting set of the two has attracted surprisingly little scholarly interest. If the past is anything to go by, this state of affairs appears somewhat curious. Considering that new means of communication give new meaning to concepts of this would then be especially relevant for (large) multinational corporations, where both geographical and hierarchical distances are great. More specifically, the advent of global (nearjon-line-real-tirne information systems that involve the non-tangible transmission of machine-readable data for processing, storage and/or retrieval should alter the opportunity set of ways for firms to organize their activities. Thus, we find scope for discussing changes in the location of activities in MNCs in particular, subsequent to the introduction of international data communications and attendant computer-based systems. Two main types of locational change are especially relevant: I. geographical location (spatial distribution of activities), and II. 'organizational location' (internal distribution