Managing the MNC and Exploitation/Exploration Dilemma: From Static Balance to Dynamic Oscillation

Research on multinational corporations (MNCs) shows that they have tried various structural solutions to solve the dilemma of trying to “balance” global control and efficiency with local country-specific sensitivity, autonomy, and innovation, with the Transnational form preferred. Failings of the strategy-structure sequence lend credence to the emerging strategy-process perspective. To date, the best lesson for MNC strategy-process concerns pertaining to the global vs. country dilemma comes from March's classic paper on “balancing” exploitation vs. exploration. 21st century MNCs exist in a more rapidly changing world, however, where static “balance” solutions may be insufficient. The tradition of “circular organizing” is one alternative to the failing “balance” solution; it offers a dynamic strategy-process approach to MNC management. Another is Dupuy's concept of “tangled hierarchies” where top-down and bottom-up influence forces are interwoven such that global exploitation or country-specific exploration dominates in timely fashion. It calls for clearly defined control and autonomy regimes, with space given for emergent rules governing the rotation rate. Key questions are: What is the optimal rate at which they should rotate supremacy, and how to get this to happen and persist? Since normal quantitative methods can’t track complex, nonlinear, emergent phenomena, an in-depth longitudinal case analysis was conducted of a global MNC in the cosmetics industry, as it progressed through its early years of formation. Our case covers twelve years, during which the MNC goes through several kinds of tangled hierarchies. The dynamics in our case are rich enough to illustrate many aspects of the “tangled hierarchy” approach, while also offering new clues about oscillation rates. A number of implications for managers are discussed. Principal among these is the “edge of chaos” idea, in which managers have to avoid too-fast or too-slow oscillation rates. Very fast rates can degenerate into chaos and then collapse into the exploitation or exploration “traps.” Firms also fall into the traps simply because managers don’t understand or can’t tolerate the idea of oscillation dynamics.