Proceedings of the 12th European Conference on Knowledge ...

Pamela Chidiogo Izunwanne
5.3 Organizational Structure <strong>of</strong> MNCs and knowledge creation
Several classifications <strong>of</strong> MNCs exist. I chose to adopt <strong>the</strong> classification by Harzing used by many
scholars perhaps due to clarity and simplicity. The classification is based on strategies followed by
corporate headquarters and it groups MNCs into transnational, global and multidomestic (Harzing,
2000).
Multidomestic MNCs are characterized by a decentralized structure and are designed to adapt to
national differences. MNC routines in this category <strong>of</strong> firms are relatively flexible and allow for
autonomy. However, flexibility lowers integration which is supposed to ensure that <strong>the</strong> process is in
sync with company policies, goals and objectives. Reporting relationships (exchanges between
headquarters and subsidiaries) are also low resulting in faster knowledge creation. Reporting
relationships coupled with controls reduce knowledge creation outcomes in <strong>the</strong> MNC as a whole and
streng<strong>the</strong>n <strong>the</strong> bureaucracies involved in <strong>the</strong> output to outcome phase. The absence <strong>of</strong> this in
multidomestic MNCs improves <strong>the</strong> speed and efficiency <strong>of</strong> <strong>the</strong> knowledge creation activity chain but
lowers its quality and productivity because knowledge created at <strong>the</strong> subsidiary is not necessarily
available at corporate headquarters. So in <strong>the</strong> knowledge creation activity chain <strong>of</strong> <strong>the</strong>se MNCs,
productivity and quality is low.
Proposition 1: Knowledge creation in multidomestic firms is fast, efficient but has low
quality and productivity.
In global MNCs, emphasis is laid on integration between <strong>the</strong> subsidiaries and corporate headquarters.
Subsidiaries are seen as custodians <strong>of</strong> headquarter policies. Reporting relationships coupled with
controls enforce <strong>the</strong> bureaucracies involved in both input to output (creation process) and output and
outcome phases (implementation, commercialization and adaptation processes) phases. Although <strong>the</strong>
resulting knowledge creation activity is <strong>of</strong> high quality and productivity due to alignment with company
goals and policies MNC wide, <strong>the</strong> speed and efficiency <strong>of</strong> <strong>the</strong> entire process is significantly reduced.
Proposition 2: Knowledge creation in global firms is slow and inefficient but productive
and <strong>of</strong> high quality.
Transnational MNCs are able to combine <strong>the</strong> advantages and disadvantages <strong>of</strong> <strong>the</strong> two above
categories <strong>of</strong> MNCs. The knowledge creation performance <strong>of</strong> this class <strong>of</strong> firms depends on how <strong>the</strong>y
are able to emphasize and de-emphasize <strong>the</strong>ir advantages and disadvantages respectively. With a
relatively high level <strong>of</strong> autonomy; low reporting relationships compared to global MNCs, <strong>the</strong>y are able
to go through <strong>the</strong> output to outcome phase faster but <strong>the</strong> still significant emphasis on conforming to
headquarter standards places a restriction on routines which reduces <strong>the</strong> flexibility <strong>of</strong> <strong>the</strong> knowledge
creating process (input to output phase) in comparison to multidomestic MNCs. Conforming to
headquarter standards <strong>the</strong>reby ensures that <strong>the</strong>se categories <strong>of</strong> firms are able to achieve a higher
level <strong>of</strong> productivity and quality in <strong>the</strong>ir knowledge creation activities in comparison to multidomestic
MNCs.
Proposition 3: Knowledge creation in transnational firms in terms <strong>of</strong> speed, efficiency
productivity and quality is medium compared to global and multidomestic firms.
The proposed classification is shown in table 2 below.
6. Conclusion, limitations and suggestions for fur<strong>the</strong>r research
The above propositions are based on <strong>the</strong> characteristics or classification <strong>of</strong> MNCs and <strong>the</strong> emerging
knowledge governance approach. It would be useful to empirically investigate <strong>the</strong>se proposiitons. By
using <strong>the</strong> gaps in existing literature to construct a conceptual model, this paper hopes to trigger new
insight and generate a spiral <strong>of</strong> new ideas along its path. It is interesting to see that <strong>the</strong> entire
knowledge creation activity or chain (input-output-outcome) can be separable both <strong>the</strong>oretically and
practically. It must however be mentioned that <strong>the</strong> impact <strong>of</strong> reporting relationships and routines may
not be easily separable in practice as I have done <strong>the</strong>oretically in this paper. In practice, reporting
relationships may be classified as part <strong>of</strong> organizational routines. It is also worthy <strong>of</strong> note that
organizational controls can sometimes be indirect or unobvious. There may be invisible controls that
determine how subsidiaries or individuals in a firm carry out <strong>the</strong>ir operations. An implicit objective <strong>of</strong>
this paper has been to highlight some <strong>of</strong> <strong>the</strong> critical structural components that organizations must be
concerned with in o<strong>the</strong>r to achieve knowledge creation success.
Although <strong>the</strong> informal organizational structure is believed to foster knowledge creation, this study has
attempted to show how<strong>the</strong> formal organizationalstructure could perhaps be equally
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