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Long Range Planning

35/3 June 2002



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Charles Baden-Fuller Editorial

    Managing the Complex Firm
    In today's world we see two distinct forces determining the shape and balance of the corporation. On the one hand there is the demand for focus, requiring firms to simplify their business and do a few things very well. This, for many, is the core to strategy. Hence, some of the most successful firms in the world have eschewed going international, focused on a few segments, and provided above average quality to customers based on outstanding use of resources. Against this trend, complex multi-businesses such as GE, Citibank, Shell and Proctor and Gamble stand out. They operate many businesses across the world adjusting what they do to local sector and market circumstances. Both groups have sacrificed focus in favour of leveraging and adjusting their capabilities and skills across differing contexts. The scale and scope of these enterprises is daunting. How do they manage the resulting complexity without losing their competitive edge in the face of the focused competitors? Outstanding management is the obvious answer, but what do we mean by outstanding? I am pleased to say that I have two articles that shed insight into this issue.

    Michael Goold and Andrew Campbell directly address the central question of what is superior management of complexity using the insights they have gained from their latest research project. Among other things, they explore how companies make the necessary links between units and how they manage the complexity of the reporting relationships. They also explore the best shape for the organisation, including the number of management layers and the existence or non-existence of clear demarcations between the unit and the headquarters.

    Julian Birkinshaw drills down to a finer level of analysis and picks up how R&D should be managed. R&D units are the engines of the future and a focal point for managing the whole company. Leveraging the results from many years of research, he suggests that the choices are really few. The corporation can choose between three types: self-contained, modular and home-based R&D. He explains why he has come up with these categories, and what they mean. He also provides many good examples to support his arguments.

    Managing the Environmental Pressure
    Green issues have come to the fore in the last decade, and what was once seen as peripheral is rapidly moving centre stage. Customers, staff and regulators will not let us ignore the issue, especially if we are engaged in any form of manufacturing. Dealing with the environment does not have to be a one way street. It is possible to spend money and get a positive return.

    Pratima Bansal and William Bogner suggest that environmental policy can bring rewards by increasing the legitimacy of the organisation in the eyes of customers, partners and regulators. They use the case of ISO 14001 standards to show how the company should evaluate environmental policy, understand the forces that confront it, and how it affects partners and customers. They also assess when and how organisations should adopt ISO 14001 or similar programmes to achieve long term success.

    Oliver Boiral's piece on tacit knowledge and environmental management goes far beyond issues of environmental management. It is a must read for those who want to make environmental policy work effectively and smoothly. But it has value to a wider readership as well for the author examines how to balance the tacit knowledge of workers with the need to make the policy of what they do explicit. Too much codification leads to poor implementation, but without policy there is no possibility of learning. He addresses what is the optimal degree of codification to ensure that policy gets propagated and the detail effectively implemented.

Executive Summaries

Managing the Complex Firm

Michael Goold and Andrew Campbell Parenting in Complex Structures

    The role of the corporate parent has become increasingly complex as companies evolve into interdependent structures with overlaps between operating units and the corporate parent. With references to a range of case studies, the authors explore the nature of control that parents can exercise, and examine reporting relationships and levels of parenting. The authors conclude that while it can be difficult to distinguish between the parent and the operating units in complex structures, the quest for parenting advantage should remain the fundamental driver of corporate strategy and structure.

Julian Birkinshaw Managing Internal R&D Networks in Global Firms: What Sort of Knowledge Are You Working With? jbirkinshaw@london.edu

    Effective management of R&D centres is a major challenge for global business. This article argues that the way individual R&D units are structured, and the way the entire network is managed, should be based on the underlying characteristics of the firm's knowledge assets, rather than administrative heritage, or management style. Focussing on the observability and mobility of the firm's knowledge assets, as well as their fundability (the extent to which they could be usefully redeployed on other technology areas) the author describes three types of R&D unit - Self-contained, Modular and Home-base - using examples and data from Swedish firms including ABB, Alfa Laval and Ericsson. While Self-Contained units tend to be ‘vertically' responsible for all the development around a particular product line (perhaps not even changing their brief as a result of a change in ownership), Modular units will deliver ‘horizontal' expertise applicable to a variety of outcomes, and larger Home-base units (not necessarily based at ‘home') exhibit a heterogeneous mix of assets. This leads to an analysis of two fundamental models for managing entire R&D networks – the Integrated Network model, in which centres around the world are tightly integrated into a coherent whole, and the Loosely-Coupled Network model, in which individual "centres of excellence" enjoy considerable autonomy.

Managing the Environmental Pressure

Pratima Bansal and William Bogner Deciding on ISO 14001: Considering Economics, Institutions and Context tbansal@ivey.uwo.ca

    Since its 1996 introduction, the international standard for environmental management systems ISO 14001 has gained widespread recognition like its sister standard on quality management systems, ISO 9000. Many analyses highlight the potential for lower costs, increased competitiveness, market share growth, higher profits and regulatory compliance. The costs concerned, however, are not trivial, and while managers in almost every organization will be evaluating whether their organization should become certified, this article offers a balanced picture of the costs and benefits of ISO 14001. The article looks at the pressures from such institutionalized and economic sources as trading partners, regulatory bodies and pressure groups, as well as the options for adopting a non-certified in-house EMS, together with illustrative research notes on specific points. Managers are offered a format for assessing the strength of legitimacy pressures from stakeholders and economic pressure from business relationships and an Action Matrix, to assist the process of making the strategic decisions of whether and when to become certified.

Olivier Boiral Environmental Management Through Tacit Knowledge olivier.boiral@mng.ulaval.ca

    Increasing environmental awareness has been putting pressure on companies to conform to prescribed standards as well as social demands. This has necessitated a review of management practices to deal with environmental matters. This paper argues that the tacit knowledge contained in the experiences of individuals can not only identify pollution before even technical systems detect it, but it can react quicker, and more important, be tapped to prevent pollution in the first place. The paper also presents a framework for the analysis of the creation, transfer and retention of tacit knowledge that is not limited to environmental knowledge management.

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