Local Players in Global Games: The Strategic Constitution of a Multinational Corporation

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Author: Peer Hull Kristensen | Jonathan Zeitlin

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local players in global games

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Local Players in Global Games: The Strategic Constitution of a Multinational Corporation

peer hull kristensen and jonathan zeitlin

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Great Clarendon Street, Oxford ox2 6dp Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide in Oxford New York Auckland Bangkok Buenos Aires Cape Town Chennai Dar es Salaam Delhi Hong Kong Istanbul Karachi Kolkata Kuala Lumpur Madrid Melbourne Mexico City Mumbai Nairobi Sa˜o Paulo Shanghai Taipei Tokyo Toronto Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries Published in the United States by Oxford University Press Inc., New York ß Peer Hull Kristensen and Jonathan Zeitlin The moral rights of the author have been asserted Database right Oxford University Press (maker) First published 2005 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, or under terms agreed with the appropriate reprographics rights organization. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this book in any other binding or cover and you must impose this same condition on any acquirer British Library Cataloguing in Publication Data Data available Library of Congress Cataloging in Publication Data Data available ISBN 0-19-927561–0 ISBN 0-19-927562–9 (pbk.) 1 3 5 7 9 10 8 6 4 2 Typeset by Kolam Information Service Pvt. Ltd., Pondicherry, India. Printed in Great Britain on acid-free paper by Biddles Ltd., King’s Lynn, Norfolk

For Chuck Il miglior fabbro, a benchmark for us all

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CONTENTS Acknowledgments Preface: Small Worlds of Globalization 1. Introduction: Multinational Corporations as Lead Agents of Globalization?

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Part I. Local Pathways to Multinational Enterprise 2. Associating Local Strategies of Global Reach: Horsens, Lake Mills, Eastbourne, and APV

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Part II: A Global Game Enacted by Local Players 3. Horsens: Local Strategies on a Global Stage

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4. Lake Mills: Self-limiting Strategies of a Solidaristic Plant Community

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5. Howard: A Sleeping Beauty Awakes to the Nightmare of a Global Enterprise

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6. Lygon Place: A Corporate Headquarters at War with Itself

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7. Strategic Positions and Positional Strategies

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Part III: Managerial Challenges and Human Promises of Globalization 8. Managing the Multinational: Administrative and Human Challenges

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9. The Functions of the Executive Revisited: Contributions, Inducements, and Constitutional Ordering

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10. Pragmatic Solutions: From Procedural Justice to Learning by Monitoring

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11. Creating a Multinational Public for the Corporation

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12. Conclusion: Sideshadowing the Future of Globalization

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Bibliography Index

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ACKNOWLEDGMENTS This book is a product of ongoing interactions in many small worlds of the international business and research communities. In the process, we have incurred numerous debts, which we are pleased to acknowledge here. First and foremost, we would like to thank the community of practitioners within APV, from shop-ﬂoor workers, engineers, and technicians to plantlevel managers, supervisors, and corporate executives, who generously gave us their time and attention, and shared their experiences and interpretations of life in the multinational corporation (MNC). Individually and collectively, they taught us more about the complexities of strategic behavior than any scholarly research program ever could. We have slowly learned the art of reading the world as they did, and we deeply appreciate the way they reciprocated our persistence with trust so that we could travel from one part of the small world of the multinational to the next. Scarcely less important to the completion of this project was funding for ﬁeld research, travel, and meetings, as well as time off for writing and revision of the manuscript. Peer’s ﬁrst visit to Wisconsin in 1995, which began our joint ﬁeld work at Lake Mills, was ﬁnanced by the University of WisconsinMadison’s Research Initiative (now Center) for World Affairs and the Global Economy (WAGE). During subsequent stages of the project, WAGE also provided vital funding to Jonathan for ﬁeldwork, research expenses, and writing time. We are grateful to Dave Trubek and Don Nichols, co-directors of WAGE, for their moral and material support. Generous grants to Peer from the Danish Social Science Research Council (DSRC) likewise provided crucial support for the research and writing, as well as for numerous meetings between the authors. The internal training fund of the Danish Trade Union Confederation (LO) allowed Peer to expand the scope of inquiry among shop stewards in Danish MNC subsidiaries and provided a valuable platform for discussing the particularities of our case study in relation to their broader experience of other multinationals. Jonathan would also like to thank the faculty sabbatical program and the Ofﬁce of International Studies and Programs at the University of Wisconsin-Madison for supporting his year off from teaching in 2002/3. Peer would similarly like to thank Copenhagen Business School for the generous support given to its researchers when they are engaged in demanding projects.

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This would have been an inﬁnitely poorer work without the critical input and encouragement of numerous friends and colleagues from different countries and academic disciplines. We particularly want to thank the European Science Foundation, Danish Social Science Research Council, and Copenhagen Business School for ﬁnancing the European Summer Research Institute for the Comparative Study of Economic Organization (ESRI) in 1999–2001, which provided a platform, deadlines, and pressure for us to write over three successive years a draft of each of the three parts that constitute this book. We also presented our work-in-progress to conferences, workshops, and seminars organized by the Institute of International Business at the Stockholm School of Economics; the Swedish Council for the Coordination and Initiation of Research (FRN); the US Council for European Studies; the Transnational Communities Programme of the UK Economic and Social Research Council; the American Sociological Association; the Economic, Labor, and Organization section of the Italian Sociological Association (AIS-ELO); the Danish Trade Union Confederation (LO) School; WAGE, and the Economic Sociology Program of the University of Wisconsin-Madison. We are grateful to the participants in these meetings for their many stimulating criticisms and suggestions. Among them we would especially like to thank Steven Casper, Anthony Ferner, Henrik Glimstedt, Glenn Morgan, Valeria Pulignano, Carlo Trigilia, Richard Whitley, and Erik Wright. We are likewise extremely grateful to those friends and colleagues who commented on draft papers and chapters, especially Finn Borum, Alex Bowie, Luigi Burroni, John Mathews, Philippe Pochet, David Soskice, David Stark, Josh Whitford, and Mira Wilkins. We also want to thank those who shared with us their own unpublished drafts and research materials, especially Dong-One Kim, Patchen Markell, and Ken Mericle. Gary Herrigel and Chuck Sabel read the entire manuscript—some parts several times—and gave us more valuable criticism and advice than we were fully able to integrate into our revisions. We would also like to thank three anonymous reviewers for their careful critical reading of the manuscript, and we respond in the Preface to some of the methodological issues they raised. Responsibility for any remaining shortcomings is naturally our own. During the course of this project, we have received great support from our respective departments and institutions. We would particularly like to thank Marianne Risberg of the Institute for Organization and Industrial Sociology at the Copenhagen Business School for assistance in arranging workshops, seminars, and meetings, as well as for facilitating our communication by revising Peer’s English drafts. We also want to thank Darya Vassina of the European Union Center and the Industrial Relations Research Institute at the

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University of Wisconsin-Madison for help with the Bibliography and the preparation of the manuscript more generally. At Oxford University Press, David Musson has warmly encouraged this project from the outset, and we are grateful to him and his colleagues for their helpful advice and support. Our families deserve the greatest appreciation for putting up with our numerous absences and ongoing preoccupation during the many years this book has taken us to research and write, as well as for welcoming each of us into the other’s home and forging strong bonds of affection between our own small worlds.

PREFACE: SMALL WORLDS OF GLOBALIZATION What do Horsens (Denmark), Lake Mills (USA), and Eastbourne (UK) have in common? At ﬁrst glance, there might appear to be no meaningful connection between a medium-sized industrial/commercial center in eastern Jutland (population 56,000), a small semi-rural factory town in south-central Wisconsin (population 5,000), and a seaside resort on the south coast of England (population 90,000). Yet as we discovered in the course of our research for this book, all three of these communities were historic centers of food, drink, and dairy processing equipment manufacture, home to prominent local ﬁrms with proud records of technological innovation and international trading, whose origins could be traced back a century or more. Each of these ﬁrms, as we also learned, was deeply embedded in its home community through a multiplicity of ties, not only to employees and their families, but also to other local actors and institutions, such as component suppliers, vocational training schools, trade unions, and municipal governments. These leading local ﬁrms both depended on their home communities for a variety of critical resources and served as gateways for the latter to the wider national and world economy. During the 1970s and 1980s, however, each of these communities’ ﬂagship ﬁrms was transformed into a subsidiary of the same British-owned multinational corporation, APV. This London-based company, itself a longestablished producer of food- and drink-processing systems, had expanded through mergers and acquisitions to become the world’s largest manufacturer of such equipment by the late 1980s, with nearly £1bn in sales and some 15,000 employees on ﬁve continents, mainly in Europe and North America.1 These formerly independent ﬁrms were by no means total strangers, having competed directly or indirectly with one another and APV itself in markets abroad and at home over many decades. But now the Horsens, Lake Mills, and Eastbourne subsidiaries found themselves simultaneously collaborating on company-wide projects and contending alongside other APV units, some home-grown and others recently acquired, for product mandates, capital investment, and coordinating authority from the London headquarters (HQ). In this way, not only these ﬁrms themselves, but also the local communities to which they belonged, became more closely linked to one 1 Readers will ﬁnd a detailed presentation of APV’s historical development, organizational structure, and operational scope in Chs 2 and 6 below.

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another, their fortunes bound up with the subsidiaries’ struggle for position within the multinational corporation. None of this may seem especially remarkable to anyone familiar with recent debates over globalization. Are not the compression of spatial distance, the intensiﬁcation of cross-border interdependencies, and the ascendancy of mobile capital over immobile labor and communities all deﬁning features of the globalization process, which has been so widely discussed by popular and academic commentators alike over the past two decades? Perhaps so. Yet as we investigated the relationship between these three local subsidiaries and APV’s corporate HQ, a more complex picture of the multinational began to emerge, provoking a series of novel and disconcerting questions. What happens when a number of previously autonomous ﬁrms from different countries, each with their own historically constituted identities, routines, and capabilities, come together inside a single multinational corporation (MNC)? And what happens when each of the participants in this new global game, including top management at the corporate HQ, starts to play by the rules of their national business systems, mobilizing local allies and resources to defend and advance their position within the MNC? Can a uniﬁed cooperative game be established that positively advances the development of the multinational as a whole, and if so through what organizational mechanisms? Or may mutual misunderstandings and the unintended consequences of strategic interaction among the players lead instead to endemic conﬂict and disintegration? The answers to such questions, as we discovered once we began to confront our case study of an ‘actually existing’ multinational with the wider scholarly and managerial literature, are surprisingly hard to determine theoretically, and pose a profound challenge to established views not only of the MNC but also of the globalization process more broadly. The evolution of our study mirrors in striking ways that of its subject, both intellectually and practically. By the early 1990s, both authors had been working for many years separately (and in collaboration with our mutual friend Charles Sabel) on the historical development, internal dynamics, and innovative capabilities of industrial districts or regional clusters organized around ﬂexibly specialized networks of small and medium-sized ﬁrms.2 Hence the two of us met occasionally at international gatherings of researchers and policy practitioners convened to discuss these issues.3 2 See for example Sabel and Zeitlin (1985); Kristensen (1992b); Zeitlin (1992); Kristensen (1995a, b); Zeitlin (1995); Sabel and Zeitlin (1997a, b); Kristensen and Sabel (1997). 3 Notably the industrial districts research program organized by the ILO’s International Institute for Labour Studies: see Pyke et al. (1990); Pyke and Sengenberger (1992).

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At one such gathering, held improbably in a lotus-shaped conference center on the grounds of the Futuroscope advanced media park outside Poitiers, France,4 Peer passed on to Jonathan a recent paper on the strategic initiatives of local actors at a Danish manufacturing plant that he had been studying on and off for nearly a decade (Kristensen 1994; Kristensen and Petersen 1993; Kristensen 1986). This plant had undergone a far-reaching restructuring during the early 1980s from a functional to a product-based layout, in which small groups of skilled workers integrated multiple tasks on modern computer-controlled machinery, while complementary parts were subcontracted to a dense network of specialized local suppliers. The result was a highly ﬂexible organization in which many types and variants of pumps, valves, and ﬁttings could be manufactured in small batches to customer speciﬁcations with low overheads and short lead times. In the late 1980s, however, the dairy equipment group to which the plant belonged experienced large losses due to setbacks in international markets, and was put up for sale by its owner, a Danish holding company. Drawing on a variety of local institutional resources, from statutory codetermination rights to labor investment funds, the convener of shop stewards5 helped to ensure that the group was bought by a British multinational rather than a rival foreign company that would have been more likely to close the plant down as a dangerous competitor. In alliance with the union convener, the new managing director, who had overseen the Danish plant’s earlier reorganization as production manager, utilized the ﬂexibility of its internal workforce and external suppliers ﬁrst to block the efforts of another foreign subsidiary of the British MNC to take away its customers and then to win a companywide competition to manufacture a new generation of pumps. As described in Peer’s paper (Kristensen 1994), the MNC’s arm’s-length management style, based like that of many British companies primarily on ﬁnancial accounting performance criteria, appeared paradoxically to have enhanced the Danish local actors’ scope for pursuing autonomous strategies. So long as the plant produced good ﬁnancial results, the parent ﬁrm seemed unlikely to interfere in its affairs, and might even be prepared to sanction new investment in both physical and human capital. While the collaboration of local suppliers and institutions such as municipal vocational training schools proved a crucial resource for the plant in its struggle for position within the 4 The proceedings of this conference, organized in 1993 by the Observatoire du changement social en Europe occidentale of the Fondation pour la prospective et l’innovation, were published in French and English as Bagnasco and Sabel (1994, 1995). 5 In Denmark, where multiple unions are often present in the same plant, members of each union elect shop stewards (Tillidsreprœsentanter), who in turn select a convener (Fœlles-tillidsmand) to negotiate with management on general issues concerning them all.

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multinational, so conversely the plant enabled its local partners to gain access to the global internal market of the parent multinational from which the latter would otherwise have been excluded. In this way, Peer’s study suggested that the wider industrial district to which the Danish plant belonged had been making ‘local use of global networks’, since workers, managers, suppliers, and the municipality were all in various ways exploiting its takeover by the British MNC to further endogenous development. This ﬁnding struck us as extremely important, because it undercut current arguments about the negative impact of globalization on industrial districts (e.g. Amin and Robins 1990), while at the same time offering new and potentially promising tools for the latter’s revitalization. Beyond its general theoretical and policy implications, Jonathan was intrigued by one particular aspect of Peer’s story: his account of the positive role played by the arm’s-length management style of the Danish plant’s new British multinational owner. For Jonathan was also deeply engaged with historical and comparative debates on the performance of British manufacturing ﬁrms, where the very same management style—especially their heavy reliance on ﬁnancial accounting criteria for investment decisions—was widely regarded as a major contributory factor in national industrial decline.6 Inquiring into the identity of the British MNC—which had remained anonymous in Peer’s paper—Jonathan discovered a startling coincidence: he himself had recently visited another plant owned by the same company, just thirty miles from the University of Wisconsin-Madison, where he was now teaching after a long academic sojourn in the UK. And like the Danish plant Peer had studied, the Wisconsin APV facility, which Jonathan had visited along with a small delegation of European trade unionists organized by the university’s Industrial Relations Research Institute, was also involved in ambitious experiments with work reorganization and ‘win–win’ bargaining, orchestrated primarily by local actors, including its Labor Relations Manager, a former union president. The new world of globalization seemed small indeed.7 This unexpected tie between the two plants raised fascinating questions for us about their relationship both to the parent multinational and their local environments. A comparison between the ability of local actors in the very different social and institutional settings of Denmark and the United States to foster endogenous development through participation in global networks seemed especially interesting in light of the emerging literature on divergent national business systems, behind which Peer was a prime mover.8 6

See for example Williams et al. (1983); Armstrong (1987); Hirst and Zeitlin (1989). For a theoretical discussion of ‘small-world networks’ in which apparently remote clusters of individuals are connected through a few common ties, see Watts (2003). 8 See for example Whitley (1992); Kristensen (1995b); Whitley and Kristensen (1996, 1997). 7

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This was too good a research opportunity to pass up. In the spring of 1995, Jonathan therefore arranged for Peer to come to Wisconsin to conduct a joint ﬁeld study at APV’s Lake Mills plant. With the Labor Relations Manager smoothing our path, we were able to interview a wide range of workers, managers, and white-collar employees at all levels across the plant’s various functional departments and product-focused business units, followed up through several return visits over the next few years. From these interviews we learned that the Lake Mills plant had undergone in the early 1990s a similar reorganization to that experienced by APV’s Horsens plant a decade earlier, in which product-based cells replaced the previous functional layout and a ‘just-in-time’ component supply system was introduced. By agreement between local managers and unions, a ‘pay-for-knowledge’ system was also implemented, based on extensive cross-training and task rotation, which drastically reduced the number of job classiﬁcations.9 As at Horsens, such reforms enabled the Lake Mills plant not only to cut costs, but also to improve deliveries, upgrade quality, and accelerate the development of new products. Like Horsens, too, if somewhat more modestly, the Lake Mills plant was therefore able to enhance its competitive position within the MNC, bidding successfully for work from group facilities which had been closed, winning the right to participate as a junior partner in the manufacture of a new generation of pumps, and becoming the corporate leader for a new family of locally developed ice-cream freezers. As at Horsens, moreover, the reorganization of Lake Mills was primarily the work of local actors. Cellular manufacturing, just-in-time component supply, job rotation, and other related reforms were introduced by local managers without explicit support from higher levels of corporate authority. Although the blue-collar workforce was initially divided about the pay-forknowledge system, local union ofﬁcials played a key part in its negotiation, implementation, and subsequent evolution, maximizing training opportunities, persuading recalcitrant workers to rotate, and resolving grievances arising from the system’s operation. Compared to Horsens, the interdependence between the Lake Mills plant and its local environment was less intense. The Wisconsin plant was historically much more vertically integrated than its Danish counterpart, and much of the performance improvement of the mid-’90s was directed towards bringing back in-house parts production outsourced a few years earlier to smaller non-union shops paying lower wages. Unlike at Horsens, too, most further training at Lake Mills took place within the plant rather than through participation in external courses 9 In a pay-for-knowledge system, workers’ wages are based on the tasks they are capable of performing, rather than the job they are actually doing at any given moment. For further explanation, see Ch. 4 below.

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at municipal vocational training schools. Yet on closer inspection, the social and institutional resources of the local environment turned out to have contributed signiﬁcantly to the restructuring of the Lake Mills plant in other ways. The plant had long been regarded as the best place in the area to work, and the absence of comparable employment opportunities nearby both motivated workers to participate actively in reforms aimed at safeguarding its future and reassured management that investments in employee skills would not be appropriated by competitors. The seniority provisions of the local union contracts, backed up by legally enforceable grievance arbitration procedures, also provided a powerful incentive for both sides to pursue greater ﬂexibility by expanding the skills and versatility of the existing workforce. From the perspective of the local actors at both plants, the MNC headquarters and its regional/product divisions appeared to have played little positive role in the restructuring processes and initiatives on which their survival depended. As a loss-making unit, the Lake Mills plant had attracted closer attention from the London HQ than its Horsens counterpart, largely of a negative kind, while requests for new capital investment and increases in headcount at both plants were tightly controlled from the center. Managerial turnover in both cases had been high, and lines of communication with the MNC HQ had been in ﬂux for several years as a result of ongoing efforts to rationalize the diverse and overlapping portfolio of companies acquired during the 1970s and ’80s. Viewed from below, the parent multinational thus resembled a distant Gulliver surrounded by dense fog, seeking to govern the Lilliputians at his feet with a limited set of rather blunt instruments. Our research at Horsens and Lake Mills raised a new series of intriguing questions about the strategies and organization of their multinational parent. How did APV’s top management conceive the evolving relationship between the MNC headquarters, the regional and product divisions, and the local operating units? To what extent did the London corporate center see itself as pursuing explicit strategies to promote plant-level restructuring, and how far was it content to rely on ﬁnancial targets and disciplines, leaving the operating units to ﬁnd their own solutions? Was its arm’s-length management style consciously intended to foster plant-level experimentation, and had the HQ developed a more sophisticated system for monitoring developments at the operating units beyond its apparently stochastic interventions? Did London have any means of learning from these local experiments? How far and in what ways was APV seeking to foster collaboration between operating units manufacturing related products in different countries, and where was responsibility for such initiatives located? To what extent had APV’s top management come to regard its subsidiaries in countries like Denmark as a

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means of tapping into the resources of the local environment—such as the technical capabilities of the Horsens supplier network—which might otherwise be difﬁcult to access externally? To explore such questions, we needed to gain access to APV’s London HQ. And here again, we followed the emergent social and personal ties linking local actors inside the global ﬁrm. As we shall see in subsequent chapters, people from Horsens had risen during the mid-1990s to prominent positions within APV’s worldwide organization. One of these managers, whom Peer had known since his original research on the restructuring of the plant in the early 1980s, arranged an invitation for us to conduct a brief ﬁeld study at the MNC’s London HQ in January 1997. There we were permitted not only to interview top managers and their staff in some depth but also to read key strategic planning documents and consultancy reports dealing with successive efforts to reorganize the entire MNC going back to the early 1990s. From these sources, we began to realize that far from having resolved its own structure, the multinational we were investigating was rather in a state of continuous experimentation where it was not at all clear who directed whom. A far more complex game than the one we had originally anticipated between subsidiaries and headquarters was taking place. The HQ itself was riven by endemic struggles over power and authority, in which individual managerial ambitions, strategic disagreements, and functional conﬂicts (between sales, engineering, manufacturing, and ﬁnance) were all closely intertwined. At the same time, moreover, an intermediate layer of strategic business units (with responsibilities for up to 25 subsidiary plants around the world) appeared to be playing an increasingly signiﬁcant role within the global game of the MNC. From our researches we learned that Danish plant managers had succeeded in winning control over many of APV’s major SBUs. This ‘Danish maﬁa’ had thus acquired effective inﬂuence over much of the multinational’s ‘operational core’, while leaving ﬁnancial management and relations with institutional investors, fund managers, and stock market analysts to the London headquarters. Instead of a well-informed HQ pulling the strings of a global enterprise, our ﬁeld interviews led us to conclude that APV’s top management possessed only a rather limited knowledge of the individual plants comprising their far-ﬂung empire. Inspired by questions about home- and host-country effects arising from the national business systems framework, we also wanted to study an APV subsidiary based in the UK itself. Through the auspices of one Danish SBU manager, we were allowed in January 1997 to conduct a detailed ﬁeld study of a pump plant in Eastbourne belonging to his global ﬂuid handling business. There we discovered that APV’s London headquarters had little practical knowledge about what was happening not only in its foreign plants,

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but even in its domestic subsidiaries. In Eastbourne, as at Horsens and Lake Mills, we found a hive of innovation in products, processes, and work organization, but the interaction between the plant and the corporate headquarters seemed no closer or more intimate than in Denmark or the US. From the perspective of the local actors in Eastbourne, their key reference point in the corporate game was not the London HQ, but rather the Danish SBU manager to which the plant reported. It therefore became apparent that to understand how APV was actually controlled and coordinated, we would need to learn more about the interactions among SBU managers. Initial inquiries suggested that discontent with the functioning of the multinational had led some SBU managers— including but not conﬁned to the ‘Danish maﬁa’—to seek improvements in its global structure as a means of fostering the continuous development of the local plants. Thus paradoxically it seemed at this stage of our research to be local managers who also held the key to improvements in global coordination and cooperation within the MNC. But before we could carry this line of investigation further, APV itself was taken over in May of 1997 by a larger British engineering group. As a result, we were obliged to suspend our ﬁeld work, though we continued to keep in touch with some of our local informants. This enforced break in primary data collection pushed us to reﬂect more deeply on two more fundamental issues raised by our preliminary ﬁndings. We began to reconsider the nature of the multinational corporation and the processes through which it comes into being; and we likewise began to reconsider what is actually involved in managing, controlling, and coordinating such an enterprise. Having previously spoken ironically of ‘Gulliver befogged’, we were struck by a new humility in contemplating the immense challenges of turning the MNC into a coordinated actor at all. These reﬂections led us in two complementary directions. The ﬁrst was towards an historical reconstruction of the multinational’s development. From our research we learned that the story was not simply one of the shark eating the smaller ﬁsh, since each of the three local subsidiaries in different ways had joined APV as a result of its own deliberate strategic action. Thus we knew that the construction of this MNC had to be interpreted as the outcome of many independent strategic actors’ search for solutions to varied local problems rather than as the unfolding of a grand design pursued by a single global player. But we also wanted to understand the strategic choices involved in joining or creating the multinational in terms of the long-term evolution of each of these formerly independent ﬁrms. For this we needed to supplement our ﬁeld interviews with additional evidence about the historical development of each of the four ‘local players’.

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Fortunately, with the help of our local informants, we were able to collect a small but sufﬁcient body of primary and secondary materials on each of the four ﬁrms, including published business histories of the Creamery Package Company, the Lake Mills plant’s original owner (Godfrey 1937), and the APV Group itself (Dummett 1981). From 1982, moreover, we could follow the development of APV in considerable detail through the online archives of the Financial Times and other British periodicals (electronically searchable through Lexis/Nexis) which covered the group’s affairs regularly as a major public company listed on the London stock exchange. These historical materials not only revealed four quite distinct evolutionary patterns of business development, but also provided a vital clue as to why one player had eventually become the headquarters and the other three subsidiaries. The answer to this puzzle turned out to depend not on any competitive superiority in product markets, technology, or production processes, but rather on relationships with ﬁnancial institutions. This discovery in turn prepared the ground for a clearer understanding of the strategic interactions among the four players once they had become part of a single MNC. The other new direction was towards a more systematic engagement with the existing literature on the multinational corporation, both classic and contemporary. Only then did we come to realize how exceptional our empirical material really was. For there were few studies that looked at the MNC from the ‘bottom up’ as well as the ‘top down’, and fewer still that could match ours in terms of detailed observations across multiple organizational levels and geographical sites over a sustained period of time. And with good reason. In constructing our study to focus on the relationship between a multinational headquarters and three subsidiaries within the same division from different countries (including the MNC’s home country), we were following a logic of inquiry grounded in current debates about the impact of globalization on local economies and national business systems. But it would have been practically impossible to design such a study in advance of the opportunities and contacts that emerged during the course of the research itself, in terms of both the range and degree of access we were able to achieve within the multinational, and the prior contextual knowledge we brought to the project from our own earlier work on these issues in Denmark, Wisconsin, and the UK.10 Our study has evolved from the conviction that it is important to get the details right and ﬁnd coherent ways of recounting them that do not violate the actors’ own efforts to make sense of their experience. In order to 10 For an insightful discussion of the crucial role of personal contacts in securing research access to the upper echelons of large corporations even in a purely domestic setting, see Morrill (1995: 229–55), app. A: ‘Anatomy of an Ethnography of Business Elites’.

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accomplish this task, ﬁeld researchers must engage in extended contact with their subjects, so that the actors’ self-understanding can counterbalance the scholar’s theoretical assumptions. Such detailed analysis and extended exchange with multiple actors are particularly essential in a ﬁeld where it is widely accepted that there are more generalities than empirical research and where some of the most inﬂuential studies have been sharply criticized for drawing their ﬁndings from headquarters interviews only and accepting top management’s views at face value.11 But do the serenditipitous origins of our case study and the exceptional detail of the research limit the possibilities of generalizing from it theoretically and empirically? We believe not, provided that the case material is handled intelligently, and have followed two complementary strategies in this book to maximize its analytical impact. The ﬁrst is theoretical: by carefully confronting the organizational strategies and mechanisms for the coordination and control of the multinational proposed in the managerial literature with the experience of APV, we can assess their effectiveness in meeting the challenges of running an actually existing MNC. APV functions in this respect as a limiting case, capable of demonstrating the inadequacy of standard models of multinational management, whether or not its experience can be taken as representative of other global ﬁrms. Our second strategy is comparative: we draw on wide reading of the secondary literature on HQ–subsidiary relations to situate APV in relation to other multinationals, in order to highlight both common and distinctive features, and identify alternative approaches to the coordination and integration of MNCs that might contribute to overcoming the problems observed in our case. We conclude from our reading of this literature that much of what we observed at APV (and at its successor Siebe/Invensys, examined in the book’s ﬁnal chapter) is in fact fairly typical of Anglo-Saxon MNCs with subsidiaries in developed countries that have grown through mergers and acquisitions. This conclusion suggests in turn some empirical qualiﬁcations to our ability to generalize from the APV case. One concerns the applicability of our analysis to MNCs that have grown organically through new greenﬁeld investments. Recent studies show that cross-border mergers and acquisitions have become the predominant form of MNC growth, accounting for threequarters of all foreign direct investment between 1988 and 1998 (Wortmann 2001a: 2, 2001b, 2000). But even in the case of organic multinational growth, the burgeoning literature on subsidiary initiatives and product mandates discussed at greater length in subsequent chapters demonstrates that similar 11 See, for example, the trenchant critique by Be´langer and Bjo¨rkman (1999: 249) of the presentation of ABB as a trendsetting multinational by prominent management scholars such as Ghoshal and Bartlett (1995) and Peters (1992).

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processes of autonomous strategizing by local actors are likely to emerge over time at greenﬁeld sites.12 A second qualiﬁcation concerns possible differences between APV and MNCs from national business systems organized along contrasting lines such as those of Germany or Japan. The key point here, which is consistent with our broader argument, is that MNCs from these countries face similar problems of integrating and coordinating subsidiaries based in other national business systems to those experienced by APV, but may bring to them different orientations and resources, based on their own past histories and institutional contexts. Moreover, insofar as MNCs from other national business systems may be adopting or borrowing selectively from Anglo-Saxon practice, our analysis of the APV case has broader relevance for them as well.13 A ﬁnal qualiﬁcation concerns the range of host countries in which the MNC subsidiaries we analyze are located. Clearly, our study deals with the interaction between MNCs and subsidiaries in democratic polities that provide various forms of institutional support for employee rights (though these differ widely across the three cases of Denmark, the US, and the UK), rather than in developing countries with failed states and/or authoritarian employment regimes. Although parallels could doubtless be drawn with the emergence of independent MNC subsidiary capabilities in various East Asian economies,14 these fall beyond the scope of this book. 12

See for example Birkinshaw and Hood (1998); Birkinshaw (2000). On variations in organization and coordination patterns across MNCs from different national business systems, see Whitley (2001); Lane (2001); Ferner (1996). On adaptation and selective borrowing from Anglo-Saxon practices by German multinationals, see Ferner and Quintanilla (1998); Ferner and Varul (1999, 2000). For the distinctiveness of US multinationals even in relation to their UK counterparts, see Edwards and Ferner (2002); Colling and Clark (2002); Ferner (forthcoming). 14 For the suggestive case of hard disk drive production in Singapore, see Wong (1997). 13

1 Introduction: Multinational Corporations as Lead Agents of Globalization? 1. Multinational Corporations vs Industrial Districts? During the ﬁnal decades of the twentieth century, international discussions of industrial organization and competitive dynamics focused particularly on two striking developments. On the one hand, industrial districts or regional clusters of smaller ﬁrms gained ground in many market segments against the large, vertically integrated corporations that had been seen as templates of industrial modernity in the previous period. Such districts or clusters, it was widely argued, could achieve exceptional productive ﬂexibility and continuous innovation without substantial cost penalties through external economies of scale and scope arising from a ﬂuid division of labor among many geographically localized enterprises specialized in complementary phases of a single industrial sector.1 On the other hand, and seemingly in deep contradiction to the ﬁrst development, large multinational corporations expanded their global reach, while simultaneously focusing on a narrower range of core businesses, in which they sought to control, if not necessarily to own, as much of the value chain as possible. As these giant ﬁrms reallocated their various activities around the world in search of cost and efﬁciency gains, they set off a new wave of rapid economic internationalization. By integrating a growing share of cross-border investment, production, and trade within their boundaries, MNCs increasingly came to be viewed as the lead agents of the globalization process.2 At ﬁrst, research on each development largely ignored the other. But as they came into closer contact, researchers on both multinational corpor1 Among the vast literature, see especially Piore and Sabel (1984); Sabel (1989); Pyke and Sengenberger (1992); Porter (2000). 2 For overviews of this even vaster literature, see Dicken (1998/1986); Chesnais (1997/1994); Held et al. (1999: ch. 5).

2

Introduction

ations and industrial districts often postulated that the two were on a collision course. Thus, for example, Amin and Robins (1990) and Harrison (1994) presented MNCs as a menace to the industrial districts of the ‘Third Italy’, arguing that foreign acquisitions of key local companies would destroy the informal collaborative ties among specialists that had underpinned these districts’ innovative capabilities and historic success in world markets.3 But as some participants in this debate quickly recognized, MNCs could also be viewed as potentially complementary to existing industrial districts or regional clusters of ﬁrms, between which a variety of hybrid forms could be envisaged.4 From this perspective, the multinational corporation might appear as a valuable organizational device, which could help to solve many of the problems currently facing locally based business enterprises. If a previously independent ﬁrm within an industrial district were to calculate its gains from seeking membership in a multinational group, these might look very promising indeed. First, most MNCs provide their subsidiaries with a centralized headquarters, staffed by professional managers and accountants, who are better able than smaller independent ﬁrms to deal with international ﬁnancial markets and institutions, and can thereby secure easier access to low-cost capital for investment and growth. Second, by maintaining a more diversiﬁed product portfolio and spreading their activities across multiple markets, MNCs are often able to compensate for the radical ﬂuctuations that each of its more narrowly specialized constituent ﬁrms may experience. Thus membership in an MNC may be seen as a form of insurance against the increasing volatility that has come to characterize most product and factor markets. Third, since many MNCs have internalized large sections of industrial markets through greenﬁeld investments and mergers and acquisitions, joining a leading multinational group often appears the best option for independent ﬁrms wishing to expand their sales to these customers. In so doing, moreover, such ‘ﬂagship ﬁrms’ (Rugman and D’Cruz 2000) might help in turn to open up the internal market of the MNC to their own suppliers, thereby expanding the global reach of the industrial district or region in which they are rooted. Fourth, by operating across a multiplicity of different regional labor markets characterized by wide variations in skills and wages, MNCs create new possibilities for member ﬁrms to cultivate their own distinctive com3 For a recent case study in this vein, focused on the mechanical engineering cluster of Jæren in southern Norway, see Asheim and Herstad (2003a, b). 4 See, for example, Sabel (1989); Hirst and Zeitlin (1991); Zeitlin (1992); and for a revised formulation, Sabel (2002).

Introduction

3

parative advantages without losing access to complementary assets and competencies. Each subsidiary may thereby improve its ability to develop in a way suited to the resources and comparative advantages provided by its regional labor market. This not only enhances short-term cost effectiveness, but also provides access to a wide variety of capabilities and skills across member ﬁrms that may yield highly innovative combinations in the long run, and help the MNC as a whole to cope more effectively with the pervasive technological and commercial uncertainty of the current world economy. Fifth, the internal diversity of the MNC gives each of its member ﬁrms access to a multiplicity of cognitive perspectives and problem-solving approaches. Hence the MNC can be seen as a reservoir of tacit knowledge that can stimulate a learning process among its subsidiaries, capable of leading not only to breakthrough innovations in some cases, but also to continuous improvement of existing products and processes. Such continuous improvement processes, moreover, may beneﬁt not only the employees of the member ﬁrms themselves, but also their local suppliers, thereby helping to modernize entire regional economies or industrial districts. Thus the MNC may become a vehicle for giving smaller ﬁrms and localities practical access to the developmental capabilities of the wider world. In this way, MNCs might be seen by the small ﬁrms of an industrial district as a promising form of organization that could help to protect them against some of the many perils posed by the contemporary world economy, while simultaneously giving their host regions access to a vastly enlarged innovative potential. On the other side, an MNC that buys into a number of different industrial districts by acquiring local ﬁrms thereby gains access to an abundance of practical know-how and skills, which it may then put to good use for all its existing subsidiaries. Gunnar Hedlund (1999) has advanced a visionary conceptualization of the MNC as a Nearly Recomposable System or ‘heterarchy’ that combines and recombines local knowledge on a global scale, turning the MNC into a worldwide laboratory for innovation. At least in a few cases, moreover, the possibility of such a symbiosis has been empirically supported. Thus, for example, Fiorenza Belussi (2003) found that foreign MNCs which purchased key local ﬁrms in the Montebelluna district of north-east Italy, a world leader in winter sports footwear and equipment, increased their competences and role in both production and R&D, while also stimulating a parallel movement towards enhanced internationalization and competitiveness among indigenously owned companies and their suppliers. In studying whether and how the global hierarchy of one particular multinational might have served the development of its local subsidiaries and their home communities, we made a number of surprising observations.

4

Introduction

These observations, though based on a single case study, raise more general questions about MNCs’ ability to foster mutually beneﬁcial synergies among their constituent units, while at the same time challenging established theoretical views of such ﬁrms’ economic rationality and organizational effectiveness. Elaborated at greater length in subsequent chapters of this book, these observations may serve to illustrate the empirical challenge and resulting need for a better understanding of MNCs’ organizational problems, the difﬁculty of overcoming them, and the implications of both for the process of globalization, which seems more self-contradictory and uncertain than is often claimed.5 As explained in the Preface, our initial observations of a Danish subsidiary of APV, a British engineering group which had become the world’s largest manufacturer of food- and drink-processing equipment through a series of mergers and acquisitions at the end of the 1980s, seemed to conﬁrm that an MNC could in fact play such a mutually beneﬁcial role for a local ﬁrm and its home district (Kristensen 1994). But the Horsens plant did not gain these beneﬁts simply by becoming a member of the multinational. It obtained them by strategizing autonomously in a highly intelligent way and playing a rather subversive game which took advantage of multiple and contradictory lines of authority within APV. A strategic business unit based in Germany was supposed to coordinate the plant’s marketing and technological activities; a Danish holding company was to control its ﬁnancial performance; and the London headquarters retained ultimate authority over all investment decisions. By mobilizing local suppliers, exploiting domestic vocational training institutions, and changing its own internal work organization, the Horsens plant could undermine its assigned role and serve its new owner in a very innovative way that also improved its position within APV. This subversive strategy enabled the Danish subsidiary to reduce lead times for its pumps and valves drastically, while also tailoring them more closely to customer requirements. The resulting innovations enabled APV as a whole to supply turnkey food-processing plants to tighter deadlines than most of its multinational competitors. In a similar way, APV’s subsidiary in Lake Mills, Wisconsin had likewise initiated an autonomous process of work reorganization and workforce upskilling, resulting in radical improvements in the plant’s ability to develop and introduce new products. Had we anticipated, following the new view of MNCs advanced above, that APV’s London headquarters was deliberately pressuring its various subsidiaries to innovate in order to reveal their organizational capabilities 5 For a preliminary discussion of the generalizability of our case study and its limits, see the Preface, pp. xii–xxii.

Introduction

5

and those of their home districts, such expectations were quickly disappointed. Surprisingly, the HQ only had a very diffuse knowledge of these subsidiaries’ innovative projects, the ensuing shifts in their positions within the multinational, and how APV could make best use of their contributions in terms of its own global strategies. This apparent ignorance had something to do with differences in language. Headquarters and subsidiaries spoke in a polyphony of voices and terminologies, making it much more probable that they would experience a centrifugal enlargement of distance than a centripetal move towards a mutual recognition of legitimate diversity. Subsidiaries spoke of progress and development in terms of technological innovation and improvements, recounted as narratives that also integrated the biographies of signiﬁcant persons. Headquarters drew instead on the generalizing idioms of management journals and MBA programs for global and ﬁnancial managers, becoming truly speciﬁc only when dealing with the expected behavior of major investors and the stock market. It would be misleading, however, to interpret this difference in language and perspectives as conﬁrming the expected view that the HQ was pursuing a global vision of global issues, whereas subsidiaries focused instead on local technical and personal concerns. The headquarters spoke the local language of nearby business schools, consultancy ﬁrms, and other MNC HQs scattered around the metropolis, while the ﬁnancial markets could easily be monitored through everyday relations and gossip as the City of London was part of the neighborhood. And it would have been foolish if not dangerous for individual executives from the London HQ to try to learn the language spoken in subsidiaries. Top managers’ careers and positions within the HQ depended primarily on their participation in the construction of a discourse capable of convincing boards of directors, ﬁnancial analysts, fund managers, and institutional investors that the ﬁrm’s actions were beneﬁcial to shareholders and represented the most advanced strategic maneuvers of the day. Contributing to the ongoing construction of this discourse would determine such managers’ future careers, not only in the HQ, where they were currently employed and could easily wind up being ﬁred as scapegoats for past failures, but also in the larger district/cluster of MNC HQs, ﬁnancial institutions, and consulting ﬁrms. These were organizational nodes of a labor market in which corporate executives had to change jobs, often very frequently. Paradoxically, HQ managers were therefore reluctant to leave London to acquire deeper knowledge of the subsidiaries. It would be a waste of time for them, which might also jeopardize their opportunities for promotion. The knowledge and the language deployed in the subsidiaries, on the other hand, carried strikingly international connotations. When employees in the subsidiaries recounted the ﬁrm’s victories, these were measured against the

6

Introduction

rival technologies of leading competitors, wherever they might be located in the world. And when individual biographies were incorporated into these tales, they involved persons from many continents. The detailed knowledge about which persons around the world were believed to be most qualiﬁed for a particular job in any project shows that the geographical scope of assessment and cooperation was indeed global. The sense of rivalry and competition was also high in the subsidiaries, but focused on other APV subsidiaries or on competitors belonging to other MNCs. Both ordinary employees and managers were highly informed about how well they performed compared to similar units, whether nearby or far away. We found among some subsidiaries a high global mobility extending down to skilled blue-collar workers, who participated in a shifting array of projects across multiple continents, and many employees in the subsidiaries had proposals about how synergies could be created across the different national constituent ﬁrms of the MNC. But they lacked the social and organizational space for communicating this information, since such detailed concrete knowledge could not be conveyed and understood within the language of the headquarters. In this way, the HQ seemed both to restrict the range of variance among its subsidiaries’ comparative advantages and the possibilities for innovative cross-fertilization between them. Thus it seemed as if some of the advantages that an independent ﬁrm from an industrial district might hope to gain by becoming an MNC subsidiary were mutually contradictory. Both the language spoken and the internal power game within the London HQ appeared to depend on proﬁciency in local interactions with City institutional investors and ﬁnancial analysts. But such proﬁciency in playing these local games appeared to undermine HQ managers’ ability to discover the subsidiaries’ innovative capabilities, making it difﬁcult if not impossible for the MNC to cultivate their comparative advantages, promote cross-fertilization between them, and stimulate mutual learning across regions and nations. Instead, we discovered that the HQ had often followed the idioms of current business thinking, seeking to please their interlocutors in the London ﬁnancial district, and imposed decisions on its subsidiaries that produced huge unanticipated costs. One example is particularly striking. Inspired by the fashionable trend in strategic management for downsizing non-core activities, APV’s London headquarters instructed its Lake Mills subsidiary to lay off some 25 per cent of its blue-collar employees. Because of strong seniority rules in the plant’s collective bargaining agreement, a high-seniority worker could ‘bump’ from his or her job any worker with lower seniority, and so on down the line. A veritable chain reaction was triggered until the layoffs reached a group of recently recruited young machinists whom

Introduction

7

the subsidiary had recently trained on computerized equipment at high cost. In short the layoffs fell on the holders of exactly those competencies that the subsidiary considered vital for its future core activities. Only by ‘farming out’ a large part of its production to external suppliers at premium prices could the plant fulﬁll urgent orders for key parts from internal customers elsewhere within the MNC. Thus membership of the MNC in this case led to the creation of volatility, destruction of skills, loss of strategic assets, and additional needs for liquid capital, while very few of the potential beneﬁts seemed to have been achieved. In this way the HQ engineered a loss with double consequences. It ﬁrst lowered current earnings and other performance benchmarks, which then contributed to a fall in the company’s share price, raising the cost of the capital needed to repair the damage. Our observations revealed many such vicious circles, casting doubt on the underlying economic efﬁciency and organizational effectiveness of the MNC, as well as on its broader capacity to serve as the lead agent of the globalization process.

2. The Construction of MNCs in the Current Globalization Debate In this book, we examine the constitution of the lead agents who are believed to be driving globalization. We do this by tracing the historical construction of an ‘actually existing’ MNC from the conﬂuence of multiple, formerly independent ﬁrms and analyzing the interacting web of strategies pursued by different actors within it. From our perspective, it is surprising how little attention the theoretical literature on MNCs has paid to the self-understanding of the actors actually engaged in constructing such enterprises. It has largely been taken for granted that the MNC should be seen as a highly rational entity, whose purported comparative advantages most of the literature then sets out to explain. Stephen Hymer’s 1960 Ph.D. thesis (Hymer 1960) is often taken to be a breakthrough in modern theorizing about MNCs. Until then, as Geoffrey Jones (1996: 7) observes, MNCs were seen simply as ‘arbitrageurs of capital, moving equity from countries where returns were low to those where it was higher’. Hymer ‘asserted that FDI [foreign direct investment] involved the transfer of a whole package of resources and not simply ﬁnance’. The package involved technology, management skills, entrepreneurship, etc., and ﬁrms were ‘motivated to produce abroad by the expectation of earning an economic rent on the totality of their resources, including the way in which they were organized’ (Dunning 1993: 69). Hymer’s basic view of the international ﬁrm was thus that it internalizes or supersedes the market, thereby allowing

8

Introduction

for the cross-border transfer of knowledge, business techniques, and skilled personnel (Dunning 1993: 69). By transferring this package of resources to a foreign country, the MNC gains a comparative advantage over local ﬁrms in the host economy. In particular, a ﬁrm that has gained a dominant position in its home market—for instance through exploiting a technological, cost, ﬁnancial, or marketing advantage—may use territorial expansion to extend the range of its operation. The MNC thus becomes a means of advancing oligopoly power and proﬁts. As is already evident in Hymer’s theory, a ﬁrm becomes an MNC by exploiting some kind of superiority not only in its home country but also in a number of host countries. The basic idea is thus that it spreads from a single national center to operate in a basically similar manner in new countries. A related idea underlies the product-cycle theory proposed by Vernon (1966). Vernon explained how the US competitive environment created comparative advantages with respect to technological innovation, which allowed domestic ﬁrms continuously to upgrade their assets. But to protect their competitive technological advantage from erosion by other ﬁrms in later phases of the product cycle, US companies were forced ﬁrst to export, and then, as products and production processes became standardized, to manufacture overseas in order to reduce costs. This dialectic of the competitive process may even continue to the point where US-based ﬁrms export from foreign countries back to the domestic market, thereby gaining a new comparative advantage in the oligopolistic competitive game at home. Whereas in Hymer’s theory it is the offensive expansion of market power to foreign countries that makes the oligopolist go multinational, for Vernon this is instead a defensive strategy. In both cases, however, it is important that the ﬁrms are large, as this strategy depends on their ability to take big risks and to pay high costs for information, search, negotiation, and learning, which smaller companies usually cannot afford (Aharoni 1966; Dunning 1993: 73). Consequently, only ﬁrms that may beneﬁt from considerable ownership advantages and can afford the costs wind up going multinational. Again the emergence of MNCs is explained as the outcome of oligopolistic competition, the dominant paradigm of industrial organization in that period. In such a competitive game, multinationalization is believed to be an advantageous strategy, which in turn reinforces the oligopolistic dynamic, leading to an irreversible transformation of the relationship among the players, both in home and host markets. By the late 1970s, the MNC literature drew further inspiration from Coase (1937) and Williamson’s (1975) work on markets and hierarchies, along with Chandler’s (1977) historical account of the evolution of the modern corporation. From this theoretical perspective, the MNC was regarded as an ideal

Introduction

9

agency for reducing transaction costs on a global scale (Buckley and Casson 1976), since it could be held to solve cross-border market failures (Hymer 1968) to the beneﬁt of both the ﬁrms themselves and their host economies (Dunning 2001: 43). Beyond oligopoly rents and transaction-cost economies, theorists of the MNC expected ﬁrms to gain additional ownership advantages from the internationalization process: These advantages of common governance derive from the ability to co-ordinate separate value-added activities across national boundaries. Multinationality can enhance operational ﬂexibility by offering wider opportunities for global sources of input. It can provide more favored access to international markets. It can provide the ability to diversify or reduce risk. (Jones 1996: 9; Caves 1971, 1974)

Adding to this picture, Bartlett and Ghoshal (1989, 1990) argued that MNCs operating in a variety of environments are exposed to external stimuli that enable them to develop competencies and learning opportunities not available to domestic ﬁrms. Armed with such advantages, it is hardly surprising that the formation of MNCs becomes cumulative and that globalization is seen as an irreversible process. This organizational learning perspective is highly complementary to the transaction-cost reduction view, as the latter sees the MNC as able to curb market opportunism, shirking, and free riding, while the former takes for granted that the MNC does actually cultivate ownership advantages radically different from those of ﬁrms that have not internationalized. But it is difﬁcult to ﬁnd empirical studies which show that MNCs do not also evolve new forms of opportunism, shirking, and free riding to offset these theoretical advantages. Instead, these two lines of theoretical argument, which provided a rationale for the growing role of MNCs in both Europe and the US in the 1970s and ’80s, remained largely uncontested. A Penrosian ‘resource-based’ perspective on the growth of the ﬁrm (Penrose 1958) underlies most views of this process of initiating and learning from internationalization. It is the ﬁrm’s calculating managerial apex which autocratically decides to internationalize, and when it does, the MNC’s comparative advantage derives in turn from exploiting initial ownership advantages developed by this corporate center. Internationalization may then engage the center in a learning process through which it gains additional ownership and internalization advantages from exposure to a multiplicity of different environments. In this way, the MNC is expected to develop a broader and more diverse set of administrative routines, following the evolutionary process theorized by Nelson and Winter (1982).

10

Introduction

Such expectations of a smooth and gradual learning process were reinforced by Scandinavian researchers, who analyzed internationalization as unfolding through a number of typical phases, in which a ﬁrm ﬁrst begins to export from its home base, usually through commission agents, then sets up foreign sales and marketing ofﬁces, and ﬁnally establishes production facilities in host countries abroad. When choosing host economies, ﬁrms tend to choose those that look the most similar to their home markets, and then later extend their reach, so that the transformation to a truly multinational company emerges gradually from a series of small incremental changes in administrative routines. After a certain period, the MNC then begins to integrate its regional and global activities more systematically by developing a new set of routines (Johanson and Valne 1977; Dunning 1993: 193–204). It is remarkable how little emphasis the international business literature places on the difﬁculties involved in taking these steps. It is easy to imagine how complicated the necessary calculations are at each stage, and it is also apparent that with each new step there will be a need to develop new administrative routines to run the emergent MNC. But we have seen very little discussion of such calculations or the administrative routines that were actually put in place. Nor are there many close investigations of the possible problems involved in actively learning from the experience of going global. The literature is rich on the theoretical learning opportunities for ﬁrms opened up by internationalization, but surprisingly silent on how such learning actually takes place.6 The postulated learning opportunities from diverse environments are simply transported by assumption into the learning curves of the centrally located managers, who are also presumed to be able to coordinate and control the intersecting value chains as a coherent whole and efﬁciently orchestrate knowledge transfer across the ﬁrm’s constituent units. Similarly, with the rise of a transaction-cost focus, MNCs were assumed to be masters of the art of their reduction. Although some careful analysts recognized that the governance problems of ‘enforcing contracts and monitoring behaviour . . . are particularly acute in ﬁrms operating across borders’ (Jones 1996: 20), their organizational structures were typically regarded as efﬁcient mechanisms for minimizing the resulting costs. Many observers took it for granted that since MNCs continued to expand and prosper, they must have learned to cultivate and exploit what Bartlett and Ghoshal (1989) term their ‘administrative heritage’. 6 For an overview of current research, see Macharzina (2001). One of the few detailed historical case studies of knowledge transfer in a large multinational concludes that ‘knowledge was decidedly ‘‘sticky’’ ’, even within Unilever, ‘one of the world’s most international ﬁrms’, into the 1980s: see Jones (2002: 478).

Introduction

11

In our case study, we found very little evidence for any of these theoretical ‘rationalizations’ of the MNC. APV’s London HQ was not diffusing a superior technology across a number of foreign markets, nor was it trying to survive on the British market through reducing production costs by allocating mature products to low-wage countries. Rather than serving as an efﬁcient governance mechanism for curbing opportunistic behavior, the MNC had become an arena for internecine rivalries in which the normal opportunism of the market was compounded by ongoing political struggles over the allocation of resources and responsibility for success or failure. Nor did we see any signs that the HQ was consciously developing administrative routines that could foster mutual learning and innovative cross-fertilization. The turnover among top management seemed far too high to permit such a systematic, long-term endeavor. Some of these missing elements of rationality in the APV case need not worry us. As Dunning (2001) has argued, the Hymer–Vernon rationalization of MNCs applies more to their expansion during the 1960s and early ’70s than to the more recent era of globalization. It is thus hardly surprising that the picture we report in this book displays very different logics than would have previously been expected. Typically, during the postwar period, we would have observed a MNC internationalizing by transferring technologies, production processes, and sales and marketing organizations from its home base to foreign host economies, believing that these capabilities would quickly enable its new subsidiaries to oust their local competitors. Yet this expectation hardly applies to APV and other contemporary multinationals. For example, when APV entered the Danish market the major local competitor it encountered was the Swedish MNC Tetra-Laval, with which the British multinational’s newly acquired Danish subsidiaries already had long experience of strategic interaction. Hence it would have been counter-productive in this case for APV to have insisted on the transfer of its home-based administrative heritage. Gone too is the belief that MNCs will necessarily prosper by internalizing market transactions. Outsourcing has become a new managerial mantra which makes it far less certain where transactions should be conducted. Such observations also raise the question of where to search for conﬁrmation of the widespread claim that the accumulated administrative heritage of the multinational was becoming one of its ‘core competences’ for the future. According to this view, the MNC might reduce its equity ownership of assets but its role as ‘orchestrator of production and transactions within a system of cross-border internal and external relationships’ would increase. Following Bartlett and Ghoshal (1989), Dunning saw ﬁrms’ ‘competence to

12

Introduction

develop and manage a cross-border network of separate but interrelated value-added activities’ as three-pronged: First, it involves taking full advantage of the economies of scale and scope arising from global integration. Second, it involves a proper appreciation of differences in the supply capabilities and consumer needs in different countries. Third, it involves using the experience gained in global and national markets to strengthen the resource base of the ﬁrm as a whole. (Dunning 1993: 602)

Dunning’s (1993, 2001) inﬂuential ‘eclectic’ or OLI paradigm provides a powerful synthesis of the MNC’s organizational (O), locational (L), and internalization (I) or combinatorial advantages. But it is difﬁcult to see how one should evaluate the multinational’s ability to make use of its organizational capabilities, if these are fragmented across multiple geographic sites; of its locational advantages, if these may be ignored by headquarters as well as by sister ﬁrms in other countries; or of its capacity for combining internal and external resources, if there is no agency or routine within the MNC responsible for their systematic cultivation. Nor do other organizational and managerial studies of multinational enterprises offer a clear solution to the problem of how their theoretical potential can be realized in practice. Such studies, like those of business historians, have uncovered multiple forms of organizing rather than a single optimal organizational structure for the MNC.7 Their discussions of organizational and managerial processes in MNCs have largely followed a similar pattern to that of scholarly analysis of coordination and control in business ﬁrms more generally. If the MNC was conceived as a signiﬁcant form of organization, this was because of its complexity and the dilemmas it posed for established managerial concepts and recipes. One such dilemma concerned the basis for divisionalization: by product or by geographical market area? Another concerned the relationship between the competing needs for global integration and local responsiveness to different national markets and government demands (Prahalad and Doz 1987). But the problems envisaged by this literature ﬂowed more from broader debates in organizational theory than from critical observation of the many layers and players within MNCs. More recently, as organizational analysts have emphasized the inﬂuence of culture, norms, and institutions, so too awareness has grown that multinationals from different home countries will rely on different types of formal and informal control mechanisms (see for example Bartlett and Ghoshal 1989, 1998; Whitley 2001). Even our own contribution ironically follows this trajectory of the multinational debate. We will discuss some of these 7 For an overview of the organizational and managerial literature, see Hedlund (1993). For reviews of the work of business historians, see Wilkins (2001); Jones (2003).

Introduction

13

contributions to the managerial and organizational literature on MNCs more extensively in Chapter 8, where we compare our ﬁndings about the APV case to those of other studies. As we shall see, a number of recent empirical studies do try to penetrate beyond the headquarters’ selfunderstanding of the MNC’s operations, but few have really succeeded in capturing the interplay among its multiple levels. As Eleanor Westney (2001: 365) points out, organizational theorists have been reluctant to engage more actively in research on MNCs for a number of reasons: the difﬁculty of assembling in the international domain the kinds of data to which OT [organizational theory] researchers are accustomed domestically, the sheer complexity of MNE [multinational enterprise] organization, and a visceral resistance to the strong pressures for normative or ‘useful’ theory that could guide the actions of managers.

It should be added that negotiating access to a multinational for interviews and ethnographic observations across a multiplicity of sites is even more difﬁcult than in the case of a domestic ﬁrm. In the absence of sufﬁciently detailed studies of the historical construction of MNCs through strategic interactions among multiple actors and levels, it is difﬁcult to separate the unfolding logic of their organizational development from its shifting theoretical rationalizations. Dunning (2001) has made a valiant attempt to distinguish the ‘main intellectual strands’ of scholarship on international business from the ‘external conditions’ inﬂuencing multinational activity. But this leaves out precisely the actors’ own understanding of what they were doing. At a general level, Dunning’s analysis conﬁrms the genealogy developed by Hedlund (1986; Hedlund and Kogut 1993), which draws on Perlmutter’s (1965, 1969) typology of multinational organization to explain how the current confusing situation can be seen as an outcome of the broader historical transformation of the MNC itself. According to this view, organizational and managerial complexity emerges when MNCs develop past the ﬁrst ethnocentric or ‘missionary’ phase, as described by Hymer and Vernon, and enter into a new phase of polycentrism: As time goes by, foreign business may become dominant rather than marginal, the subsidiaries get more activities and become more self-sufﬁcient, management becomes more host-country oriented and consisting of host-country nationals. The MNC becomes an assemblage of semi-independent units. . . . The tendency in terms of control mode is to move toward looser coupling between units and from the hierarchy . . . of ethnocentrism to market solutions. Transfer pricing based on market prices rather than internal costs, freedom to choose external suppliers, rewards and punishment in monetary terms, and elaborate bonus payment systems

14

Introduction

accompany greater turnover rates of personnel and organizational units being sold off and bought. Internationalization is more and more conducted through acquisitions rather than greenﬁeld ventures. (Hedlund 1986: 13–14)

This polycentric phase, which more accurately describes the situation we encountered in our case study, is claimed to have emerged in the 1970s and 1980s, when the individual units of the MNC gained increased leeway for autonomous action in order to enhance national market responsiveness. As we shall see in Chapter 8, this phase was believed by observers like Bartlett and Ghoshal (1989) to have drawn to a close at the end of the 1980s. The third phase of geocentrism, which follows ethnocentrism and polycentrism in Perlmutter’s typology, is seen as one in which the MNC ‘internalizes the exploitation of (country) comparative advantages’. In this phase, The subsidiaries have to implement strategies formulated according to a global logic, they have to be able to act quickly in response to competitive conditions, they must be encouraged to look at a wider picture. Most writings on global strategy give the subsidiaries a less independent role than that implied in a polycentric MNC. A re-centralization of authority to HQ often follows . . . a globalization of competition . . . . [T]he trend towards markets in the polycentric MNC is reversed. Also reversed is the tendency to duplicate activities in various subsidiaries. (Hedlund 1986: 16)

The most striking aspect of this third phase is not the expectation that it will be sharply different from its predecessors, but rather that the resulting evolutionary break is not seen to contradict previous theoretical views of how MNCs develop their ownership advantages. Hierarchy transforms into market regulation and then back to hierarchy again. In this evolution it is difﬁcult to conceive the ‘administrative heritage’ as a gradual accumulation of experience and routines for successfully running the MNC. This suggests that the organization of ‘mature’ MNCs must today be in a rather experimental phase, where a number of normative templates compete. Thus Hedlund himself proposed that ‘hierarchy’ should be replaced by ‘heterarchy’ in the third—and ﬁnal—evolutionary stage, in order to improve the MNC’s ability to foster mutual learning. With such a transformation to a ﬂexible network of ‘many centres, of different kinds’, Hedlund envisaged the emergence of ‘a meta-institution, whose unique role is the effective design, on the basis of experience, of institutional arrangements for speciﬁc tasks’ (Hedlund and Rolander 1990: 25; cf. Bartlett and Ghoshal 1998: ch. 11). Obviously, many of the potential gains for the individual member ﬁrms of the MNC imagined at the beginning of this chapter, together with the MNC’s competitive superiority relative to other forms of economic organization, would emerge if MNCs were able to transform the hierarchy into such a heterarchy.

Introduction

15

But who shall initiate this transformation and how it should implemented remains very unclear in Hedlund’s writings, whereas in Bartlett and Ghoshal’s ‘transnational solution’ it is the HQ executives who are expected to perform this alchemy by socializing subsidiary managers across the MNC in common corporate values and objectives. These scholars imply that MNCs have gained their initial competitive advantages by following the hierarchical logic sketched by Hymer and Vernon, but to exploit these advantages more fully they must change their mode of organizing to enable their constituent units to beneﬁt from the potential cooperative gains discussed above. In our view, this would mean that the executive ofﬁcers of the HQ should deliberately empower subsidiary managers, while reducing their own decisionmaking authority. As soon as the MNC evolves beyond the initial missionary phase, it thus becomes extremely unclear what type of logic is unfolding. Perhaps the contradictions between the polycentric and the geocentric phase are a signal that many contradictory logics are at play simultaneously? Might the MNC be in a state of schizophrenia? Or is it our theoretical discourse that generates these paradoxes? Our case study observations presented above suggest at a minimum that the orderly, well-informed, and highly rational managerial process usually attributed to the MNC is empirically questionable. Yet foreign direct investment (FDI) among the highly developed countries grew explosively during the 1990s (Dunning 2001: 56–61). While the MNC has become an organizational enigma, it has simultaneously become the primary vehicle for moving assets of all kinds across borders. At the same time, moreover, as Dunning (2001: 57) observes: the imperatives of new technologies and global competitive pressures are leading to an explosion of cross-border acquisitions and mergers (A&Ms) and strategic alliances. . . . [T]he volume of the former has risen eight times over the past decade, and . . . is growing at twice the rate of fdi ﬂows.

These developments, Dunning (2001: 61) contends, present major challenges to scholars of the multinational ﬁrm, and are ‘necessitating a reappraisal of the roles played, and the relationships between, the myriad of decisiontaking entities comprising these enterprises’. The novel questions he raises are perfectly coherent with those we have posed throughout this chapter: How can one accommodate the increasing signiﬁcance of A&Ms, and the constant reconﬁguration of assets and capabilities owned or controlled by MNEs into the established theories of the MNE, and of MNE activity? . . . How does the increasing instability of ﬁnancial and exchange markets . . . affect their ability to organize and shift inputs and outputs across the globe, and to price these appropriately? And how, indeed, can such tasks be accomplished in a way which balances the advantages of

16

Introduction

ﬂexibility and organizational cohesion with a coordinated yet specialized trajectory of asset enhancement?

Thus the coming of a geocentric phase—if we have indeed started to move in that direction—seems to occur together with the injection of increased polycentrism into MNCs through mergers and acquisitions (M&As), especially since these often involve not only small plants in industrial districts but other large, multidivisional corporations with many diverse assets. If managers in surviving HQs ﬁnd themselves up to their necks in problems as suggested by the initial observations from our case study presented above, this could be for good reasons. Why has external growth through mergers and acquisitions become the dominant form of multinational expansion in developed economies? Many authors believe that this development represents a response to the new imperatives of global competition and knowledge-based technologies. For instance, Rugman and Verbeke (2001: 161–2) argue that the investment decisions of MNCs are oriented increasingly towards the pursuit of strategic assets, such as access to R&D and localized innovation systems, rather than towards access to natural resources, market access, or cost efﬁciencies as in the past, even if the latter considerations still play the largest role in absolute terms. Following Dunning (1998, 2000), they see this increase in strategicasset-seeking FDI through M&As as an outcome of (1) ‘the emergence of knowledge as the ‘‘key wealth creating asset’’ ’; (2) ‘the rise of ‘‘transactional beneﬁts’’ of spatial proximity in the knowledge development process’, which ‘have led afﬁliates of MNEs to become increasingly embedded in host country innovation systems’; and (3) ‘the emergence of ‘‘alliance capitalism’’, i.e. a collaborative, stakeholder approach guiding both intra-ﬁrm relationships and inter-ﬁrm cooperative agreements in knowledge creation’. Interestingly, this brings us back to where we started in this chapter, with a new twist. Now we are not trying to explain why an independent ﬁrm in an industrial district or cluster might seek membership of a MNC, but rather why the MNC must seek a foothold in such localized innovation systems. Economic geographers and industrial economists, as we saw, are debating why MNC entry leads to a reinforcement of agglomeration advantages in some places, and to the gradual destruction of localized innovation systems in others (Belussi 2003; Asheim and Herstad 2003a, b). Rugman and Verbeke (2001: 164) see the outcome as dependent on the synergies between ﬁrm and country-speciﬁc advantages. If these create a virtuous circle of cumulative causation, they will attract MNCs and independent ﬁrms alike around a ‘pool of workers with specialized skills, the non-business infrastructure, etc.’, giving rise to ‘technological and organizational spill-over effects beneﬁting

Introduction

17

the entire, localized industrial district’. In this way MNCs are believed to beneﬁt both themselves and the district, which becomes a sustainable ‘sticky place’ (Markusen 1996) and a site for further FDI. These processes in turn may lead to the emergence of MNCs with multiple homebases organized as a ‘global web’, which acts as ‘a link between sticky, localized innovation clusters’, thereby promoting ‘international cross-fertilization’ and the ‘global diffusion of knowledge’ (Rugman and Verbeke 2001: 166–72). Our case study observations cast doubt on whether the managerial apex of MNC HQs is currently capable of deliberately organizing the construction of such a global web. In our case, at least, the HQ seemed to ignore the possibilities for cross-border learning and knowledge transfer that local subsidiaries sought to reveal through their actions. We found no procedures in the HQ for assessing the ‘stickiness’ of their subsidiaries’ locations. Nor did we ﬁnd any awareness among top managers of how the subsidiaries utilized or contributed to the localized innovation systems of such sticky places. Thus as Rugman and Verbecke (2001: 172) themselves acknowledge, the theoretical potential of ‘such a diffusion process may be tempered by the MNE’s limited capabilities to absorb and transfer knowledge . . . within their own internal network, especially when multiple home bases are used, with distinct approaches to knowledge development and transfer.’ Other recent empirical research on MNCs does help to explain how they might become ‘global webs’ and unintentionally acquire such local knowledge. But this would be less an outcome of the HQ’s locational decisions than of a chaotic struggle for survival, expansion, and mutual positioning among its subsidiaries. A growing number of studies focusing on subsidiary– HQ relations in Canada, Ireland, and Scotland (Birkinshaw and Hood 1998) show that over time a large proportion of subsidiaries develop strategies for expanding their ‘mandate’ (Delany 1998). They do this primarily by taking subversive steps to broaden the scope of their activities relative to the initial assignment received from the HQ. If these entrepreneurial subsidiaries succeed in earning higher returns for the HQ than their more passive counterparts which stick to their assigned mandate, they will generally be given greater autonomy. The unintended consequences of such an evolution within MNCs could easily be that those who pursue subversive strategies and move beyond their original mandate will grow quickly while the ‘boy scouts’ who stick to a given mandate will stagnate. Thus, even within multinationals that base growth primarily on greenﬁeld investments, this literature suggests that an increasing diversity of evolutionary logics will emerge from the unintended consequences of MNCs’ global expansion. It would be natural to expect that acquired subsidiaries that originated as independent ﬁrms in industrial districts or as part of other corporate groups

18

Introduction

would have an even greater propensity to strategize subversively towards the MNC. As Birkinshaw (2001: 383–8) shows, the literature on MNC subsidiaries has gradually moved from taking their hierarchical subordination to the HQ for granted to a much more complex picture, where subsidiaries are positioned in a heterarchical network. Such studies initially addressed the MNC as a whole rather than the subsidiaries per se. But more recent work has focused on the subsidiaries in their own right, demonstrating that they may develop a variety of roles, such as centers of excellence in specialized areas (Forsgren 1990), and that their position within the multinational may also change over time. Some analysts see this as an outcome of HQ policies, while others see it as an outcome of subsidiary initiatives (Birkinshaw 1997). The latter research stream has discovered substantial perception gaps on this question between managers at different levels of the MNC (Arvidsson 1999; Birkinshaw et al. 2000; Holm and Pedersen 1995). These studies call into question standard hierarchical views of the multinational, and present MNCs as bundles of quasi-independent ﬁrms in a market system, or as quasi-independent nodes in a network or global web. Birkinshaw (2001: 389) ﬁnds it useful to distinguish between the role assigned to the subsidiary by the HQ and its own autonomous development strategy. The more these two diverge, the greater the tension and the less predictable the outcome. In his analysis, subsidiary strategy can be deﬁned as ‘the positioning of the subsidiary vis-a`-vis its competitors and customers . . . with regard to its underlying resources and capabilities’. Whereas previously positioning in a local market seemed to be the most important raison d’eˆtre for subsidiaries, today marketing, sales, and customer contacts are often organized on an international scale, whereas subsidiaries are achieving increasing entrepreneurial discretion in managing their ‘resource base’, including both their own internal resources and those of the local context in which they are embedded. This literature on subsidiary strategies has so far concentrated on studies of ﬁrms owned by different MNCs within a single country (Birkinshaw and Hood 1998). Within each of the countries examined, a variety of subsidiary strategies towards the parent ﬁrm has been identiﬁed. The explanatory focus has fallen on individual managers and the room for maneuver that they have been able to discover and exploit. So¨lvell and Zander (1998) reach a similar conclusion regarding the gradual disintegration of MNCs through a deduction from two theoretical premises. Against the traditional view that MNCs have special advantages in the development and diffusion of new technologies, they reinterpret the literature on innovation. They suggest that subsidiaries engaged in technological innovation will be able to achieve greater cost-effectiveness in R&D investments (through which they gain independ-

Introduction

19

ence in the short term from the HQ) by communicating with external actors in their local context rather than using the international network of the MNC. This in turn will have long-term consequences: As foreign units over time become more ﬁrmly established in their local innovation system, they gain to an increasing extent unique and insider access to local knowledge exchange. This unique access to the local innovation system will create independence and simultaneously make the foreign unit more difﬁcult to control from headquarters. Thus, while increasing commitments to operations in foreign countries provides the MNE with one of the prerequisites for assimilating knowledge on an international scale, integrating activities and exercising control becomes more difﬁcult. Put somewhat differently, as the MNE becomes an insider in local innovation systems, it will at the same time become an outsider within itself. (So¨lvell and Zander 1998: 411)

And this process of mutual alienation is then reinforced by HQ–subsidiary power struggles within the MNC. Birkinshaw (2001: 394) argues that this combination of global marketing and local resource/capability development creates an unresolved dilemma for the MNC because ‘strategy making is all about ensuring that the market and resource sides of the equation ﬁt together. Corporate-level managers are illequipped to do this because they do not understand the unique resources and capabilities in the subsidiary, whereas subsidiary managers have the knowledge, but not necessarily the power to fulﬁll this role.’ He therefore proposes that researchers should start looking at how MNCs are resolving this dilemma in practice, and suggests some answers from his own ﬁndings, such as subsidiary representation on global marketing teams, world product mandates, internal market structures, and corporate knowledge sharing systems. We will consider such proposed organizational solutions in Chapters 8 and 10 below. But our observations in the case of APV suggest that the knowledge–power dilemma in HQ–subsidiary relations has not been successfully resolved. Why this may be so is very important in understanding the nature of the problems with which MNCs are currently struggling. One reason could be that HQ–subsidiary relations are becoming increasingly complex not only because the latter’s entrepreneurial role has changed. When subsidiaries enter MNCs in swarms through mergers and acquisitions, which as we saw is becoming more and more typically the case, then neither can be expected to grow through stepwise adjustments to coherently evolving administrative routines, but instead will experience a sudden and repeated conﬂuence of heterogeneous and mutually contradictory organizational structures and practices. If so, why should it be easy to ﬁnd a solution to the knowledge–power dilemma identiﬁed by Birkinshaw? Should we not

20

Introduction

expect it to create a host of other problems and a diversity of possible outcomes?8 Our analysis indicates that MNCs currently ﬁnd themselves in a polycentric and a geocentric phase simultaneously. Whether such a situation provides the basis for the construction of a viable form of heterarchy is highly questionable. A multinational comprised of entrepreneurial subsidiaries that have been merged together after cultivating their own indigenous routines and capabilities in symbiosis with their home communities seems a very unstable mixture. In principle such a grouping could offer the potential for creative recombination. But does it meet the conditions necessary to become a ‘Nearly Recomposable System’ (NRS), as Hedlund (1999) renamed the heterarchy? Contemporary acquisition-driven MNCs, as we found in the case of APV, lack a number of the critical requirements Hedlund (1999) postulated for a NRS, such as a common language, rich ‘know-how’ networks, a strong knowledge vision, a shared identity, effective cross-border communication, and a system that rewards new compositions. Such a diagnosis would point, as Hedlund himself advocates, to the need for deliberate action to be taken to improve the MNC’s ability to integrate knowledge across its globally dispersed and diversiﬁed constituent units. But then a typical short-cut, which has been taken many times before in the literature on multinationals, is repeated, whereby the author simply postulates the emergence of a new stage of business organization, in this case the N-form ﬁrm, in response to the limits of its predecessors (Hedlund 1999: 31–3; cf. Hedlund 1994). Normative-theoretical views have guided both the object of study and the analysis itself, which thereby leads us to a series of more or less predetermined conclusions. Ironically, it is precisely where organization theory has tended to prescribe in advance the conclusion of empirical studies that it has in recent years contributed to enhanced comprehension of MNC behavior. The new sociological institutionalism, which emphasizes isomorphic pressures on organ8 In a recent article, So¨lvell (2003) argues that this dynamic is leading to the emergence of different types of MNCs—multi-domestic, transnational, and multi-home-based—depending on the way they combine global competitiveness and local innovativeness. Doz et al. propose the ‘metanational’ form as the ‘next step in the evolution of the multinational enterprise’, based on global scanning, melding, and exploiting dispersed knowledge from the periphery of the organization rather than outwards projection from the headquarters or home base. But ‘the full-ﬂedged metanational corporation’, they acknowledge, ‘does not yet exist’, while many of the best current examples of this emerging organizational form are companies that were ‘born in the ‘‘wrong place’’ ’, far from the geographical centers of their industries. As they point out, established companies seeking to move beyond traditional multinational forms often fall into the symmetrical traps of ‘trying to ‘‘shoehorn’’ the new [metanational] capabilities into an existing organization’, or ‘investing in costly communications channels between existing units only to end up with a ‘‘global debating society’’ instead of a powerful new innovation engine’: see Doz et al. (2001: 5, ch. 3; 2003: 166).

Introduction

21

izations to adapt to the cultural and behavioral norms followed by other surrounding organizations (Powell and DiMaggio 1991), has in this way contributed to a growth in understanding. Though studies in this vein have focused particularly on the adoption of modern human resource management (HRM) practices at different levels of the MNC, this approach could also provide a partial explanation of why in the APV case, the HQ was eagerly seeking to make itself look good in the eyes of institutional investors, fund managers, securities analysts, and ﬁnancial journalists in the City of London, rather than trying to promote synergies and cross-fertilization of knowledge among its constituent units. From this perspective, it could also be expected, as Westney (2001: 365) points out, that each unit within the MNC would seek to adapt isomorphically to the local organizational ﬁelds in which it is embedded. Thus every time we try to capture and make sense of the MNC, it disappears back into a multiplicity of local contexts, leaving us with the question: what kind of organizational entity is it becoming? Compared to the 1960s, when academic analysts had a clear view of the nature of MNCs based on various forms of economic rationality, today this question leads us instead to a series of dilemmas and paradoxes about the relationship between the global and the local, in which it is far from obvious which players are engaged in what games.

3. The Architecture of the Book Dilemmas, paradoxes, and schizophrenia may be overcome if we adopt a polycentric perspective to describe a polycentric situation, as we do in this book. From this perspective, the construction of an MNC should not be narrated solely in terms of the core ﬁrm’s gradual extension from a local through a national to an international phase. Rather, a number of intersecting narratives concerning formerly independent ﬁrms from several countries may be told to explain how and why they joined the MNC; how they perceive the experience of membership in this new ‘association’ and what they expect from it; and how they struggle with one another over the internal division of labor to determine what social space each shall occupy within the multinational. It is misleading to present the development of a multinational in terms of a singular evolutionary path when it has been constituted through mergers among previously autonomous ﬁrms. In such cases, organizational learning and the evolution of successful routines and competencies have all followed multiple paths, whose varied courses give the actors concerned strong

22

Introduction

impetus to follow distinct strategies. In Porter’s (1990) terminology, the MNC is a ﬁrm with multiple home bases. The evolution of the MNC then becomes dependent on the pattern of interaction among formerly independent strategic actors and their abilities to associate with one another and negotiate a mutually acceptable division of labor. How far this association can be controlled from the HQ depends on whether the core ﬁrm was able to internalize the art of control and coordination as a past routine or may gradually obtain this capacity through its subsequent actions. Other parts of the MNC, however, may come to assume these functions either by chance or design, leaving the formal HQ with quite different tasks, as will be the case in our story. In Part I of this book, we show that contrary to the predominant conceptualization of MNCs as expanding outwards from a single center of origin, their formation often occurs, as in the case of APV, by associating multiple local ﬁrms which have each learned to pursue strategies of global reach within their own national business system. Thus each ﬁrm’s narrative is followed up to the point of acquisition. It was never very likely that this process of narration, which represents the actors’ own attempts to make sense of their world, would end with a sudden loss of memory, whereby the formerly independent company immediately comes to identify with the master narrative of its new multinational owner. Thus we conceptualize the globalization process as a coming together of multiple narratives which simultaneously co-exist, rather than merging automatically into a single unity. Our fundamental point is that it is the unending process of mutually aligning these multiple narratives that constitutes the core challenge of coordination and ‘control’ for the MNC, and only to the extent that this process is effective will its global operations become successful. In Part II, we focus more closely on the process of mutually aligning such multiple narratives. We analyze this process as a reciprocal strategic game, which the actors have each learned to play in their own local and national context, adapting their strategic skills to deal with players coming from other parts of the world where different rules prevail. In framing the situation this way, it becomes apparent that learning to read one another’s moves, experimenting heuristically with guesses about when a particular rule applies, is no simple matter, as is typically assumed in the literature on MNCs. Our aim is to spell out the difﬁculties involved in transforming these non-cooperative games into ones based on mutual collaboration among organizational units. Such collaboration is essential if the MNC’s potential for global synergy and cross-fertilization is to be realized, but it seems to be undermined by the very players who should create it. In Part III, by comparing our ﬁndings to those of the broader literature, we try to reach a deeper understanding of the administrative and human

Introduction

23

challenges of managing the multinational under conditions of globalization. We show that this task looks insoluble through conventional organizational methods and structures. It appears as though the very organizational structures which were expected to solve the key problems make them instead far worse. Thus efforts to contain opportunism appear rather to have institutionalized such behavior, while attempts to exercise the residual rights of ownership tend to delegitimize the MNC in the eyes of its constituent units. Hence we search for new procedural solutions through which local and global sense-making can be brought together to foster mutual recognition and cross-border knowledge exchange, and propose a set of ‘learning by monitoring’ mechanisms to resolve the managerial challenges we have identiﬁed. As such solutions entail an effective redistribution of authority within the corporation, we then go on to explore how a new multinational public may be created to mobilize pressure for step-by-step reforms in its organization and governance, while simultaneously gaining power to negotiate on behalf of the localities on more and more equal terms with HQ executives. This is an ambitious and demanding project, whose success is far from preordained or even probable. In the book’s concluding chapter, we ﬁrst take stock of the destruction of capital, jobs, and enterprises produced by running MNCs along existing lines, and then consider a set of alternative long-term scenarios that may result from local responses to their current organization and behavior. These scenarios illustrate not only the many difﬁculties of harnessing the creative potential of multinational enterprise, but also the serious obstacles to a smooth continuation of the globalization process in its present form.

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Part I Local Pathways to Multinational Enterprise

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2 Associating Local Strategies of Global Reach: Horsens, Lake Mills, Eastbourne, and APV Our picture of the multinational changes radically when the story of its formation is told from a polycentric point of view. In most empirical studies of MNCs, the stage is set by the strategy attributed to the managerial apex of the ﬁrm that comes to constitute the HQ. The growth of the MNC, by establishing new overseas branches and acquiring or merging with foreign ﬁrms, is thus typically recounted as the enactment of a single logic which embraces both the incorporation and ascribed role of each of its subsidiaries. In this chapter we tell such a story instead from the perspective of four distinct ﬁrms, which after struggling for survival as more or less independent entities for over a century, came together in the 1970s and 80s to form a single MNC. In reality, this polycentric narrative should not be limited to the histories of the four ﬁrms covered in this book. Rather the constitution of such an MNC should ideally be recounted as the conﬂuence of dozens if not hundreds of formerly independent enterprises. But to tell this full story in all its complexity would be beyond our capabilities. By recounting four of these many more possible histories, we hope nonetheless to cast fundamental doubt on received ways of thinking about the formation and functioning of MNCs. As we will show, these independent ﬁrms each entered into the MNC for their own reasons, seeing this as the preferred alternative among several possibilities. In two out of three cases, the ﬁrms in question were already pursuing a multinational strategy of their own, whether individually or as part of a larger group. Since these efforts had failed or their prospects looked bleak, each ﬁrm opted instead to become part of APV. But as their separate histories reveal, it was by no means predetermined that APV would become the ﬁrm that constituted the MNC headquarters and thereby saw itself as acquiring the right to manage the others. As we shall see, APV’s historical legacy gave it some comparative advantages in ﬁnancial and accounting skills, but these were more the result of a distinctive pattern of failure and damage repair than

28

Local Pathways to Multinational Enterprise

the outcome of a successful strategic logic. Nor was APV’s ‘administrative heritage’ fundamentally oriented towards controlling and coordinating foreign subsidiaries; it focused instead on managing relationships with capital markets and institutional investors. Other constituent ﬁrms had developed a complementary legacy of engineering their own purchase and sale, using this strategic capability to ﬁght for a desirable position or role in a multinational of choice. Both legacies—together with a multitude of possible others—form part of what may be called the MNC’s collective administrative heritage. But would the conﬂuence of these different legacies touch off a positional struggle within the MNC rather than enabling the HQ to aggregate the subsidiaries’ experiences into a common heritage subordinated to its own strategy? In this chapter, we tell the story of how a Danish, an American, and a British ﬁrm entered into APV, before narrating in a similar and parallel way the history of the original ﬁrm that happened to constitute the MNC headquarters. What becomes very clear as a result is that each ﬁrm had developed distinctive capabilities, brought very different expectations as to what kind of association they were joining, and drew on very different past experiences in tackling new situations. Consequently, depending on which vision and strategy prevailed over the others, the MNC could have evolved in four very different directions. The separate tales recounted here immediately call into question any expectation that these ﬁrms’ distinctive pathways would be subordinated to that of the HQ merely as a consequence of joining the multinational association. In Part II of the book, we shall see how consistently these historical legacies continued to inﬂuence each player’s moves within the global game of the MNC.

1. Technical Success and Commercial Failure in Global Competition: From a Heterogeneous Danish Machine Shop to a Pump and Valve Subsidiary1 A Machine Shop in Evolutionary Harmony The Danish ﬁrm, which we will refer to in this story as APV’s Horsens plant, from the town in eastern Jutland where it is located, owes its early formation 1

In this account of how a Danish ﬁrm became an afﬁliate of APV we cannot simply refer back to its ofﬁcial company history, since this has not been written. This account is based primarily on oral interviews with long-serving managers, workers, and union ofﬁcials, together with a small collection of newspaper articles, photographs, catalogues, and brochures lent to us by the ﬁrm itself. Among the most important of the latter are: Thorup (1998); ‘part 1’ of the Personnel Handbook, APV Fluid Handling Horsens (n.d.); Mælketidende (1893: 417–19, 1901: 745–6); Arbejder, Ha˚ndværker og Industrimuseet, Horsens, ‘Maskinindustri til det danske mejeribrug— Med udgangspunkt i tre udvalgte virksomheder’ (1996, mimeographed).

Associating Local Strategies of Global Reach

29

to the successful development of Danish cooperative dairies, of which nearly 1,200 were established between 1880 and 1914 (Kristensen and Sabel 1997). The APV Horsens plant can trace its origin back to 1874, when Wilhelm Paasch, a traveling plumber from the southern province of Schleswig (which had recently been forcibly ceded by Denmark to Germany), took over his father-in-law’s plumbing shop. Paasch soon announced that, in addition to normal plumbing jobs, he would produce and sell equipment for farm dairies. In contrast to Paasch’s excellent talents as a merchant, his reputation as a craftsman seems to have been very humble. The ﬁrm’s reputation began to change when Paasch met two ﬁtters, Lars Peter Larsen and Valdemar Petersen, who were working for a Copenhagen ﬁrm specializing in agricultural and dairy equipment. Together they formed the ﬁrm Larsen, Petersen and Co., which continued until 1898, when the three men created a new joint-stock company called Paasch & Larsen, Petersen (PLP) A/S. In the early 1880s the ﬁrm came into contact with Docent N. J. Fjord, one of the foremost pioneers of modern dairy practice in Denmark, whose assistance enabled it to become a prime mover in producing pasteurization equipment and devices for measuring the butterfat content of milk. As a result, between 1888 and 1894 the Horsens ﬁrm won a series of prizes for excellent machinery and equipment, thereby securing a leading position in supplying the cooperative dairy movement during its formative years (Thorup 1998). In 1893, the Danish Dairy News (Mælkeritidende) called attention to the opening of Paasch’s new factory, which comprised a number of different shops, each specializing in certain of the ﬁrm’s many products. The forge served the factory as a whole but specialized also in cheese vats (both ‘round and American’), and vessels to make sour cream and milk coolers. A machine room made steel vessels for milk. The coppersmith shop made pasteurization equipment, while a special shop was devoted to the manufacture of Docent Fjord’s measurement and control devices. There was a shop for milk coolers, another for milk pails, and ﬁnally a large shop for all sorts of other products outside the ﬁrm’s normal specialties. In these shops Paasch employed about 30 workers, said to be highly skilled and better paid than normal, enabling the ﬁrm to improve the quality of its products, in accordance with the needs of its dairy customers, to whom it was always willing to listen. It was precisely this above-average skill and customer responsiveness, according to the article, that made Paasch’s new factory worth mentioning in the Dairy News (Mælkeritidende 1893: 417–19). Already in 1888, Paasch’s price list described the ﬁrm as a ‘supplier to most of the established cooperative dairies’. Though Wilhelm Paasch himself died in 1901, PLP A/S continued to grow under new managing directors, partly by setting up subsidiaries in other Danish towns, and partly by patenting and

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selling its products abroad. Before 1914, the ﬁrm could communicate in the native language of customers from Britain, Germany, France, and Spain. In this period the products became increasingly sophisticated, including innovations such as sour-cream vessels with coolers which could be hydraulically raised and lowered, or easy-to-clean pumps and pasteurization equipment. During the interwar years, too, PLP seemed to excel in manufacturing new, highly sophisticated products like plate pasteurizers (1923) and a revolutionary cubic churn (1938), both made of stainless steel, increasingly the material of choice for dairy equipment. In the 1950s this development path continued with smarter weights, cheese mixers, plate heat exchangers, pumps, milk tanks, and milk pail transporters. By the late 1950s, the Horsens plant was moving towards the integration of discrete processing equipment into a rational ﬂow layout. At an exhibition in 1961, the ﬁrm presented images of what a fully modern dairy might look like, including designs for a standard turnkey installation. Running through this history is a mutual rivalry between PLP and its domestic competitors in the Danish business system aimed at gaining the highest reputation among its customers: dairymen and farmers (Kristensen 1996, 1997). To achieve such a reputation, the machine shop used its accumulated experience and skills to make the speciﬁc equipment demanded by each particular dairy, and through this process it continuously elaborated its range of products and services. As local dairies at ﬁrst varied greatly in size and in mix of activities between milk, cheese, and butter, each order was qualitatively different. Thus to meet these varying demands, PLP would have to make use of an increasingly rich network of subcontractors, suppliers of motors, centrifuges, blenders, freezers, etc. on the one hand, and its workforce’s ability to carry out different projects by integrating planning and execution processes on the shop ﬂoor and at the customer’s premises on the other. Since PLP was located in a district in which there was competition for highly skilled workers, this business strategy was reinforced by the fact that the ﬁrm could offer its skilled workers plenty of shifting craft challenges both in-house and while assembling and installing equipment at its customers’ premises. Thus in seeking a distinctive reputation among its customers, the ﬁrm was simultaneously building a reputation as a good workplace in the local labor market. For that reason it could easily man its shop with a highquality team of craftsmen, which again became the basis for serving its customers in the best and most ﬂexible way. Very competent professionalism during the installation of a dairy made customers ask the Horsens plant to take on the after-sales service, and when servicing dairies these competent workers could easily suggest improvements, which led in turn to orders for

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new equipment. Thus to many customers, PLP became a continuous partner in the gradual improvement of a dairy or other food-processing plant and was even called in for consultation when the customer was experimenting with new products and processes. Being locally acknowledged as an excellent workplace, the Horsens plant had easy access not only to established craftsmen but also to new apprentices. Horsens could choose among the most promising candidates to such an extent that many more than were needed to reproduce its own workforce ﬁnished their apprenticeship in the plant’s shop and ofﬁces. This surplus of journeymen, however, had easy access to other manufacturers, vocational training institutions, public services, etc. as they carried the high reputation of Horsens’s workteam with them. Often other ﬁrms and organizations would promise highly trusted positions and promising careers to attract Horsens’s excess journeymen. In consequence it was very easy for Horsens to establish cooperative relations with subcontractors, vocational training centers, public services, and sometimes even competitors through this network of former apprentices. This entire process also helped Horsens’s workers to become established as the ﬁrst among peers in its community and often craftsmen from the ﬁrm became candidates for elected positions in the local labor unions and on the municipal council. Thus, in the eponymous provincial town where Horsens was founded and is still located, the ﬁrm became an ‘institution’, whose survival was considered important across many political and social divides. Positioned in this way in its locality, PLP managed to meet competition from other Danish suppliers of food-processing equipment for 80 years until the beginning of the 1960s. Some competitors, of course, occupied an analogous position in their own home towns and in this way whole communities became engaged in a reputational rivalry. A few Danish machinery ﬁrms also engaged in vertical integration and experiments with Americaninspired management and production methods, but for a long time this alternative mode of organization seemed not to yield much extra comparative advantage. Such ﬁrms were often established in localities that lacked a surrounding district of sub-suppliers, so that their vertical integration was rather to be seen as a compensation for the external resources which plants like Horsens enjoyed. Thus up to the early 1960s, PLP was able to support its customers in their gradual modernization and upscaling of production facilities, as well as to assist them in developing process equipment for their product differentiation strategies. Like some of its competitors, the ﬁrm became involved in the export of food-processing equipment and plants to foreign countries, which often saw Danish food manufacturers as worth copying or, as in the case of

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Third World countries, received development aid from Denmark to establish their own dairy systems. The Emergence of Oligopolistic Competition But in the 1960s and early 1970s, the competitive environment in Denmark changed dramatically. Among both dairies and breweries a huge concentration and centralization process was set in motion, as a result of which MD Foods and Carlsberg would eventually wind up dominating the two industries. This concentration process demanded a radical upscaling of equipment and a wholesale shift towards continuous processes in all areas (for instance in butter and cheese production and through the use of ﬁltration). To make this quantum leap in process, technologies demanded high R&D budgets, risky investments, and a sharp change in the marketing facilities of the industry in which PLP operated. Previously, customers would typically pay for the technological improvements they demanded through individual orders, and in exchange receive the improvements that other customers had ﬁnanced in the past. Now the industry had to take ﬁnancial risks by engaging in larger R&D projects while its home market was simultaneously shrinking with the rapidly reduced number of dairies and breweries. In addition, the closure of many dairies and breweries meant the loss of longestablished, close customer–supplier relations. Thus the whole social network, within which these transactions had been previously embedded and whereby a balance of reciprocity had been secured, was destroyed. In short, risks increased and there were fewer customers with whom to share them. In 1962, these growing challenges led to a merger between PLP and Silkeborg Maskinfabrik A/S, another highly reputed Jutland dairy-equipment producer, to form ‘A/S Paasch og Silkeborg Maskinfabrik’ (PSM). The newly merged ﬁrm then began to collaborate more closely with De Danske Mejeriers Maskinfabrik (the Danish Dairies Machinery Works) in Kolding, which also owned Rannie, a homogenizer manufacturer in Copenhagen. By 1977 this resulted in a full merger, creating a new group known as Pasilac A/S, headquartered in Silkeborg. Another key player was Alfa-Laval, a Swedish multinational, which had played a major role on the Danish market since the turn of the century.2 In this way the competitive game soon became oligopolistic, and it was obvious that Pasilac was ﬁnancially too weak to play effectively against its Swedish competitor. Moreover, the Swedish MNC already had access to an inter2 For the historical development of Alfa-Laval and its international activities, see Bondeson (1983); Zander (1994); and Zander and Zander (1997).

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national organization in which it could sell its inventions and amortize development costs, unlike its purely Danish-based rival. Soon after Pasilac’s creation, therefore, the group negotiated its own takeover by the Danish Sugar Factories, a Copenhagen-based holding company and the country’s largest privately owned food producer, in order to secure the ﬁnancial resources that would allow it to adapt to the new competitive regime. During this period the Horsens plant was in a weak and very dependent position. And yet a curiously balanced game soon became established between Horsens and the Pasilac headquarters in Silkeborg. Acknowledging Horsens’s reputation for technological and craft ingenuity, Silkeborg would often use its afﬁliate as a facility for solving some of its customers’ more complicated problems, if these fell outside the specialized competences of its R&D department, which was centralized in Silkeborg together with sales and marketing, accounting, construction, and the service department. Whereas previously Horsens had experienced a balanced game of give-and-take with its customers, Silkeborg now paid below full cost for complicated orders and only used Horsens as a supplier for more remunerative standardized work when it needed extra capacity. The double effect was that Horsens was able to maintain itself as a manufacturer of rapidly changing products, making it an attractive workplace for skilled workers and apprentices, but was also reduced to a mere workshop unable to take any action towards the market on its own, and thereby having no defense when its accounts showed losses due to very low transfer prices. This ambiguous situation was further reinforced when Silkeborg started to allocate to Horsens those managers who had lost their place in the power struggles within the dominant coalition at company headquarters. For these managers, their exile to Horsens was the last station before being sacked. Consequently they were only too eager to conﬁrm any critique that Silkeborg might make against Horsens. Thus Horsens was gradually losing, if not its technological capabilities, then its reputation as a viable company, making some workers and its network of suppliers skeptical about its future. In other words Silkeborg had prepared a role for Horsens as a sacriﬁcial lamb should a situation emerge in which one was needed. Finding a New Way to Play the Traditional Game Such a situation emerged in the early 1980s when the Danish Sugar Factories became impatient about the seemingly permanent red bottom line of Silkeborg’s accounts. A more thorough restructuring was demanded. But Silkeborg had its own plans ready. A number of sacriﬁcial lambs had been prepared among the newly acquired subsidiaries. Now it was simply

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suggested that activities should be concentrated in the vertically integrated home plant in Silkeborg and many of the acquired factories should be closed. But the Silkeborg managers had miscalculated the reaction of the workers and for that reason also of its Copenhagen owners. With the passage of the Aktieselskabslov (Joint-Stock Company Law) in 1973, employees had been granted the right to elect their own representatives to the boards of companies beyond a certain size.3 Since Horsens’s skilled workers, as mentioned earlier, were very active in local union politics, they had considered it an obligation to exploit this new legal opportunity and gain experience of the new rights, and could use their control over the local section of the Metalworkers’ Union to have the plant’s convener of shop stewards elected as a representative of the company’s blue-collar workers to the board in Silkeborg. For that reason a fairly new voice was soon explaining to the Copenhagen owners that the distribution of loss and proﬁt-makers among different plants within the Silkeborg-based holding company might be the outcome of internal transfer-pricing practices rather than a reﬂection of their comparative efﬁciency. Consequently, if the board decided to close most of the newly acquired plants, a year later they might discover that the large vertically integrated plant in Silkeborg would incur greater losses itself than the whole business group had been making up to that point. These warnings fell on attentive ears. Possible alternatives were analyzed and the outcome was a much more radical restructuring than anyone from the dominant managerial coalition in Silkeborg had been able to imagine even in their worst nightmares. First, the Copenhagen owners wanted to create a system in which it was possible to assess the individual performance of each plant. Thus each plant would have its own accounts, its own sales and marketing, a small development department, and such functional departments as they themselves believed would help improve their internal performance. Second, each of the subsidiaries would operate as independent ﬁrms with their own boards on which the Copenhagen owners were represented directly. Third, the board of the Silkeborg holding company was to oversee the treasury and ﬂow of resources, decide on transfer prices, and allocate investments in new machines and factories. Fourth, a radical change in the intraﬁrm division of labor was instituted. The Silkeborg plant would be considered the center for tank and other large constructions and would at the same time produce some of the group’s most technically complicated 3

Unusually for Danish industrial relations, this right was introduced through legislation rather than a voluntary collective agreement. Initially, the size threshold for election of representatives to company boards was set at 50 employees, but that was reduced to 35 in 1989. Employees may participate in the election of board representatives even if they are not union members and/or are not covered by collective agreements. See Westenholz (1999); Asmussen (1998).

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machines (such as continuous butter makers). Danish Turnkey Dairies in Aarhus, which had been established by the Danish Sugar Factories group in 1969, would concentrate on engineering and designing turnkey foodprocessing plants for external customers. The former Danish Dairies Machinery Works plant in Kolding was to specialize in plate heat exchangers and Rannie in Copenhagen in homogenizers, while Horsens was assigned to specialize in stainless-steel pumps, valves and ﬁttings for all types of integrated food-processing establishments. Many of the exiled managers from Silkeborg were simply ﬁred, thereby in one stroke cutting the old ties of dependence to the former parent plant. Horsens instead hired a new CEO who came from a position entirely outside the business group and read the situation as one in which he could create a new company out of the ﬂesh, bones, and soul of the former ﬁrm with its high technical reputation. As is typical for many Danish managers within this industry, the new CEO had started his career as an apprentice machinist. After having worked for a while as a journeyman machinist worker, he was employed as a meister or foreman in different factories. He then undertook further training as a ship engineer (maskinmester) and sailed for some years. From this experience he had learned to manage a small team of workers in critical situations, which he used in his next job as team leader for a group of oil workers, many with very odd or extreme personalities, which he had to be able to ‘read’ in order to be able to manage them. Then he became a salesman for a number of years and built up an extensive network of contacts across ﬁrms throughout Denmark. When his family demanded from him a less vagrant life, he settled for a while as a business consultant, and from this position he gained a job in a Danish subsidiary of a British MNC. In this post, he suddenly became aware of the radical differences between British and Danish ways of managing, in particular the far greater degree of autonomy practised by Danish workers. When this manager came to Horsens, he was thus able to assess the human potential of its workforce, and dared to initiate a number of very radical organizational changes. A huge seminar room was created in the cellar to institute an in-house version of the Danish ‘folk high school’. For several evenings each week over a period of a year, this room became a stage for discussing strategy, organization, and personal careers, open to all employees who wanted to participate. Out of these meetings emerged a number of functional departments: a new product development department, manned primarily by former skilled workers and a couple of engineers recruited from other ﬁrms within the Silkeborg-centered business group, collected from all other afﬁliates drawings and construction principles for pumps, valves, and ﬁttings and started

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to group these into product families. A new methods department, manned the same way, started to investigate which group of products could be produced on which machines, which products would demand new machines, and which could be farmed out to the numerous subcontractors of the region or within the business group to which Horsens belonged. A new purchasing department, tightly integrated with the new production planning department, started to plan output of about 3–4,000 products built up from 30–40,000 components, based on the conviction that the normal throughput time of 33 weeks for pumps and 15 weeks for valves had to be drastically reduced. A new sales department started to anticipate a world in which it should not only learn to service the business group itself in a better way, but also try to capture as much of the external market as possible. All these departments were serviced by a centralized computer system, using an adapted version of IBM software, which it was believed could assist them in establishing rapid cooperation. As many of the new white-collar workers and managers who now manned these new functions had extensive shop-ﬂoor experience, they were highly focused on how to speed up production. But Horsens’s production was then organized functionally, as was typical for many machine shops at that time in Denmark: machines were grouped according to process (welding, turning, drilling, etc.), so that components had to zig-zag back and forth in many combinations. For that reason, a new production manager who had experience of changing such plant layouts into integrated groups was hired, and a huge factory reorganization process soon became the focus for the lively evening debates in the cellar seminar room. From all this, the concept of a highly ﬂexible factory developed. It was to be based on equipment at hand and a substantial number of newly acquired computer-numerically-controlled (CNC) machines. The idea was to place these machines in product groups (one for pumps, another for valves, and a third for ﬁttings), to be serviced by other functional operations, such as polishing. The factory was re-equipped to allow for easy reallocation of machines between and within product groups, since everybody admitted that no one could have any idea what the groups’ capacity needs would be, either in the short or longer term. Though the new production manager basically drew on American-inspired ideas about the integration of massproduction ﬂow factories, he was convinced that—at least during an initial period—they would have to make highly ﬂexible use of the new machines. This allowed skilled shop-ﬂoor workers to imagine the new production layout as a huge and very inspiring craft challenge in which they were ready to cooperate both practically and formally. Thus the convener and the production manager formed a very tight team that together implemented

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this revolution in a very short period. Individual workers were inspired to take evening classes in programming techniques and before long they were competing within and across product groups over who would gain the highest reputation in commanding the new technologies, in changing rapidly from one batch to the next, and in ﬁnding new ways to use the old and new CNC machines. In short, Horsens had re-created a situation which unleashed the old competition over reputational skills. This competitive game occurred in a factory that again was able to attract admiration locally and sectorally, but more important still the technical reputation could be gained in concert with commercial and economic success. In 1981–2 Horsens reached a turnover of 37 million Danish kroner (DKK) and turned a huge loss into a small surplus. In 1983–4 it reached a turnover of DKK93.5m and its pre-tax proﬁts had reached DKK9m, while for 1985/6 the turnover reached DKK158m. Instead of 33 weeks, the lead time for pumps was now 2–3 weeks. Instead of 15 weeks, valves could now be produced within 4–5 weeks. And this new strategy implied that due to capacity limitations, Horsens had to restrain its external sales compared to what would have been possible. By 1985 Horsens was a highly self-conﬁdent actor within a business group that seemingly had recovered from a severe crisis in a very short time. The Failed Danish Attempt to Conquer the World What Horsens had accomplished on a small scale seemed matched if not exceeded by what the whole group was accomplishing on a large scale. Its turnkey engineering subsidiary had proven highly successful in gaining orders both from the large cooperative dairy group, MD Food, and for projects in Third World countries. With the new group of specialty suppliers and with Silkeborg’s ability to deliver large constructions and continuousﬂow machines within radically reduced lead times, the entire business group felt prepared to conquer the world. Its strategy for becoming an offensive player followed the pattern which we have already had the opportunity to learn from the case of Horsens. The turnkey engineering subsidiary’s idea was that they should try to cater for the most technically demanding and difﬁcult market. When that proved successful they would then have established a global reputation as the leading engineers and manufacturers of large-scale dairies. The most difﬁcult and demanding market was considered to be North America. Rather than just opting for small and middle-sized dairies, the Danish holding company sought to win a contract for one of the largest and most advanced dairies being planned on the US market, and in 1982 they

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were successful. In Denmark, the press celebrated this contract as a national victory carrying the promise of future global expansion. But soon the Danish business group was entangled in a seemingly familiar game, where only the rules were unfamiliar. Probably stimulated by lobbying from the US food-processing equipment manufacturers, the American authorities took on a highly active role in investigating and overseeing the Danish contractors and the technical requirements of the dairy that was about to be constructed in the US. The Danes welcomed these demands because they were formulated in technical terms, and expected that their new organization would be able to meet any reasonable standards that could be imagined. In other words the Danes expected that the higher the standards they would prove able to meet, the greater the reputation and the larger the global market they would gain in the process. The American authorities, however, were playing a game in which success was not deﬁned by satisfying technical requirements. Rather what mattered for them was to prove it impossible for a foreign equipment producer to enter the US market. In short, even if the Danish business group met the most stringent technical requirements, requirements which had never been demanded from any US suppliers, the authorities would simply raise them and invent new standards in areas where none had previously existed. Of course, the game could only be played this way because the contract had been cleverly written from the very beginning. Otherwise the new costs would have had to be paid for in part by the American customer. In the actual contract, the customer shared a common interest with the American authorities and the more that was demanded by the latter, the more the former would get free of charge. It is interesting to note on the one hand how seriously the Danes sought to meet the technological demands, based on a ﬁrm expectation that these were reasonable in light of some kind of health and safety considerations, and on the other hand how the diverse plants engaged in all sorts of technical experiments in order to reach levels of polishing that had never been achieved before, or to ﬁnd a new washing material to allow for pressures that had never been previously observed in any dairy. They carried the development costs of these new and unexpected demands in the conviction that they would later save marketing costs, as customers from all over the world would line up to buy from them after having a chance to inspect what they had accomplished in the US. During the entire process the Danish company never understood that they were merely involved in a game about the terms of their contract, and that in such games it is not engineers but lawyers that are the frontline soldiers. So the Americans were playing a game according to their own traditional rules while the Danes were also

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players in this game, but following Danish rules. Not surprisingly, the Americans won according to their own rules, and not surprisingly, too, the Danes also won according to their own rules. But the Danish victories were very costly, whereas the American victories were very proﬁtable. In 1987 the Copenhagen owners found that they wanted to get out of this game and decided to sell the Silkeborg business group to a foreign giant. A Convener Strategizing in High Politics: Exchanging Survival for Membership in a British Multinational Company By participating in numerous games of redeﬁning the structural position of Horsens, its convener and skilled workers’ shop steward had learned how to act as a strategist in this volatile world. As will become clear in a moment, these skills were used primarily to shape Horsens’s internal organization; but he had also had a say on the board of the Silkeborg business group and had gained enough experience to read between the lines and to catch the signs of minor deceit in the eyes of speakers. For that reason alone he realized very early that a takeover was being prepared. Even boards with formal recording rules are normally considered too public to share in the preparatory steps of takeovers. By asking questions to be recorded, however, he forced the chairman to tell the truth at a moment when he would probably have chosen to lie. The chairman, who represented the Copenhagen owners, was negotiating with a speciﬁc buyer, which happened to be Alfa-Laval, the Swedish multinational, which already owned many plants in Denmark. Comparing Alfa-Laval’s plants in Denmark with those of Pasilac immediately convinced the convener that the takeover would become a bloodbath, in which the Swedish MNC would primarily destroy a competitor and close down its plants, including Horsens. The convener was therefore convinced that his group of skilled workers and their business unit were in great danger. Knowing that Copenhagen would pay only lip service to any obligation to preserve the jobs of workers, he characterized the takeover as a threat to the Danish Sugar Factories itself. Would not the stock price decline when the media became involved? Would not the public image of the holding company, one of the oldest and most highly respected corporations in Denmark, also decline when the media were informed about how it had managed the American adventure? Speaking as a responsible board member, he created images that were disconcerting to both stockholders and the managers of the holding company, and they probably felt relief when he asked them whether they had carefully considered alternatives among foreign corporations. The CEO in Silkeborg replied that APV, a British multinational, had shown some interest, but no contacts had been made.

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Between two board meetings the convener, together with other employee representatives, convinced their union to initiate an investigation of the British multinational. This showed that its structure and distribution of plants, and particularly its weak presence in Scandinavia, would at least offer better opportunities for the Danish business group than would the Swedes. So the employee representatives were well prepared for the next board meeting. For whatever reason, however, their preparation proved unnecessary. The alliance within the holding company that had chosen the ‘bloody’ alternative had already been broken. Contacts with APV had been initiated and a much more promising takeover was being negotiated. In order to transform the takeover question into more than merely a ﬁnancial affair, the convener wanted the potential British owners to visit every plant of the business group in order to see for themselves what jewelry they were going to buy. From his knowledge of British plants he knew that the outcome of such a tour would be very convincing. Even more so, this tour convinced the British owners that they were buying facilities which ought to be expanded rather than closed down. At the same time, the employee representatives were able to mobilize unions and their ﬁnancial institutions to buy a considerable packet of shares, ‘just to show how unions function in Denmark’. The share purchase instantly made the Danish unions one of the major shareholders of the business group, and the British owner immediately felt an obligation to keep them informed about their plans and policies.

2. Dairy Co. and Dairytown: National Marketing and External Takeovers as Local Strategies4 From Local Dairy Equipment Shops to a National Full-Service Firm As in the case of Horsens, the origins of today’s Lake Mills plant can be traced back to the late nineteenth century. During the long period of rapid economic growth and transcontinental expansion which followed the end of the American Civil War in 1865, the rich pasturelands of the upper Midwest in general and those of south-central Wisconsin in particular became the site of a ﬂourishing dairy industry serving regional markets of urban and small4

This section is based primarily on company histories of CP (Godfrey 1937) and APV Crepaco (1987), together with information from APV’s own company history (Dummett 1981), the ﬁnancial press, and interviews conducted at the plant by us and by researchers from the University of Wisconsin School for Workers from 1994 onwards. Citations to speciﬁc passages in the Crepaco and APV company histories are given only for direct quotations.

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town consumers. Of all the American states at that time, Wisconsin perhaps bore the closest resemblance to Denmark, with its numerous small family farms, vibrant dairymen’s associations and cooperatives, agricultural experimental stations supported by the state land-grant college (now the University of Wisconsin-Madison), and self-consciously progressive government, active both in national struggles over issues such as railway rate regulation and monetary policy, and in the local promotion of apprenticeship and vocational education, social insurance, and cooperative industrial relations.5 Within this milieu, a host of machine shops sprang up to supply the equipment needs of local dairy farmers, capitalizing on a series of laborsaving devices invented by self-taught mechanic-tinkerers, as well as on the innovative research of the land-grant colleges, such as the Babcock Test developed at the University of Wisconsin in 1890 for determining the precise butterfat content of milk supplied to cooperative creameries from each individual farm. Among these local dairy equipment shops were F. B. Fargo and Co., founded at Sterling, Illinois around 1870, but soon transplanted to Lake Mills, Wisconsin, and the Cornish, Curtis & Greene (CC&G) Manufacturing Co., established at the nearby town of Fort Atkinson in 1868. Both ﬁrms rose to prominence on the basis of a successful proprietary design—rectangular butter churns for CC&G and a combined churn and butter working machine for Fargo—but both soon expanded into a wider range of dairy machinery as they strove to meet the evolving needs of their local customers. CC&G’s founder in particular was a leading ﬁgure in the Wisconsin Dairymen’s Association, who played an active part in its efforts to promote the adoption of improved dairying practices across the state, and his ﬁrm was among the ﬁrst to bring out milk pasteurizing equipment based on bacteriological research conducted at the university. Both companies also became the dominant enterprise in their small towns, on which the latter’s prosperity and development increasingly depended, an association most graphically illustrated by Fargo’s long-standing provision of electric light and power to Lake Mills until the facility was sold to the town several decades later. Despite these deep local attachments, however, there was apparently a ‘friendly rivalry’ between the two neighboring ﬁrms, in which each occasionally used the other’s shop to produce work for which it lacked the right machinery (Godfrey 1937: 20). In 1898, both Fargo and CC&G were bought up along with a number of other leading Midwestern suppliers of dairy equipment by a larger enterprise, the Illinois-based Creamery Package Manufacturing Co. These 5 On the economic and political development of Wisconsin in the late 19th and early 20th centuries, see Nesbit (1985), esp. chs 1, 3, 4; Buenker (1998), esp. chs 2–4, 6, 8, 11–13. For the state’s emergence as ‘America’s Dairyland’ during this period, see also Lampard (1963).

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acquisitions formed part of the great merger wave which swept across US industry at the turn of the century, but they also reﬂected a speciﬁc strategic logic: the subsumption of local user–producer interaction in equipment manufacture under a wider sales and service organization able to reach the numerous regional clusters of dairy farmers dispersed across the vast national territory. Both Fargo and CC&G, for example, had established commercial subsidiaries in the adjacent state of Minnesota at the time of the merger, but depended on outside ﬁrms, including Creamery Package, for the distribution of their products in other states. The Creamery Package Co. had itself been founded in 1882 at Rock Falls, Illinois, by a college-educated Wisconsinite with retail lumber-yard experience and an ex-cooper mechanicinventor, for the mechanized manufacture of wooden butter tubs, a key dairy trade staple. But the new ﬁrm quickly expanded into additional regions and products, opening branch factories and sales ofﬁces across the Midwest, and seeking to provide the full range of the equipment and supplies needed by their dairy farming customers through agency sales agreements with other manufacturers, followed in some cases by mergers and acquisitions. By the time of its reincorporation as a public joint-stock company in 1887, Creamery Package had thus become known not only as a wooden-ware manufacturer but also as ‘an aggressive merchandiser of other dairy needs in its territory’, which spanned the entire upper Mississippi valley. The 1898 merger in turn transformed the ﬁrm, according to its ofﬁcial history, ‘from a local manufacturing and distributing concern serving only the mid-continent area’ into ‘the country’s largest dairy equipment and supply company . . . national in scope’ (Godfrey 1937: 12, 21). Over the next three decades following the merger, Creamery Package (or CP as it became known from its trademark) extended its sales and distribution network to a truly national scale, and consolidated its manufacturing operations at a restricted number of locations, closing down the remaining plants. Lake Mills and Ft. Atkinson were two of the major winners in this rationalization process, receiving new modern factories in 1910 and 1919 respectively, both of which were substantially extended in 1931. During the early years of the merged company, CP continued to improve and supplement the products developed by its constituent ﬁrms in collaboration with the land-grant colleges and their agricultural experiment stations. From the mid-1920s onwards, however, CP began to establish an in-house research and design engineering function as it acquired additional companies and moved into new and more technically demanding ﬁelds such as heat transfer and temperature control, milk bottle washing machinery, and continuous ice-cream freezers. Crucial to this process was CP’s early embrace of stainless steel for equipment manufacture, necessitating a comprehensive redesign of

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its product line, which also coincided with progressive broadening of the primary customer base from creameries or butter makers to the dairy and ice-cream industries as a whole. The new R&D Department, located ﬁrst at CP’s Chicago headquarters and then at its main machining facility in Ft. Atkinson, also played a key part in safeguarding and expanding the market for the company’s products by actively participating in the development of 3-A Sanitary Standards for US dairy equipment, the forerunners of those which would later waylay Pasilac’s American offensive of the early 1980s. As CP’s products became more distinctive and technologically sophisticated, new opportunities for export sales emerged, and the company established its ﬁrst overseas subsidiaries in Britain and Canada during the early 1930s, the former in association with their local agents and the latter as a wholly owned operation. Thus at the heart of CP’s growth and development from the 1900s through the 1950s lay its strong national marketing organization based at the Chicago company headquarters, with a network of wholly-owned branch sales ofﬁces strategically located in key cities across the dairy-producing regions of the United States. To meet the current and prospective needs of its customers, CP obtained distribution rights to new products through agency agreements and acquisitions, maintained its own specialized plants, and developed an independent R&D capability. The company’s factories and the communities dependent on them prospered in turn by providing a good service to the marketing organization, expanding their production facilities to manufacture new types of equipment, and collaborating with R&D engineers in product improvement and development. External Takeovers as Strategic Alliances for Local Development At the end of the 1950s, the Creamery Package Co. ran into an unexpected crisis as a by-product of its own success. In exchange for one of its unwanted subsidiaries, CP had accepted shares in the acquiring company which subsequently appreciated sharply, driving up the book value of its own stock well above the current market price. The resulting opportunity for a quick paper proﬁt began to attract concentrated purchasing of CP shares by groups of stock market speculators, causing the company management to fear an eventual hostile takeover. The solution the managers hit upon was to arrange a takeover of their own by a major corporation that would ‘allow CP to operate and grow as a more or less independent subsidiary’ (APV Crepaco 1987: 56). They soon found a suitable white knight in the form of the St. Regis Paper Co., one of a number of Wisconsin-based paper manufacturers which was then in the process of expansion into a conglomerate. A voluntary stock

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exchange between the two companies was consummated in January 1960, and CP became a free-standing division of St. Regis in 1964. With CP’s autonomy secured within the St. Regis group, the company managers could now turn their attention to the urgent need for new facilities. As the ﬁrm broadened its focus from the dairy sector to the food industry more generally and became a supplier of automated systems for ‘total concept’ plants as well as stand-alone pieces of equipment (APV Crepaco 1987: 61), its growing output and the increasing physical size of its products could no longer be contained within aging multi-story plants like that at Ft. Atkinson where all its machine tool processing had been concentrated. During the early 1960s, a national search ensued for a new manufacturing location. The winner was the City of Lake Mills, which made a large greenﬁeld site available near the company’s existing plant. A key consideration in this locational choice was that it allowed ‘easy access [to] the Company’s qualiﬁed and experienced workforce’ (APV Crepaco 1987: 62), including the machinists from the former Ft. Atkinson factory, who brought with them to Lake Mills their own separate local union and collective bargaining contract. All purchasing, accounting, engineering, and sales service activities were centralized at the new complex, which incorporated a complete testing and development lab, including a pilot plant that could be set up to run customers’ products on CP equipment, as a lever for entering new markets. From a relatively peripheral facility principally engaged in tank and sheet-metal fabrication, the city’s initiative thus transformed Lake Mills at a stroke into the very core of the company. By the late 1960s, the national marketing organization and the central production facility at Lake Mills had together come to replace the old local plants as vectors of user–producer innovation. Under this new structure, regionally based sales staff, themselves capable of designing and building complete dairy and food processing plants with limited headquarters assistance, actively monitored their customer contacts for promising unmet needs, which were then picked up by the central R&D Department and jointly transformed into successful new products, as in the cases of liquid sponge fermentation systems for the baking industry and vacuum heat systems for milk processing. While the domestic market always remained CP’s central focus, international sales became increasingly important to its growth during the 1950s and ’60s, as the company expanded its export organization from its historic orientation towards Latin America, Canada, and Britain, to take in Australia, the Far East, and continental Europe. By 1970, CP management had concluded that the ﬁrm needed to acquire a European dairy equipment manufacturer with its own production facilities to facilitate its penetration of the continental market, and were exploring the possibility of buying a Danish

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company. In the event, however, the integration of CP into a full-scale international sales and manufacturing network came from the opposite direction. During the mid-1950s, CP had come into contact through its Australian distributors with the British dairy and food-processing equipment group APV, which already had manufacturing facilities in the US and raised the possibility of a merger. In the early 1970s, APV renewed its interest, and receiving a favorable reaction from the CP management, directly approached its parent ﬁrm. The St. Regis Paper Co., by now a diversiﬁed conglomerate, was anxious at that time to expand its holdings in the booming UK stock market, and in 1973 agreed to sell its subsidiary to APV in exchange for a 28 per cent stake in the latter. Although CP’s role in this transaction was clearly less proactive than in the company’s earlier acquisition by St. Regis, the friendly nature of the takeover is conﬁrmed by the fact that the entire US management team remained in place. There was considerable commercial synergy between the two companies, and Crepaco, as it was now called, quickly secured a pair of major US dairy contracts on the basis of APV’s computerized plant automation system. In addition to its powerful US sales network, Crepaco brought superior technological capabilities to the merger in areas like ice-cream machinery and food processing equipment, for which it became the ofﬁcial center of group development, as well as ﬁlling signiﬁcant gaps in APV’s offerings for key items such as positive pumps. While there were also substantial overlaps between the two companies’ product lines, notably in the case of plate heat exchangers and homogenizers, the group’s management ‘then took the position that there was sufﬁcient worldwide market present to allow for healthy internal competition to exist, and so it did for many years’ (APV Crepaco 1987: 70). With the centralization of most domestic management functions at Lake Mills, Crepaco’s Chicago headquarters was replaced by a smaller new facility near the international transportation hub of O’Hare Airport, but only the company’s Canadian operations were fully consolidated with those of APV. Thus, in many respects, the relationship between the two ﬁrms resembled a strategic alliance more closely than it did a fully integrated multinational hierarchy. These federal arrangements remained largely unchanged for more than a decade. Throughout the 1970s, the Lake Mills complex continued to expand its sales volumes, product range, equipment park (including substantial investments in computer-controlled machinery), and physical production space, following the established logic of vertical integration and employment growth as mutually reinforcing strategies of company and community development. During the deep US recession of 1981–2, however, it became apparent that Lake Mills’s expansion had been carried too far, as the

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termination of a major sales agreement for farm bulk milk cooling tanks left the plant with large surplus capacity, resulting in high ﬁxed overhead costs which have remained a critical problem for the complex despite successive layoffs and reorganizations. In 1983, a new company president was recruited from the US subsidiary of Baker Perkins, another British-owned food equipment multinational itself acquired by APV a few years later. This president, the ﬁrst outside top manager, brought with him a strong US marketing background which reinforced Crepaco’s established orientation, and immediately embarked on an autonomous program of mergers and acquisitions. These additions mainly involved companies with long previous associations with Crepaco, and were directed at strengthening its capacity to supply complete ice-cream production and packaging lines. It was only during the early 1980s, when APV itself came under new outside top management, that the UK group, as we shall see, began serious efforts to integrate its various international operations into a single uniﬁed organization. Following a group-wide proﬁt crisis in 1984, Crepaco was merged the following year with APV’s long-established subsidiary based in Buffalo, New York to create a new entity known as APV-Crepaco, Inc. Among the ﬁrst steps taken under the new regime was to phase out Crepaco’s proprietary line of heat exchange equipment, which competed directly with one of APV’s core specialties, whose elimination represented a long-held ambition of the latter. APV’s R&D/production complex at Crawley, which occupied an analogous place in the organization of the UK company to that of Lake Mills in Crepaco, had been designated the ofﬁcial group center for heat exchange technology after the original merger, and Crepaco had developed a special frame to use APV plates during the late 1970s while also continuing to manufacture its own rival equipment. The creation of APVCrepaco also resulted in the uniﬁcation of the two companies’ engineering and sales operations. Long-serving top executives from the US APV Equipment Co. were placed in charge of new company-wide groups responsible for development engineering, technical service, and automation on the one hand, and for sales and marketing on the other. Crepaco’s nine regional sales ofﬁces were consolidated into ﬁve for the group as a whole, three of which remained under the control of their previous managers, presumably in deference to the company’s superior penetration of the US market. The international operations of the two ﬁrms were likewise merged under the direction of a senior Crepaco manager originally recruited from a leading UK ice-cream manufacturer. The 1985 merger thus represented a signiﬁcant setback and challenge for Crepaco’s core Lake Mills plant. From its pivotal position as the center of research, product development, and production for a largely autonomous

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domestic and international sales network, Lake Mills now found itself formally subordinated in both technical and marketing terms to the US management of its UK parent group, with its own core factories, products, and strategic priorities. The Lake Mills plant also carried a heavy overhead burden of surplus capacity and excess physical space as a result of its own past over-expansion. On the other hand, however, closer cooperation with APV opened up new opportunities for the sale of Crepaco pumps, processing tanks, and other equipment. Neither were the various actors who made up the Lake Mills complex devoid of strategic resources of their own in the struggle for position within the British-owned multinational. Among the most prominent of these were a broad installed customer base, with its associated demand for replacement equipment and spare parts; long-standing collaborative relationships between regional sales staff and plant-based R&D engineers; accumulated product development capabilities in particular ﬁelds such as ice-cream machinery; the skills and experience of the manual workforce (much of which, as we will later see, remained underutilized); and the seniority-based collective bargaining agreement, described in Chapter 1, which bound together the fortunes of the plant, its long-serving employees, and the local union. How and with what results different local actors deployed these various resources to defend the Lake Mills plant during the 1990s, when the APV group as a whole ran into increasingly severe competitive pressures, will be taken up in subsequent chapters.

3. The Sleeping Beauty of Pump Valley: Absentee Ownership, Technological Capabilities, and the Formation of a Local Cluster6 The resort town of Eastbourne on England’s south coast, renowned for its international women’s tennis tournament and its grand but decaying nineteenth-century seaside hotels, is perhaps the last place anyone might look for a localized cluster of precision engineering manufacture. Yet when we visited Eastbourne in 1997, four of the UK’s leading pump manufacturing plants, each owned by a different multinational group, were situated within a ﬁve-mile radius of the town, along with a number of specialized subcontractors and suppliers. Each of these plants, moreover, had begun life as independent owner-managed ﬁrms, spun off directly or indirectly from a single small enterprise, the Howard Pneumatic Engineering Co., which in 1932 had developed the ﬁrst rotary lobe positive pump, widely used today for 6 This section is based on interviews conducted at the plant and its suppliers in January 1997, together with a brief historical sketch prepared by the technical director and the report of a sociological ﬁeld study of new pump design (Sanderson 1996).

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the propulsion of viscous liquids by the food processing, chemical, pharmaceutical, and personal care product industries. So striking in fact was the localization of pump manufacturing around Eastbourne that the area had become widely known—at least to those in the business—as ‘Pump Valley’.7 Unlike both Horsens and Lake Mills, Howard Pumps did not become part of a larger national or multinational manufacturing group until the end of the 1980s. Unlike Lake Mills, too, the specialized technical competencies and craft skills produced at Howard over the years did not give rise to a process of internalizing growth, but instead spilled over into new-ﬁrm formation and worker mobility in the local labor market. In this respect Howard bore a closer resemblance to Horsens, though as we shall see, its relationships to other local ﬁrms and institutions were both less interdependent and less collaborative than those of the East Jutland machine shop. The Howard Pneumatic Engineering Co. was established in 1897 by the eponymous founder and moved to Eastbourne in 1903, where its early products included chipping hammers and pneumatic grinding machines. In 1922, the ﬁrm was incorporated as a limited company with a modest capital of £13,000, focusing primarily on pneumatic machinery and rail equipment. By 1930, Howard had begun to specialize in mechanical pumps of several different types, with particular emphasis on petrochemical applications. In 1932, as we have already noted, Howard Pneumatic Engineering introduced the ﬁrst rotary lobe pump, with two trefoil-shaped heads counter-rotating and meshing to drive a liquid, developing it into a full range of sizes for different applications, which the ﬁrm continued to produce for more than two decades. In 1936, the company was bought by the Pettit family, who regarded it principally as an investment, leaving day-to-day operations in the hands of the existing management. Following temporary wartime diversiﬁcation into alternative products such as bomb bars and machine gun barrels, Howard Pumps, as it became known, concentrated after the war on the manufacture of rotary lobe and reciprocating ram designs. The company built up substantial technical expertise and shopﬂoor skills in the design and production of these types of pump, for which it acquired a high reputation among a variety of industrial customers. But Howard Pumps was inherited in the 1940s by Miss Pettit and her sister, who according to an interview with one long-serving worker, 7

A well-informed colleague studying local clusters of specialized manufacturers in the UK told us that an analysis of ofﬁcial data showed a concentration of precision engineering equipment ﬁrms around Eastbourne which he had previously dismissed as a statistical artifact on the grounds of its intrinsic implausibility. For the published study and its methodology, see Crouch and Farrell (2000).

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just used the ﬁrm as a hobby, as something to do. She wasn’t really into big business like we are today. . . . but she just used to keep it—she used to come ’round and speak to everybody and laugh and joke. But she was a little old lady, long grey hair, you know, bent up, but she loved to speak to everybody. . . . She had her old favorites, the old gentlemen in the rear, but it wasn’t really called business. Each pump was hand-painted with a paintbrush and a set of paints, you know. . . . [I]f she got short of work, Miss Pettit, or short of money, she’d re-mortgage her house to keep the ﬁrm going, often.

This easygoing paternalistic style endeared Miss Pettit to much of the workforce, enabling the ﬁrm to operate on a non-union basis, and Howard Pumps became a magnet for whole families of skilled craftsmen, many of whom were still employed there nearly forty years later. But lacking independent business knowledge, Miss Pettit sought to maintain control over the ﬁrm, according to the technical director, who had worked there since 1946, by following a policy of ‘divide and conquer’, playing each manager off against the others. The result was an effective strategic vacuum, in which underinvestment and commercial stagnation went hand-in-hand. Ambitious Howard employees thus naturally looked elsewhere to develop their enterpreneurial visions. In 1958, the plant manager left to set up a rival rotary lobe pump manufacturing enterprise across the road, using Howard’s own castings and suppliers, from which several additional new ﬁrms in turn spun off during the 1960s and ’70s. In 1981, another disgruntled Howard employee struck out on his own to form the last of the UK’s major positive pump manufacturers, located this time outside the region, some twenty miles north of London. Given the acrimonious circumstances of their birth, relationships among the Eastbourne family of pump manufacturers were more competitive than cooperative. Most of these ﬁrms specialized in the same type of product, rotary lobe pumps, pitting interchangeable designs head-to-head against one another in the marketplace. Each of these ﬁrms ran their own in-house apprenticeship programs for craftsmen and technicians in conjunction with the local technical colleges and the Engineering Industry Training Board (until the latter’s abolition in the early 1990s). But each ﬁrm also sought, through individualized bonuses and wage increases, to poach skilled workers and managers from one another whenever they became scarce, creating a highly mobile and ‘incestuous’ local labor market beyond the collective control of the regional Engineering Employers’ Association. The only ﬁeld in which the rival manufacturers of Pump Valley consciously collaborated, beyond sending their apprentices to common technical college courses, was through participation in domestic delegations to international standardization bodies, where they worked together to promote the adoption

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of British technical standards over those of other countries. In other cases, effective cooperation among local ﬁrms remained dependent on the unacknowledged initiative of third parties. Thus in the mid-1990s, three of the four major local pump manufacturers had shafts, lobes, and other key components made by the same small subcontractor, whose CNC machinery and highly skilled operators thus served as a virtual common production facility, with each customer’s personnel banned from the premises while the others’ work was being processed to prevent unwanted circulation of technical and commercial secrets. In this non-collaborative environment, it is scarcely surprising that each of the region’s pump manufacturers was bought up one by one during the 1970s and ’80s by leading US, Swedish, and British-owned multinational engineering groups seeking to integrate their products into larger processing systems and turnkey projects according to the logic of oligopolistic competition outlined in the Horsens story.8 In 1982, Howard Pumps was itself acquired by a South African-based holding company, which regarded the ﬁrm primarily as a portfolio investment. The absentee owners’ insistence on improved ﬁnancial returns from their new asset had both negative and positive implications for the ﬁrm’s technological and human capabilities, which had languished as a sort of Sleeping Beauty under the Miss Pettit regime. On the one hand, the South African holding company sold off Howard’s reciprocating ram pump business to a former employee as a means of raising extra cash. On the other hand, however, they also allowed the ﬁrm’s managers to invest in new CNC machine tools and begin a comprehensive redesign of its core rotary lobe pump range for the ﬁrst time since the mid-1950s. When APV approached Howard’s owners about a possible acquisition in 1989, the Eastbourne company could thus offer a relatively up-to-date range of positive pump designs as a dowry for entry into the multinational, a prospect openly welcomed by its senior managers, like their counterparts at Horsens and Lake Mills. Thus Howard’s technical director actively encouraged APV’s CEO to buy his ﬁrm as ‘an ideal opportunity’: All the time I worked here at Howard’s, up until APV took us over, I felt that my future really, and the future of all the people here, was really on a knife edge. We never made a lot of money, sometimes we lost a lot of money. And you know, clearly a company couldn’t go on like that. And so personally, I encouraged going into this group . . . because I felt this would give us a branch of security. . . . I also saw 8 A prominent German pump manufacturer had also established a nearby branch plant, presumably to tap into the local pool of specialized skills and suppliers. Among its other global operations was a factory located in a Madison suburb not far from Lake Mills.

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within the group greater opportunities for research and development, and resources available to me.9

As in the past, therefore, the technical director and his engineering staff would seek to enhance Howard’s attractiveness to its new owners and safeguard the company’s future by renewing its products. The results of this strategy, together with the unexpected impact on the plant’s internal organization and performance of conﬂicting policies pursued by a succession of outside managers from different countries appointed by the parent multinational, will be examined in subsequent chapters. 4. APV: Born Cosmopolitan, Reborn Acquisitive10 The International Origins of a Family Engineering Firm The last of our four ﬁrms stands out at ﬁrst glance from the others by its international origins, rooted in merchant banking, university science, and foreign technology licensing. Surely it is no accident that such a cosmopolitan-born enterprise eventually grew into a full-blown multinational and swallowed up the other three more locally rooted companies, rather than the other way round? Yet for much of its history, as we shall see, APV in fact operated as a family engineering ﬁrm, pursuing a similar set of social, technical, and commercial logics focused around a local plant complex of design engineers, craftsmen, and domestic sales staff. Undoubtedly the central ﬁgure in the ﬁrst half-century of APV’s development was that of its founder, Richard Seligman. Born in 1878, Richard was the son of Isaac Seligman, head of the London branch of the well-known New York-based German Jewish merchant banking family network. His mother, Lina Messel, was the daughter of a German banking family and the sister of an innovative industrial chemist and Fellow of the Royal Society. Richard thus came from a close-knit and strongly entrepreneurial family active in 9 Another reason why Howard managers welcomed the takeover was that their archrival across the road had just been acquired by Alfa-Laval, APV’s leading global competitor, which they feared might mount a hostile offer. Already at the time of Howard’s purchase by the South African holding company seven years earlier, their local rival had sent surveyors round to appraise the plant’s assets, leaving ‘no doubt’ in the technical director’s mind that they ‘would have really closed us down’. 10 This section is based primarily on an excellent company history of APV, written by its longterm Research Director (Dummett 1981), supplemented by that of Crepaco (APV-Crepaco 1987). For the origins and development of Seligman Bros., see Chapman (1984) and Kynaston (1994–2001). For the APV group’s more recent history, we have drawn extensively on articles in the ﬁnancial and management press, consultancy reports, and other company documents, as well as on interviews conducted at both group headquarters and subsidiary plants. Citations to speciﬁc passages in the APV company history are given only for direct quotations.

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banking, science, and industry, with international ties to both the United States and Germany.11 After initial studies at Harrow public school and the Central Technical College of the City and Guilds Institute in London (now part of Imperial College), Richard earned a doctorate in chemistry from the University of Heidelberg, supplemented by additional research at the Federal Technical High School in Zurich. Through personal connections to the Guggenheims, another prominent New York Jewish banking family, he obtained his ﬁrst paid job as chief chemist to the US Zinc Co. in Pueblo, Colorado, from which he moved to a similar post at the British Aluminium Co. in the UK. There Richard began to develop a welding process for aluminum, whose fabrication presented special metallurgical difﬁculties, only to discover that a similar technique had already been patented in Germany. In 1910, having acquired agency rights to the competing Schoop welding process, Richard Seligman set up a business of his own to exploit it, in collaboration with a leading British brewery consultant who believed that aluminum would take off as a construction material for tanks and conditioning vessels if the problems associated with its fabrication could be satisfactorily resolved. A new factory was built for the Aluminium Plate and Vessel Co. in a disused maltings in Wandsworth, South London, which would remain the company’s home for the next forty years. True to his scientiﬁc background, Seligman insisted that the plant include its own laboratory with a full-time chemist to carry out experimental investigations as well as control tests on the metallurgical structure of welded aluminum. In the event, however, the brewery business never proved sufﬁcient to occupy the factory, and APV soon began to diversify into equipment for the chemical and food processing industries, including occasionally complete plants as well as individual tanks and equipment. Among the main lines of business during the ﬁrm’s ﬁrst decade were yeast process plant based on patentprotected vessels for which APV had acquired the UK rights, and fermentation plant for producing acetone and butyl alcohol, developed by Seligman in collaboration with the industrial chemist and fellow Zionist Dr. Chaim Weizmann. Three bright threads run through this ﬁrst phase of APV’s history. The ﬁrst is the ﬁrm’s heavy reliance on family ﬁnance and connections. All of APV’s initial capital was provided by Richard Seligman and his brother Gerald, who joined the board in 1911 and became sales manager in 1919. But a growing proportion of loan funds for expansion was informally underwritten by the 11 On the Seligman family and their transnational social and banking connections, see also Cassis (1994) and Birmingham (1967).

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family merchant banking house Seligman Bros., which also helped to put the company back on its feet after a disastrous post-war reorganization on Taylorist lines by an outside professional manager. A second striking feature is APV’s dependence on the acquisition of outside patent or license rights to chemical and metallurgical processes for industrial exploitation under the direction of Richard Seligman and his technical staff. The ﬁnal strand in the story is the key role of skilled craftsmen in the fabrication of the company’s products, as evidenced by its rigorous apprenticeship program, which included three months in the drawing ofﬁce, two months in the foundry, and three nights a week compulsory attendance at Battersea Polytechnic, as well as instruction in welding techniques from Seligman himself. Both the ﬁrst and the third of these features would continue to characterize APV right through the 1950s, but the second underwent a dramatic change in the 1920s which transformed the company’s fortunes. In the early 1920s, Richard Seligman decided to move APV into the dairy business as a hedge against possible fall-off in demand for yeast process plant, the ﬁrm’s main earner. Focusing on quality and hygienic issues, together with opportunities for displacing imported machinery, Seligman studied the pasteurization process and dairy equipment in Europe and North America. On his return to the UK, Seligman proposed manufacturing a primitive ﬂowholder, which was radically improved with assistance from an outside dairy consultant, and then focused on devising suitable heating and cooling equipment to comprise a complete milk pasteurization plant. In 1923, Seligman invented the plate heat exchanger, a device based on alternating ﬂows of mutually isolated liquids through zig-zag channels in a pair of rectangular metal plates, which in improved form is still widely used today in dairy, food, and chemical process plants. Seligman worked closely with engineers from one of the major London dairy groups to demonstrate the merits of his heat exchanger and to incorporate it into a large-scale vacuum pasteurization process plant, which became the basis for British-standard technical speciﬁcations that the inventor himself helped to write. Over the next decade, under Seligman’s leadership, APV quickly diversiﬁed into related plant and techniques such as ﬁlters, tanks, and tipping and weighing equipment, which enabled the company ‘to install virtually complete dairy processing lines’ (Dummett 1981: 57); discovered new applications for the heat exchanger in the production of butter, cheese, and beer; and developed the ﬁrst plate evaporator, based on the same basic principle. The company also moved rapidly to replace aluminum with stainless steel, which as in Denmark and the United States was becoming the material of choice for food processing equipment of all types, necessitating a comprehensive redesign of its heat exchanger plates to overcome low conductivity and casting problems

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through the use of thin pressed sheets. ‘With the advent of the plate heat exchanger’, as the company’s ofﬁcial history observes, ‘the business . . . changed from one of metallurgical engineers primarily involved with the construction of vessels to one of process engineers supplying complete plant lines, even equipping complete factories in which fabrication work, however important, played only a subsidiary part’ (Dummett 1981: 52). The development of the plate heat exchanger and its derivatives also transformed APV from an importer to an exporter of products and technology. During the late 1920s and early ’30s, APV licensed its designs for foreign manufacture in the United States and Canada, while also establishing new sales agency agreements in the Netherlands, Australia, Scandinavia, and Canada. In 1929, a foreign sales manager was appointed, and by 1937 foreign sales and license fees accounted for nearly 25 per cent of the company’s turnover. In 1939, APV created its ﬁrst part-owned overseas subsidiary to market the ﬁrm’s equipment to the non-dairy industries in the United States. Despite these apparent steps towards multinationalization, APV remained very much a family engineering ﬁrm, centered around the innovative chairman and joint managing director Richard Seligman, his relations in banking and management, and a core nucleus of research staff, engineers, technicians, and craftsmen at its Wandsworth factory. Thus when the ﬁrm needed additional capital for expansion in 1938, Seligman Bros. stepped in as it had in the past, extending generous credit facilities to ﬁnance raw materials purchases and sales. Richard’s son Peter, a Cambridge engineering graduate, joined the ﬁrm in 1936 on the commercial side, and was elected to the board a few years afterwards, as was Seligman’s son-in-law, Geoffrey Blackman, then employed by Imperial Chemical Industries but later to become Professor of Agricultural Economy at Oxford University and Vice-President of the Royal Society. Although the scale and sophistication of APV’s research facilities steadily increased to meet the rising demands of new process applications, especially for the chemical industry, Seligman made ‘a point of visiting his technical staff every day if possible, rather like a Professor doing the rounds of his research students’ (Dummett 1981: 67). The Wandsworth works manager, appointed in 1924 and promoted to the board in 1942, was originally a ‘brilliant coppersmith’ and ‘trade union socialist of the old school’ (Dummett 1981: 66), who like his counterparts at Horsens served as a local borough councillor and eventually alderman. This works manager, not surprisingly, also ‘had a deep appreciation of the importance of apprentice training’ (Dummett 1981: 68), and among his ﬁrst acts was the establishment of an improved formal scheme. The ﬁrst signs of labor conﬂict in the company’s history appeared towards the end of the Second World War, when national wage awards, negotiated between the Engineering Employers’

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Federation and the unions, wiped out the local pay differential which the workforce had been accustomed to receiving. The solution, proposed at a meeting between Seligman and the shop stewards, was the creation of a Standing Consultative Committee with representatives from both sides to improve labor–management communication, which was later converted into a permanent Joint Production Advisory Committee. Post-war Expansion and Financial Crisis During World War II, APV continued to expand, diversifying into vital military work such as TNT distillation plant and welded alloy fuel tanks for Spitﬁre ﬁghters, while at the same time redesigning its core dairy equipment lines to take account of signiﬁcant new technical developments such as ‘high temperature, short time’ (HTST) pasteurization. By 1945, bank overdrafts and loans totalled ﬁve times the ﬁrm’s nominal issued capital, and APV went public the following year, a step the family owners had hitherto resisted, with the successful share ﬂotation taken up mainly by institutional investors managed by Seligman Bros. But the resulting inﬂux of new cash quickly proved inadequate, as APV’s capital requirements continued to rise steadily during the late 1940s and early ’50s. The company’s turnover more than tripled between 1946 and 1951, but the ratio of capital to sales soared from 1.0 to 1.7 during the same period. Much of this was due to skyrocketing levels of stocks and work-in-progress, a product partly of post-war materials shortages and lack of factory space, but also of falling productivity and difﬁculties in controlling APV’s larger and more diverse production program. Despite high proﬁtability during the post-war seller’s market, the result was a persistent capital shortage ﬁlled by a succession of further stock ﬂotations, rights issues, and short-term loans, all handled once again by the family merchant bankers. The rapid and unplanned growth of the 1940s had far outrun the absorptive capacity of APV’s original Wandsworth plant, resulting in the dispersal of the ﬁrm’s production facilities across a series of unsatisfactory rented premises scattered around south and west London. Much of APV’s strategic energies and ﬁnancial resources accordingly came to be focused on the creation of a new plant complex at the New Town of Crawley in Sussex, which would allow all of its production, engineering, and research activities to be reunited on a single site. The decisive factor behind this choice was the Crawley Corporation’s commitment to provide housing for transferring employees, since ‘the need to ensure that most of the company’s skilled workforce and staff should move to a new place with it had been a cardinal point in all considerations of new localities’ (Dummett 1981: 140). The project began

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in 1950, but was not fully completed until the beginning of 1956, by which point it had cost over £1.5 million, more than twice the original estimate and more than the company’s entire issued share capital at the outset. The construction of the Crawley complex and the gradual transfer to it of APV’s personnel and production coincided with the advent of a much more difﬁcult commercial and ﬁnancial environment. The company’s sales held steady and even increased somewhat during the early and mid-1950s, but its proﬁtability dropped by two-thirds as a combined result of increased overhead charges, higher interest rates, overseas import restrictions, tougher price competition, and customers’ reluctance to make progress payments in what was no longer a seller’s market. Nor had the centralization of production at a modern factory with new equipment yielded the anticipated reduction in costs, despite the appointment of an outside manager recruited from AEC, a London bus and truck manufacturer with an innovative record of developing ﬂexible automation techniques for diversiﬁed engineering products.12 The underlying problem, as at Lake Mills during the 1960s and ’70s and following a similar logic, was that APV’s ‘main policy had been to try and get sufﬁcient orders to provide enough productive hours to recover the overheads and service the capital as well as ﬁll the new factory’, while ‘the level of proﬁts and means of reducing overheads seems to have taken a second place’ (Dummett 1981: 151). During the late 1940s and early 1950s, the company’s R&D activities had been reorganized into a separate department run by university-educated scientists and engineers, and a graduate training scheme had been introduced. Although APV successfully continued to enter new markets by updating and extending its core plate heat exchange and evaporation technologies, the expanded R&D staff came under intense pressure to boost the ﬁrm’s turnover by bringing onstream a host of new products as quickly as possible. Alongside these internal efforts, APV also began to license outside products and know-how on a considerable scale in order to ﬁll gaps in the company’s product range and improve capacity utilization at the new Crawley plant. But the proliferation of competing projects overloaded the technical staff, slowing down the completion rate, while management’s hunger for new products resulted in the release of designs before they had been fully tested in the ﬁeld, leading to a number of commercially damaging ﬂaws. Many of the outside products manufactured under license also proved to require technical skills and market knowledge which the company lacked, thereby adding to its ﬁnancial and organizational problems. 12 On AEC’s innovative approach to ﬂexible automation in the 1950s, see ‘Machining Engine Casings and Cylinder Heads: AEC Transfer Lines for Flow Production on Alternative-Sized Components’, Automobile Engineer, Jan. 1956; Maxcy and Silberston (1959: 61).

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To pay for the mounting ﬁnancial burden of the Crawley project, along with its ambitious product development and technology licensing programs, APV more than doubled its capital again between 1952 and 1956 to nearly 15 times the 1945 level. But new ﬁxed investments, unrecovered overheads, and excessive stocks and work-in-progress soon absorbed the new money, necessitating further large loans and interest charges. The company responded to these signs of impending crisis during the years 1955–6 by introducing strict departmental budgeting for the ﬁrst time, cutting back its R&D staff, and reducing productivity bonuses to the workforce—but not by skipping the dividend, which the board feared would send a bad signal to investors so soon after raising additional capital. These measures also precipitated APV’s ﬁrst major strike, which further undercut the ﬁrm’s output and proﬁtability. But the real crunch came from a change of heart on the part of the company’s long-term family bankers. With APV’s stock price in free fall during the summer of 1956, Seligman Bros. requested immediate repayment of the ﬁrm’s revolving credit line, ostensibly because of a government credit squeeze, but in fact because they were themselves negotiating a merger with another leading merchant bank, S. & G. Warburg, which refused to take on this apparently risky obligation. Since APV was manifestly in no position to return the cash, Seligman Bros. suggested a top-to-bottom review of the company’s structure and operations by a leading accountant, which might identify measures for turning around its performance that would reassure their new partners at Warburg’s. The investigation, conducted by a member of the prominent auditing ﬁrm Peat, Marwick, Mitchell and Co., which was frequently called in to advise on the reorganization of other British manufacturers during this period, recommended a series of changes in accounting practices, including a write-down of existing inventory that released a substantial tax rebate. In conjunction with a partial dividend moratorium, these steps were sufﬁcient to halt the immediate cash hemorrhage and persuade APV’s bankers to resume credit, but the long-term impact on the company’s organization and management proved much more signiﬁcant. Following the advice of the Peat, Marwick, Mitchell auditor, who continued to serve as a consultant to the board for the next twenty years, an outside chartered accountant with experience in the civil engineering industry was appointed ‘to take control of the ﬁnancial organisation’ (Dummet 1981: 177); works management and sales were each placed under a uniﬁed chain of administrative command; and a new chairman was recruited from Esso Petroleum to replace Richard Seligman, who ﬁnally retired at the age of 78. When sales and overhead recovery fell below budget targets during the 1958 recession, the new management’s ﬁrst step was to impose across-the-board staff redundancies, including a number of long-serving employees who had begun their

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careers as apprentices, as well as to reduce cost-generating diversiﬁcation and concentrate more on the company’s standard products. Although several Seligmans remained active in the ﬁrm, including Richard’s son Peter, who would eventually become chairman, APV, as its ofﬁcial historian observes, ‘had now ceased in any way to be a family concern’ (Dummett 1981: 180). The Birth of an Acquisitive Multinational: Fear of Takeover and Search for Synergy Following its frightening near-death experience during the mid-1950s, APV was thus reborn as a ‘fully ﬂedged public company’ under more or less orthodox British professional management—‘albeit with strong and valuable traditions’ (Dummett 1981: 180–1). A notable feature of APV’s post-war expansion—and a contributory factor in its cash crisis—had been the growth and proliferation of its overseas subsidiaries, including manufacturing operations in India, Ireland, and for a time Canada, as well as sales and engineering companies in Australia, the United States, Brazil, Japan, and most of Western Europe. In 1962, the APV group was transformed into a holding company, with the APV Company as its principal subsidiary, while a separate export company was established to handle the latter’s foreign sales, which now accounted for nearly half of Crawley’s output. These shifts in company structure and ﬁnancial control in turn had a pronounced impact on both management and labor at all levels. Board proceedings, as the ofﬁcial history reports, became less concerned than in the past with technical issues and more with ﬁnancial performance, based on information and analyses prepared by the new ﬁnance director Peter Benson, who became joint managing director in 1961; while ‘labour relations in the works, partly as a result of the move to Crawley and partly as a result of the new organisation, became steadily less patriarchal and rather stormier’ (Dummett 1981: 183). In 1963, an outside ﬁrm of industrial consultants was brought in to investigate the continuing problem of long lead times and missed delivery dates. They recommended reorganizing the works into four separate sections corresponding to the main categories of manufacture, each to be run as an autonomous product group. Although the consultants’ suggestions were faithfully implemented, including the computerization of stock control, they did not produce striking results, since production in each section remained organized on functional process lines, as at Horsens and Lake Mills before the introduction of cellular manufacturing in the 1980s and ’90s. With skilled labor becoming increasingly scarce around Crawley, APV thus began to shift a growing proportion of fabrication work to new subcon-

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tractors and subsidiaries outside the district, adding to the complexity and impersonality of its operations. As a result of careful ﬁnancial management and continuous plowback of retained earnings into product development and plant modernization, APV’s fortunes resumed their upward climb, with steady increases in group turnover and proﬁt in every year but one over the two decades to 1977. With the resolution of the company’s ﬁnancial problems, a new danger appeared: ‘the haunting spectre of take-over by a large organization’ (Dummett 1981: 184). At the end of the 1950s, the Conservative government and the Bank of England relaxed restrictions on new securities issues and reversed their previous negative view of hostile takeovers, which became subject only to a voluntary code of conduct drawn up by City practitioners themselves, thereby touching off an unprecedented upsurge of mergers and acquisitions (Roberts, 1992; Kynaston 1994–2001, vol. IV). To avoid becoming a target, APV itself had to expand, either through internal growth or through takeovers of its own, leading to the adoption of a deliberate acquisitions policy. According to the company’s ofﬁcial historian and long-term research director, ‘The Board did not follow [a policy] of acquisition for acquisition’s sake as did so many of the conglomerates that were growing up at that time. If a ﬁrm was to be taken over then it must ﬁt in with the technical or marketing expertise of the group. The take-over had to follow reasonable industrial logic’ (Dummett 1981: 184). But such a policy, as we shall see, would prove easier to formulate in principle than to implement in practice. The acquisition process started off slowly during the 1960s with purchases of smaller British companies manufacturing complementary products such as distillation plant, ice-cream freezers, and swept-surface heat exchangers. But it gathered speed during the boom years of 1972–3, when APV bought up a number of much larger overseas businesses, including not only CP, but also two of its long-time collaborators, the Gaulin Corporation, a US homogenizer manufacturer, and Anhydro A/S, a Danish maker of spray-drying equipment. Behind APV’s shopping spree lay not only takeover fears rooted in the domestic market for corporate control, but also growing demand from customers at home and abroad for the design and construction of entire automated process plants, such as turnkey dairies, incorporating a wide range of related technologies and equipment. These shifts in turn gave rise to an increasingly complex and polycentric international division of labor within the group itself. As its ofﬁcial history reports: The overseas subsidiaries and associated companies, particularly those in Australia, France, Japan and the US, began to engineer large and complex contracts themselves

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and required less and less help from Crawley. Indeed, even in new products and R&D, a reverse ﬂow of ideas began to take place. More and more the tendency grew to establish particular companies as centres of excellence for certain technologies in the group; Crawley’s particular spheres included heat exchange, evaporation, automation, sterile processing and large scale fabrication, though in none of these was their position an exclusive one. . . . Moreover, as the subsidiary companies undertook more and more of their own engineering, so they ordered more material from Crawley for stock and less speciﬁcally for a speciﬁc duty. By 1975 the ultimate use of some 60% of the total export material from Crawley was not known when it was dispatched. (Dummett 1981: 214)

The expansion of the early 1970s thus transformed APV from a British ﬁrm with overseas sales and manufacturing subsidiaries centered around a single home plant complex to a multinational group incorporating substantial companies from several countries, each with their own distinct products, markets, production facilities, and organizational histories. It also created formidable problems of integration and coordination of their activities, with which the group would continue to wrestle throughout the remainder of its independent existence. APV’s acquisitions during the 1960s and early ’70s did in fact follow a more or less clear-cut industrial logic. But this approach became increasingly difﬁcult to sustain in the more turbulent and uncertain commercial, technological, and ﬁnancial environment which emerged from the upheavals in the world economy over the succeeding decade. In 1976, APV bought HallThermotank, a prominent British-based international manufacturer of refrigeration and compression equipment for the food processing and other industries dating back to the eighteenth century, whose acquisition increased the group’s turnover by more than 50 per cent at a single stroke, carrying it into a variety of new markets. This quantum leap in size and complexity soon placed increasing strains on APV’s reporting systems and organizational structure. Peter Benson, the group’s long-serving managing director, ‘grew up with it’ and thus found it ‘no problem to look after lots of companies without formal controls and accounting procedures’, as APV’s US top executive later recalled. ‘An unusually perceptive accountant’, according to his own former ﬁnance director, Benson ‘succeeded in directly controlling his loose association of ﬁefdoms’ by spending half the year traveling the world to see the heads of the various companies and ‘thumbing through’ their statistics in case anything ‘looked a bit odd’, often receiving and approving capital investment requests over the phone. Following the Hall-Thermotank acquisition, however, Benson himself gradually recognized the limitations of this informal approach and

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began to introduce more systematic budgeting, planning, and control procedures.13 After Benson’s retirement in 1980, his successor Peter Hamilton, who had been recruited from the much larger UK engineering conglomerate GKN, soon sought to push through more radical organizational changes. ‘An engineer turned general manager . . . with the inexorable conﬁdence of a Harvard MBA’, Hamilton set out to inject greater cohesion into the multinational group by imposing a new divisional structure, tighter budgeting and reporting systems, and rationalization of products and marketing. To this end, Hamilton reorganized the group into ﬁve divisions each with their own CEO, breaking up the original British APV Company into four distinct subsidiaries and moving the head ofﬁce from Crawley to London. Operating decisions were henceforth to be taken at a higher level, with greater involvement of divisional management, a move aimed at improving APV’s ability to anticipate and deal with local crises such as those experienced by Crepaco during the US recession of 1981–2. All subsidiaries, whatever their size or the length of their order-to-delivery cycles, were required to submit detailed monthly balance sheets based on GKN’s ‘notoriously tight ﬁnancial controls’. Constituent companies likewise came under strong central pressure to add the APV preﬁx to their individual names, adopt common group designs for key products like pumps and plate heat exchangers, integrate their sales networks, and avoid internecine competition. While some of these reform measures, such as reciprocal tendering preferences and joint productdevelopment programs, met with widespread approval across the group, others aroused a storm of discontent among subsidiary managers, who complained in particular about the weight of their new reporting obligations and the risk of losing customers to competitors by dropping established designs. Whatever the merits of these objections, Hamilton himself did not last long, resigning in 1984 when APV’s proﬁts plunged by more than 50 per cent as a result of low contract margins and rising overhead costs. His replacement Fred Smith, an Australian who had previously headed APV’s US operations, was presumably more sensitive to the subsidiaries’ concerns, but relied on a similar combination of tighter ﬁnancial controls on engineering contracts and rationalization of loss-making operations—including the amalgamation of Crepaco with APV’s US organization—to revive the group’s proﬁt levels the following year.14 The real turning point for the multinational group came in 1986, when APV found itself for the ﬁrst time the object of a hostile takeover bid. Siebe, 13 Christopher Lorenz, ‘Why APV is Ditching its Winning Formula’, Financial Times (FT ), 28 Nov. 1983. 14 Ibid.; Charles Batchelor, ‘Proposal for a ‘‘Magical Marriage’’ ’, FT, 25 Apr. 1986.

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the group’s unwelcome suitor, whose second approach to APV would eventually succeed eleven years later, was then a much smaller British engineering ‘mini-conglomerate’ pursuing a strategy of rapid growth through audacious and heavily leveraged takeovers. APV’s institutional shareholders (mainly British-based insurance companies, pension funds, and investment trusts) did not ﬁnd Siebe’s bid credible at that time, preferring to back the established management’s more focused approach, especially since the group’s proﬁts had already bounced back to historic levels.15 APV’s top management then embarked on a frenzied series of domestic and international acquisitions designed to provide enhanced security against future takeover threats, more than doubling its turnover again within a few years. Foremost among these acquisitions was Baker Perkins, a leading manufacturer of baking, confectionery, and packaging machinery with extensive operations both in Britain and the United States. But it was also during this period that APV acquired both Howard Pumps and the Pasilac group, Horsens’s parent company, along with Rosista, a large German producer of valves and brewery equipment, and a quartet of US ice-cream and packaging machinery ﬁrms. By the end of 1987, APV had thus become the world’s largest manufacturer of food- and drink-making equipment, overtaking its historic rival, the Swedish multinational Alfa-Laval.16 As in the 1960s and early ’70s, APV’s new phase of multinational growth was driven by the rising scale and scope of its international customers’ demands for integrating design and construction of automated process plants, as well as by domestic takeover fears. But it had now become increasingly difﬁcult to work out which of the many technologies and equipment types involved in such engineering contracts should be produced in-house by wholly-owned subsidiaries, and which bought in from outside subcontractors and suppliers. More challenging still was the task of establishing effective order and cooperation—let alone real synergy—among APV’s multinational constituents, many of which had overlapping products and competed for the same customers. These structural and organizational problems festered during the expansion of the late 1980s, but erupted into open internecine warfare during the early 1990s, as international recession, growing 15 A key reason that APV found itself vulnerable to a bid in the ﬁrst place, apart from its recent proﬁts crisis, was that the St. Regis Paper Co. had just disposed of the remainder of the 28% stake in the group it had acquired through the divestment of Crepaco in 1973: ‘St. Regis Sells Stake in APV’, FT, 28 Sept. 1985. 16 Batchelor, ‘Proposal for a ‘‘Magical Marriage’’ ’; David Goodhart, ‘The Would-Be Hansons: UK Mini-Conglomerates’, FT, 31 May 1986; Charles Batchelor, ‘Specialist Faces an All-Rounder’, FT, 16 June 1986; Lex, ‘Siebe/APV’, FT, 26 June 1986; David Goodhart, ‘Siebe Fails to Take Over APV’, FT, 28 June 1986; Nick Garnett, ‘Industrial Synergy in the Making’, FT, 15 Jan. 1987; Nick Garnett, ‘Food Equipment Battle Heats Up’, FT, 31 Dec. 1987.

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concentration among its customers, and increasing competition from other equipment groups all came together to place intense pressure on APV’s market position and ﬁnancial performance. How APV headquarters—or various factions within it—sought to manage this process by pursuing different visions of a multinational ﬁrm, how our three plants each sought to defend and advance their interests within the resulting framework, and how the strategies of these local players interacted with one another to constitute a global game, will be analyzed in subsequent chapters.

5. The Polycentric Construction of an ‘Actually Existing’ MNC By telling the story of an ‘actually existing’ MNC as a set of initially independent and later interwoven subsidiary narratives, we ﬁnd that the process of constructing a global ﬁrm appears in a clear new perspective. Among the most striking ﬁndings to emerge from this polycentric narrative is that each of the three subsidiaries joined APV partly as a result of its own strategic efforts. The local strategists were looking for a new owner because the old one wanted to sell (Howard). They might have considered acquisition by the British MNC as a low-cost method of expanding their presence in foreign markets (Crepaco). Or they might have orchestrated their purchase by APV after carefully contemplating how they would ﬁt into the portfolios of factories and markets belonging to different MNCs (Horsens). This suggests that rather than simply being driven by sharks which eat the small ﬁsh, globalization is also propelled by small birds seeking protection under the eagle’s wings. Consequently, a multinational happens to associate actors who reﬂect in very different ways on their own situation and join the global ﬁrm partly as a result of their own strategic choices. Howard made its choice from the conviction that in exchange for stabilization of ownership it would have to surrender independence to a new feudal lord and prepare itself to receive orders. In contrast, Crepaco regarded what for more than a decade appeared to be a merger of equals or a strategic alliance as an opportunity to enhance penetration into European markets so that it could continue to expand as a vertically integrated organization. Finally, in entering APVD Horsens celebrated gaining a foothold on a new continent which it planned to conquer. Thus it seems as if subsidiaries enter into an MNC and into mutual competition carrying along a variety of aspirations and goals that make them a highly ambiguous and heterogeneous group of actors. Would not the continuous success of this association depend on how well they interact, compete, and cooperate—despite their differences? And would that not in turn decide what the MNC could become?

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Thus there is no single standpoint from which to deduce what constitutes the multinational. It is widely assumed that ﬁrms which become MNCs are successes, whereas those which are acquired as subsidiaries in this way prove their failure. Our narrative tells a very different story. Each of our four ﬁrms had proved to be successful strategists capable of surviving in the world market for more than a century. Howard struggled for many years to remain the leading UK producer of rotary lobe pumps and became a fountainhead of many local imitators. Crepaco became a prominent vertically integrated production and marketing ﬁrm in the oligopolistic game of the American market. Horsens earned a very high reputation, even among its domestic competitors, as a skilled supplier of competent and ﬂexible tailor-made technical solutions for advanced customers. Consequently, it had no problems in recruiting the best workers and technicians. For each of these ﬁrms, their strategizing led to incorporation into a foreign MNC as the best possible alternative in a given situation during the 1970s or 1980s. Even their transformation into subsidiaries may be considered a success measured against their local aspirations. One may say that they secured their acquisition by the MNC precisely in order to continue pursuing the evolutionary logic of their localities, technologies, and organizations. The story of APV—which happened to become the formal owner of the others—is not very different. The peculiarity of this ﬁrm is that from the beginning it was linked through family relations to the international banking community. This offered APV the opportunity to expand more than the average ﬁrm without such connections. But this opportunity also paved the way for its failure. Stimulated by high engineering aspirations, APV engaged in large-scale investments that led to over-capacity; over-capacity led to losses; and losses reinforced its ties to, and dependence on, the family bank. With the weakening of the family presence in both the ﬁrm and the banking community, this virtuous circle gradually evolved into a vicious one. APV resolved this crisis during the late 1950s and the early 1960s by institutionalizing modern accounting routines and professional rather than family ties to the ﬁnancial community. In this way, APV acquired the core competence that would not only enable it to continue on its original fast-growth track but also to function as a sort of consultant to other ﬁrms which were themselves experiencing difﬁculties in obtaining ﬁnancial capital to solve similar crises. Often this service was reciprocated by the establishment of formal ownership stakes in its ‘clients’. So long as engineering dominated accounting aspirations, such ties often built on a collegial community among engineers, but as the accounting and ﬁnancial professions gained a larger say over its strategies such situations were increasingly considered strategically important in their own terms. During the period when engineers and ﬁnance

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specialists struggled over the control of the ﬁrm, the heterogeneous reﬂections by which different clients anticipated their incorporation could each be reinforced by the heterogeneous and ambiguous reactions from the emergent HQ. Subsidiaries would simply receive the signals they wanted to hear. Obviously, such an HQ might be considered very attractive to join. A ﬁrm considering whether to become a member might indulge in receptive conversations about engineering projects with understanding colleagues who have access to people in high positions, who can connect ideas with money. It is difﬁcult to see who is the most successful in such conversations. In our case study, it is obvious that the MNC headquarters needed the prospective subsidiaries as much as they needed the HQ. Was not APV trying to defend itself against the threat of hostile takeover by an expansionary strategy of growth through acquisitions? And in so doing, was not the HQ just as defensively positioned as the prospective subsidiaries which approached APV for help? The process of cumulative multinationalization we observe in this story breaks in many ways with the received expectation that the MNC expands from an advanced technological and administrative home economy to gradually conquer the world. Instead, we see an MNC headquarters being approached through an engineering network, which then mobilizes its HQ’s intangible assets of ﬁnancial experience when a new ﬁrm is considered for membership. How cheaply can controlling equity be transferred to the new owner and what resources are necessary to bail the entering ﬁrm out of its current troubles in order for it to remain a going concern? This price depends on how the assets of the entering ﬁrm can be used to ﬁnance its own entrance, how the merger is considered by the ﬁnancial community, and how creatively the ﬁnancial markets may be induced to provide the required capital. Thus instead of the mutual exchange of engineering ideas, the stage is set by the ﬁnance and accounting departments and the discussions between the HQ and the new ‘subsidiary’ change. The paradox is that the more the engineers attract colleagues in other ﬁrms for conversations about membership, the more the engineers become dependent on ﬁnancial and accounting competences. These competences grow by giving further training to engineers and by hiring new managers trained at business schools and with experience at ﬁnancial and consultancy ﬁrms or the ﬁnance departments of other MNCs. Through this hybridization process, the HQ becomes a serious player in the London corporate headquarters and ﬁnancial district. Concepts of strategy and organizational concerns change from the possible synergies of cross-national engineering and production to focus on managing internal ﬁnancial ﬂows in order to smooth relations with institutional investors, banks, and the stock market. This latter game is highly competitive, as

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the audience in the City of London is continuously comparing the ﬁnance departments of different MNCs. With this pressure, the scene may be set for an ongoing battle between engineering and ﬁnancial concerns, a battle that may go on within individual persons, among professional groups, and across subsidiaries, making it very unclear which strategic lines are dominant and which principles shall govern administrative control and coordination of the division of labor within the MNC. This battle may never cease and therefore could explain why the MNC oscillates between polycentric and geocentric principles for a considerable period. In this confusing play around the HQ, how much room the individual subsidiary has for maneuver may well be determined by its indigenous reﬂections on its own situation. If the subsidiary decides to move only on orders from the HQ, it may gradually lose all chances. If it enjoys its new stability as a subsidiary and concentrates on defending its existing position against the international division of labor in the MNC, it may experience stagnation. If instead it approaches its new membership as a world of endless possibilities, the MNC may become exactly this for the subsidiary. The subsidiary’s disposition towards reﬂective activity may not be determined solely by the managers that happen to be in charge at the moment the ﬁrm is admitted into the MNC. Rather this reﬂection could be shaped by the subsidiary’s own narrative, the collective self-representation through which its members have historically interpreted the ﬁrm’s practices and capabilities, and learned how to assess new situations. Thus whether the ambiguous situation of the entire MNC should ‘objectively’ be described as a hierarchy, a market, or a heterarchy need not determine how each of the subsidiaries anticipates the situation. It could instead be that by continuing their historically patterned strategic reﬂections some will continue to live in a hierarchy, others in a market, and still others in a heterarchy. If so, an objective description of the MNC would need to include the narratives and forms of strategic reﬂection among the subsidiaries rather than sticking to the formal design of the organization as seen by the top executives at the HQ. In our case, Howard had learned to live with idiosyncratic owners, for whom their ownership role was more important than growth and proﬁtability. In such a scenario, luck comes and goes depending on the current mood of the owners, and when luck came the workshop and engineering department would spend time improving the product on which the entire pride of the factory rested: the rotary lobe pump. This ‘sleeping beauty’ existence was possible because the owners never initiated a systematic Taylorization of work. Hence it was easy for the ﬁrm to recruit or train highly skilled craftsmen who could work on the rotary lobe pump when improvements could be afforded. As the ﬁrm had given birth to several spin-offs and

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imitators, owners and managers lived in hostility with their neighboring colleagues, but workers in the local labor market were related to one another through family ties spanning company boundaries. The ‘sleeping beauty’ thus became a meeting place for individualistic skilled workers (the ﬁrm was not unionized), especially in good times. These workers could always return to other ﬁrms in the region when times turned less promising, because of the subsidiary’s reputation for employing excellent workers and for the technical superiority of its products. In this way, the ‘sleeping beauty’ always helped to re-establish the old equilibrium among ﬁrms in the rotary lobe pump district, where she was recognized as the source of many technical improvements from which the others could proﬁt. During the 1970s and 1980s these neighboring ﬁrms had been taken over by other foreign multinationals. By preparing to take orders from a new owner after being acquired by the London-based MNC, the ‘sleeping beauty’ therefore appeared to be actively seeking to continue the life to which she had gradually become accustomed since the Second World War. In a similar manner, Crepaco had seen its own productive and commercial potential gradually improved by including more and more differentiated functional departments and manufacturing units within its own organization. To continue this type of growth was not only the essence of what the ﬁrm considered success, but also where it had invested in routines for creating new routines. Hence any attempt by the MNC to circumscribe the ﬁrm’s functional role would seem harmful and destructive in the eyes of local beholders, betraying the very joint venture into which they thought they had entered by selling off their formal independence. Horsens could likewise be expected to approach APV as a new arena within which it could expand and improve its superior technical reputation, as it had been accustomed to doing in the past with Danish owners, customers, colleagues, suppliers and the labor market for skilled technicians and machinists. Would not Horsens’s staff anticipate the new situation as one in which it had all the employees and customers of the MNC as an audience before whom to demonstrate their skills? If Horsens could mobilize resources from the Danish labor market, vocational institutions, traditional customers, suppliers, and especially its own workers behind such a strategy, this could eventually help it gain a high reputation in the global engineering circles of the MNC. And if the Danish subsidiary could keep London happy by providing the ﬂow of funds and earnings promised in the annual budget negotiations, it hoped to gain substantial freedom of maneuver on the engineering and manufacturing front. It might thus be possible for Horsens to make local use of APV’s global network along the lines of the ideal vision of the MNC presented at the beginning of Chapter 1.

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An important point emerging from this polycentric narrative of the initial association of formerly independent ﬁrms into a single MNC is that the ‘administrative heritage’ might continue to be diverse and rooted in the experience that local actors had gained from their involvement in the games of diverse regional and national business systems. For none of our protagonists, including the HQ, had managed to gain experience in coordinating a multitude of local players, whereas the latter had gained experience in dealing with the capital market through the City of London. If the HQ begins to coordinate activities among and between its subsidiaries, this could then lead to a range of unintended consequences. Though such initiatives might be seen by the subsidiaries as the owner’s legitimate role, our initial observations presented in Chapter 1 illustrate how the HQ risks losing this formal authority precisely by exercising it. Such actions might simply look foolish and wrong when measured according to the local rationality and ‘administrative heritage’ underlying each of the subsidiaries’ individual strategies. Would it not be extremely difﬁcult for Crepaco, Horsens/Pasilac, or even Howard to imagine that what had made them successful—or at least enabled them to survive—in the past should now be simply abandoned in response to an order from London? Hedlund’s concept of heterarchy, like many of the other visionary approaches to the organizational structure of emergent MNCs examined in Chapter 1, tries to resolve the paradoxes and contradictions we have foreshadowed here. By creating a common unitary corporate culture, securing long-term employment for its members, building up shared experience among employees, shaping interlocking directorates, and fostering global project teams and meetings across subsidiaries and divisions, it is proposed that these problems might be solved. The aim is to build up an MNC that functions ‘as one integrated brain’, rather than as a system in which ‘one brain’ controls and coordinates globally dispersed organs (So¨lvell and Zander 1995: table 3; Hedlund and Rolander 1990: 25–6). Such propositions rest on the premise that a common corporate culture can be constructed which overshadows the effects of the national cultures and regional contexts from which subsidiaries act. The question is whether attempts to create such a culture may run up against exactly the same centrifugal processes at play among different units of the MNC—whether, in other words, they are moving towards increasing mutual misunderstandings in their reciprocal game. If so, we badly need detailed studies of the games going on within multinationals before anything can be said about whether, in what sense, and through which interventions such a common culture can be constructed. Without such a common culture, or some alternative set of mechanisms for orchestrating cooperation among partially autonomous subsidiaries and

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functional units, would not the other elements of the heterarchy simply provide further battleﬁelds for games such as those we analyze in the next part of this book? And if this turns out to be the case, what type of organizational reforms might then be able to remedy the situation? We will return to this latter question in Part III below.

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Part II A Global Game Enacted by Local Players

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3 Horsens: Local Strategies on a Global Stage 1. Strategic Moves in the Local Arena Earlier we left the Horsens plant in Denmark at the point where the convener had successfully prepared the Danish business group Pasilac for acquisition by APV. But no one in Horsens believed that the plant’s destiny was decided by these high-political strategies. On the contrary, the convener saw them as preparing the ground for the strategies that would really decide the game. However, in considering the plant’s internal situation, the convener had two reasons for believing that the new situation could be successfully exploited. First, the plant’s managing director was now the former production manager, with whom the convener and the rest of the blue-collar workforce enjoyed strong relations of mutual trust based on the successful turnaround of the early 1980s. Second, APV-Horsens’s collaboration with the local district was well established. While the plant itself specialized in certain processes, having invested primarily in ﬂexible universal machine tools, it systematically subcontracted for other operations and components, such as electro-motors, presswork, and deep drawing of cabinets in stainless steel. A number of local suppliers, specializing in the same processes as the plant, served as short-term capacity subcontractors on contracts negotiated jointly by Horsens’s managers and shop stewards. With the plant’s increasing turnover, not only had its subcontractors proﬁted from larger sales, but relations had also become much more collaborative as Horsens’s ﬂexible strategy required delivering many products and variants at short notice. The intensity of interconnections within this local business system can be seen from the fact that the production manager, who had now become the managing director, had initially been recruited from Horsens’s strongest competitor, had been working with the same local suppliers, and had formerly worked in the production management of its electro-motor supplier.1 On top of such social 1 His experience illustrates well how Danish enterprises are interconnected via persons who move upward in their careers by external job changes (see Kristensen 1992a, b).

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ties, Horsens’s planning system effectively coordinated the ﬂow of parts produced by its many suppliers. With Pasilac’s failure on the American market, the Horsens plant’s period of good fortune had abruptly been brought to an end. The uncertainty of its future role and the low demand for its products threatened to result in layoffs, by which the plant risked losing its core assets: skilled workers and white-collar staff recruited from their ranks. The convener normally considered periods of both rapid growth and rapid decline as a threat to his constituency. To protect the skilled workers’ claims to the manning of work cells, especially those involving the programming of machines, he would have to ensure that they were broadly trained, so that neither a few layoffs in bad times nor a demand for an extra shift in good times would threaten their ability to run the factory along the lines described in Chapter 2. Consequently, he had long wished to sign a ‘training agreement’, but during the plant’s good years it would have been impossible to allow workers with critical skills to leave their workplaces for training in technical schools. Thus the current crisis could be transformed into a new opportunity, especially with the newly recruited managing director in place. By showing how the Danish welfare state would reimburse a signiﬁcant share of the wages of workers undergoing external training as well as their course fees,2 the convener could offer the managing director a cheap way of holding on to employees with critical skills in return for a ‘training agreement’. The managing director, on the other hand, who knew from experience that periods of low demand often jeopardize productivity, saw in such a scheme a countervailing factor which he wanted to connect with a reform of the wage system from hourly pay back to one based more on piece rates. With this new social contract the two men had not only found a formula for stabilizing employment but also a way of preparing for a coming boom. They could reduce economic losses, keep highly skilled workers attached to the plant, and even increase Horsens’s capabilities for ﬂexibility and productivity. What seemed favorable to the workers and the plant manager, however, could easily have been received with skepticism by the local stakeholders and institutions that were being asked to provide and ﬁnance the proposed training. The contrary proved to be the case. Drawing on its high reputation 2 In Denmark during the 1980s and early ’90s, the state paid for both the course fee and up to 90% of workers’ normal hourly wage, or unemployment beneﬁt entitlement, if they enrolled in training courses at technical schools or specialized workers’ training centers. At the time APVHorsens reached this agreement, workers needed the employer’s permission to enroll in such courses. In the late 1990s, employees obtained the right to participate in up to two weeks of further training each year as a result of collective agreements between the unions and employers’ associations.

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and networks within the wider locality, the Horsens plant could use its ‘training agreement’, formally signed in 1987, as a tool for reforming the broader functioning of the vocational training system. In this respect, the close personal relations between the plant convener and the local chairman of the Metalworkers’ Union served the plant especially well. The local union decided to adopt such agreements and the gradual reform of the vocational training system as one of their basic strategies for ﬁghting the sharply increasing unemployment that had been emerging in Denmark since 1987. First, the local union ofﬁce was active in pushing for and setting up an online system through which they could immediately check the availability of courses on a national scale. Second, the local union used its direct representation on the board of local schools—together with its indirect inﬂuence on other unions, which were represented on boards of other local training centers—to make these more responsive to workers’ needs for systematic further training. Since Horsens had an exceptional array of training and vocational education facilities, including a very large technical school offering a wide range of training courses in the metalworking sector, one of the largest specialized workers’ training schools or AMU Centers3 in Denmark, a commercial school, an agricultural school, a large adult education center, a technical college, and various technical high schools, the network of local union ofﬁces could jointly push many elements in the same direction simultaneously. In effect, these institutions started to compete with one another to provide sequences of training modules which could serve the long-term needs of employees in ﬁrms that were adopting new technologies, abandoning old hierarchical divisions between planning and execution, or looking for new markets and products. The vocational schools soon began to send out consultants to individual ﬁrms to help them set up systematic customized training plans, stimulating and facilitating a broad movement towards the negotiation of training agreements. In short, APV’s Horsens plant helped trigger a process through which the entire local labor market was radically upgraded. While only 15 per cent of the members of the local metalworkers’ unions had attended further training courses in 1985, within just three years the proportion had doubled. And whereas in 1987 3 AMU Centers have developed gradually from initiatives taken by unskilled workers to compete for skills and jobs with apprenticed craft workers. As early as the 1930s, the unskilled workers’ union organized evening courses for their members. Then after the Second World War, they succeeded in setting up state-ﬁnanced day schools for ‘specialized workers’ and changed the name of the union accordingly. Through these schools, the union gradually built up an extensive system of training modules so that specialized workers would often wind up with qualiﬁcations similar to those held by skilled workers. As the schools became more heterogeneous, they opened their doors to all groups of workers, especially the unemployed, and changed their name to AMU Centers (LaborMarket Vocational Centers). But they still basically competed with the technical schools for skilled workers in developing new curricula for further training.

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most participants in further training courses had been drawn from the ranks of the unemployed, by 1992 their principal constituency had shifted to employed workers. The result was the emergence of a virtuous circle in which vocational schools competed with one another to propose new and improved curricula, different groups of workers competed to acquire new skills, and ﬁrms competed to hire workers with these new skills. This positive new dynamic could in turn be seen to point the way towards a broader incremental reform of the Danish welfare state, which would radically upgrade its capacities to contribute to the reskilling of the workforce, without departing from its historic commitments to solidarity and universal protection against labor market risks (Kristensen and Petersen 1993). In 1987, APV’s Horsens plant, along with two other ﬁrms, had been the ﬁrst in Denmark to sign a training agreement. Five years later, six ﬁrms in the town of Horsens alone had such agreements, and shortly thereafter, the right to further training was incorporated into the central agreement between unions and employers’ associations for the entire country. At APV-Horsens, it was the skilled metalworkers who had played the leading part and opened the way for the participation of their ‘unskilled’ colleagues from the Specialized Workers’ Union (SiD). But in the town of Horsens and in Denmark more generally, it was SiD and ‘its’ vocational training institution, the AMU centers, that played the most important part, putting pressure from below on all skilled unions and the technical schools to become more active in the upskilling process.4 Ironically, whereas the APV-Horsens ‘training agreement’ had initially been seen as a defensive device to maintain workers’ attachment to the plant in a period of low labor demand, it soon became an offensive measure. Because of restrictions on capital investment imposed by APV’s London headquarters, the Horsens plant could no longer attract highly skilled workers by promising them challenges from the newest machines and technology. But the advanced training scheme became in itself an argument for 4 As mentioned earlier, skilled and specialized workers in Denmark have long been engaged in a mutual rivalry through competitive skill formation to capture new positions created by technological change. In the APV-Horsens plant, the skilled workers had gained the upper hand in this rivalry, and the training agreement could be seen as their attempt to secure the control of new CNC technologies in relation both to white-collar technicians ‘above’ them and the specialized workers ‘below’ them in the occupational hierarchy. Due to their majority position in the plant, the skilled workers at APV-Horsens were able to elect their shop stewards as convener and chairman of the local union club. But shop stewards representing other unions such as the specialized and female workers could negotiate similar training agreements, and had the same opportunity if not the same incentive to upgrade skills, since the skilled workers could dominate job deﬁnitions to their advantage. In other factories, where the relative strength among the various unions differed from that at APV-Horsens, this dynamic might have been shaped instead by the specialized workers, especially where the latter were able to elect their own members as chair of the local union club and plant convener.

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retaining and recruiting the best skilled workers. And this was indeed a favorable arrangement, since it allowed individual workers to propose their own desired further training, which formed the collective starting point for planning the entire plant’s yearly training schedule. Simultaneously, as the plant reintegrated many of the jobs it used to outsource, production runs became shorter, while resetting and programming time took a larger proportion of the day’s work, thereby helping to bring into active use the workers’ newly acquired skills. The individual work stations at Horsens demanded not only greater skills, but also increasing abilities to coordinate them. By agreement all vacant jobs were to be offered internally before they were advertised on the external labor market. Consequently, a larger number of workers than formerly gained experience in planning, product development, and sales, together with a general ability to cooperate according to the rules of expertise. Many blueand white-collar workers soon learned how the organization worked from a multiplicity of different positions. In short, the training agreement not only helped to maintain the attachment of core employees to the plant across the business cycle, but the learning process it fostered also led many workers to increase their knowledge and employability. As upskilling and increasing internal ﬂexibility went hand-in-hand with the withdrawal of work from suppliers. These measures might have been expected to destroy the plant’s ability to mobilize the external resources of the latter when these again became necessary. Informants at the plant explained why this rupture did not occur by reference to personal contacts with the old network of subcontractors, which consisted of small, nonbureaucratized enterprises. It was said that subcontractors always received a thorough explanation of why contracts were cancelled or changed. Consequently, by using institutional rules and rights and by acting according to the codes of the local business system, the Horsens plant found a way to preserve and even develop its internal and external capabilities in a time of crisis.

2. Strategizing Silently on a Global Stage Thus after its incorporation into the British multinational, APV-Horsens was ready to begin anew. But what were the challenges it faced? First, it was facing a complicated ‘system’ of control and coordination from its new owner. Gone were the days when Horsens as a ﬁrm referred to its own independent board. The new British owners wanted to make the Danish business group Pasilac, to which Horsens belonged, independently responsible to its shareholders. Thus APV’s London headquarters integrated the

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entire Pasilac group, of which Horsens was just a small part, into a single ‘proﬁt center’. As a consequence, from a de jure point of view, Horsens again ceased to exist as an independent ﬁrm. Its status was that of a plant, referring in budget and accounting terms to a Danish holding company, headquartered in another town in Jutland. On the other hand, since the British multinational comprised a large number of facilities around the world, many of them producing similar products, technological and commercial coordination of Horsens was assigned to APV Rosista, a recently acquired German subsidiary based in the Ruhr town of Unna, formerly one of Horsens’s main international competitors. Finally, all investment decisions were to be approved by APV’s London headquarters, since as we shall see in Chapter 6, the heavy debts taken on as a result of the merger process impelled the company’s top executives to keep a tight rein on new capital expenditure. Thus the Germans, in spite of their well-attested propensity to coordinate and integrate corporations technically (Lane 1992), could not use economic means to force Horsens to follow their direction. These seeming ambiguities among different organizational levels were caused by strategic efforts to control and audit the behavior of each single plant by subjecting it to as many controlling and coordinating agencies as possible. Whether such intentions would be realized, however, depended—as we shall see—on the individual plant’s ability and its willingness to swim in ambiguous waters. Although these arrangements looked complicated at ﬁrst sight, there was nonetheless an underlying logic to them. First, the British owners appear to have structured the ‘system’ to maximize short-term cash ﬂows into the London corporate treasury by making the Danish holding company Pasilac responsible for Horsens’s budgets and accounts and by directly controlling its investments. Second, to the managers of Pasilac, the rule of thumb seemed very consistent with this central policy: the more money they earned, the faster they would gain some form of discretion. Third, to Horsens’s managing director the rules of the game appeared very obvious and easy to comprehend: earn as much as possible and you will be left alone. If you wanted to make new capital investments, then you had to achieve high proﬁts and reduce the amortization time for such investments. Problems piled up, however, and were complicated by the role which the Germans were supposed to play vis-a`-vis Horsens. Rosista was supposed to integrate Horsens in terms of marketing, division of labor, and technology, yet it had no direct means by which it could inﬂuence or sanction Horsens’s behavior. If the Germans wanted to intervene they had to do so either via London or the Danish holding company. As competitive producers of valves within APV’s internal market, the legitimacy of the Germans’ position was

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dubious should they want the British—or even worse the Danes—to discipline Horsens. Like the British owners, the Danes believed that getting to know each other would be the best strategy to promote future cooperation between Unna and Horsens. Horsens therefore invited Unna to send a busload of employees to Denmark to visit the plant; when that proposal was rejected, they suggested instead that a busload of representatives from all employee groups in Horsens should come to Unna to visit the plant, the town, and its unions. In response to the latter initiative, they received only silence, which as we shall see opened the way to a very different game. Instead, and in keeping with Lane’s (1992) description of how authority is pursued in technically well-integrated German corporations, Unna informed Horsens that its position would gradually become that of a plant producing equipment and parts assigned and marketed by the German ﬁrm. Furthermore, the Danish plant was to wind down its production of valves and to focus on pumps. To execute its decisions without involving the British owners, sales people from the German subsidiary were instructed to tell customers that Horsens would soon stop producing and selling valves. Horsens received this message almost as a declaration of war, but had they known more about how the rules of the game of inter-ﬁrm collaboration functioned in Germany, they might have interpreted it very differently. As Gary Herrigel (1996) has emphasized, it is normal procedure for German ﬁrms to engage in mutual collaboration by establishing a division of labor through a formal or informal specialization agreement. Probably the Unna management was simply offering the Danish plant what they regarded as a normal basis for collaboration, but Horsens did not recognize this because such agreements do not exist in Denmark, and because they had learned to balance internal employment by ﬂexibly reallocating workers between pump and valve production depending on the ups and downs of these two markets. Horsens, which was accustomed to being in the forefront of introducing new CNC machines, suspected that if it asked London for investment funds, the division of labor between Germany and Denmark would become a formal item on the agenda of high politics. Hence the managing director adopted a dual motto: ‘he who lives quietly lives well’ and ‘it is easier to ask for forgiveness than for permission’, and decided to challenge the decisions and position of Germany silently without increasing the plant’s own ﬁxed assets. But Horsens did not simply stand pat. The plant’s former experience of dealing with multi-level Danish holding companies had taught its leaders that they had to ﬁnd a way of becoming a valued partner within the new worldwide business group, and that they had to do this through the resources

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they controlled themselves and through local stakeholder relations. This reﬂexivity made them decide to challenge their German principal head on. So while German salespeople traveled to APV’s subsidiaries all over the world, informing them that Horsens was ceasing the production of valves, the Danish plant’s own salespeople followed in their wake announcing that they planned to stay in business. Furthermore, Horsens informed potential new customers that its valves, pumps, and components could be delivered on very short notice, in just one-third of the Germans’ three-month delivery time. For constructors of turnkey food-processing equipment, this was an offer they could not afford to refuse. For designers and suppliers of turnkey facilities it is very helpful indeed if the speciﬁcation of valves, pumps, and other components can be deferred to a late stage in the design and planning process so that it is possible to correct for miscalculations in the ﬁnal testing. However, missing a delivery date means that a project director incurs substantial penalties and so risks turning a proﬁt into a loss for a huge turnkey facility. Thus solving this dilemma by reducing delivery time was a very efﬁcient sales strategy. Needless to say this strategy had its source in the ﬂexibility of Horsens’s factory organization and the effectiveness of its planning system, which facilitated the coordination of a large network of sub-suppliers. This proved an excellent strategy. It provided Horsens with numerous occasions for demonstrating its ﬂexibility and cooperative attitudes towards its new group of partners within APV’s global network. As indicated so far, this strategy had to be defensive, and Horsens neither dared nor could afford at that time to let its future possibilities become a matter for the top decision-makers of the British multinational. Hence a new question arose: was Horsens only adapted for survival in a bleak market, whereas it would lose position to the German Rosista within the MNC when demand recovered? In fact, Horsens soon discovered that its work organization was well conﬁgured for a growing market. As demand for valves and other products once again began to increase, Horsens was in a position to expand by contracting with local and national suppliers from the business system to which it belonged. Moreover, continuous further training had made highly skilled production workers a more plentiful resource, which now allowed the ﬁrm immediately to expand from two to three working shifts without increasing the number of employees. Consequently, the same number of machines and equipment, combined with an intensiﬁed use of subcontractors, could produce a larger output. Production in this multi-plant system was coordinated logistically by the planning ofﬁce, which had learned how to handle such a task during the previously successful years 1982–6. Within a very few years, earlier periods of prosperity looked like recessions. By the beginning of the 1990s, Horsens prepared to make the decision on the

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location of valve production an explicit issue within APV, as it now wanted to become the producer of a new generation of these valves for the entire multinational conglomerate. This was partly due to the fact that Horsens had been able to demonstrate additional capabilities in pump production. Shortly after being incorporated into the British multinational, Horsens was invited to participate with British and American corporate partners in a joint development project on the new generation of pumps. Horsens succeeded in negotiating the rights to produce the new pumps by demonstrating that its plant was technically and ﬁnancially superior. Even though Danish wages were very high compared to the other countries involved, Horsens could prove that its overheads were among the lowest. This argument decided the game. Preparing the new generation of pumps for efﬁcient production proved to be an easy task due to the ﬂexible factory organization. Problems could be broken down and handled expertly by the workers, who saw hardly any difference between such tasks and their daily activities, and by the subcontractors responsible for electro-motors, deep-drawing, etc. Consequently, after an extremely short period the new product program was ready for the market. Not only had the lead time been very short, but investments in additional machines, tooling, and equipment were kept extremely low. Horsens wanted to demonstrate its superiority to its British owners by simply making money. That Horsens’s strategy had proven successful, preparing the plant for the more difﬁcult move of directly challenging its German principal in the eyes of their common British owner, could easily be seen from the facts that the managing director in Horsens was planning to present in the coming negotiations with London. In 1990 turnover had passed DKK170m and thus far exceeded the previous peak of DKK113m in 1985, which had then fallen to well under DKK100m in 1986 and 1987, when Horsens was taken over by London. Since 1987 turnover had nearly doubled, proﬁts had trebled, and the workforce had only increased by 8 per cent. Investment had been negligible. During the difﬁcult days in the 1980s, the ﬁrm had been forced to run up an overdraft facility, which in the bleakest periods showed a negative balance of DKK30m. By 1990 the balance was very positive indeed. No wonder that Horsens expected to have a say in determining its own destiny, demanding a voice in corporate politics. The silent war had already been won.

3. Internationalization and Horsens’s Local System Horsens’s strategy would have been impossible without its traditional relationship with a system of local and national subcontractors who had

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developed the skills to play in concert with the plant. The structure of the stainless-steel district to which Horsens belongs had not changed much in terms of size of enterprise, number of ﬁrms, etc. over the previous ﬁfteen years. However, according to local observers, the internal organization of work in these ﬁrms had evolved pretty much along the same lines as that of Horsens. Many enterprises had chosen to specialize in a smaller number of processes, which they could ﬂexibly and swiftly adapt to customers’ changing needs. Some had even started to collaborate in groups which together could undertake the coordination of several industrial processes across plants. Consequently both the internal characteristics of ﬁrms and the linkages among them changed considerably during the period, during which the local labor market also experienced an upskilling dynamic. Whereas the ties between local ﬁrms from the 1960s to the ﬁrst oil crisis gradually became less intensive due to growing imports of standardized components from abroad, they have intensiﬁed since then. The cause is simple. While before the 1970s, local ﬁrms worked closely together in developing parts and components for new or customized products, the shifts in ﬁnal demand following the oil crises meant that these types of collaboration-intensive products increased as a proportion of total output. In this respect, one may say that the stainless-steel district to which Horsens belongs increasingly resembles an Italian industrial district, though the ties between ﬁrms may differ in certain respects. As in the classic industrial districts of the ‘Third Italy’, subcontracting relations in Horsens are ﬂuid and dynamic, rather than ﬁxed and hierarchical. Sometimes local ﬁrms act as principal suppliers, sending out work to their neighbors, and sometimes as sub-suppliers helping to fulﬁll orders obtained by others. Whereas cooperation and trust in the Third Italy used to be attributed at least in part to family relations, these have always played a minor role in Denmark. Far more important in the distribution of orders is professional reputation. As everyone in the district is engaged in establishing a reputation as highly skilled, ﬁrms’ relative standing in this game depends more on their work teams than on their owner/entrepreneurs or technical functionaries. Companies therefore contend with one another to recruit the best workers, so that upward career mobility often occurs across, rather than within, ﬁrms. Many individuals thereby acquire a very personal network of ties to a multiplicity of ﬁrms, which makes mutual collaboration possible in very informal and decentralized ways. Finally, the expansion of further training during the late 1980s added new dimensions to these ties, as workers from many different ﬁrms now had new opportunities to meet and exchange information about each others’ jobs, the machines they

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were manning, and the functioning of the companies in which they were employed.5 It is the prior existence of this local system of supplier relations that explains how the APV-Horsens plant could manage its production schedule with very low inventories, while knowing only one-third of each month’s orders in advance and outsourcing DKK100m of its DKK170m turnover in 1990. The intensive ﬂow of information throughout the system about each plant’s capabilities likewise enabled APV-Horsens to draw effectively on its collective resources when introducing new products. The nature of these ties between local ﬁrms also explains how the system continued to be able to work in concert, despite seemingly drastic changes in its ownership and governance structure. Measured in terms of ownership, it certainly does not display a very local orientation. The motor producer that assisted Horsens in developing the new pumps by modifying and improving its product had been taken over by the large Swiss-Swedish multinational ABB. Nevertheless, ‘local, non-bureaucratic, personal ties among small enterprises’ were said to characterize APV-Horsens’s relations to such ﬁrms as well. The plant’s closest competitor in the district was also owned by a Swedish MNC and related to the local system in pretty much the same way as did APV-Horsens. The two competitors even occasionally exchanged experience at the local level about the quality of subcontractors, while the overlapping career paths of their managers made it very difﬁcult for them to imagine each other as enemies rather than rivals. Thus the growing internationalization of ownership did not appear to have changed the network structure of relationships among enterprises or their internal organization in ways harmful to the local dynamic of collaborative rivalry. Looking at the system from a slightly different angle thus reveals that it meant a great deal for the district that ﬁrms like APV-Horsens were incorporated into large multinationals. By ﬁghting for its own existence, the plant was also ﬁghting on behalf of the entire locality for a share of the closed internal market of the London-based multinational. Thus the various multinational subsidiaries may be seen as gateways to many controlled global markets for the local stainless-steel district. In Denmark, speciﬁcally, such subsidiaries could be seen as solving a major problem for the business system. As argued elsewhere (Kristensen 1990, 1992a) a large number of Danish production ﬁrms are adept at ﬂexibly turning their process specialties to different uses, much like a traditional craftsman. However, the highly praised skills of a particular craftsman are not easily brought to the attention 5 For similarities and differences between the nature of interﬁrm relations in Italian and Danish industrial districts during the early 1990s, compare Trigilia (1992, 1995) and Kristensen (1992b, 1995). For the recent transformations of the Italian districts, see Whitford (2001).

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of the global market. MNC subsidiaries solve this dilemma by calling upon the system’s capabilities in order to pursue their own strategies, and in the long run by serving as a point of reference should any of their new partners in the global ﬁrm ever need the services of particular specialized subcontractors.6 For these reasons it could have been a deliberate policy on the part of Horsens’s subcontractors to help smooth out the cycles of the APV-owned plant, though that decision was probably rooted more in local customs.

4. Groups Positioning in Social Space: Local or Global Aspirations? The analysis thus far has shown how Horsens was able to create and perpetuate its unity by the local use of national institutions and the larger business system, thereby reproducing its position within the social space of its new multinational owner. But how could the Horsens plant maintain its unity as different internal groups and their members pursued their individual and collective strategies? How could these strategies be combined into a coherent totality? Obviously this is not a trivial question, especially in MNCs. Joining a multinational opens up a seemingly endless space of career options for local managers, and they may often be tempted to pursue such options by focusing on their personal aspirations rather than by giving collective form to the aspirations of the various groups they manage. Such a change in attitude may easily lead to short-termism, since radical cost reductions may quickly advance managers’ reputations, resulting in rapid promotion, while leaving their successors to inherit the long-term negative consequences. Most radical cost-reduction plans in any case will harm other groups’ positions and aspirations within the plant, touching off a war of each against all. This pattern is often deliberately chosen by MNC headquarters to govern the ladder of principal–agent relations and to institutionalize a regime of divide and conquer, as we will see in more detail in Chapters 7–9 below. Consequently our next turn in the analytical helix aims to understand why the speciﬁc logic of the strategies by which different groups produced and reproduced themselves was not transformed by their incorporation into the social space of the multinational corporation. 6

When we later visited the Lake Mills plant we discovered that it used several of Horsens’s subcontractors for special jobs which could not be farmed out within the American system. But we also learned that the Lake Mills managers—to their regret—had to deal with these subcontractors indirectly through Horsens, who insisted on controlling the chain of negotiations for fear that the Americans might damage their own relations of trust with the subcontractors.

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First, let us consider the managing director. He won his position in Horsens by gaining a reputation—locally and within the sector—for being able to change functionally divided workshops into ﬂow production cells. As an engineer he was convinced that this organizational and technological principle was superior to all others. In general, he attributed his force in external negotiations to the fact that he knew every nut and bolt within the Horsens plant, though he gained his experience and reputation by redesigning many factories within the sector along the same lines. Although this technological principle was ﬁrst developed for mass production, he considered it to be in total harmony with a shop manned by high-discretion skilled workers, as they could use their capabilities and initiative gradually to improve every link in the chain. In many ways this production philosophy resembled what later became known as ‘lean production’ or Japanese manufacturing practice, but he had developed his own version long before it became widespread and had already installed it in the Horsens plant during the early 1980s, when he was ﬁrst employed as a production manager. The managing director’s practical approach, furthermore, was based on the fact that he had a very substantial knowledge of the successes and failures of each of his workers, which gave him a hands-on experience about which parts of the overall organization assisted them in making improvements and which not. He was keen to make changes by improving organization and incentives if it would reduce throughput time, processing time, and costs. Interactions among the management team were basically deﬁned as serving or reﬁning this principle. For the same reasons he was in favor of tight collaboration between production and research and development, so that new products could take advantage of all possible gains from past experience of shop-ﬂoor improvements. Since the different products made by the Horsens plant were fundamental for deﬁning the division of labor among work teams, it becomes evident why the managing director followed the strategy discussed earlier towards the global APV group. Winning the battles over valves and pumps within the MNC was thus seen as important to protect the ﬂexible system of work allocation on which the plant’s functioning was based, and defending its existing product mandates seemed to be the only way that the management team could perpetuate their own position within the Britishowned corporation. But if the Horsens management team could protect the plant’s product mandates, this system was ideal for making gradual improvements that would yield reduced costs and shorter throughput times, which would in any case conform very easily with the expectations of its British owners,

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thereby allowing the managers the possibilities of promotion within the MNC. Was, then, the local management team in Horsens just playing individualistic and opportunistic short-term games from a more advantageous position than might at ﬁrst appear? A closer look will reveal that for a long time they did quite the contrary. Though productivity improved and costs were reduced considerably, managers manipulated the presentation of ﬁnal accounts so that they would only show small but fortunate improvements in relation to budget targets. Reducing real costs dramatically instead allowed the managers to ﬁnance through working capital small investments such as paid further training for employees, incremental scaling-up of tools and machines, and new product development, all of which is quite easy within this type of factory organization. In short, the management team in Horsens might have used the plant much more offensively to improve their personal career prospects within the MNC. That these managers did not exploit such opportunities can be explained by their embeddedness in local games, whose rules they felt obliged to follow in order to preserve their chances for local careers and avoid potentially damaging reprisals from the plant’s powerful skilled workers. Just as the British owners largely ignored and were even deliberately kept ignorant of the extent of the plant’s gradual technological and organizational improvements and the upskilling of the workforce, these accomplishments were widely recognized among its employees and through them diffused to ﬁrms and colleagues in the district and the sector nationwide. Consequently, Horsens’s management team was gradually improving its reputation within the local and national space and thereby improving its chances in this landscape of career ladders. In other words, to strike the aforementioned balance in ﬁnal accounts and between the local and the global was a very smart strategy for holding on to chances for ‘promotion’ in both worlds. Of course, the power to appoint a new managing director of Horsens rested with its owners, and there was the permanent risk that a general manager, engaged in or looking for an international career, would be appointed. This, however, would probably change only marginally the strategic logic among the management team. Most white-collar workers, middle managers, technicians, and even salespeople in Horsens owed their present position to a characteristic local career pattern. Many managers had started their working life as skilled machinists, gradually gaining shop-ﬂoor experience in several ﬁrms, and actively engaging in further training, before they embarked on a white-collar career. The resulting friendships with blue-collar workers were very important for understanding the ease by which Horsens coordinated its activities. With

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this background, however, these managers neither aspired to nor expected any prospects of success in the social space of the multinational company. For them there was no other strategy than to improve their local reputation and the easiest way of doing that was simply to improve Horsens’s image in the local system.7 At the same time, the composition of the management group was an outcome of the struggle for space undertaken by the group of skilled workers, and the habitual patterns of interaction resulting from their strategies. Hence the management group’s own room for maneuver was partly deﬁned by the strategies of the skilled workers. These strategies ran partly contrary to managers’ wishes. For instance, in the early 1980s production management intended that the workers within a mini-factory or product group should continuously rotate and become capable of replacing one another, depending on which workplaces were subject to peak loads, etc. However, the workers concentrated instead on making their own workplaces as efﬁcient and ﬂexible as possible. The production groups came to consist of a set of fairly discrete and ‘independent’ work stations, where the workers operated as ‘subcontractors’ responsible for all the tasks, including one or more machines or other pieces of equipment. The workers displayed signiﬁcant initiative and commitment in their efforts to make their particular station function as ﬂexibly as possible in relation to the continuous needs for changes from one batch to another and from one product to another. This pattern was reinforced in the early 1980s through the introduction of new, computer-based technology (for turning, milling, and welding), whose planning and programming were devolved to individual work stations. The fast, successful implementation of the new technology occurred partly because of the workers’ signiﬁcant ability to organize this learning process among themselves. The programming of the new computer-numericallycontrolled (CNC) machines was entrusted to skilled machine operators who volunteered for this task. To some of them, the task offered the opportunity to extend their hobby into working hours. A few attended evening classes to learn skills such as machine coding that were automatically transferred to the ﬁrm, which in turn was able to proﬁt from new ‘tricks’ unknown even to the equipment vendors. All the CNC operators attended 7 However, local career prospects did not look bleak compared to what could be achieved globally. Since we ﬁrst began our investigations we have encountered former machinist apprentices from Pasilac plants at every level of Danish society. The CEO of the largest producer of food ingredients, a vice-president from Danfoss, a number of production managers among the largest plants in Denmark, business consultants, administrative staff and teachers at technical schools, and numerous middle-managers in ﬁrms, together with the mayor of Horsens, all share such an apprenticeship background.

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vendors’ courses and acquired a basic knowledge of the machines for which they were to be responsible. But above all, the workers were engaged in a mutual rivalry among themselves across production group boundaries to ﬁnd new, increasingly sophisticated ways of using the equipment. Experience ﬂowed smoothly among the individual workers on the factory ﬂoor, although they had to communicate across ‘dividing lines’ created by the fact that the various production groups were supervised by different foremen who each had their own budgets and ﬁnancial responsibilities. The catalyst for this self-organized, regular continuing training was the newly established position of programming technician. A former machine operator who had been with the plant since the CNC machines were introduced was offered a white-collar job as internal consultant assisting in solving the programming problems experienced by the individual machine operators. The work organization introduced at this time provided an ideal basis for continuous improvement. The ‘owner’ of the speciﬁc work station interacted actively with the rest of the organization to ensure that his station functioned ﬂexibly and effectively. Consequently, experience was acquired ‘on the job’ and possible improvements were also deﬁned there. The plant institutionalized routines for consulting the workers, thus making use of their experiences when planning for future investments. Cross-boundary communications among work stations were strengthened by replacing the piece-rate system with a pay system based on a ﬁxed hourly wage plus a bonus. The philosophy was that the ‘owners’ of each individual work station should take the initiative to make other parts of the organization function better if the latter were obstructing the efﬁciency of their own operations. In short, the individual work stations on the factory ﬂoor were granted very broad competencies and were empowered to try to make the other functions in the plant interact effectively with them. The workers at these stations increased their skills and became more adept at changing their workplaces quickly and independently, as well as at coordinating their varying tasks with the rest of the production group and the entire organization. One effect of this was to make the operation of each work station so complicated and the skills needed so considerable that it was practically impossible to rotate workers among them. Another effect was that managers had very limited control over the performance of each station. However, as other forms of ﬂexibility were achieved, these effects seemed a small price to pay. The ﬁrm often needed to reduce capacity in one production group and raise it in another as the market for different products ﬂuctuated. These capacity adjustments could be made quite easily by moving a worker and his machines from one production group to another, where the machine operator would be capable of integrating his station into its new

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context. This capability also makes it understandable why it was so important to produce pumps, valves, and ﬁttings, as this diversiﬁed portfolio could help balance employment across the different groups, so that Horsens did not risk losing highly skilled workers. A particularly collegial spirit prevailed in the factory, due in no small part to the conscious efforts of the plant convener to ‘monitor’ his members’ mutual collaboration. The introduction of ﬁxed hourly wages reinforced the spirit of solidarity, which made the workers agree to engage in the necessary mutual training of new members of the groups so that the highly cultivated skills of each work station did not lead to positional war games, and could instead be used continuously to improve the ﬂow of products through the production process. Such a work system leaves little discretion for managers who want to administer it contrary to workers’ interests. The managers who took over from those that had introduced the new system during the volatile period of the mid-1980s would discover how limited a space had been created for exercising managerial discretion. When these managers with more traditional interpretations of hierarchical authority arrived on the scene, the skilled workers quickly discovered their own power and ability to constrain their behavior. Managers who tried to introduce new practices that ran counter to the skilled workers’ aspirations could simply be counteracted by running some of the work stations at sub-optimal levels, thereby reducing the economic performance of whole sections or even the entire factory. Workers had discovered that their discretion allowed them to determine which managers should be allowed to achieve high performance indicators and which instead should be saddled with low marks. This was a method through which they could strongly inﬂuence CEOs and their boards to sack managers whose strategies they disliked, or alternatively to promote those pursuing strategies they favored. Orchestrated by the convener, this process allowed for the selective evaluation by the shop ﬂoor of a shifting stream of managing directors during the mid-1980s, until the old production manager was recalled to his new position, where he naturally sought to strike a balance between short-and long-term objectives, as well as between local and global concerns. With the training agreement initiated in 1987, the position of the ‘workplace’ or station as the basic organizational unit in Horsens was further reinforced, as it became the nucleus of skill acquisition. But further training also enabled skilled workers to exhaust the challenges of their current work stations more quickly, and many therefore took courses enabling them to operate more complicated stations when they became vacant. Thus gradual horizontal mobility in the factory became a dominant career pattern for Horsens workers. But horizontal mobility also stimulated and

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reinforced the traditional pattern of vertical mobility. Whereas it had traditionally been possible for a few of the most skilled workers to become foremen and members of the technical staff, the continuous upskilling of the workforce and their pioneering role in the acquisition of new technological and transversal competencies now made it essential for the plant to promote such workers. On the one hand, without such promotions the management team feared that they would lose these key workers to other ﬁrms in the district, while on the other, their services and skills were ever more necessary for the plant to manage a production system increasingly based on outsourcing and continuous innovation. The job of foreman was increasingly taken over by much younger workers, who following their apprenticeship had worked in both the production and planning departments. Quality control was carried out by former machine operators who knew the ins and outs of CNC machining. New prototypes were built by machinists who were intimately familiar with the shop’s facilities. In sales, too, increasing use was made of former workers who knew all the details of how the products were manufactured and how they could be improved or modiﬁed according to speciﬁc customers’ wishes. The storekeeper was a former machine operator. ISO 9000 certiﬁcation was entrusted to a former machine operator who had extended his training by three years of full-time education to become a machine technician. An increasing number of staff departments were manned by heterogeneous groups, some with typical white-collar educations, others with shop-ﬂoor experience supplemented by an impressive number of further training courses. The engineering department is a good illustration of this set-up. It comprised two externally recruited engineers and two internal recruits. One of the latter functioned as a ‘consultant’ to machine operators when they encountered difﬁculties in programming their machines. Among the basic tasks of the engineering department was continuously to challenge the division of labor between the plant and its suppliers by making alternative calculations of the costs of producing in-house or outsourcing. Thus Horsens’s place in the technical division of labor of the district was continuously contested, but by a group that had a very deep knowledge of the plant’s own capabilities. Though the convener and the shop stewards were heavily involved in constructing this new organization, their own jobs became increasingly complicated. On the one hand they continually had to evoke the division between ‘them’ (the white-collar functionaries) and ‘us’ (the hourly-paid blue-collar workers) to make their constituency ﬁght for their right to take training courses in areas which ensured that workers and not functionaries achieved the most advanced technical skills. On the other hand, in the very

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act of doing so they also ensured that their members embarked on careers that crossed these boundaries and left the rank and ﬁle—and thereby their own union. It could be said that the local union representatives’ new role was to monitor the careers of their members in such a way that they continuously improved their life chances in the plant and in the entire labor market. Thus the union representatives served as scouts and gatekeepers for new vocational training and beneﬁt schemes that could make possible a more promising future. It was they who could mobilize external resources and rules to support the plant in its struggles, not least through their institutional, union, and political networks, as we saw at the beginning of this chapter. Hence it is obvious that the convener and shop stewards were actively institutionalizing the social processes that would help the managing director fulﬁll his aspirations, but only if he in turn made the concessions in terms of wages that would enable the plant to recruit and retain highly skilled people, in terms of resources for further training that would allow them to pursue new careers, and in terms of discretion for these union representatives themselves to teach both managers and workers, inside and outside their legal membership base, about the new rules of the local game. With this picture of the pattern of interacting group strategies in mind, it is not difﬁcult to imagine the problems a purely opportunistic career-hopping manager would have faced had he wanted to turn Horsens into a tool of personal promotion within the larger British multinational. Potential local allies would have been very limited and so would his chances of survival when faced with ﬁnely honed strategies of ‘obstruction’ from the skilled workers (Kristensen 1992: 130–1). Maintaining a balance between local and multinational interests, as the new managing director did, thus seemed more an outcome of the structure of social interactions within the plant than a matter of personal conscience. As a social space, the Horsens plant seemed highly unfavorable terrain for pursuing a typical Western white-collar career (Sabel 1982: ch. 3). The scope for pursuing ‘departmental’ strategies (like those analyzed in classic texts such as March and Simon 1958 and Cyert and March 1963) was also extremely limited. The very structure of the organization seemingly left possessors of such world-views and aspirations with few hierarchical steps to climb. By contrast, Horsens provided such an ideal social space for pursuing a skilled worker’s career (Sabel 1982) that one could easily classify it as a microcosmic craft community, albeit one which also gave its members access to many high-level careers in Danish business and society. Thus it was doubtless from his own local career perspective that Horsens’s managing director was planning to negotiate with APV’s London

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headquarters about where valve production within the MNC should be allocated in the future.

5. The Transformation of a Local into a Global Player Consultations with London over this matter, however, became much more difﬁcult than anyone could have imagined. While by the mid-1990s Horsens had earned a high reputation among engineers throughout the global organization, its managing director himself was regarded as a veritable ‘miracleworker’ in London. With virtually no resources, he had, in headquarters’ view, transformed a deﬁcit into a surplus, doubling turnover with almost no increase in employees or investments. Far from having to defend or ask forgiveness for the subversive strategies that Horsens had been pursuing for almost ten years, the managing director was regarded instead as the incarnation of the modern principles—such as just-in-time logistics, cellular manufacturing, teamworking, outsourcing, and business process re-engineering—which APV’s top executives, inﬂuenced by current managerial fashions, wanted to implement in their plants worldwide. Suddenly, the decision about who should control and coordinate the production of valves—whether Germans as principals and Danes as agents or the other way round—which used to be of cardinal importance for Horsens, looked like a petty detail within a much greater and more profound problem. Would it be possible to transform APV’s worldwide organization to operate along the lines of these modern managerial principles? Though Horsens’s managing director was surprised to be regarded in this way, and though his career aspirations remained national (or even local) rather than global, he was nonetheless intellectually prepared. For a number of years he and the convener had been wondering whether the plant’s subversive strategy was proving so successful after all. Obviously, this strategy had enabled Horsens to become an active and independent player with its own identity within the global company, but to what effect? Was not Horsens just earning money to ﬁnance the deﬁcits created by other parts of the organization or—worse—feeding the London HQ with the ﬂows of ﬁnancial capital that enabled its executive ofﬁcers to play their games in the City? For a long time now, Horsens had been seeing itself as a full member of an association which its leaders increasingly felt needed to be improved if the plant itself were to develop in the longer run. In other words, Horsens had begun to doubt whether it had been such a good idea to seek membership of the APV Group in the ﬁrst place.

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What London was now offering Horsens, its managing director believed, was a chance to re-engineer this worldwide association. Some very dramatic years followed in the wake of this offer. At ﬁrst, Horsens’s managing director was involved in continuous consultations with London, after which he was sent on a number of missions to assist local managers in different locations throughout the world in initiating projects of reform. Then during one of the numerous restructurings of APV’s worldwide organization chart, he was placed in charge of the corporation’s new global Strategic Business Unit (SBU) for ‘Fluid Handling’. This comprised Horsens, the German Rosista, and approximately twenty other factories in different parts of the world, including the Howard rotary lobe pump factory in Eastbourne and parts of the Crepaco plant in Lake Mills. Furthermore, he was appointed CEO of Pasilac, the holding company to which all the Danish subsidiaries reported. Since he also remained Horsens’s managing director, the plant was thus suddenly transformed from a local production site into a global SBU headquarters, where the economic performance of all the activities of the Danish Business Group could also be evaluated and compared. As Fluid Handling SBU manager, Horsens’s director now found himself placed in much the same situation as that which the German Rosista had previously held in relation to the Danish plant. However, his approach was very different from that of the Germans. Whereas Rosista had made plans which it had no authority to implement, Horsens’s managing director tried to win support for his projected reforms through frequent visits to local plants and by positioning workers and middle managers from Horsens as agents of change in these plants. Soon ordinary but competent CNC machine operators were sent abroad on missions to oversee the introduction of cellular manufacturing and programmable equipment. Machine technicians became production managers placed in charge of foreign plants. And a few engineers were appointed managing directors of foreign subsidiaries not much smaller than Horsens itself. The approach of Horsens’s managing director was as admirable as it was impossible. Convinced that he should now learn ‘every nut and bolt’ of his SBU as he had formerly known the Horsens plant, he tried to make ‘his’ business units aware of their strengths, and how they could improve their proﬁciencies by mobilizing internal and external resources. Though these missions greatly improved the SBU manager’s global vision about how the entire association could be improved, they also helped complicate his expectations about how to bring about this gradual improvement. So far he had believed that it would be easy to determine the worldwide allocation of responsibilities for activities such as valve production. Now it became obvious that Unna had to be allocated some responsibilities,

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if for no other reason than because laying off workers and closing the plant would have been a very lengthy and costly process, due to the employment protection and codetermination rules that govern the German labor market. Suddenly, he found himself in the position of arguing in favor of allocating the responsibility for valve production to the Germans, while in exchange gradually transferring worldwide responsibility for pumps to Horsens. By appointing an engineer from Horsens to run the Eastbourne plant, as we will see in Chapter 5, the SBU manager experienced the rebirth of a wornout plant, whereas all attempts to work with Lake Mills fell on stony ground. His expectations from dealing with unions in the collaborative Danish environment were suddenly challenged. In Lake Mills, he faced unions which, for reasons he did not understand, treated him with what he felt was suspicion and distrust. The ease with which plans were implemented and good intentions followed through in East Asia and China made him—like many others involved in global management—wonder whether there was any real future for a plant like Horsens in a high-wage country like Denmark, to say nothing of Germany, Britain, or the US. Any such future, in his view, would be highly dependent on the ability to collaborate trustfully at all levels. This collaboration had come easily in Denmark. In most other cases it was much more difﬁcult. In this respect, too, the SBU manager’s continuous interaction with APV’s London headquarters became highly frustrating. London could give him a mandate, but seemed never to follow a meaningful and consistent course of action. Each new strategic plan seemed to pursue a different logic. Promises he had made to encourage local plants to restructure suddenly could not be kept because priorities had changed. Decisions and deals made with the executive director of the division to which his SBU belonged could suddenly be overturned simply because either the name of the boss, the divisional grouping, or the managerial ﬂavor of the month had changed. In short, the same game that had initially brought him to ‘power’ had suddenly stripped him of any inﬂuence on London and had forced him to break bonds of trust towards the afﬁliates of ‘his’ SBU. Reﬂecting on these experiences, the SBU manager came to the conclusion that London was not really interested in the long-term coordinated evolution of APV’s worldwide operations. Rather the headquarters was primarily engaged in the merger and takeover games being played in the City of London. This was a game in which APV’s top executives risked becoming the ﬁrst victims, as he ﬁrmly believed that a merger or hostile takeover would result in a change of names at most positions in London, whereas most of APV’s productive facilities would continue their business as usual.

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Thus what seemed important to the SBU manager was to ensure that London’s participation in the City game did not harm the long-term development of APV’s productive operations or its ability to compete in the global plant-contracting business. For this reason, he thought it worthwhile to build up the internal coherence of Pasilac, APV’s Danish holding company, through an institution called the ‘Danish Forum’, which paved the way for the formation of an informal circle of Danish managers within the wider MNC, which later became known as the ‘Danish Maﬁa’. And he likewise encouraged the union conveners of APV’s Danish plants to coordinate among themselves in negotiating one of the ﬁrst European Works Council agreements. But this agreement, as we shall see, also depended on the initiatives of other local players engaged in global games of their own within the British-owned multinational.

6. Organizing from Below: The Danish APV Forum, the Danish Maﬁa, and the APV European Forum The Danish APV Forum What the joint maneuvers of Horsens’s managing director and convener had achieved was a better feel for the workings of the global game within APV, learning which channels to inﬂuence and how to secure information about the plant’s destiny. That, after all, was their primary aim from the outset. Inﬂuencing the destiny of the larger multinational association as a whole was an objective which emerged from the unintended effects of this strategy rather than from any deliberate plan on their part. Other Danish subsidiaries had found themselves less fortunately positioned in this game. Consider the case of Rannie, the Copenhagen-based producer of homogenizers. For this facility, it would initially have been a much better option to be taken over by Alfa-Laval, which had no homogenizer plants, whereas APV already owned several. For Rannie’s convener in particular, the APV takeover and the end of the ﬁrm’s formally independent status meant the loss of his seat on its board, through which he had been able to participate in decisions over how to allocate the signiﬁcant proﬁts earned each year. For some years, he tried to ﬁght his way back on to the Pasilac board, succeeding for a time in alliance with the Horsens convener, until a coalition of the other plant conveners returned him to ‘exile’. This frustrating situation led the Rannie convener to assume the role of a local player with the speciﬁc agenda of proposing new representation agreements in the global game of the MNC. Feeling very bored and dissatisﬁed

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back in his job as an ordinary convener, not least because his board membership had raised his power in relation to local management, he came up with the idea of creating a Danish APV Forum, in which worker representatives from all the subsidiaries could meet regularly with managers at various levels within Pasilac. This idea was supported by the conveners at Horsens and Silkeborg, so together with the secretariat of CO-industry (Centralorganisationen af Industriansatte, a union cartel for coordination of collective bargaining within manufacturing), he prepared a draft agreement. With this in hand, he approached the then managing director of Pasilac, who responded positively, with the proviso that participation in the proposed forum should not be conﬁned to blue-collar workers alone. Consequently, the Rannie convener prepared a revised proposal according to which all professional and union groups in each of the Danish subsidiaries should be represented together with different levels of Pasilac management in a future APV Forum. At an initial meeting, the Rannie convener ran into opposition from his old rivals in Kolding, but with support both from his blue-collar allies at Horsens and Silkeborg and from other professional groups elsewhere, he was able to win approval for the Forum and set up a small secretariat to administer it. CO-industry backed them up by arranging a ﬁve-day course at one of the Danish labor movement’s folk high schools. During this course, employees from many different categories discovered how they could combine a multitude of practical competencies with the organizing skills of conveners to initiate a new and promising dialogue with the group’s management. The fact that Horsens’s managing director had just become Pasilac’s CEO only reinforced the positive sentiment, and a general feeling emerged that it would be possible not only for the Danish subsidiaries to respond to policies emanating from London, but also for them to take initiatives of their own. With four meetings a year, the Danish APV Forum soon showed its potential. First it created an extended collective identity across both occupational groups and subsidiaries. People discovered that they actually knew nothing about the other ﬁrms in the group, whereas the Forum offered a chance to explain what went on in these subsidiaries, why people acted the way they did, and how this connected to their past histories. Suddenly they discovered the underlying rationales of the behavior of different subsidiaries, and old misunderstandings could be overcome. Second, the diversity of positions among professions and subsidiaries within the Forum made it possible to interpret the London HQ from many different angles so that its strategies could be more competently and comprehensively evaluated. Finally, the Forum led to the publication of a house journal, which, unlike the normal glossy newsletters put out by corporate headquarters, was intended

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to include informative articles about the histories, activities, and strategies of the subsidiaries, which could gradually lead to the emergence of a uniﬁed identity within the Danish APV group, an identity that had never previously transcended the boundaries of the individual subsidiaries. Finally, the Danish Forum became a place where possible alternatives could be discussed when strategies decided in London were to be implemented in Denmark. Through these discussions it became increasingly clear that the questions had many possible solutions, and that choosing among them could have long-term strategic implications. And these reﬂections in themselves enabled APV’s Danish subsidiaries to play the global game in concert. The ‘Danish Maﬁa’ One of the unintended consequences of the Danish APV Forum was that Danish managers had occasion to meet across subsidiaries and hierarchical levels. The fact that they did so while London was laying off many managers—including those at high level—who protested for various reasons against the headquarters’ policy and strategy probably lent a distinct tone to these meetings. The Danish APV Forum created a social space for discussions to reﬂect on and reach general conclusions about what made sense in London’s strategies. And from these conclusions a collective response could follow, in the form of selective implementation of the headquarters’ strategies, as well as perhaps a more convincing chorus of voices in discussions with London. The ‘Danish Maﬁa’ is a metaphor, but what it actually refers to is unclear. We ﬁrst encountered it during interviews in Britain. No doubt the term originated in the discovery by British managers that a good half of the dozen or so SBU management positions in the APV Group had been taken over by Danes during the mid-1990s. But whether this was an outcome or the cause of the informal organizing process described above remains unclear. We know very little about the activities of the Danish Maﬁa, only that it met regularly, discussed the headquarters’ strategies and initiatives, and often tried to reach a consensus on which initiatives to pursue and which to ignore. Like Horsens’s managing director, all the other Danish SBU managers had climbed up the internal hierarchy from within, and they shared a highly detailed knowledge of products, production techniques, competitors, and customers worldwide. Thus we suspect that they attempted to establish an industrial as opposed to ﬁnancially orientated coordination network. This network acted not on behalf of the formal owners, but instead saw the ﬁrm’s employees—from managers to blue-collar workers—as its constituency. We

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suspect that they may have been trying to continue the global strategy of the 1980s, which, as we saw in Chapter 2, Pasilac had failed to accomplish as a Danish-owned company, but which now could be so much more effectively pursued within the global association of APV. The APV European Forum (AEF) By taking the lead in creating the Danish APV Forum, the Rannie convener, as we have already observed, had embarked on a new career trajectory. Scarcely had he got the Danish Forum up and running when CO-industry suggested that he should try to create a European Works Council for APV as a whole according to the provisions of the EU’s 1994 Directive on information and consultation rights for employees in multinational enterprises.8 By using CO-industry as a legal consultant, mobilizing the network of plant representatives within the Danish Forum, and contacting employees in other European APV subsidiaries in Germany, Belgium, and the UK, the convener arranged a conference in Denmark to discuss a draft agreement. By inviting an APV Human Resource Manager located in Hamburg, the conference also prepared the ground for the HQ’s approval. A committee consisting of two Danes and two Germans was selected to negotiate the agreement. This proved more difﬁcult than initially anticipated, since the Germans were anxious to formulate the formal agreement so that it stipulated procedures, rights, and duties in great detail, while the Danes wanted instead to create a ﬂexible framework for consultations rather than to prescribe their nature. Hence the Danish employee representatives and managers alike came to see 8 Following many years of inconclusive negotiations and an abortive attempt to reach a binding European framework agreement between trade unions and employers’ associations under the Social Dialogue procedure introduced by the 1992 Maastricht Treaty, the EU Council of Ministers adopted Directive 94/45/EC on 22 September 1994. This Directive created a procedure for establishing European Works Councils (EWCs) with information and consultation (but not codetermination) rights in enterprises with 1,000 or more employees of whom at least 150 worked in two or more EU member states. Article 13 of the Directive provided a window of opportunity for the negotiation of ‘voluntary’ EWC agreements during the two-year period before the statutory procedure was due to come into operation in 1996. Such voluntary agreements were exempted from certain of the mandatory provisions or ‘subsidiary requirements’ of the statutory procedure concerning the composition, operation, and powers of EWCs. All voluntary EWC agreements nonetheless had to cover the company’s entire workforce within the European Economic Area (including Norway, Iceland, and Liechtenstein) and provide for transnational information and consultation; they could then be renegotiated under the statutory procedure after three years. Altogether, some 460 voluntary EWC agreements were concluded by late 1996, a signiﬁcant proportion during the months immediately preceding the deadline. Although the UK did not ratify the Maastricht Social Protocol until 1997, the provisions of the Works Council Directive nevertheless applied to the European employees of British-owned MNCs like APV which met the criteria. On the origins, provisions, and initial take-up of the EWC Directive, see Falkner (1998: 97–114); Lecher et al. (1999: chs. 4–5); Lecher et al. (2001); Gilman and Marginson (2002).

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the German unions as more of an opponent than a partner in the negotiations.9 Despite these complications, however, an agreement gradually emerged, while at the same time the British HQ gradually came to respect the Danish attitude of partnership and pragmatic collaboration. The Rannie convener was invited to London to discuss the matter with the CEO and his staff. This quickly became an exercise in which the CEO posed questions and the convener responded, rather than a real discussion. But as the convener had come well-prepared, the ﬁnal question was naturally about who should sign the agreement for the other side. Here again, the convener had an answer ready, having already lined up the president of the European Metalworkers’ Federation (EMF) to assume this role. A seemingly impossible task was thus quickly accomplished, while a new bond of trust had been established with the CEO which was nearly as valuable to the convener as the agreement itself. As the APV European Forum was among the ﬁrst European Works Council agreements to be signed in Denmark, it soon became a model for others in bringing order to the mutual consultations among multinationals and their employees. The AEF was set up to: . . .

provide information concerning the performance of the business, and strategic transnational issues of importance to employees; promote an exchange of views between corporate management and employee representatives concerning these issues; and give employee representatives an opportunity to comment on these issues before decisions are made.

It was stated explicitly that the AEF should exchange information and points of view on the following issues: .

the Group’s ﬁnancial performance, future prospects, and investment strategy;

9 The negotiating stance adopted by the Rannie convener and other Danish employee representatives, like that of their German counterparts, reﬂected their own domestic experience of workplace industrial relations. As one academic study of EWCs in the Nordic countries reports: ‘In this respect the high degree of informality within Nordic workplace relations is . . . of importance. In the experience of shop stewards, inﬂuence is often obtained through informal arrangements rather than by sticking to the formal rules and procedures. This tends to make them focus more on ‘‘the essence’’, the creation of a new body for participation, rather than on the exact formal rights granted to this body.’ According to the authors of this study, ‘because [Nordic] shop stewards are deeply enmeshed in continuous company-speciﬁc give-and-take they have to a certain extent been ready to sign EWC agreements of dubious quality,’ in the sense that the voluntary agreements reached before 1996 often did not include all of the ‘subsidiary requirements’ and powers mandated by the statutory procedure (Knudsen and Bruun 1998: 152). For the pervasive inﬂuence of statutory codetermination rights on the outlook and behavior of German representatives within EWCs, see Lecher et al. (1999); Lecker et al. (2001).

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the international economic environment and its impact on the Group’s future direction; the international competitive environment and areas for potential development of the Group; development of the Group’s vision, values, and culture; substantial changes concerning the structure of the Group; employment issues; strategic human resource management; new ways of working; training and development; use of new technology; health and safety; environmental issues; all other business to be agreed.

One employee representative was to be elected from each country (apart from Denmark, Germany, and the UK, which were allocated three divisional seats each), and the AEF was to meet once every year. Surprisingly, perhaps, the agreement was based on Danish labor law and ‘the common practice of the Danish labour market’, with an explicit proviso that any conﬂicts of interpretation should be resolved through arbitration according to Danish legislation.10 There is no doubt that by striking this agreement the Danish conveners were harking back to the simpler days when they alone had been struggling for the survival of plants in Horsens and Copenhagen from quite a different perspective, where the division between ‘us’ and ‘them’ was becoming blurred, which was exactly what the Rannie convener wanted to accomplish: In my opinion, it was a question of building trust among persons who meet regularly, so they could make use of each other, and that is not accomplished through an agreement, only by personal acquaintance, which was exactly what the agreements made possible. It gave us an opportunity to become faces and human beings to the top executives.

Though the AEF was only supposed to meet once a year, at its ﬁrst meeting it created a secretariat consisting of three to four persons who could meet regularly (four times a year), which promised gradually to improve the climate within APV. Soon, however, it proved instead to be an organ that kept communication lines open to shifting owners.

10 ‘Agreement on the Establishment of an APV European Forum’, 17 Sept. 1996, available online at .

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7. In Search of a Better World It is difﬁcult to imagine actors transforming their aspirations, orientation, and outlook more radically than did Horsens’s managing director and convener. Within a few years they put their most creative and constructive potential in the service of a global rather than a local ﬁrm. In many ways their perspective and reﬂexive practices had undergone a transformation, and their career prospects looked brighter than ever. Another way to assess their situation would be to evaluate how many of the potential advantages from joining an MNC that we outlined in Chapter 1 had been realized by Horsens. In our view, Horsens had capitalized on all ﬁve dimensions. Yet the managing director and convener of Horsens were highly dissatisﬁed. By working actively for the takeover by APV they had originally aspired to acquire an owner who understood the long-term issues involved in building up a high-quality engineering ﬁrm. In other words, they had expected an owner devoted to the same target as they themselves were. It therefore came as a shock to them that one of London’s ﬁrst actions after APV had taken over the Danish business group was to sell and release as many ﬁxed assets as possible. To the people in London this step was just a smart way of ﬁnancing the takeover. Rannie’s convener had learned to admire London for this trick, but Horsens was never informed about it. To the people in Horsens and other Danish facilities, it was a signal that the new owner was not really committed to developing their business, but rather was preparing to be able to move out at short notice. Another consequence was that production costs suddenly changed. As Horsens was planning a strategy in which the plant would prove its proﬁtability to the new owners, it was a great disadvantage that they would now have to pay ‘leasing fees’ for the buildings and machines that they had almost amortized. Thus London seemed to take decisions that made it difﬁcult for the plant to satisfy its owners. When Horsens later learned that investment would be kept as low as possible, a pattern emerged that radically conﬂicted with their original expectations of the London HQ. Both the ‘Danish Maﬁa’ and the ‘APV European Forum’ can be seen to have been created as a means of defending an industrial system against its owners. However, the most frustrating experience in dealing with London was that the headquarters did not follow the rules of its own game. Horsens had interpreted these rules simply: if they met or exceeded the proﬁt targets stipulated in the annual budget, they would be left alone to pursue their own options within the framework of APV’s global strategy. On several occasions in the game London was simply cheating in Horsens’s eyes. One year London reduced the plant’s proﬁtability by suddenly demanding a

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royalty for the use of the APV name. Another year London ordered them to give an interest-free loan to a plant in France. To London, no doubt, such interventions seemed totally harmless: what difference did it make whether they received revenues as proﬁts, royalties, or loans? To Horsens it made a signiﬁcant difference. Their proﬁt record over the years was the only means by which they could systematically rank themselves in comparison with other factories within the APV Group. It was their track record of how much they had contributed to the Group’s development, the ultimate metric by which they could prove their reputation and measure how far they had been able to improve continuously. There were several reasons why Horsens took this ﬁgure so seriously. First, as we saw in Chapter 2, the plant had formerly been engaged in a game in which low proﬁt scores were intended to legitimize its closure. Second, they were now engaged in a game with London, where the divisional executive directors changed so often that written records became more important than oral narratives. Third, Horsens believed that London was doing such a bad job in coordinating and developing itself as an engineering group that it was highly likely that a new takeover of the whole multinational company would result sooner or later. How should the new owner evaluate the current assets if not by looking into the historical proﬁt records? Finally, as London openly proclaimed that every non-core business within its corporate empire was for sale should the right buyer turn up, Horsens wanted eventually to be sold to a new owner that would recognize its performance level from the beginning. By playing its little tricks in engineering ﬁnancial ﬂows, London was merely harming the ability of its afﬁliates to create respect in their own and others’ eyes, thus dissatisfying those who had possibly worked most intensely for the improvement of the entire MNC. As for the Horsens managing director, though London had—at least for a while—reoriented his career away from its local destiny and given him a global reach, it never circumscribed his aspirations, thereby dissatisfying the headquarters and arousing suspicions among its principals about how and even whether they could control their agent.

4 Lake Mills: Self-limiting Strategies of a Solidaristic Plant Community As we saw in Chapter 2, Crepaco and its core Lake Mills plant remained substantially independent despite the company’s formal takeover by the APV Group in 1973 until its forced merger with the British multinational’s other US operations in 1985. Up to that point, Lake Mills had continued on its established growth path as a largely self-sufﬁcient, vertically integrated complex designing and manufacturing proprietary food and process plant equipment in collaboration with a regional network of sales engineers focused principally on the US market. The common strategy pursued by all local actors had long been to expand the plant’s technological capabilities and employment potential by developing new product lines and internalizing additional productive activities. As in the case of similar vertically integrated complexes elsewhere, such as Horsens’s former Silkeborg parent or APV’s own historic UK R&D/production center at Crawley, this autarkic development strategy had a crucial weakness: an immanent tendency towards the generation of excess capacity and rising overhead costs, which left the plant vulnerable to any severe downturn in demand such as the deep recessions that struck the US economy during the 1980s and early ’90s. The 1985 APV–Crepaco merger thus posed a major challenge to the historically autonomous Lake Mills plant. With the reorganization of APV Group sales and engineering on a national and increasingly international basis, Lake Mills found itself progressively cut off from the close contact with customers and user–producer collaboration which had fueled its innovative, problem-solving capabilities. Some Crepaco designs such as heat exchangers were phased out and replaced by those of other APV companies; others such as ice-cream freezers acquired a global mandate as lead products for the group as a whole; while others such as pumps and homogenizers still continued to compete with rival lines from elsewhere within the multinational. A rising share of Lake Mills’ production capacity was devoted to turning out components for other APV businesses based elsewhere, but quick-turnaround manufacture of spare parts to service the plant’s large

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domestic-installed customer base also remained critical. Far from simplifying the plant’s manufacturing task, therefore, these centrally directed efforts at product rationalization instead added to the complexity of production, with more than 300,000 distinct part numbers under manufacture in the early 1990s. In other respects, too, periodic interventions by APV’s London headquarters that were aimed at improving the plant’s ﬁnancial performance often proved counterproductive from a local perspective. Thus in the late 1980s, for example, the London head ofﬁce ordered Lake Mills to stop producing tanks larger than 1,000 gallons because they were unproﬁtable according to the group’s accounting system. But this decision had to be abruptly reversed a few years later when sales of related equipment dropped off, as customers increasingly wanted all their needs met by a single manufacturer, while the ability to supply large tanks turned out to be a key selling point in clinching the whole order.1 In responding to the challenges of tighter integration into a multinational division of labor and administrative hierarchy, the Lake Mills plant, like many large unionized manufacturing facilities in the United States, displayed an intricate mix of solidarity and segmentation. The workforce as a whole identiﬁed strongly with the plant, which has long been recognized as the best place to work in this small, semi-rural community situated midway between Milwaukee and Madison, Wisconsin’s two main urban centers. Job tenure among blue-collar employees averaged more than ﬁfteen years in the mid1990s, and it was not unusual to ﬁnd several generations of the same extended family scattered across the various departments and shops. At the same time, however, a fundamental social cleavage, underwritten by US labor law, distinguished unionized hourly-paid workers from non-union salaried staff, who enjoyed greater job security, superior fringe beneﬁts, and more attractive working conditions, though not necessarily higher earnings. Bluecollar workers themselves belonged to two union locals, the International Association of Machinists (IAM), which organized the majority of manufacturing operations, and the United Steel Workers of America (USWA), which controlled the tank and sheet-metal fabricating shop, the result of a fusion a generation earlier between two formerly separate plants. Within each union jurisdiction, workers were divided into a myriad of detailed job classiﬁcations and labor grades, each paid at a different hourly rate, reﬂecting a typical 1 The narrative in this chapter draws not only on our own interviews at Lake Mills and APV’s London headquarters in 1995–7, but also on the transcripts of interviews conducted in 1994 by Ken Mericle and Dong-One Kim of the University of Wisconsin Extension’s School for Workers as part of a comparative project on the introduction of pay-for-knowledge systems in unionized establishments (see Mericle and Kim, 1999a, b). We are grateful to Professors Mericle and Kim for sharing these materials with us.

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Taylorist division of labor in which people might be conﬁned for many years to a single narrowly deﬁned machining, fabrication, or assembly task.2 Layoffs, re-calls, promotion, and transfer were all governed by strict seniority under union agreements. Long-service employees could bid for vacant jobs and ‘bump’ junior colleagues from any position they were qualiﬁed to perform, producing job-switching chain reactions in case of layoffs, while legally binding grievance arbitration placed the burden of proof on management to justify out-of-seniority assignments. High-seniority workers thus tended to gravitate into positions which were less physically demanding or offered greater opportunities for overtime earnings, progressively diluting any correlation between seniority and skill or between skill and pay on the shop ﬂoor. Any external threat to the plant would thus evoke a powerful collective response from the entire workforce; but any attempt to reorganize its operations for improved performance would likewise run up against a deeply entrenched set of internal divisions and parcelized job rights backed up by long-standing provisions of union labor contracts. Given these constraints, immobility was always the most likely outcome, at least in the short term, and little seems to have changed in the plant during the late 1980s.

1. Restructuring for Flexibility: External Interventions and Local Initiatives By the end of the 1980s, however, the Lake Mills plant, like the APV Group as a whole, found itself in mounting difﬁculties. Market volatility and growing customer demands for supplier responsiveness compounded the complexity of production planning and scheduling left by past waves of partial rationalization, while narrowly deﬁned job classiﬁcations and seniority lines restricted transfers of work and workers around the plant. The resulting lack of ﬂexibility in turn gave rise to long and unpredictable lead times, high levels of stocks and work-in-progress, declining product quality, and rising overhead charges, along with high levels of union grievances and workman’s compensation costs. With competition over both price and quality intensifying in process equipment markets at home and abroad, losses began to pile up at Lake Mills, attracting unwelcome attention from APV’s London head ofﬁce. One characteristic response from the center to the plant’s unsatisfactory performance was to impose cost reduction measures such as contraction of apparently unproﬁtable activities; but given the scale of the Lake Mills 2 Until the late 1970s, the plant had operated under a piecework incentive system, but this was phased out at that time due to management’s inability to control bonus earnings of 200–300%.

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site, this merely raised overheads further for the rest of the plant, and could actually yield perverse effects for other parts of the business, as we saw in the case of large tanks. Another characteristic central response to Lake Mills’ mounting difﬁculties was to purge the local managers and replace them with new, externally recruited appointees. In 1990–1, a new management team was installed with a mandate to turn the plant’s performance around but no other clear strategic direction from APV’s corporate headquarters. The key ﬁgure within the new regime was the vice-president for operations, an enthusiast of W. E. Deming’s Total Quality Management philosophy and exponent of devolved responsibility with previous experience at Ford and Harley-Davidson, both companies which had reorganized production along Japanese-inﬂuenced lines during the preceding decade. Another important new arrival was the vice-president for human resources, who had introduced gain-sharing and pay-for-knowledge schemes at a number of other companies. Together this odd couple—a ‘slash-and-burn guru’ and a ‘used-car salesman’, as one local union ofﬁcer later called them—set out to reorganize the plant around the Japanese-inspired approach to ﬂexible manufacturing which was then sweeping through American industry. Most fundamentally, the new operations manager sought to replace the plant’s traditional functional layout by a product-based organization in which as many operations as possible were gathered into self-contained production cells turning out a common family of parts, with multi-skilled workers rotating across the various tasks. Hand-in-hand with this reorganization, in which every piece of equipment in the plant was reportedly moved at least once, went a series of dramatic gestures aimed at paving the way for the implementation of just-intime logistics. At the operations manager’s orders, storage bins were removed from the shop ﬂoor, warehouse space closed down, forklift trucks sold off, and inventory thrown away as part of a new ‘Components as Required’ or CAR system involving set-up reduction for small lot production using Japanese-style kanban cards to order parts from upstream work stations. Procurement of components from outside suppliers was placed on a similar footing, with purchasing responsibilities devolved to direct production workers themselves on a ‘KanFax’ basis, and customers were promised free service parts if they did not receive them within 24 hours. Within each cell or work area, indirect tasks such as housekeeping, inspection, and routine maintenance were reintegrated into the production line, while work teams were trained in statistical process control and group problem-solving techniques, and the number of supervisors sharply reduced. Although the operations manager’s intolerance for ‘whiners’ and ‘deadwood’ soon became notorious, so too did his support for shop-ﬂoor initiatives even where

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these cut across established lines of status and authority, as in the case of a female blue-collar worker who exposed the purchasing department’s systematic failure to ensure that the plant received credit for defective parts from certain favored suppliers. None of these reforms, however, could work effectively without complementary changes to the narrow job classiﬁcations and seniority rules governing the allocation and mobility of labor within the plant. Early in 1991, therefore, the new management team asked the local unions to reopen the plant’s labor contracts, which were not due to expire until the end of the year. Negotiations began with the Machinists, as the largest and most important union on the site, but proceeded extremely slowly for a variety of reasons: the absence of a sense of crisis in this part of the plant, which had not suffered signiﬁcant job losses in the recent past; widespread suspicion and mistrust of the new outside management; and vocal opposition from the IAM headquarters in Washington to pay-for-knowledge systems and other departures from traditional job control practices.3 The initiative thus passed instead to the Steelworkers, a much smaller and more cohesive local union, whose membership had fallen from 400 at the beginning of the 1980s to just 64 in 1991, with further cuts threatened, and whose national and regional leadership was far more supportive of cooperation with management in restructuring plans in order to prevent job losses and plant closures.4 Once the USWA had cut a deal with management, the IAM quickly followed suit in March 1991, but the ensuing agreement was only ratiﬁed by a razor-thin majority of ﬁve out of 435 votes in a membership ballot. Although the details of the agreement, as we shall see, proved devilishly complicated, its underlying principles were simple enough. Both unions accepted a drastic reduction in the number of job classiﬁcations: from thirty-ﬁve to one for the USWA, and from sixty to three for the IAM (machinists, assemblers, and maintenance). Seniority rights were redeﬁned on a plant-wide basis within each union, with guaranteed retraining for laidoff workers bumping into unfamiliar jobs. The plant’s nine labor grades were replaced by a pay-for-knowledge system known as ‘Learn & Earn’, under which each of the new job classiﬁcations or trades was broken down into a series of distinct skill blocks, whose mastery carried a pay increment of 50 cents above the basic hourly rate. All individual wage rates were ‘red-circled’ 3 The IAM changed its national policy towards workplace innovations in 1994 and has become more supportive of local union involvement in reorganization efforts (Mericle and Kim 1999a: 561). 4 An added spur to the Steelworkers’ seizure of the initiative in these negotiations came from the local’s previous near-death experience with restructuring: when the South Plant had closed in 1981, the USWA only succeeded in ﬁghting off a joint attempt by management and the IAM to exclude it from the Lake Mills site with the support of the National Labor Relations Board.

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or ‘grandfathered in’, so no one would lose money directly from the change; opportunities to learn new skills (and thereby qualify for extra pay) were to be allocated by seniority; skills once acquired were to be kept sharp through regular job rotation; overtime opportunities would be equalized within each skill block; and management committed itself to keep at least 5 per cent of the workforce in training at any given time. The design of the new system reﬂected a genuine compromise between the two sides. Management would originally have liked to simplify jobs as far as possible, with rotation concentrated within cells or natural work areas, but the unions opposed creating a set of ‘button pushers’ without externally marketable skills, and successfully insisted on arrangements which would encourage workers to master and rotate through a wider range of tasks. Some groups within the union, such as maintenance craftsmen, wanted to set up a formal apprenticeship program, but management vetoed this proposal for fear of losing skilled people to better-paying jobs in Milwaukee once they became certiﬁed. No closure was reached on gain-sharing arrangements, but both sides accepted the principle and undertook to keep negotiating until a mutually satisfactory settlement could be reached. Underpinning the bargain was a hard-fought sense of personal trust between local union leaders and managers: the USWA letter of understanding, incorporated into the 1992 labor contract, explicitly stipulated that ‘if two of the top three executives in the building at the time were to leave—for whatever reason—the Steelworkers had the right to revert to their old contract’. While local managers and union leaders were hammering out their restructuring deal, APV headquarters in London became increasingly restless about the long delays, endless meetings, and high training costs involved in the transition to teamworking and pay-for-knowledge. Although corporate management had endorsed the broad outlines of the reorganization plan, their commitment to the underlying approach was superﬁcial at best. As one Machinists’ ofﬁcial commented: ‘they understood the idea of reducing inventory from $40 million to $15 million, but not the other stuff ’. The Steelworkers’ president was even more scathing: ‘If I were to take a wild guess, I would say that our owners in England read some articles which said that these were the things all manufacturing facilities were going to go to . . . . They were convinced that [this] is the way to do business. ’Cause somebody told them that. But they had absolutely no idea what it meant, how to do it, where to go with it. . . . But somebody convinced them that they needed to do these things in order to stay top of the market.’ During the negotiations, therefore, the London headquarters commissioned a consultancy report, which concluded that the IAM sections of the Lake Mills plant could be run with 280 people instead of the 435 currently

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employed. Armed with this ammunition, London then ordered the Lake Mills managers to lay off more than 100 IAM members in May 1991, just two months after signing the pay-for-knowledge agreement. The redundant workers displaced by plant reorganization had mainly been employed in indirect jobs, such as stocktaking, receiving, crate packing, and forklift truck operation: people ‘who had a lot of seniority but not necessarily a lot of skill’, as the IAM bargaining committee chairman observed. Under the terms of the agreement, these senior workers now had the right to bump more junior workers anywhere in the plant, irrespective of whether they were able to do the latter’s jobs without further training. The impact on the plant’s skill base was devastating, since ‘all our skilled help was in the . . . junior people’, especially CNC machinists and certiﬁed welders. ‘So you can imagine what happened,’ he continued: ‘No second shift . . . and all the critical machinery was sitting empty. . . . It looked to me like they didn’t have a clue where seniority lay.’ Among middle managers unprotected by union seniority rules, the opposite occurred but with equally perverse effects: by laying off long-serving employees while keeping on more recent arrivals, the plant wound up paying out $6m (including legal fees) to settle the ensuing age discrimination suits. The predictable consequence was a massive destruction of trust not only in management’s good faith but also in its competence. To rank-and-ﬁle workers, it looked as if the local managers had reneged on their commitment to retrain rather than lay off those displaced by the reorganization, though some union ofﬁcers recognized that ‘it was partially due to our parent company not giving them the opportunity to follow through on what they said they were gonna do’. Either way, however, the damage was done, and cooperation from the workforce ground to a standstill for the next six months. With an acute shortage of skilled machinists, the plant soon fell behind in shipments of key parts, eliciting new threats from corporate headquarters to move work to other APV facilities if the situation did not improve. In the face of this dilemma, local managers’ only recourse was a vast outsourcing program. Over the year following the layoffs, 130,000 hours of Lake Mills’ work was farmed out to small non-union machine shops in the area, which often employed former APV operators to do their old jobs at two-thirds their normal wages, while charging the plant an additional set-up fee for just-intime deliveries even when supplying from inventory. The IAM ﬁled a grievance under the union contract charging management with causing a layoff through outsourcing, inappropriate transfers, working overtime with people laid off, and other contractual violations. But the operations manager successfully convinced the arbitrator that given the many bottlenecks in the plant’s production system, he couldn’t tell what they could really build

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in-house ‘unless they dumped everything out on the ﬂoor and tried to bring it back in as it made sense’—a claim which representatives from both unions later accepted. Even before the mass layoffs, the Machinists’ tenuous commitment to the reorganization plan had already begun to fray. In April 1991, less than a month after the approval of the pay-for-knowledge agreement, eight of the ten IAM ofﬁcers were turned out of ofﬁce in local elections, including the bargaining committee chairman and chief negotiator, who received only 35 votes. The issues were at once processual and substantive: union members felt they had been kept in the dark during the negotiations, while the opposition candidates argued that the new pay and seniority arrangements could never work and ‘ran against the company’. Within a year, however, the victorious chairman was also voted out and replaced by the other opposition candidate from the preceding election, a long-serving CNC machinist who had also worked as a foreman for a number of years before voluntarily returning to his trade. Like the Steelworkers’ president who had engineered the original agreement, this new IAM bargaining committee chairman gradually became convinced that making the new arrangements succeed was the only way to safeguard the plant’s future. Under his leadership, the Machinists even became willing to permit out-of-seniority recalls of junior workers with key skills in order to bring subcontracted work back in-house. Support from the local unions proved crucial in making the new pay-forknowledge system work in the face of determined resistance from groups within the workforce disadvantaged by the new arrangements. Learn & Earn signiﬁcantly upset the established earnings and prestige hierarchy among the plant’s blue-collar workers: thus machinists, considered by management and the IAM leadership alike to be the most highly skilled manual group, could earn a maximum of six skill blocks; maintenance workers could earn ﬁve blocks; but assemblers, historic ‘bonus babies’ used to high overtime earnings, could only earn four blocks, equivalent to a full dollar below the machinists’ maximum hourly rate.5 No one was formally obliged to rotate or accept training on new jobs, since ‘grandfathering’ arrangements protected preexisting wage rates, but those who refused could ﬁnd themselves overtaken by more junior colleagues who had mastered additional skill blocks, while the smoother ﬂow of work through the shop resulting from the shift to cellular production and just-in-time logistics sharply reduced opportunities for overtime earnings. Perhaps the most discontented group was the freezer assemblers, a concentration of high-seniority workers accustomed to exploiting their strategic position at the end of the production process to extract high 5 Basic hourly rates for machinists and maintenance craftsmen in the 1992 contract ranged from $12.05 to $15.94, while the top rate for assemblers was $14.83.

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levels of overtime by refusing to cooperate in getting out urgent shipments during regular working hours.6 Soon after the introduction of Learn & Earn, the freezer department elected a new shop steward, who demanded a $1,000 bonus for the assembly area to restore parity with the machinists, while also ﬁring up the welders, who were unhappy about their non-recognition as a distinct trade within the new job classiﬁcations. But the IAM leadership stood its ground, refusing to support changes to the pay-for-knowledge system; junior workers who were willing to train and rotate increased their relative earnings; and the opposition steward resigned. The bargaining committee chairman then appointed a new steward from an adjacent shop who actively pushed his constituents to train and rotate, while collaborating in the reduction of overtime even to his own personal disadvantage.7 Opposition to the system began to crumble, as senior workers who announced their willingness to rotate into skill blocks they had not previously claimed received back-pay bonuses, while those who did not saw their earnings fall by nearly 50 per cent due to the drop in overtime. To cut off the possibility of further resistance, individual grievances about the operation of the agreement were referred to a joint union–management review committee; those dissatisﬁed with the decision could in principle appeal to the union’s own steering committee, but since this was composed of the same people, dissidents’ access to the contractual arbitration procedure was effectively closed down. The new pay and classiﬁcation system thus had a profound impact on the internal social order of the plant. As the IAM bargaining committee chairman observed: It’s been an opportunity for some people. It’s been an absolute nightmare for other people. We forced them into a position that . . . for the people who don’t want to train, we forced them into a position where junior people will be paid more money and have more skills if they decide to stay where they’re at and not train. . . . And if they continue to look at layoffs, bumps, and recalls by skill, they could be looking at being laid off and out the door, and not being recalled because they’re not skilled.

Conversely, however, with widespread increases in basic hourly rates through pay-for-knowledge and concomitant improvements in work organization and scheduling, most blue-collar employees could earn as much as they had previously without any need for overtime: a broadly appreciated outcome. 6 Before the reorganization of the plant and the introduction of pay-for-knowledge, the freezer assemblers had averaged 1,400 hours a year per capita in overtime, which at time-and-a-half rates could double their annual earnings, while more skilled groups like the machinists might only receive 300 hours. 7 The new freezer steward’s alimony payments from a recent divorce settlement were based on an annual average of 600 hours of overtime above his basic salary, so by reducing overtime he was ‘cutting his own throat’.

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Equally crucial in consolidating support for the new system was the growing role of self-managing teams in improving the plant’s performance and reviving employment. Teams of blue-collar workers took over an increasingly wide range of responsibilities, including day-to-day stafﬁng and production scheduling, overtime allocation, vacation planning, purchasing, shipping, and customer liaison, as well as participating in hiring decisions. With leaders chosen by the groups themselves, the number of frontline supervisors fell from 32 to 12 between 1991 and 1994. The cumulative result of these reforms in the context of the plant’s broader reorganization was a substantial improvement in performance across a variety of measures: reduction of inventory and work-in-progress; higher quality and lower rework rates; fewer interruptions to production due to stafﬁng bottlenecks; and a jump in on-time delivery rates from 20–30 per cent in the mid-1980s to 80 per cent in 1994. All this brought Lake Mills back into the black for the ﬁrst time in half a decade. As the plant’s performance improved, the same collaborative approach was directed towards bringing outsourced work back in-house. Thus CNC lathe operators and salaried engineers worked together in crossdisciplinary set-up reduction teams to design a cell for insourcing of homogenizer parts, and similar examples were replicated across the plant. With increased revenues from lower costs, the plant hired additional sales and marketing staff to promote its products, while service engineers and craftsmen also helped to generate new business by going out of their way to inquire about customer problems with the company’s equipment. Even more promising for the future, the plant developed a prize-winning new ice-cream freezer from scratch in a record time of 18 months (as opposed to three to four years in the past) by involving blue-collar assemblers alongside whitecollar engineers in simultaneous engineering and design for manufacturability, despite the latter’s historic reluctance to alter their blueprints to reﬂect shop-ﬂoor modiﬁcations. Most crucially of all from the workforce’s perspective, the fruits of the plant’s improved performance could be seen in a sustained revival of employment: thus the USWA’s numbers rose from 64 to 130 between mid-1991 and mid-1994, while that of the IAM recovered from 280 to 340 over the same period.

2. The Unions Take Command Although the original initiative behind plant restructuring had come from the externally appointed management team, the local unions became increasingly committed to the new system in their own right. For both the USWA

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and the IAM, pay-for-knowledge and job rotation formed the basis of a twopronged hedging strategy, aimed at improving the plant’s performance, bringing work back in-house, and reviving employment on the one hand, while simultaneously broadening members’ skills to enhance their external marketability in case of future layoffs on the other. Beyond the hard knocks of the restructuring process itself, interaction with outside consultants also played an important part in the conversion of the union leadership. Thus the Steelworkers’ president was strongly inﬂuenced by an independent consultant brought in to facilitate the pay-for-knowledge and gain-sharing negotiations, who taught him some basic principles of managing interpersonal relations. More signiﬁcant, however, was the participation by a group of eight ofﬁcers from the two unions in an intensive three-week course on managing for continuous improvement, at a cost to the company of $10,000 per head. This course was intended to train union ofﬁcials in the same techniques used by plant managers so they could negotiate with them on an equal footing, much as an earlier generation of US unionists had learned Taylorist workstudy and incentive-pay-setting methods. But this training also gave union leaders a new externally validated vocabulary and conceptual framework within which they could defend worker empowerment and participatory decision-making as essential elements of modern efﬁcient production. Even continuing political volatility within the IAM did not threaten the unions’ support for the new arrangements, since victorious dissidents were quickly socialized into the emerging culture of labor–management cooperation, as in the case of the former chairman, who returned to the bargaining committee in 1994. The unions’ commitment to the new system soon became critical given the continuing high rate of managerial turnover inside APV. All three of the managers involved in the original restructuring plan left Lake Mills within a few months of each other in 1993: both the president and the human resources manager were dismissed amid rumors of ﬁnancial irregularities when the plant nearly failed an audit, while the operations manager was redeployed as a troubleshooter and consultant to APV companies in Europe. The new British-born plant president had previously worked at Lake Mills as a development engineer, but had then gone on to get a US accounting degree, turning into what one union ofﬁcial called ‘the worst possible combination: a bean-counting engineer’. Based at APV Americas’ sales and engineering center in Rosemont, Illinois (formerly APV Crepaco’s corporate headquarters) and visiting Lake Mills only a couple of days a week, the new president did not really understand or support the principles underlying the plant’s restructured operations, nor in the unions’ view did the new area human resources director. To counterbalance these outside appointees and reassure

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the unions, APV hired an experienced local labor relations manager based at the plant, but he soon quit the job for another position in the area because of continuing interference from the Chicago ofﬁce. According to the Steelworkers’ original agreement, the union now had the right to revert to its original contract since all the managers involved in the deal had left. Faced with the possibility of a complete breakdown in union– management cooperation, APV took an extraordinary step: the company hired the Steelworkers’ president as the plant labor relations manager, with the full support of both local unions. Everything at Lake Mills soon began to work more smoothly under the new labor relations manager, who explicitly saw the job as a continuation of his earlier union role, and enjoyed great trust among his former colleagues. As another long-time member of the USWA bargaining committee later observed: ‘[He] hasn’t forgotten that he used to be the union president. He’s still telling us some of the things that we should be doing, which helps us quite a bit.’ With both unions increasingly involved in the day-to-day administration of the pay-for-knowledge system and given access to conﬁdential information about the plant’s ﬁnancial performance, the IAM bargaining committee chairman likewise saw his role change signiﬁcantly ‘from being a union representative to almost being a manager’, while the number of formal grievances ﬁled plunged from 28 in 1992 to just ﬁve in 1994. Contract renewal negotiations proceeded with unusual serenity in 1994–5, with innovative ‘win–win’ bargaining techniques used to address each side’s most urgent concerns with a minimum of acrimony and posturing. The local union ofﬁcers and the new labor relations director also used their political connections through the broader labor movement to secure a three-year grant for a workplace Skills Enhancement Center under a statewide program. This grant paid for an on-site instructor from a local technical college to offer courses in numeracy, literacy, communications, blueprint reading, computing, and other basic skills. Workers could sign up for these courses outside work time, without alerting management to their deﬁciencies in these areas, and evaluations likewise remained strictly conﬁdential to the participants. As at other Wisconsin plants, these features of the program helped to ensure not only that older incumbent workers with educational deﬁciencies felt safe in acquiring the basic skills they needed to participate effectively in teams and continuous improvement activities, but also helped to consolidate support for the local unions’ cooperation with management in work reorganization.8 8 For a discussion of this program and its broader role in union–management cooperation over incumbent worker training and work reorganization in Wisconsin, see Neuenfeldt and Parker (1996). The proportion of state funding for the Skills Enhancement Center was degressive, with the company picking up the full cost at the end of the grant period.

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To defend this emergent system of effective codetermination in the face of continuing turnover among plant management, the Lake Mills unions turned the tables on the company by mobilizing support from outside consultants. Thus local union leaders and the new labor relations manager successfully insisted that not only the new plant president but also the area human resources director go through the same training course on management for continuous improvement which had been instrumental in their own conversion to the business virtues of post-Taylorist work organization and employee empowerment. Whether as a result of the consultants’ training or their own persuasive powers, the labor relations manager and his union allies considered this strategy to have been reasonably successful through late 1995 in bringing round Lake Mills’ new bosses to a growing if not yet complete acceptance of the jointly administered pay-for-knowledge system negotiated with their predecessors.

3. Plant Community or Global Business Park? Five years of continuous restructuring at Lake Mills had thus produced a thoroughly paradoxical outcome, in which local unionists assumed increasing responsibility for a reformed system of ﬂexible work organization and pay-for-knowledge, originally initiated by outside managers with the halfhearted support of APV corporate headquarters, a system which was delivering substantial improvements in the plant’s performance on a variety of measures. Yet the paradox did not stop there. For the driving force behind collaborative restructuring and the ensuing performance improvements lay in employees’ commitment to Lake Mills as a plant community. Thus it was the seniority provisions of the local union contracts which bound longserving workers to the plant and forced management to retrain rather than replace them; and it was the deep attachment to the plant among white- and blue-collar employees alike which enabled the unions to assume their new role of overcoming historic divisions, dislodging entrenched sectional interests, and orchestrating cooperation for the common good. But the ﬁnancial success of Lake Mills’ restructuring efforts from the parent multinational’s perspective always remained constrained by the high overhead costs associated with the plant’s vast size and high degree of vertical integration. The solution to this problem, in London’s view, lay in sharpening the plant’s market and production focus by breaking it up into distinct business units as part of the broader restructuring of APV’s global operations described earlier. Such an approach, whatever its commercial or technical merits, posed a clear threat to the collective identity and shared interests of the

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Lake Mills workforce, among whom it was bound to arouse distrust and resistance. Hence despite the local unions’ many remarkable accomplishments, their strategy of defending the unity and integration of this plant community through collaborative restructuring would ultimately prove selflimiting. During the restructuring of Lake Mills at the beginning of the 1990s, the plant was divided into a series of distinct business units, each with its own manager. Although each unit was asked to draw up its own business plan, a process in which the workforce actively participated, the new structure remained more administrative than ﬁnancial for the ﬁrst several years. Only the homogenizer unit, which produced parts for other APV units located elsewhere, was ostensibly operating on an independent proﬁt-andloss basis; but even there its performance was obscured by transfer pricing and underallocation of overhead costs. In 1993–4, as we shall see in more detail in Chapter 6, APV worldwide was reorganized into three major divisions: sales and engineering, manufactured products, and specialist businesses. The distinction between the latter two divisions was based on their degree of interdependence identiﬁed by outside consultants with APV’s project engineering business: those manufacturing activities whose output formed a major input into the multinational’s process plant contracting work became core product businesses, while those with a smaller overlap were classiﬁed instead as free-standing specialist businesses to be divested if an attractive price could be obtained. The products division, as we have already seen in the case of Fluid Handling, was broken down in turn into a number of distinct Strategic Business Units with separate proﬁt-and-loss accounts, each reporting to a single global manager backed up by a new functional organization with its own sales and marketing staff. None of these new global SBUs was based at Lake Mills, which as a vertically integrated multi-activity complex ﬁts poorly into the reorganized structure of APV’s products division. Worse still, the ice-cream equipment business, for which Lake Mills had long been APV’s group center of excellence, was designated a peripheral specialist activity under the new corporate structure, while the plant’s R&D section, with its prized pilot facility for product and process testing, was now increasingly isolated from the group’s project engineering business based in Rosemont, Illinois. So stark was this structural misalignment that a consultancy study commissioned by the incoming executive director of the products division devoted considerable space to the question of closing down Lake Mills altogether, only to conclude that such a step would be too costly in terms of asset write-offs, severance pay, negative publicity, and likely community resistance, while APV would still need a US manufacturing and service base to sustain

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conﬁdence among the company’s numerous domestic customers, which could not be achieved through exports alone. Faced with this impasse, the new product divisional management sought to reconceive Lake Mills as a ‘global business park’ instead of a single integrated business. Thus the plant’s six business units were transformed into separate ﬁnancial entities, four with independent proﬁt-and-loss responsibility reporting to global SBU managers located elsewhere (ﬂuid handling, homogenizers, tanks and fabricated products, freezers and scraped-surface heat exchangers), and two servicing mainly internal customers on a cost-plus basis (maintenance and the machine shop). To oversee the new structure and ensure coordination across the site, a new plant president from another recently divested APV business was appointed in early 1996 and given equal status within the divisional hierarchy to the other global SBU managers, who were not permitted to initiate radical process changes in their areas without his approval. Implementation of the new business park concept, with external reporting and separate ﬁnancial accounts for the plant’s constituent units, soon set off centrifugal forces within the Lake Mills complex. Prominent among these were growing pressures to reduce shared overheads, which fell from 50 per cent of business-unit costs in 1993 to 20 per cent in 1996. By the end of that year, several business unit managers were contemplating contracting out some central services, though they remained conscious of the need to take account of the potential impact of such decisions on the plant as a whole. The most difﬁcult problem, however, lay in the machine shop, the heart of the plant’s historic vertically integrated structure. A major part of the Lake Mills machine park was too large, too expensive, and too widely used by different units to be reallocated into dedicated product cells. Some ﬁfty pieces of equipment were therefore grouped into a separate machine shop servicing the other business units, which were allowed to procure parts from external suppliers, but discouraged from doing so not only by the convenience of co-location, but also by cost-based pricing policies that included no allowance for proﬁt or depreciation. Both the new plant president and the machine shop manager were interested in developing third-party subcontracting as a means of improving the low capacity utilization of key equipment, such as large vertical boring machines originally acquired for chemical work, but had not been able to expand this business beyond 10 per cent of the unit’s turnover because of its high cost base and lack of an independent sales force. In other respects, too, the machine shop remained an anomaly within Lake Mills’ ﬂexible, product-based organization as it had developed during the 1990s. Thus, for example, the shop had never been fully integrated into the

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Learn & Earn system. This was partly due to the fact that as at Horsens a number of skilled machinists who had put a lot of effort into building up ﬂexible and well-equipped work stations did not want other workers rotating onto ‘their’ machines. But it was also due to the shop manager’s reluctance to allow machinists to rotate despite persistent pressure from the IAM, the labor relations manager, and the joint review committee, because he did not trust workers qualiﬁed through the pay-for-knowledge system to operate key pieces of equipment. This distrust in turn became a self-fulﬁlling prophecy as workers from other units failed to build up the necessary skills or allowed them to become rusty through lack of practice. Yet the machine shop’s dependence on a small number of skilled operators controlling key pieces of equipment became a source of inﬂexibility and bottlenecks in case of absenteeism or unanticipated variations in the ﬂow of work, a problem exacerbated by demands from rival business unit managers to expedite their own priority orders. Although outsourced work was still being brought back in-house, dissatisfaction with the machine shop’s performance meant that despite the evident advantages of on-site service, the other business unit managers were continually tempted by the possibility of ﬁnding more reliable outside suppliers for key parts. Elsewhere, too, the new business park structure brought to the surface long-standing tensions within Lake Mills’ Learn & Earn system. Most of the plant’s management, including the new president, recognized that the payfor-knowledge arrangements had brought vital operational ﬂexibility compared to the old narrow job classiﬁcations and seniority rules, to which there was no desire to return. Some business unit managers, notably in Fluid Handling where production was most fully cellularized, actively praised Learn & Earn for its help in coping with ﬂuctuations in work scheduling and labor demand, and had developed a self-policing ‘skills credit card’ to ensure that workers rotated regularly through the jobs for which they were receiving pay increments. But other business unit managers and the new plant president remained highly critical of several fundamental aspects of the Learn & Earn system. Training, they complained, was based more on employee choices than on the company’s needs: too many people, for example, wanted to learn CNC machining, an externally marketable skill. The design of the skill block system placed too much emphasis on breadth rather than depth of knowledge, since workers could earn additional pay increments for learning a new job outside their own area but not for mastering one of equivalent difﬁculty within it. In other respects, too, pay and skill hierarchies remained misaligned, since assemblers could earn nearly as much as boring mill operators, and junior employees were still concentrated in hard, heavy, but critical machine shop work. Managers made the charge that with

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shortages of strategic skills, it was wasteful to force top workers to do less demanding tasks, while it was impossible to rely on trainees to operate key machines given peer pressure on trainers to certify their co-workers as skilled on particular jobs even if they were not really able to perform them under normal production conditions. Whatever the merits of these criticisms, some of which were being addressed by the joint Learn & Earn review committee, it was apparent that the advent of the new business park structure had intensiﬁed managers’ determination to tailor the pay and job rotation system more closely to the needs of their individual unit. But only the tank shop, whose manager, a former metal fabricator promoted from the shop ﬂoor, was among the most aggressive in seeking to develop his unit as an independent business,9 had made much practical progress in reforming the Learn & Earn system. From a single broad classiﬁcation in the original pay-for-knowledge agreement, the shop had been redivided into three skills areas or natural work groups, with frequent rotation among these more closely related tasks to keep workers’ skills sharp. At the same time, too, the pay hierarchy within each of these areas was carefully revised to place the most demanding tasks, such as certiﬁed welding, at the top of the ladder. As everyone recognized, however, these model reforms were far easier to implement in the tank shop than in the rest of the plant, not only because of the former’s greater homogeneity and cohesiveness, but also because of its separate labor agreement with the USWA. The logic of the global business park structure pointed clearly towards separate labor agreements for each business unit within the plant, rather than a single IAM contract for everything but the tank shop. The existing union agreement was in fact regarded as a major handicap by the new plant president and some of the business unit executives, notably the homogenizer manager who had long pressed for unit rather than plant-wide seniority, as well as by the London head ofﬁce. Any suggestion, however, that management might be seeking to break up the Machinists’ bargaining unit was regarded by the union as a betrayal of solemn undertakings, to be resisted at all costs. Thus gain-sharing plans proposed by APV’s London headquarters repeatedly foundered because they were based on production cells or business units rather than on the plant as a whole. But opposition to fragmentation of the plant into fully separate units was not conﬁned to the IAM. Not surprisingly, the labor relations manager remained a ﬁrm believer in the integrative virtues of the plant-wide pay system, arguing that a decentralized 9 The tank shop manager, an avid bear hunter from Pennsylvania’s coal and steel country, was the only one of Lake Mills’ business unit heads to be classiﬁed as a ‘young high-potential manager’ in the worldwide personnel evaluations conducted by the product divisional head ofﬁce in London.

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gain-sharing plan would never work because of inter-union rivalry and unequal opportunities for productivity improvement in different units. ‘If we had our way here,’ he declared, ‘we would say ‘‘APV in Lake Mills is APV, we’ll all be one here.’’ ’ Even some of the business unit managers, however, shared these sentiments. The freezer manager, for example, whose unit had continued down the path of worker–engineer collaboration in developing a new ingredient feeder to follow its prize-winning ice-cream freezer, emphasized the danger of undermining the plant’s cohesiveness and joint problemsolving capabilities: Through the transition stage, it will be very critical that we keep some kind of homogeneous culture here. If you build the walls too fast, the business park structure too fast, you’ll start cutting off some of the communication channels . . . . If they move to streamlined direct reporting too fast, you’re going to lose this overall homogeneous capability that this facility has, that’s made us so strong, that you can rely on anybody and you don’t have to worry about this comes from one pocket and this from the other pocket.

For the new plant president, by contrast, the strength of Lake Mills’ collective identity posed a fundamental obstacle to its successful integration into the product division’s global business unit structure. The global business park concept, he contended, worked better at other formerly integrated APV plants such as Silkeborg in Denmark, partly because the multiple business units there (tanks, automation, freezers, and scrapes assembly) were less intertwined than at Lake Mills. But the business park concept also worked better there, he claimed in a surprising reversal of standard national stereotypes, because the Danes were more independent and less communityminded, and thus more willing to transfer their loyalty from the plant as a whole to the individual business units. ‘That’s the difference here,’ the plant president observed, ‘while they are working in the tank division, they are APV Crepaco Lake Mills.’ The healthy rivalry between the IAM and the USWA ensured that the split bargaining unit worked well, he concluded, ‘but we celebrate wins and victories as a unit.’ Beyond this evident threat to Lake Mills’ deep-rooted collective identity, participation in APV’s new global business structure presented a complex mix of opportunities and risks for the plant’s constituent units. On the upside lay the prospect of more effective marketing of new or existing products through the creation of a dedicated sales staff for each business unit and the possibility of breaking into new industrial markets outside APV’s traditional process-plant customers, while a single global management team for each business, local managers and unionists alike believed, should help Lake Mills to get better-quality parts and service than in the past from

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sister plants abroad. On the downside, however, the strategies and priorities of the global product businesses did not necessarily mesh well with Lake Mills’ historic strengths. Thus the corporate decision to downgrade the icecream business and transfer the freezer unit to the heat exchange group resulted in a predictable loss of momentum, as the key person responsible for the development of its innovative ice-cream freezer left abruptly in the middle of the next project, setting it back by several months. In the tank shop, similarly, the business unit manager’s energetic efforts to carve out a global product mandate by developing new ancillary equipment and selling it round the world ran into resistance from APV’s London ﬁnancial controllers to increased investment in what they regarded as an intrinsically low-value activity at a high-cost location. In Fluid Handling, too, the global product strategy pursued by the London divisional director and the Danish SBU manager clashed with Lake Mills’ continuing regional orientation. In 1996, for example, APV Lake Mills became the ﬁrst American company to design and build a valve capable of meeting a new set of AAA regulations, but this was entirely aimed at domestic rather than export consumption because of persistent differences in technical standards and sanitary requirements between the US and Europe. While the divisional director and SBU manager envisioned a standardized range of pumps and valves, with key parts such as impellers manufactured in volume at a single site and divergent national requirements met through modular variations in external housings, the Lake Mills business unit manager saw instead an ongoing tendency to service each regional market from a local base, despite increased cooperation in design and production between afﬁliated plants within the multinational. With such divergent visions and interests, possibilities for mutual misunderstanding and distrust were rife, so that notwithstanding repeated attempts by the Danish SBU manager to enlist their cooperation, both managers and unionists at Lake Mills continued to believe that crucial information was not being freely shared within the business.

4. Isolation and Impasse In contrast to Horsens, the strength of Lake Mills’ plant–community identity, its historic vertical integration, and its domestic market orientation all combined to inhibit cooperation with other plants within APV to improve the effectiveness of the parent company as a multinational association. There was, in short, no American equivalent to the Danish Maﬁa, nor could such a network be easily imagined from the perspective of Lake Mills. Even within their home region, moreover, local actors at the Lake Mills plant could call

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upon a fewer external allies and institutional resources than their Danish counterparts. Thus one conceivable strategy for cutting overhead costs, easing production bottlenecks, and reducing lead times at Lake Mills would have been to develop a collaborative division of labor with an external network of suppliers in the region, like that which had helped Horsens to become a rising star within the APV corporate universe. But such collaboration was ruled out, at least in the short run, by the substantial wage gap between Lake Mills and the smaller non-union machine shops in the surrounding area, as well as by the plant’s evident determination to bring outsourced work back in-house as soon as possible, which deterred suppliers from making any long-term investments in the relationship. Not only did Lake Mills workers lack the boardroom representation rights conferred by law on their Danish counterparts, but the guidance and support provided by their national unions were also more limited, as can be seen from the fact that the local ofﬁcers’ principal training in negotiating over work reorganization came from management-ﬁnanced consultants rather than from their own organizations. Labor movement connections did help Lake Mills to secure state funding for the plant’s Skill Enhancement Center, and local union leaders enthusiastically joined the Wisconsin Regional Training Partnership (WRTP), a labor–management alliance of mainly unionized metalworking plants in and around metropolitan Milwaukee dedicated to promoting industry-wide training and workplace innovation. Although Lake Mills quickly became a WRTP poster child for union collaboration in workplace reform, and workers from the plant participated in drafting the organization’s peer training manual, local union leaders were disappointed to ﬁnd few similarly advanced companies within the group from whose experiences they could themselves learn.10 Without the institutional resources and external allies to support a more expansive vision of the plant’s future, local unionists and managers understandably fell back on a slew of defensive carrot-and-stick strategies for maintaining its position within APV. On the positive side, they sought to reinforce Lake Mills’ indispensability to the multinational by providing a quick turnaround service to the company’s large US customer base, and by developing new products tailored to US technical standards. On the negative side, they relied on worker solidarity and the legally binding provisions of the union labor contracts to protect the plant’s integrity against the centrifugal forces of the global business park concept, while at the same time enlisting the support of external consultants in the Sisyphean task of socializing each 10 On the WRTP, which now has a membership of 60 ﬁrms with a collective workforce of 60,000, and has been recognized by the US Department of Labor as a model for replication elsewhere, see Neuenfeldt and Parker (1996); Parker and Rogers (1999); Dresser and Rogers (2003).

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new outside manager into the business virtues of worker empowerment. So long as the plant remained under APVownership, the ensuing impasse would prove relatively stable. But despite the performance improvements of the 1990s, Lake Mills’ high overhead costs, lack of external allies, and strategic disjuncture from the parent multinational cast a shadow over its future, while the ensuing mistrust of corporate management constantly threatened to subvert the plant’s fragile cooperative equilibrium. Thus few of the advantages of joining an MNC imagined in Chapter 1 had come through for Lake Mills. Membership in APV had instead increased volatility, cut the plant off from its historic learning path, and restricted its range of operations.

5 Howard: A Sleeping Beauty Awakes to the Nightmare of a Global Enterprise Had Howard Pumps hoped that being acquired by APV in 1989 would bring the company more direct attention from its owner, it would soon feel dissatisﬁed. Instead of being run by its new British parent, the Eastbourne plant ﬁrst came under the aegis of APV Crepaco in Lake Mills. By American standards, Howard’s production system must have looked very odd indeed. Manufacture often occurred in a less than controlled way, so that the ﬁtters, for instance, would often have to take a ﬁle to parts which did not match up properly when assembling and testing pumps. Each pump thus effectively became unique, and spare parts could not easily be supplied, while both machining and assembly were often delayed. The Americans responded to this problem by attempting to standardize production and increase output quantities dramatically in order to reach a level where machinery and workers could be dedicated to ﬁxed tasks. Although the new managing director installed by Lake Mills was a local man recruited from one of Howard’s chief rivals, the production strategy he imposed was that of ‘moving the metal’ at all costs, as employees who suffered through this period recall: ‘The bottom line’, one observed, was ‘sales must go out’, whatever the quality of the product; ‘as long as the pump went round and it worked, it would go out the door’, complained another. This strategy, however, as the preceding quotations indicate, frustrated both sales and production staff. Though old-fashioned and undynamic, Howard had been operating within a virtuous circle. One of the main reasons why customers would order from Howard was that within its specialized ﬁeld of rotary lobe pumps, the ﬁrm had a wide model range (ﬁfteen different sizes, stretching from the size of a hand to three feet long and several hundred pounds in weight, available in close to a million combinations, including a variety of lobes, seals, and ﬁnishes), which the technical department would then customize by adding on peripheral devices such as valves or pressure transducers, continually modifying the designs. This meant that the shop ﬂoor would receive constantly shifting tasks, which suited the workforce well,

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as Howard’s ﬂexibility had attracted those craftsmen who found the more standardized routines of other factories in the region too monotonous. By breaking up this virtuous if not particularly remunerative circle, the new American-inspired management approach thus had the perverse effects of undermining customers’ conﬁdence in the company’s product, increasing lead times by trying to produce for stock while receiving largely customized orders, and destroying workforce morale. Nor did it help that Howard was obliged to take on the name of Crepaco, whose products they considered far inferior to their own, as the company’s long-serving technical director explained: Well, prior to us being APV, the Crepaco pump was looked upon as one of the lower grades of pump, okay? . . . Because it wasn’t a precision pump, we viewed that as being a sort of, they were below our level then, and rather lowly. And so when we got, now, you know, getting the name Crepaco, that really did, that . . . the ego just died right there like that. And here we are associated with the, what we called the crap pumps. So we had two problems, we had quality, we had the association with Crepaco.

By 1993, the management had decided that the problem was partly one of design and that a new pump was needed. Reducing the ‘parts count’ could cure many problems by cutting inventory and total component costs. The numerous diverse components of the existing design needed extensive machining, and were far from easy to assemble. At the same time, the ﬁnished pumps often proved unreliable when installed at customers’ plants, while rust stains would sometimes appear on the outside after a few years of use, so it was natural to try to cure Howard’s problems in this way. The technical director saw the new pump as a new chance for him and his department and recruited a local university to submit a joint project for co-ﬁnancing under the UK government’s Teaching Company Scheme. The proposal was successful, and two graduate engineers began work at Howard on the new pump in 1994, to be joined by a third in 1996. At the end of 1993, however, Howard came under the authority of the Fluid Handling SBU and was henceforth to be overseen by Horsens rather than Lake Mills. From that change in management followed a sharp change in strategy. Rather than quantity, the focus was now on quality. Throughput times were to be reduced as far as possible. Rather than producing for inventory, production should only be initiated to meet speciﬁc orders. Everything should be done to restore Howard’s reputation among its customers. To achieve these goals, the Horsens-based SBU manager sent one of his own technical staff to become Howard’s managing director. Since two of the other rotary lobe pump factories in Eastbourne were already being run by

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Swedes, Howard employees referred to the new situation as the Second Norman Conquest and to the inﬂuential position of Danes within APV as the Danish Maﬁa. And it certainly signaled new times. Instead of an American formula came a Danish recipe. The new managing director wanted people to clean their workplaces themselves and initiated rather surprising games—such as offering a bottle of whiskey as a weekly prize for the cleanest machine station—in order to push English shop-ﬂoor routines—or lack of same—in the direction of Horsens. The production layout was reorganized on cellular lines and a kanban system introduced.1 Whereas previously management had concentrated authority in the technical and production engineering departments to enforce ‘Americanization’, direct mobilization of the shop ﬂoor was now emphasized. As at Horsens, the Danish manager found it important for different levels and functions within the plant to work much more closely together. To this end, he promoted two of the best CNC machinists to key staff positions in the production engineering department, placing them under the direction of a British manufacturing engineer who had spent the better part of a year at Horsens preparing for the introduction of APV’s new world centrifugal pump. In collaboration with the technical director, they quickly began to iron out the problems with the existing pump designs and initiated a system of engineering change requests, whereby shop-ﬂoor workers could suggest alterations in production techniques, leading to continuous reductions in cycle times and improvements in the product itself. For the shop-ﬂoor workers, the Second Norman Conquest more than restored their past craft honor and working morale, awakening in them entirely new career aspirations, and offering them an environment that emphasized learning, ﬂexibility, and quality. Howard again became reputed for its craft quality and was able to attract whole new teams of highly capable machinists from neighboring factories, while customers were kept happier than ever before. This turnaround period, however, ended after two years, when the managing director was offered a high position at the world’s leading pump manufacturer back in Denmark. Thus even his service in Eastbourne appeared to him ﬁrst and foremost as a step in the advancement of his local Danish career. Following his departure, the management of Howard passed to a very young Scots accountant, who had been serving as the ﬁrm’s ﬁnancial controller and whom the Danish managing director and the Fluid Handling CEO believed capable of advancing along the path they had already marked out. 1 By this stage, as we saw in the previous chapter, Lake Mills had undergone its own ‘just-intime’ transformation, and the US plant was involved in helping Howard introduce a similar ‘KanFax’ system, whereby shop-ﬂoor workers could order new parts directly from suppliers as needed.

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1. A Manager without Portfolio? It is hardly surprising that the new managing director, having been appointed in this way, adopted a long-term strategy aimed at enhancing the plant’s ﬂexibility, quality, and training. This approach would enable him to show progress in meeting the product division’s key non-ﬁnancial performance indicators (reducing customer complaints, lead times, inventory, and scrap levels), along with the standard ﬁnancial goals of increasing sales, raising proﬁts, and improving operating effectiveness. No less importantly, it would also allow him to continue the popular reform process initiated by his predecessor. But the young Scots managing director found himself in a strange double-sided game, where his powers were very limited and his position contradictory. He came under pressure from the Fluid Handling SBU manager and the Product Business divisional director to produce optimistic budget forecasts in order to help them meet their own corporate targets. Similarly, to secure investments in new machinery, he had to promise very short payback periods of no more than two years. The achievement of all these targets depended essentially on the progress of sales. But Howard’s sales organization was very small and was basically organized to assist customers in formulating their technical needs when they approached the company on their own initiative in Eastbourne. The majority of sales went through APV’s own Sales and Engineering division and the rest of the Fluid Handling SBU. Most of the units within the latter such as Horsens, Unna, and Lake Mills were primarily engaged in meeting their own targets and would only recommend Howard pumps if they could not meet customer needs with their own products. In theory, the situation should have been improved by integrating the sales force from each of the companies into a single SBU-wide organization—as had already begun to occur in the case of pumps—but even the new ‘Global Product Manager’, whose ofﬁce was located at Howard, conceded that it would be ‘asking a heck of a lot’ to expect formerly specialized salespeople ‘to learn everything . . . in the ﬂuid handling catalog overnight’ in order to match each product to the right market application. Thus at the beginning of a year, Howard’s managing director found himself obliged to place a bet on a sales target which he could not greatly inﬂuence, though he would nonetheless be held accountable for it at the end of the year. This dilemma in turn forced the managing director to concentrate on internal operational effectiveness and on improving the plant’s standing in relation to the divisional key performance indicators. In this respect, he was greatly handicapped by the legacy inherited from his predecessors. First, the fastest way to reduce costs and improve operating effectiveness would have been to cut overheads, but that would have required pruning the R&D

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budget and placing at risk the new pump project, which was crucial to Howard’s proﬁle within APV. This option would destroy his best card for the longer term. Second, not being a technician and lacking experience in handling production people, he had little chance of emulating the hands-on managerial style of his Horsens predecessor. He was obliged to exercise authority through people appointed by his predecessor, whose own prestige had been based on converting the plant’s difﬁculties into practical technical problems that employees could successfully solve through ad hoc cooperation. Being unable to follow in his predecessor’s footsteps, the managing director experienced a series of unsatisfying motivational and disciplinary problems, which he felt that neither his production manager nor his supervisors were prepared to handle. None of them seemed willing to assume responsibility for ‘confronting others’, since they were used to motivating people by mobilizing their cooperation on small projects. Surrounded by hostile competitors in the district and running a union-free shop, he could expect no support—rather the contrary—if he tried to ﬁre people. Should he decide to do so, he would probably be hauled before an industrial tribunal for unfair dismissal—or so he feared. Finally, as Howard paid above-average wages for the area, he could not motivate people by increasing pay levels without jeopardizing the plant’s expected proﬁts.2 Consequently, his was indeed a very difﬁcult situation. Seen from the perspective of the SBU manager, he had inherited a plant that had successfully been turned around and well-prepared to show rapid improvement on key performance indicators in the future. Seen from his own position, he was running a machine without any effective control levers at his disposal, fearing that he could easily lose what had already been achieved, with few possibilities beyond good luck to help him prove successful by any performance criteria. The managing director’s own interpretation was that his predecessor had received a patient suffering from low morale. By reorganizing the plant, he had been able to cure the most critical symptoms, but this had not taught the patient to live in a way that would overcome the disease itself. The new managing director wanted instead to develop an ‘I want to be here culture’ at Howard, in which ‘people solve their own problems’. To create such a culture, he wanted managers and supervisors to ‘confront’ those employees who did not live up to these ideals. 2 Another possible strategy for cutting costs would have been to increase the proportion of outsourced components, but here the plant manager was himself reluctant to confront other managers who remained attached to ‘company traditions’ of in-house machining, especially as he lacked expertise about suppliers’ technical capabilities. One striking indication of this was that he had paid over the odds on the open market for a replacement set of wire wheels for his own vintage MG sportscar without realizing that they were made by the plant’s key supplier of machined components.

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The managing director himself tried to play by these rules, as he would often confront subordinates at any level in the organization, preferably in the presence of a third party. To do so, he depended on those who would loyally reveal gossip to his willing ears. But such persons were few and often badly placed to make fair judgements, as most had learned from the rapid turnover of managing directors that persons in such positions were more interested in their own career than in Howard’s prosperity. How could a person who is expected to exit at the ﬁrst opportunity institutionalize an ‘I want to be here’ feeling in people? It appeared to be an impossible mission. But the solution seemed to be to continue on an expanded scale what his predecessor from Horsens had begun. Thus for apprentices, the managing director institutionalized a scheme enabling them not only to rotate among different production groups on the shop ﬂoor, but also to spend several months in different staff functions, such as the drawing ofﬁce, production engineering, and the technical department. He then extended this scheme into a general training program, Howard Investing in People (HIP), which encouraged employees at all levels to rotate into different jobs around the plant for up to two weeks at a time so they could learn how things functioned in other departments. HIP was thus meant to systematize what had been achieved on an ad hoc basis under his predecessor, and the managing director hoped that it might lead employees to think of themselves as working for Howard rather than for just a single department. By allowing employees to explore jobs outside their normal routine, moreover, the managing director built on his predecessor’s example in opening up new cross-functional career paths within the ﬁrm: thus as a direct result of their HIP experiences, he appointed a CAD draughtsman with extensive technical knowledge of pumps as a sales engineer, while replacing him in the drawing ofﬁce with an enthusiastic craft apprentice who showed special aptitude for geometric tolerancing. To reinforce the HIP program one step further, the managing director initiated a new payment system. In hopes of reducing compartmentalization within the plant and improving individual motivation, he decided to introduce a merit review system, similar to the annual appraisal of managers in APV more generally. According to this system, people were rated on twelve criteria, such as ﬂexibility, skills, responsibility, and openness to training. The aim was to furnish HIP with a carrot and a stick. People rated above average would receive higher wage increases, those rated average would receive the plantwide norm, and those rated below average would receive lower increases and be called in for a serious conversation about how to improve their performance. Thus the managing director not unreasonably

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believed that despite his impossible situation he had devised a means of pushing Howard in a direction that would look promising, both in terms of the plant’s overall performance reported to London, and of his annual review by the SBU manager.

2. Howard’s Place in an ‘Incestuous’ Labor Market But what looked like a move worthy of a Zen master, when viewing Howard as an isolated entity playing the game of comparative positioning within the global organization of APV, turned out to have disastrous effects in the local game of the Eastbourne labor market and the mutual positioning among the various global pump competitors operating within it. The employee reviews for the new wage system were conducted by the departing production manager—who had explicitly not earned the respect of ‘his’ crew—and the merit ratings were conducted without consulting the supervisors directly responsible for each department. Furthermore, since most people had to be rated ‘average’ if Howard were not to jeopardize its operating performance by sharply increasing the total wage bill, many workers and managers learned that they were just average and received the standard annual increase. Only a few people learned that they were above average and received an extra percentage point or two. To most the whole experience was thus seen as a direct insult—even though the average wage rise was nearly a full per cent above that of the rival plant across the road. Many—including the supervisors—knew that most of Howard’s workers at all levels were far above average compared to the general level in the local pump district. The machine-shop supervisor graphically demonstrated this fact by resigning his job at Howard to become a CNC operator-programmer at a competing plant, where in his lower position he would earn an extra £4,000 a year (including paid overtime). Though he was a stranger to the district, the other production supervisor (responsible for assembly) read the problems of authority quite differently from the Scots managing director: In the pump industry here, there’s four major manufacturers in Eastbourne, all spawned originally from here. So you tend to have a very incestuous group of people, everybody’s married to everybody’s brother, sister, uncle, aunt . . .

Hence everybody—apart from the imported managers— knew who were the good and bad guys for any particular job, and recruitment was as much an exercise in seduction as an economic transaction:

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[Y]ou target the people that you want. It’s just a question whether you can wheedle them away from where they are. Because obviously, the better the person, the better he gets looked after, the more difﬁcult it is to get him. But yes, it’s very much a formal exercise to say, ‘I want a ﬁtter. What I really want is you. [Chuckles.] I know your name, I know where you work, I probably know what you’re getting paid. But I’ve got to get you out.’. . . I’ll put the word out with my ﬁtters that, you know, I would like to know whether this guy is interested. And they’ll come back and say, ‘Yeah, I met him the other night. And he was saying . . .’ It’s a game, you know, it’s a game, that’s all.

If a person with an outstanding reputation—like the machine-shop supervisor—left Howard it would therefore send out very damaging signals to the local environment and make it difﬁcult to recruit the other good guys. Since the Horsens manager had left Howard, the plant had changed from a situation where it could easily recruit the good guys to a situation where it lost precisely them. The review exercise thus exacerbated an already unstable situation. In such an incestuous labor market it was difﬁcult to manage under the best of circumstances. At any given level, a new manager or supervisor would ﬁrst have to earn the respect of his crew and would then perhaps be able to establish some—inevitably limited—friendships. Eastbourne people were generally playing out one-sided roles in compartmentalized worlds with sharp demarcations between work and social life, which made team-building difﬁcult and encouraged individualized wage systems by which they could measure their worth against others. A new payment system which ranked most of Howard’s workers ‘average’ was thus not only insulting to people within the world of the plant. It was also damaging to their reputations within the compartmentalized but interconnecting worlds of the wider community. It was therefore obvious to the immigrant supervisor that the only way Howard could form a cohesive team culture would be to create an external enemy that could unite employees across their compartmentalized social worlds. Such externally focused mobilization had sometimes occurred, for example, when a local competitor had beaten them out for an order from one of Howard’s major customers. With the managing director’s recent moves, Howard itself instead seemed to become the very enemy that could unite the community across compartments. The machine-shop supervisor was not the ﬁrst to leave. A former sales manager had already shifted over to one of the local global competitors and taken with him his customer contacts from Howard. And another Howard sales engineer, who had seized the opportunity to move up into the Fluid Handling organization as a global product manager, emphasized his personal distance from the company

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despite the fact that his ofﬁce was still located there. To those who left—and those who planned to leave in the future—it was obvious that their career prospects outside Howard had been greatly improved by the fact that they had already moved across levels and departments within the company. People rated average within Howard were rated far higher on the local labor market and had a great deal of bargaining power, while ties to family and friends could easily be mobilized to solicit alternative recruitment offers.

3. Why Not Take Pride in a New Product? What could be more obvious than gradually to build up a new pride in Howard by working together across departmental divides within the ﬁrm on the new generation of pumps? Such an approach would enable people to make visible their experience and tacit knowledge, to meet each other in new roles, and to recombine tasks on an ad hoc basis: in short the route that had been so successful under the former Horsens manager. To most of those employees who had already crossed the barriers between levels and departments, this seemed the natural solution to Howard’s current and long-term problems. Rather than mobilizing against a common enemy, they saw unity emerging out of a collaborative process and spirit. Yet the long-serving technical director responsible for developing the new generation of rotary pumps systematically ignored this option. Such neglect was partly due to his residual skepticism about blurring established professional boundaries and lines of authority: a man of ‘the old school’ who liked to control technical knowledge, as the ex-draftsman who had moved to the sales ofﬁce described him, he had never worked on the shop ﬂoor himself and was unaware, for example, of the extent to which Howard machinists had become involved in CNC programming. But more fundamental was the technical director’s ‘desire to limit the circulation of information about the pump design so as to minimize the risk that local competitors would learn about the project or design choices’ (Sanderson 1996: 17). Thus in recounting Howard’s historical narrative, he emphasized to us that all the other competitors in the district had been created by former employees imitating the company’s own designs using the experience gained while they were working there. And the production engineering manager, who served as the main interface with the development team on design for manufacture, was even more explicit on this count: [T]he people on the shop ﬂoor haven’t been too much involved. That, in the early days, was necessary because at Eastbourne you have APV, HMD, SSP, Alfa-Laval . . .

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Viking, Micro pumps. So this town is a pumping town, ﬂuid industry. And it’s true to say that they all know each other, they talk, they go to the pubs and they drink. So consequently, things are kept very close and very quiet. They know we’re developing, we know they’re developing products, it’s got to happen. You know, life goes on. So this is the way of life. But it is a problem, obviously, in this town.

For these reasons, the technical director kept the Howard development group narrow, deliberately not involving shop-ﬂoor workers and supervisors in its progress or asking their advice on machining or assembly. In this way, he provoked hard feelings among long-serving Howard employees, many of whom felt they had something to contribute to the new pump development process and knew enough to keep quiet about it in social discussions with friends employed at rival ﬁrms in the area. As the chief pump tester, who had worked at Howard for 37 years and regarded it as ‘his company’, explained: [Y]ou don’t sort of let too many secrets out of the bag . . . you don’t tell them for instance that we’ve got a new pump on a project for instance. No you don’t tell them that. You don’t say that.3

Instead of drawing on Howard’s internal resources, however, the technical director organized far-ﬂung networks to tap into the worldwide competencies of APV. He consulted Lake Mills on ﬁnal element analysis, Unna on elastomers, and Horsens on mechanical seals, as well as various outside component specialists and testing agencies. But he also had other motives for positioning the project in the larger APV framework. One was to secure the adoption of the new rotary lobe pump as a global product across the Fluid Handling SBU, by getting people from the other plants to buy into the design and incorporating their advice about the technical and commercial requirements prevailing in different national markets. Given his skepticism about the competence and commitment of the revolving plant managers at Howard, however, the technical director also appears to have been trying to safeguard the new pump project from shifting local circumstances by enlisting a large number of people from different countries and plants within APV on its steering committee. Such a coalition-building strategy no doubt seemed to him the way to protect Howard’s best card for the future, but called into question whose hands would be allowed to play it, since no decision had yet been taken within APV about where the new pump would ultimately be built. Although logical, comprehensible, and entirely honorable in its own terms, the technical director’s strategy was also self-limiting in two crucial 3 Lack of interest in his input on manufacturability of the new pump design was also cited by the machine-shop supervisor as one of his reasons for leaving Howard.

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respects. First, he simultaneously re-created and reinforced the compartmentalization of roles and allegiances, which other key actors were trying their best to overcome both inside and outside Howard. Second, the technical director was strongly committed to seeing the new pumps built at Howard: I have a gut feel that we should continue to make this pump here. I really do, and I can’t believe that we, I should be honestly very, very disappointed if it is that way after I have done all this work. You know, because I have a certain, well, I have a loyalty to APV, also a loyalty to the people here as well, working all these years here. It would be really, really disappointing if in fact they took the manufacture away from here.

But by denying the Howard workforce the opportunity to incorporate their production knowledge into the new design, and relying instead on advice from a multinational coalition of engineers within APV, he also ensured that there would be no particular reason for the group to build the next generation of rotary lobe pumps in Eastbourne.4 And sure enough, when it came to the time for a corporate decision, manufacture of the new pumps was allocated to Horsens. Without a new product to justify further investment, the Eastbourne plant was accordingly closed in 1998, one year after Howard’s centenary. Howard may be seen as a case that managed to exploit most of the advantages that a multinational may offer member ﬁrms, as outlined at the beginning of Chapter 1. But since its technical director consciously sought to separate internal improvements from relationships with other local ﬁrms and skilled workers, Howard’s membership in the multinational association reduced the intensity of the plant’s ties to Eastbourne’s ‘pump valley’ rather than reinforcing the ‘stickiness’ of the locality (Rugman and Verbeke 2001: 164). By learning from Horsens about how best to manufacture the pump, Howard instead reinforced the former’s locational stickiness and prepared the ground for its own demise. 4 The technical director’s strategy also proved self-limiting in a third and narrower sense, insofar as the failure to incorporate manufacturing expertise into the development team from the outset resulted in the speciﬁcation of impractically tight dimensional tolerances and thus excessive production cost projections, which then had to be corrected at a later stage, signiﬁcantly delaying completion of the project (Sanderson 1996: 8–9).

6 Lygon Place: A Corporate Headquarters at War with Itself So far we have considered APV and its London headquarters from the perspective of three different national subsidiaries, each with their own historically based capabilities, aspirations, and strategies. But how did the multinational’s top management conceive the problem of welding the disparate companies and plants acquired by merger and takeover into a coherent whole? Through what organizational structures and governance mechanisms did they seek to coordinate and control the diverse activities of the multinational’s many local operating units? And how were the strategies and behavior of actors within the corporate headquarters themselves inﬂuenced by the rules of the game prevailing in their own immediate environment, notably those of the London ﬁnancial and managerial labor markets? To answer these questions will require a shift in our narrative focus from the far-ﬂung peripheries of APV’s multinational empire to its corporate center, but the outlook of the actors to be found there, as we observed earlier, will prove if anything more local.1

1. From Industrial Diplomacy to Financial Crisis By the end of 1987, as we saw in Chapter 2, APV had become the world’s largest food and drink equipment manufacturer as the result of a bold series of friendly mergers and acquisitions of other leading British, Danish, German, and American companies. This dash for growth was aimed in 1 This chapter is based primarily on interviews conducted at APV’s London headquarters in January 1997, consultancy reports and other internal company documents, and a comprehensive Lexis Nexis review of press coverage in the Financial Times and the Investors’ Chronicle from 1982 onwards. The ﬁnancial press coverage should be understood not merely as a more or less reliable source of objective information about APV’s history, but also as a central component of its corporate narrative, reﬂecting the successive ‘stories’ about the company’s strategy and performance told by top management to key City interlocutors such as institutional investors, fund managers, bankers, analysts, and journalists, together with the reception and reinterpretation of those stories by the latter.

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part at elevating APV beyond the reach of domestic predators such as the aggressive British mini-conglomerate Siebe, whose hostile takeover bid for the company had narrowly failed the previous year. But APV’s expansionary strategy was no less driven by the top managers’ conviction, shared by their merger partners, that a dramatic increase in scale and scope would enable the multinational group to meet customer demands for integrated design and construction of automated process plants across a range of converging technologies and markets. As APV’s CEO Fred Smith conﬁdently proclaimed: ‘We need businesses of over £100m in sales to impress our customers—even £80m isn’t big enough to talk to Unilever’ and other international food and beverage giants like Nabisco, Campbell’s Soup, or Anheuser-Busch, which were themselves growing rapidly through merger and acquisition. ‘They’re most excited about what we’re doing,’ he concluded, since ‘they don’t like dealing with small companies.’2 Financial analysts and journalists acclaimed APV’s acquisitions, particularly the Baker Perkins merger, for their ‘unbeatable industrial logic’, hailing the latter as ‘an attempt to marry the strengths and dilute the weaknesses of two of the foremost UK-based engineering companies’. Thus APV specialized primarily in liquid processing equipment for cold or freezing operations, while Baker Perkins specialized in machinery for hot operations in making solid foods, hitherto distinct technological ﬁelds which were becoming increasingly interdependent as consolidation among their customers blurred the boundaries between industries like brewing and baking. APV wanted to move into growth markets with higher margins such as snack foods where Baker Perkins was better positioned, as well as to ﬁnd new outlets for its valves, pumps, and control equipment in the latter’s process plant. Baker Perkins hoped to learn from APV’s greater experience in turnkey contracting, as well as to beneﬁt from the latter’s lower ﬁnancial gearing or debt–equity ratio in funding its own high R&D costs. Baker managers, by their own account, were very keen on ‘the idea of a marriage with APV, which had been discussed on and off for years’, as too were their counterparts at Pasilac, Horsens’s Danish parent, who noted after the merger that they previously ‘couldn’t afford a worldwide sales and service network’ for their dairy equipment.3 By all outward appearances, APV moved quickly to implement this common vision of constructing a truly multinational association of food and drink equipment manufacturers, ‘world leaders in process technology’ according to the new corporate slogan. Thus of thirteen senior operating 2

Interview with Fred Smith, Management Page, FT, 6 Jan. 1988. Nick Garnett, ‘Industrial Synergy in the Making’, FT, 15 Jan. 1987; Nick Garnett, ‘Food Equipment Battle Hots Up’, FT, 31 Dec. 1987; Christopher Lorenz, ‘How APV Rewrote its Recipe’, FT, 6 Jan. 1988 (quotations). 3

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managers on the new merged board, only ﬁve were ex-APV (including one from its recently acquired German Rosista subsidiary), six were drawn from Baker Perkins, and ﬁve were entirely new, while a representative of Pasilac was added the following year. The ﬁve-man executive committee likewise included two top Baker managers and a new ﬁnance director alongside APV’s CEO Fred Smith and the head of its US Crepaco operations (himself recruited from Baker ﬁve years earlier).4 By early 1988, ‘after a hectic, Lego-like process of dismantling, reshufﬂing and reassembly’, the group’s more than 200 constituent companies had been reallocated into seven primary manufacturing subsidiaries, with global product development, production, and marketing responsibilities; two international sales companies (responsible for Asia and Australia respectively); and ten secondary distribution units around the world. Each of the primary manufacturing subsidiaries was to serve as the ‘lead company’ or ‘centre of excellence’ for particular technologies, products, and industries: so Baker was assigned responsibility for dry food processing, Crepaco for ice cream, Pasilac for dairy equipment, and Rosista for brewing, with ‘co-ordination conducted informally, especially at the local level’. The idea, following fashionable current thinking about MNC structure, was to avoid the ‘difﬁcult ambiguity’ of managers ‘reporting to two different bosses at the same time, one locally and the other at product headquarters’.5 By building the new system of product specialization around the old geographically based companies, APV’s London executives no doubt believed that they had given Silkeborg (Pasilac) chief responsibility for spearheading the group’s sales in the Danish and Scandinavian markets, Unna (Rosista) in the German market, Lake Mills (Crepaco) in the US market, and so on. They hoped that each afﬁliate and regional headquarters, when selling their own indigenous products, would simultaneously try to sell other products from the wider multinational family, thereby assisting each other in driving up sales and proﬁts through a more extensive use of established customer relations. They also expected that the group’s increasingly broad set of competencies would attract new customers who would ﬁnd APV an attractive partner when establishing new process facilities. 4 Lorenz, ‘How APV Rewrote its Recipe’ (quotations); Clay Harris, ‘Baker Perkins Agrees to £30m Cut in APV Bid’, FT, 7 Feb. 1987. Baker Perkins’ CEO Mike Smith was originally designated to become joint chief executive of the merged group, but had to settle for a lesser role after his company revealed large unexpected cost overruns and sharply downgraded its proﬁt forecasts during the negotiations, leading APV to reduce the offer price by 17% to £147m. Smith nonetheless acquired responsibility for ‘sizeable parts of the old APV’ as well as much of what had been Baker Perkins, while another ex-Baker man became group technical director with ‘a crucial role to play in the standardisation of technologies and products’. 5 Lorenz, ‘How APV Rewrote its Recipe’.

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As the case of Horsens shows, however, this organizational design did not always work out in practice as planned, since ﬁnancial reporting and accounting responsibilities within the group remained focused on the regional or country-based headquarters of its surviving constituent companies. The most ‘sensitive decisions’ in this multinational ‘industrial diplomacy’, as APV top managers were well aware, concerned ‘which overlapping designs of pumps, valves and other components should be dropped’.6 Thus Horsens’s initial technical subordination to Unna in Germany, which ordered the Danish factory to cease manufacturing its competing lines of valves, was presumably the outcome of this complex bargaining process among Pasilac, Rosista, and APV’s other constituent companies. Yet because Horsens continued to report primarily to Pasilac’s ﬁnancial controllers in Silkeborg, Rosista’s German managers had few effective sanctions through which to enforce their informal technical and marketing coordination powers over the Danish plant. Horsens was far from the only plant whose interests were threatened by the multinational’s new organizational structure. The heaviest sacriﬁces fell on APV’s own historic production complex at Crawley, which had been the site of its world headquarters until 1982. Following comparisons with other facilities within the merged group, APV closed Crawley’s foundry and manufacturing operations in early 1988, transferring the production of the plate heat exchangers invented by the company’s founder Richard Seligman to Baker and Pasilac plants in Goldsboro, North Carolina and Kolding, Denmark, respectively. Pump and valve making at Crawley likewise came to an end, to be replaced by a new generation of ﬂuid handling equipment produced at other APV plants. Thus after benchmarking alternative designs and locations for a new group centrifugal pump, Horsens, as we saw earlier, was designated the lead manufacturing site. As a British engineer who was sent out to inspect Horsens later told us: ‘as soon as I saw the site, I felt that the days of the project at Crawley were numbered. Because they had a very modern site, they had quite forward-thinking engineering people and so on, and a fairly good range of products.’ As a result of these various decisions, APV sold off the 27-acre site, laying off 600 people and leaving only a design and process engineering center with 370 employees at its former corporate heart in Crawley. By that time, the group had reduced its capacity from 57 to 39 factories, cutting its worldwide payroll by more than 10 per cent to just under 14,000.7 6

Ibid. Nick Garnett, ‘APV Sheds 500 Jobs as it Closes Plant’, FT, 25 Mar. 1988; Vanessa Houlder, ‘APV Advances 48 Per Cent to £40.7m: Integration of Last Year’s Acquisitions ‘‘Off to a Flying Start’’ ’, FT, 14 Apr. 1988; Lorenz, ‘How APV Rewrote its Recipe’. According to the British engineer involved in 7

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Beyond the prospect of future cost savings from rationalization of overlapping products and facilities, an immediate motive behind such closures and divestments was to reduce the weight of ﬁnancial obligations encumbering the new merged group. Although APV had paid for most of its acquisitions with the company’s own highly valued stock, a number of its merger partners had substantial debts, which raised the new group’s gearing ratio to the dangerous level of 70 per cent at the beginning of 1988. The architects of APV’s expansion had always intended to cover some of the merger costs by selling off non-core businesses, and swiftly disposed of former Baker Perkins subsidiaries in ﬁelds like cable coatings and aircraft bearings. But other newly acquired Baker units proved to be in worse than expected shape, notably its large printing machinery business, whose 1989 sale required a £32m goodwill write-off, while APV was also forced to absorb £20m of provisions against expected contract losses at two further Baker subsidiaries, leaving the group’s end-of-year gearing at 42 per cent. To make matters worse, the group’s revenue growth was hit by the falling value of its US sales due to the weakening dollar, and more fundamentally by a demand slump in a number of its major markets, as food manufacturers facing recessionary conditions cut investment and postponed equipment replacement. The deterioration of APV’s balance sheet had already shaken the City’s conﬁdence, so that when management issued a proﬁts warning in September 1990, the share price lost a quarter of its value in a single day, plunging to just 43 per cent of the 1988 high. APV’s underlying problem, City analysts concluded, stemmed from the excessive costs of its acquisitions: ‘They got themselves into something of a pickle’, one observed, ‘because they did not pay too much attention to the ﬁnancial implications.’ But City critics also drew attention to what they regarded as the weakness of the group’s ﬁnancial controls and treasury management, which had allowed stocks and debtor levels to rise alarmingly.8 APV’s response to its ﬁnancial fall from grace contained all the main elements which would recur throughout the group’s subsequent history. Under a new ﬁnance director appointed in 1989, the fourth in as many years, APV promised to concentrate on core businesses, restructure its divisions along product rather than geographical lines, cut a further 10 per cent of its global workforce, bring in consultants to increase productivity and the project, who was later employed at Howard, a design jointly developed by Crawley and Lake Mills won out in competitive tests over an alternative design which had been developed at Horsens as ‘the vehicle for the next generation of centrifugal pumps within APV’, but the latter became the ‘site of excellence in manufacture’. 8 Houlder, ‘APV Advances 48%’; Universal News Services, ‘APV Plc: Preliminary Results’, 5 Apr. 1990; Andrew Jack, ‘APV Static Midway and Gloomy on Outlook’, FT, 21 Sept. 1990; Patrick Harverson, ‘A Stalled Engineer in Need of a Quick Kick-Start’, FT, 19 Oct. 1990.

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reduce operational costs, as well as of course to impose stricter ﬁnancial disciplines and reporting procedures aimed at improving cash ﬂow and return on assets. In the face of open speculation about the possibility of another hostile takeover bid, the group’s top management would henceforth focus ever more attentively on maintaining the conﬁdence of City investors and analysts. But in so doing, paradoxically, their outlook became increasingly parochial and their relationship with the rest of the group increasingly distant.9

2. Black Holes and Blunt Instruments Already in the early 1980s, APV’s subsidiaries had complained about the bureaucratic weight of new ﬁnancial reporting procedures imposed by the group’s CEO Peter Hamilton, openly questioning how he and his small central staff could ‘ﬁnd the time to plough through all the paperwork’. Hamilton’s response was not entirely reassuring to those doubtful about the corporate center’s capacity to make good use of the ensuing data ﬂow: ‘A lot of the information I don’t want at all. I just want to be sure that the people down the line have that information and use it properly. Managers need that information to run their business.’10 By the mid-1990s, after successive waves of corporate reorganization and progressive tightening of ﬁnancial controls, plant-level managers still saw Lygon Place, APV’s headquarters in the Belgravia district of London, as ‘a black hole for information’, though Hamilton’s policy of benign neglect had been replaced by much more intensive central scrutiny of the resulting ﬁgures. ‘Requests for information in this group’, a recently arrived divisional ﬁnance director told us in 1997, are, in my experience, quite extreme, and . . . very, very detailed, very frequent, and often inappropriate to the type of management that would be recommended by plant management. . . . Some of the information gets used productively for decisionmaking, but a lot of it is used in my view for the sole purpose of checking, doublechecking and further double-checking.

In the contrasting view of the group ﬁnance director, who had also recently joined APV from another large UK engineering conglomerate, ‘managers here’ were ‘actually getting off quite lightly compared to other companies’: If you sit in the center of a large corporation, it’s very difﬁcult to actually manage unless you’ve got a standard set of criteria. If you sit in the ﬁeld it can be seen 9 Jack, ‘APV Static Midway’; Harverson, ‘A Stalled Engineer’; David Owen, ‘Major Restructuring at APV’, FT, 21 Nov. 1990. 10 Christopher Lorenz, ‘Why APV is Ditching its Winning Formula’, FT, 28 Nov. 1983.

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somewhat as a blunt instrument at times but you have to pick the right tools. . . . So what we’re trying to do is to force their performance through a standard set of reports. . . . Broad sets of criteria which are not prescriptive but make managers look very, very carefully at what they’re actually doing.

Whether or not APV’s central reporting disciplines by this time were in fact more onerous than those of comparable companies, there can be little doubt, as we have seen in the case of Horsens, Eastbourne, and Lake Mills, that these appeared to the local subsidiaries intrusive, opaque, and remote from their own day-to-day problems.11 Reinforcing this circuit of alienation was the fact that London neither would nor could explain the importance of this ﬂow of data or the rationale for many of the ensuing decisions which affected the subsidiary plants. For such explanations would only make sense to those familiar with the intimate details of the group’s ﬁnancial position, as well as with the commitments, formal and informal, made by top management to investors, fund managers, bankers, and City analysts. Circulation of ‘pricesensitive’ information with potential impact on the value of the group’s shares could damage delicate relations of trust with ﬁnancial institutions should revealing rumors emanating from APV’s constituent units reach the latter’s ears. Nothing could be more important from the headquarters’ perspective, moreover, than to ensure that the City received a single coherent ‘story’ about the company’s performance, strategy, and prospects, conveying the image of a well-managed business. Relationships with investors, fund managers, analysts, and debt providers therefore focused on the chairman, the CEO, and the group ﬁnance director in order to avoid any ambiguities or misunderstandings, while top management did not share the contents of such discussions with lower-level units. There was thus ‘a complete disjunction’ or ‘divorce’, as the divisional ﬁnance director told us, ‘between the City and the operational sides of the business’. Hence top management never explained to plants like Horsens why data were collected in a particular form, nor the reasoning behind decisions such as selling and leasing back the group’s Danish ﬁxed assets or transferring cash from Pasilac to London or APV France through royalty charges and interest-free loans. In any case, those responsible for ﬁnancial management in London ﬁrmly believed— perhaps rightly—that such matters were too complex and sensitive for subsidiaries to worry about. The operational units, they believed, should 11 According to the group human resource director, who had joined APV in 1991, ‘what really gets up people’s noses’ in the subsidiaries is the ‘very heavy ﬁnancial reporting load’. But the main difference he saw between APV and other large American or British companies where he had previously worked was less in the level of detail demanded from operational managers than in the greater slickness of the latter’s information systems, which enabled them to meet their reporting requirements more easily.

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concentrate instead on different issues, notably those which would improve the proﬁts and cash ﬂow which Lygon Place could report to its own local audience in the City. As can be seen from this account, APV’s top management took numerous initiatives that made perfect sense in terms of the need to sustain the multinational group’s credibility in the eyes of the local City ﬁnancial community. In so doing, however, they simultaneously neglected both the potentially alienating effect on the group’s subsidiaries and the need to understand what was going on beneath the surface of its shifting organization chart, where these very same steps helped to institutionalize a savage competitive game. If prospective subsidiaries had initially been motivated to seek membership of APV’s multinational association in order to beneﬁt from its London headquarters’ skill in dealing with the ﬁnancial community, their second aspiration had been to gain a strong position within the group’s worldwide internal market. As we saw in Chapter 2, both Crepaco and Pasilac saw joining APV as the next step in their own ‘independent’ global expansion strategies, and the same was no less true of Rosista, Baker, and even, on a more modest scale, Howard. Thus different subsidiaries of APV were ﬁghting not only for the same external customers, but also for the group’s own internal business in a game in which their position vis-a`-vis London would depend on their comparative ﬁnancial performance. Hence their struggle for position depended not only on how well they performed themselves, but also on how badly they could make the other members perform—or seem to perform. In such a game it was more than naı¨ve to expect that the Danish subsidiaries, for instance, would cater primarily for the Scandinavian market and in marketing their own projects try to sell as much as possible from other APV subsidiaries. Instead they would try—as we have seen—to capture as many markets as possible from their competitors within APV, since that would serve their interests doubly vis-a`-vis London. Even if data reported to Lygon Place were technically ‘correct’, they would say little about why the individual plant or subsidiary company showed good or bad results. Had Rosista succeeded in its strategy towards Horsens, Unna would have proven able to deliver high increases in sales and proﬁts, whereas Horsens’s performance would soon have looked sufﬁciently bleak to be closed down. As it turned out, Horsens did better not only because it earned high proﬁts and increased its sales volume, but also because the Danish plant actually helped to construct Unna’s bad results by taking away its customers. It is thus possible within such a game to imagine extreme cases in which evil opportunistic subsidiaries could outperform serious ﬁrms working for the common welfare of the entire multinational association.

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Even in much less extreme cases, however, it is difﬁcult to imagine why any subsidiary could fail to be stimulated by its management to try to steal as much business as possible from other regionally or nationally based companies within the group, to reduce as much as possible the orders and earnings which they transferred to ‘foreign’ accounting nodes of the multinational ‘family’. The result was that costs rose, primarily in the form of increased overheads to pay for a growing sales force, since several subsidiaries were ﬁghting for the same customers, while prices and margins fell, partly because the sales forces from many APV subsidiaries undercut each other by submitting competing bids for the same contracts, ‘a joyous, if slightly confusing experience for the customer’, as one City analyst later observed. Hence the dominant color in the ﬂow of reports and cash reaching Lygon Place progressively changed from black to red.12

3. The Local Politics of Global Restructuring During the early 1990s, APV’s performance steadily continued to deteriorate despite repeated application of standard corporate therapies such as tighter ﬁnancial controls, divestment of non-core assets, across-the-board redundancies, and replacement of top management. Beyond the effects of APV’s own internecine struggles, recessions in key countries such as the UK and Germany, and the slowdown in global demand across Western economies in the wake of the Gulf War, the markets for its core products were changing in ways that presented an increasingly serious threat to the multinational group’s fortunes. Growing concentration and consolidation across the food and drink industries of Europe and North America, from retailing through to manufacturing, was enhancing the bargaining power of downstream customers for capital equipment and eroding the traditionally high margins earned by their suppliers. At the same time, moreover, APV’s leading international rivals themselves responded to these trends through mergers and acquisitions that strengthened their marketing clout and price competitiveness, thereby intensifying the pressures on the British-based company’s sales and proﬁts. Thus in 1991, Alfa-Laval, APV’s great historic rival, merged with Tetra Pak, a highly successful Swedish manufacturer of carton-packaging machinery, whose deep pockets and exclusive patents helped to open new doors for Alfa’s equipment as a single-source supplier of complete liquidfood processing systems—so much so that the new group was later ﬁned by 12 Andrew Bolger, ‘Making a Whole of the Parts: Why a Restructuring Plan is in Progress at APV’, FT, 12 Aug. 1993.

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the European Commission for abusing its dominant position in the EU market through restrictive practices and predatory pricing. At the opposite end of the spectrum, APV found its markets invaded by GEA, a mediumsized private German company which grew rapidly by acquisition during the late 1980s and early ’90s, following an aggressive strategy of price competition targeted on the liquid-food processing equipment sector.13 Faced with this highly unfavorable combination of demand- and supplyside pressures, APV’s ﬁnancial position spiraled downwards alarmingly. Between 1989 and 1993, the group’s pre-tax proﬁts fell from £60.6m to £13.4m on a slightly increased turnover of £906m, while operating margins plunged from 7.8 per cent to 3.8 per cent in 1992. Even these meager results depended on a continuous stream of asset disposals and redundancies, which reduced APV’s global head count from 14,000 in 1989 to 11,600 by the spring of 1993, while the group’s balance sheet during these years was marred by recurrent extraordinary charges to cover the costs of plant closures and downsizing. APV’s share price bounced up and down as its earnings repeatedly disappointed analysts’ expectations of an imminent proﬁt recovery, and the group was routinely mentioned as a potential bid target in City commentary.14 Few management teams in an Anglo-Saxon publicly quoted company could survive such a sequence of reverses, and APV proved no exception to this rule. In June 1992, Fred Smith, the architect of the group’s late-’80s expansion, was forced into early retirement and replaced as CEO by Clive Strowger, former chief executive of a troubled property group and previously ﬁnance director of the international food, retailing, and consumer services conglomerate Grand Metropolitan. APV had already acquired a new chairman and ﬁnance director in 1989, and Strowger soon brought in new executive directors recruited from Grand Met and other international 13

Nick Garnett, ‘Food: Continuing to Restructure’, FT, 1 Feb. 1988; David Goodhart, ‘Public Solution to a Private Dilemma’, FT, 3 Apr. 1989 (on GEA); John Burton and Andrew Baxter, ‘Tetra Pak Changes Course to Wrap Up Alfa Laval’, FT, 30 Jan. 1991; Andrew Baxter, ‘The Food Industry: Eastern Markets Expand’, FT, 10 May 1991; Bolger, ‘Making a Whole of the Parts’; Andrew Bolger, ‘Paddling Upstream to Escape the Falls’, FT, 16 Sept. 1994; Lex Column, ‘APV’, FT, 16 Sept. 1994. According to a subsequent report by the FT, Alfa-Laval had been in detailed merger talks with APV, which were sufﬁciently advanced for competition lawyers to have been consulted, before it decided to join forces with Tetra Pak instead: ‘Tetrapak: The Inside Story’, FT, 16 Dec. 1998. 14 Andrew Jack, ‘APV Static Midway and Gloomy on Outlook’, FT, 21 Sept. 1990; Charles Leadbetter, ‘Tighter Margins in Europe Lead to a 34% Setback at APV’, FT, 28 Mar. 1991; Peter Pearse, ‘APV Declines 17% to £12m’, FT, 18 Sept. 1992; Bolger, ‘Making a Whole of the Parts’; ‘APV Company Results’, Investor’s Chronicle, 1 Apr. 1994. In 1992, it became known that GEA had built up a 2.8% stake in APV, with a view to a possible takeover, but the German group took no decisive action and had run down its holding to 1% by 1994. Tetra Laval, APV’s other major competitor, was widely believed to be inhibited by regulatory obstacles from making an offer for the British company. See Bolger, ‘Paddling Upstream to Avoid the Falls’.

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engineering and consumer companies. By early 1994, when Baker’s Mike Smith retired, the original management team responsible for putting together the new merged group in 1986–7 had entirely vanished, while none of the executive directors at APV’s London headquarters had been with the company for more than ﬁve years.15 As APV’s external position worsened during the early 1990s, so the internal competitive game among its subsidiaries intensiﬁed. Tighter ﬁnancial controls, heavier reporting obligations, redundancies, and plant closures all made the subsidiaries ever more attentive and jealous in scrutinizing the smallest moves of their rival ‘colleagues’. The departure of experienced executives able to communicate with the subsidiaries on the basis of shared personal histories made the dictates of the London headquarters appear increasingly arbitrary in the eyes of the latter, while the new outside top managers who replaced them faced enormous difﬁculties in assessing what was really happening in the plants. It was in these circumstances that the Horsens manager approached London to negotiate the future allocation of valve production within the group. And it immediately becomes obvious how well chosen his timing was and why he received so much attention, as the manager of a subsidiary which had achieved high proﬁts, increased sales, and an improved reputation, when many other subsidiaries were in a far different position. No doubt such consultations also offered a chance for Lygon Place’s new masters to acquire a better-informed view of the processes going on beneath APV’s formal organization and reporting system, reinforcing the widespread impression that more radical restructuring had indeed become necessary. As part of their efforts to rehabilitate the group in the eyes of the ﬁnancial markets, APV’s new management team announced in 1993 that it would launch a radical restructuring plan aimed at reducing internecine competition and improving operational effectiveness throughout the organization. To develop this plan, APV hired a prominent consultancy ﬁrm to undertake a top-to-bottom review of the group’s structure and strategy, benchmarking it against its leading competitors and currently fashionable views of ‘best practice’ in international management. ‘Project Star’, as this undertaking was optimistically dubbed, enlisted managers from a wide range of functional and geographical areas across the group in the production of a massive set of working party reports orchestrated by the consultants. Going back to ﬁrst principles, these reports sought to identify which of APV’s vast and diverse holdings might represent its true ‘core competencies’, and to devise a 15 FT, 18 June 1992, p. 18; Angus McCrone, ‘Strowger’s Food for Thought at APV’, Sunday Telegraph, 16 Aug. 1992; Pearse, ‘APV Declines 17%’; Extel Examiner, 14 Feb. 1994; FT, 12 Apr. 1994, p. 15.

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new organizational structure for the group capable of reducing duplication, controlling internal competition, and promoting genuine synergies among its remaining constituent parts. At the same time, however, the high political stakes involved in this restructuring exercise meant that powerful players were inevitably tempted to rig the game in their favor. Thus, for example, despite raw ﬁgures of revenue per person-hour suggesting that Danish Turnkey Dairies in Aarhus was by far the most productive engineering unit in the group, the consultants’ report proposed that Crawley be selected as APV’s future world process engineering center, triggering an angry memo from one of the company’s Danish executives which ripped apart the tortuous calculations needed to reach this conclusion. As can be seen from Figure 6.1, the new organizational chart which emerged from Project Star, nonetheless cut across some of the boundaries that had stimulated the vicious circles previously evident within APV. Instead of entrusting lead product responsibilities to regionally based companies, APV now introduced a thoroughgoing divisional structure. All afﬁliates were now reallocated to three divisions—Product Business, Specialist Businesses, Chief Executive

Human Resources

Finance

Product Business

Specialist Businesses

Sales and Engineering Businesses

Products USA

Heat Exchangers

APV Baker

Cheese

Europe, Middle East, and Africa

Americas

Fluid Handling

Homogenisers

Ice Cream

APV Anhydro

Australasia

Asia

Keg Racking

Industrial Extruder

Distribution and Logistics

Silkeborg Tank Source: APV: Our Company (1996)

Figure 6.1.

APV organizational chart, 1996

Sector, Marketing, and Key Account

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and Sales and Engineering Businesses—each headed by an executive director in London. The Product and Sales and Engineering Businesses constituted the group’s new core, based on the consultants’ estimates of the degree of functional interdependence between them, while Specialist Businesses, a smaller proportion of whose output went into APV’s process engineering activities, were henceforth to be managed on a stand-alone portfolio basis. Each of these three divisions was in turn subdivided into a number of distinct Strategic Business Units, based on products, markets, and geographical territories respectively. And yet there are certain interesting exceptions. Lake Mills still ﬁgures in this chart as a single business unit (‘Products USA’), as does Silkeborg Tank, both of which would later be redistributed among the global product SBUs, while their core areas of process engineering expertise in ice-cream and cheese respectively had already been hived off into separate specialist businesses. The underlying idea was that the Product and Sales and Engineering divisions should compete to increase their sales and earnings by independently seeking to break into new markets and improve their operating effectiveness, while continuing to collaborate on large process engineering projects involving a high proportion of APV components. Thus SEB was expected to counter the margin squeeze in dairy and liquid foods by attacking other, less competitive process plant markets such as brewing, while the Product Business was directed to expand its component sales to general industry and outside engineering contractors. Within the Product division, each SBU manager acquired worldwide control of all APV facilities manufacturing similar components, thereby cutting off in principle the ongoing warfare among the former national companies. The SBU managers for homogenizers, ﬂuid handling, heat exchangers, and eventually tanks were each given global responsibility for their own marketing, distribution, research, and product development, as well as running their own accounting systems. Each of these SBUs thus became a functionally integrated but globally distributed company. In this system formerly ‘independent’, vertically integrated plant complexes—such as Silkeborg and Lake Mills—were reconceived as heterogeneous ‘global business parks’, hosting a number of distinct but co-located facilities belonging to different SBUs. In the case of Lake Mills, as we have seen, its homogenizers, tanks, and ﬂuid handling products were placed under the authority of their respective global SBU managers, while the machine shop and maintenance department remained part of a separate SBU administered by the locally based plant president. Within only two years after its implementation, this restructuring had led to signiﬁcant improvements in turnover and proﬁts in both the Product and Specialist Businesses divisions, whereas Sales and Engineering Businesses was

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barely breaking even or running at a loss. To the regret of many at Lygon Place, however, APV’s new organizational structure had not ended the endemic conﬂicts within the group but instead redirected them. Some explained the situation as a consequence of a dysfunctional company culture ‘based on suspicion, mistrust, and internal competition’; others spoke of continuing ‘values issues’ rooted in APV’s ‘Wild West’ past, ‘where there were no rules at all except the rule of the gun’, or simply of ‘complete ﬁghting’ and ‘open warfare’ within particular national markets. Some of the reasons for this continuing warfare are easily understood. For a company as precariously positioned as APV in the mid-1990s, restructuring necessarily entailed painful cuts and sacriﬁces throughout the organization, while any misstep in meeting the City’s performance expectations could lead to imperative demands for heads to roll at the top. In 1994, as APV began to implement its restructuring program, incurring further extraordinary charges for plant closures and redundancies, GEA stepped up its pricecutting campaign, squeezing margins in the group’s core liquid-foods business. With limited immediate scope for realizing cash through further asset disposals, APV issued an interim proﬁts warning in September 1994 and cut in half its dividend, which had remained uncovered for the previous four years. This unexpected blow proved too much for APV’s long-suffering institutional investors, who withdrew their conﬁdence in CEO Clive Strowger and engineered his ouster the following month by bringing ‘strong pressure’ to bear on the group’s chairman and non-executive directors. After a six-month search, APV’s ﬁnance director, who had been serving as acting CEO, was conﬁrmed as the group’s new chief executive in March 1995, beating out the executive directors of the Specialist and Sales and Engineering Businesses, who had also been discussed as possible candidates for the top job. The ex-ﬁnance director, who was widely respected in the City as a safe pair of hands, had successfully calmed the markets in January 1995 by announcing a two-year ‘proﬁt improvement programme’ involving an exceptional charge of £32.5m, 850 redundancies, and plans to dispose of seven non-core businesses, while at the same time negotiating a three-year loan of £85m from the group’s existing syndicate of banks.16 The new CEO’s elevation thus reﬂected less a change in APV’s business strategy than a provisional grant of personal conﬁdence by the ﬁnancial institutions, whose retention would depend on his ability to deliver the promised performance improvements, while rivals both internal and external lay in wait to pounce on any 16 Bolger, ‘Paddling Upstream to Avoid the Falls’; Lex Column, ‘APV’, 16 Sept. 1994; Andrew Baxter, ‘Struggling APV Ousts Strowger’, FT, 19 Oct. 1994; Andrew Baxter, ‘APV Issues Statement to Stabilize Shares’, FT, 28 Oct. 1994; Geoff Dyer, ‘APV Proposes Restructuring’, FT, 14–15 Jan. 1995; FT, 18 Mar. 1995, p. 10.

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sign of weakness. ‘Uneasy lies the head that wears a crown’ might thus have served as an apt epigraph for Lygon Place, the gracious Regency townhouse which held APV’s worldwide headquarters. Beyond market pressures and personal rivalries, APV’s new organizational structure itself proved a bitter source of ambiguity and conﬂict. Some of the group’s most internationally successful companies like APV Baker, a regular winner of the Queen’s Awards for Export and Technological Achievement which had absorbed much of the free cash-ﬂow available for new capital investment since the merger (including £20m for a new factory and ofﬁce complex at Peterborough in 1991),17 now found themselves declared noncore businesses, ready to be sold off to the ﬁrst attractive bidder. More fundamentally still, 50–60 per cent of the Product Business’s sales still came through Sales and Engineering. Hence if SEB incurred losses while Products harvested proﬁts, the former might plausibly claim that this situation was due to excessively high transfer prices rather than superior efﬁciency. Thus according to SEB, the Product Business had been sheltered from the ‘real world’ by the guaranteed market within the group, and had not therefore been obliged to meet internationally competitive price and performance standards. Within the previous organizational structure, such cross-functional conﬂicts had been handled at the regional level—not necessarily more easily—but in the new system, they entered directly into the head ofﬁce itself, where their resolution involved negotiation among the divisional directors. As the directors’ own struggle for position within the group depended in turn on the relative performance of their divisions, there was a natural tendency for them to push these conﬂicts up to the next hierarchical level, composed of the ex-ﬁnance director CEO and the new ﬁnance director (recently recruited from another British engineering conglomerate), neither of whom had the detailed hands-on knowledge of the group’s operations needed to adjudicate independently among the rival plausible interpretations advanced by the contending parties. Under these conditions, not even a bonus scheme tying the executive directors’ remuneration to the performance of APV as a whole proved sufﬁcient to restrain the divisional inﬁghting. In this Machiavellian game no players found it easy to make moves for the right reasons. But they all had to be always prepared to take immediate steps for the wrong reasons, because it seemed impossible to reﬂect seriously on how to improve the business in a ‘fair’ way, acceptable to all. 17 ‘New Factory and Ofﬁces for Peterborough’, FT, 20 Aug. 1990; ‘The Queen’s Award Winners 1991’, The Independent, 21 Apr. 1991; ‘The Queen’s Awards, 1992’, The Independent, 21 Apr. 1992; David Wighton, ‘The Queen’s Awards 1994: APV’s Hot Competition’, FT, 21 Apr. 1994.

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One reason was that although the routing of the previous reporting system had changed, it continued to dominate the content of ﬁnancial and operating performance data required from the subsidiaries, as the CEO and ﬁnance director still insisted on an abundant supply of such material for their local London audience. Obliged to increase operating effectiveness, the executive and ﬁnance directors of the Product Business, themselves recently recruited from other British engineering companies, felt that they lacked appropriate tools for measuring performance improvements, since they were forced to compare old regionally aggregated data with new SBU-based ﬁgures. Attempts to reform the reporting system to suit the needs of the Product Business executives were frustrated as these would bring them into conﬂict with their principals at the top of the organization and raise tensions among their agents deeper down in the system, who already felt overloaded by reporting obligations. Thus every apparently sensible step they might take would immediately increase tensions in a system riddled with mistrust and ready to wage war at any moment. Cut off from controlling such a complex structure by the absence of an appropriate information and reporting system within APV, the Product Business executives and SBU managers had few alternatives other than to proceed by adopting some generic rules of thumb which could reduce the complexity of their environment and give them a basis for taking decisions. Thus the new executive director immediately commissioned another leading international consultancy to prepare a quick-and-dirty report on strategic options facing APV’s Product Business, whose recommendations, drawn from currently fashionable recipes for ‘world-class’ manufacturing practice, coincided neatly with the predispositions carried over from his prior career at British and American high-volume producers of automobile, aerospace, and electronic components. The new ‘global vision’ for APV’s Product Business which emerged from this bounded process of strategic reﬂection focused on four main objectives. First, the divisional management team wanted to reduce overlap between plants in different countries by creating ‘focused factories’. If, for instance, pumps were concentrated in Horsens and valves in Unna, each plant would gain economies of scale, overheads could be reduced, and mutual rivalry would thereby disappear. Paradoxically, having now become responsible for running a global SBU, even the Horsens manager was arguing for allocating valves to Unna, though he had entered the game for exactly the opposite purpose. His argument to Horsens would be that in return the Danish plant would be allocated the worldwide responsibility for pumps, thereby gaining another global mandate in exchange for its losses.

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Second, since APV’s top executives had realized that one reason for low operating effectiveness could be the low level of capital investment during the previous period, they allowed the SBU managers to submit proposals for investment in new equipment. However, the general rule applied to investment decisions was very tough and highly selective. The shorter the payback period, the more likely the chances of approval. Especially during a process of radical restructuring, when it is uncertain which products are to be produced where, such a rule of thumb makes sense. But it conveyed to the subsidiaries the impression that even in the spheres in which they were supposedly granted worldwide mandates, Lygon Place was not really accepting longterm investments. The divisional executives meanwhile concentrated their own discretionary capital investments on new IT and logistics systems to be installed throughout the product businesses, which they hoped would allow the SBUs to run their far-ﬂung production and R&D resources as ‘virtually integrated’ facilities managed and scheduled on a centralized basis, with only marketing, distribution, and after-sales service still to be organized regionally. Third, the divisional managers sought to introduce new standardized global products wherever possible, with the speciﬁc requirements of individual regional markets such as the US or the EU to be met through the addition of customized modules. In this way, they hoped to reduce or eliminate the diversity associated with the fact that not only had each of APV’s constituent companies manufactured its own competing products, but also they had done so in a high number of variants as a result of adapting them to specialized customer demands. In pumps, for example, 90 per cent of the 10,000 variants available from the group accounted for just 10 per cent of total turnover. Hence if new products were designed to cover the remaining 90 per cent of the market, the Product Business would be able not only to reduce costs, but also to expand its sales much more aggressively outside the APV family. In the case of homogenizers, such a situation had long made this product area a ‘golden egg’, and similar aspirations were now to inspire both ﬂuid handling and heat exchangers, where 75 per cent of output was still made to order. Even the Horsens manager in his SBU role started to argue that ‘we can’t sell transition time’, no doubt hoping that Horsens could then become a fairly independent producer of pumps for the world market, which would gradually reduce its dependence on the fortunes of APV as a whole. Finally, the Product Business divisional management added a new layer to the reporting system, asking each plant to provide regular information on such standard key performance indicators as the level of customer complaints, on-time deliveries, throughput time, and stocks in order to give some comparative measure of improvements among the subsidiaries. Here

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too, however, a rule-of-thumb dimension could be readily discerned, both in the justiﬁcation for the key performance indicators and in their application. ‘ ‘‘Get the non-ﬁnancials right and the ﬁnancials will follow’’, as my old boss at Motorola used to say,’ the executive director of the Product Business told us in explaining the new reporting system, before going on to observe that ‘We’ve had wonderful arguments and debates [among the SBU managers in] deﬁning what is an on-time delivery.’ If APV’s top London executives had learned a single lesson about its constituent parts during the recurrent crises that had followed the mergers, it was above all that the group’s subsidiary managers had retained a local vision and mentality. ‘Why has this company underperformed? I don’t believe that the managers in the ﬁeld are actually general managers in the true sense of the word,’ the new group ﬁnance director insisted, for example. ‘Unless you train these people to think in a global sense, to look at the resources and cash in a global way, we will never get true global managers . . . . Thinking about business globally to me means not being stuck in one country. That’s been quite hard. You have to be able to think beyond the bounds of what you know.’ To stimulate the emergence of such a global vision, Lygon Place decided to engage local managers in cross-country, crossfunctional careers, and in further training courses at business schools and other educational institutions that would introduce them to the language spoken and the issues discussed at the group’s London headquarters. To spot those who had the potential for such a career and deserved these investments in courses at expensive and prestigious management training institutions, a position of group director for human resources was created. It was his responsibility to institutionalize a system for annual evaluations of the performance and career prospects of each manager down the line, based on common practice among Anglo-American multinationals.18 Integrated with a grading system for salaries and perks such as company cars, this evaluation system should also suggest which career steps should be encouraged and hence which training schemes would seem appropriate. These evaluations had to be ﬁlled in annually for each manager by his immediate superior (there appeared to be no female managers in APV). But the results should be passed all the way up the hierarchy so that it would be possible to compare candidates at the same level, say a production manager in Horsens and a production manager at Lake Mills. As this tool was used for both promotion and training as well as for decisions on layoffs, it soon attracted 18 The Hay grading scheme and annual evaluation system for identiﬁcation of ‘young highpotential managers’ introduced by APV in the early 1990s are widely used in varying forms by American and British multinationals, and have been spreading to their European counterparts in recent years. See Ferner and Varul (1999: 19–22); Hayden and Edwards (2001).

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widespread attention, to the extent that Lygon Place had the impression that everyone would be prepared to ‘give their left arm’ for being granted access to their own and their colleagues’ evaluations. Soon, this system came to be seen by both its defenders and its critics as the major tool for exercising power, should managers at any level feel weak for other reasons in the games played towards their subordinates. Perhaps this system more than anything else helped Lygon Place conceive of itself as playing the role of a multinational headquarters, yet it hardly helped to improve the depth of insight or increase the HQ managers’ ability to learn from experience. On the basis of these personal ﬁles, layoffs of managers at all levels became a regular practice, not least inside the executive committee itself. Sometimes managers were laid off or encouraged to resign because they had not performed to the same degree as others, while in other cases it was because they performed so well that they were perceived as a threat by their superiors. Hiring and ﬁring thus could be seen by all those not involved in taking the decision to depend on a roll of the dice. None of those promoted or ﬁred could check the reasonableness of a decision—sometimes for good reasons. For instance, would a high-performing manager who openly declared that he preferred a ‘local’ career be evaluated as of limited potential by his superiors, if for no other reason than that such aspirations would reduce the fear these superiors associated with their own annual evaluations?

4. End Game The succession of layoffs at APV’s managerial apex during the mid-1990s seems to have institutionalized a new dimension within the group’s multinational war game. During our stay at the corporate headquarters in January 1997, the executive director of the Product Business, whose division had achieved the highest proﬁts in the group over the previous two years, was ﬁred and replaced by the director of Sales and Engineering. In the wake of his departure, APV announced another major revision of its organizational chart (see Figure 6.2, over), whose ad hoc and political character was readily apparent to employees at the subsidiary plant where this news reached us the following week. By coupling the forced resignation of a divisional executive with this further restructuring, the headquarters sought to legitimize its own internal Machiavellian warfare in broader organizational terms. At the same, however, this move made it all the more obvious to those operating at subordinate levels across the multinational that any deals and understandings negotiated with Lygon Place rested on shaky ground.

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A Global Game Enacted by Local Players Chief Executive Human Resources

Finance

Product Business

Engineering Businesses

Heat Exchangers

Fluid Handling

Homogenisers

Tanks

Dairy

Brewery

Lake Mills

Distribution

Beverage

Processed Foods

Contracting

Pharmaceutical and Healthcare

Sales and Service Business Baker

Europe and Africa Australasia and Japan

Americas Asia

Unit Systems

Automation Anhydro

Ice Cream

Cheese

Industrial Extruders

Keg Racking Source: APV: Company Documents.

Figure 6.2.

APV REORGANIZATION, JANUARY 1997

Beyond the internal rivalries within APV’s executive committee, this latest reorganization move appears also to have been directed at the headquarters’ local City audience, which was becoming increasingly disillusioned with the new management team’s performance. After more than a year of steadily improving results, APV suddenly issued a proﬁts warning in May 1996, citing renewed pressure on the group’s margins, the loss of a major order, and the need for further provisions of at least £8m to cover redundancy costs on top of the £10.9m already set aside for restructuring that year and the £36m in charges taken over the previous two years. This abrupt dashing of carefully cultivated proﬁt expectations knocked 17 per cent off the group’s share price, while undermining investors’ conﬁdence in the management’s forecasts and story. As one analyst complained: ‘We are mystiﬁed. We knew orders were weaker, but were led to believe that margins on them would be higher not lower—you are left wondering what is going on.’19 Since ‘new management coming into a difﬁcult situation’ are normally given a ‘grace period’ of no more than 18 months 19 Tim Burt, ‘APV Surges Back into the Black with £26.9m’, FT, 22 Mar. 1996; Tim Burt, ‘Warning Hits APV Shares’, 21 Mar. 1996; Terence Wilkinson, ‘Warning and £8m Charge Takes Toll of APV Shares’, Daily Telegraph, 21 May 1996 (quotation).

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to three years before being expected to provide ‘hard evidence of improvement’, as a recent authoritative guide to City practice reports, time was running out for APV’s top executives—unless they could somehow identify a scapegoat from within their own ranks to blame for the group’s disappointing performance. Some two months after the departure of the Product Business divisional director, APV announced that the group’s 1996 pre-tax proﬁts had plummeted 44 per cent to £15m from £26.9m the preceding year on 12.5 per cent lower sales, while operating proﬁts before restructuring charges had dropped to £26.9m from £32.9m over the same period. Since operating proﬁts in the Product Business had fallen from £22.1m to £16.1m while those in SEB had recovered to £0.5m from a loss of £1.8m, the divisional director of the former may thus have appeared a plausible candidate to carry the can for APV’s earnings shortfall, thereby breathing additional life into the ‘restructuring under new management’ story.20 But with APV’s share price languishing at half its value ten years earlier, having underperformed the London stock market by 80 per cent, and no sustained proﬁts recovery despite restructuring charges of more than £50m over three years, this story could hardly be expected to sway the group’s unhappy institutional investors if an exit opportunity presented itself. At the end of April 1997, APV received a renewed takeover offer from Siebe, which had grown since its previous bid for the company eleven years earlier into a £3bn diversiﬁed international engineering group with 46,000 employees through a series of bold North American acquisitions, underpinned by frequent new rights issues, rigorous cost controls, and creative accounting practices such as upwards revaluation of acquired assets. Siebe now offered a 61 per cent premium for APV, based on its own high-ﬂying share price, with a lower cash alternative. Leading analysts recommended acceptance, citing APV’s ‘incoherent structure’, with ‘lots of businesses ﬁghting each other’. Siebe spokesmen claimed that the takeover would enable the company to incorporate its industrial control and automation systems into the APV’s process engineering contracts, while also using the latter’s far-ﬂung marketing and distribution network to push its products to new customers. But such strategic justiﬁcations, whatever their merits, were hardly necessary under the circumstances. ‘Let’s not pretend this is a great synergistic exercise,’ commented one analyst. ‘For years APV has been a badly managed company. Siebe will run it better.’ Investors for their part were glad to sell up: ‘Being a 20

Tim Burt, ‘APV Unveils Revamp as Director Departs’, FT, 15 Jan. 1997; Peter Marsh, ‘More Jobs Cuts Likely at APV’, FT, 21 Mar. 1997; Golding (2001: 171, quotation). Dismissal of top managers just below the chief executive level is a common response to poor performance in ﬁrms where the CEO maintains strong support within the board of directors, as at APV: see Boeker (1992).

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shareholder in APV has been an unpleasant experience and now we would rather get out,’ said one; ‘It’s been endless jam tomorrow. It would be a difﬁcult defence to run,’ complained another disaffected institution. APV’s own directors saw the writing on the wall and agreed to support the takeover, having voted themselves a generous incentive package based on the group’s future share value the day before Siebe’s offer was announced. This ﬁnal move was reported to have left ‘a very sour taste in the mouth’ of institutional investors, though one can only imagine how it must have been received by the employees of APV’s subsidiaries around the world, whose numbers had been slashed from more than 14,000 to just 7,000 in less than a decade.21 21 Charis Gresser, ‘APV Receives Surprise Approach’, FT, 30 Apr. 1997 (quotation); Charis Gresser, ‘A Slimmer APV Proves Attractive to Predators’, FT, 3 May 1997 (quotations); Charis Gresser, ‘APV Agrees £331m Offer’, FT, 10 May 1997; Ross Tieman, ‘Siebe Gets Lucky Second Time Around’, FT, 10 May 1997 (quotation); Charis Gresser, ‘APV Incentive Plan Criticised by Shareholders’, FT, 21 May 1997 (quotation). On Siebe and its acquisitive growth strategy, see also Andrew Lorenz, ‘Siebe’s Snowball’, Management Today, Apr. 1995.

7 Strategic Positions and Positional Strategies The preceding chapters have narrated the ongoing struggles for position within APV as a global game seen from the perspective of four local players: three national subsidiaries and the corporate headquarters itself. In each of the subsidiary plants, we found signiﬁcant innovations in productive organization and new product development, driven primarily by the initiatives of local actors seeking to secure and advance their unit’s place within the multinational, rather than by overarching plans or directives orchestrated from the corporate center. Beneath these commonalities, however, important differences can also be discerned among the Danish, American, and British plants, both in the speciﬁc forms taken by their positional strategies, and in the relative effectiveness of these local strategies within the wider MNC. This chapter develops a comparative analysis of the subsidiaries’ positional strategies and struggles for place across three distinct levels of action: . . .

in relation to other units within the MNC; in relation to other actors and institutions within the regional and national business system; in relation to the various actors within the local site itself.

The central ﬁnding emerging from our comparative analysis is that the strategic possibilities and capacities for action of local players within the global game of the MNC depended crucially on their ability to establish collaborative relationships at each of these three levels. In the ﬁnal section of the chapter, we return to APV’s London headquarters, considered as another local player in the global game, and analyze its capacities for strategic action within the same comparative multi-level framework. The surprising results of this exercise suggest new insights into the task of managing a multinational association like APV, which will be elaborated further in Part III of the book.

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A Global Game Enacted by Local Players 1. Local Strategies in Multinational Space

Examined from a comparative perspective, each of the three national subsidiaries varied signiﬁcantly both in their initial strategic position within APV and in the positional strategies they pursued on joining the multinational association. Thus Lake Mills, which had once been a corporate center in its own right, was gradually transformed into a peripheral branch plant by the 1985 internal merger of Crepaco into APV’s worldwide organization. In the course of this process, what had been an integrated, synergistic design, engineering, and production complex was likewise transformed in the eyes of headquarters into a disparate collection of co-located activities weighed down by the burden of excessive overhead costs. During the ﬁrst half of the 1990s, Lake Mills achieved sharp improvements in performance through the reorganization of production on cellular lines and the introduction of a new pay-for-knowledge system, while also developing a new ice-cream freezer in record time through collaboration between design engineers and shop-ﬂoor workers. But the plant’s innovative capabilities were devalued by the designation in APV’s 1993–4 corporate reorganization of ice-cream equipment manufacture, for which Lake Mills had long served as the group center of excellence, as a peripheral specialist business to be sold off to the highest bidder. At the heart of Lake Mills’ turnaround in the early ’90s stood a strong but autarkic collective identity, underpinned by the plant-based labor contract and seniority system. Although this collective identity bound local actors together into a solidaristic community of fate, facilitating the resolution of internal conﬂicts, it simultaneously inhibited the plant from establishing collaborative relationships with external partners, whether outside subcontractors, other APV subsidiaries, or the new global product SBUs created by the group’s corporate reorganization.1 If Lake Mills as a former independent corporate center struggled to come to terms with its downgraded status in the new global order, Howard, by contrast, as a self-acknowledged peripheral unit strove to win a place of any kind in APV’s multinational association. One possible strategy, pursued by the young Scots accountant who took over the plant after it had been successfully turned around by a Danish production manager in the ‘Second Norman Conquest’, was to build up Howard as a quasi-independent manufacturer of rotary lobe pumps with its own brand based on excellent product 1 Although we did not have an opportunity to study their history in any detail, structural parallels with the situation and behavior of Lake Mills could be observed in the case of other former corporate centers and integrated plant complexes like Silkeborg (Pasilac) and especially Unna (Rosista).

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quality and customer service. But this autonomous path was obstructed by Howard’s lack of an independent sales force and its commercial subordination to APV’s Fluid Handling SBU. An alternative strategy, pursued by the plant’s long-serving technical director, was to secure the plant’s future by developing a new family of rotary lobe pumps as a global corporate standard within APV. This second strategy sought to compensate for Howard’s limited internal resources by enlisting a series of external allies: thus the technical director ﬁrst obtained a British government grant to employ a team of engineering graduates from a local university to work on the new pump design and then deliberately brought in colleagues from other APV units around the world to mobilize their specialized competencies and build a cross-national coalition in support of the project. But the project’s narrow focus on Howard’s technical department and its external allies shut out the shop ﬂoor and recompartmentalized the internal division of labor, which had been opened up by interdepartmental promotions and job rotation schemes under the Danish manager and his Scots successor. The result was that issues of manufacturability and cost were not taken sufﬁciently into account, leading to delays and budgetary overruns, while the demands of short-run operational efﬁciency and long-run product positioning began to diverge, thereby undermining the strategy of using the new pump development project to ensure Howard’s productive future. Like Howard, Horsens initially sought to carve out a place in APV’s multinational association through a combination of technical virtuosity (the ability to make a wide range of high-quality customized products at low total cost), excellent customer service (quick-response supply of nonstandard pumps and valves), and new product development (winning a lead role in the design and manufacture of a new global family of centrifugal pumps). Unlike Howard, however, Horsens pursued this strategy by mobilizing its entire internal workforce and through them a variety of external resources. Hence short-term operational efﬁciency and long-term product positioning reinforced rather than competed with one another, since Horsens’s low overhead costs underpinned its bid to become the lead plant for the new world centrifugal pumps, while its polyvalent workforce and their ability to create internal slack enabled the management to ﬁnance initial R&D work without formally allocating resources to the project. Horsens’s positional strategy, though breaking all formal corporate rules during its initiation and implementation, thus resulted in a vast expansion of the plant’s power and inﬂuence within the wider MNC. This was the case to such a degree that Horsens’s managing director—now CEO of the Fluid Handling SBU—and other key local actors felt obliged to sacriﬁce some of the plant’s short-term interests in the name of the greater corporate good, for

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example by accepting the allocation of a new generation of world valves to Unna, which they had originally contested, because of the high costs of German redundancies that the group would otherwise incur. Hence Horsens became a role model and source of authority within APV as a whole.2 But even in this situation, Horsens operated as a collectivity, mobilizing actors within the plant at many different levels. Thus managers, supervisors, and blue-collar workers from Horsens were sent out as consultants to help implement change projects in other plants belonging to ‘their’ SBU. Managers from Horsens greatly expanded their careers by taking up new positions of responsibility in APV’s operations abroad, and by taking a lead role in the emergence of the ‘Danish Maﬁa’ as an informal coalition of SBU managers seeking to compensate for the lack of effective coordination by the MNC’s headquarters. And the plant convener likewise took the lead in extending union activities to the transnational level through a pioneering agreement to create a European Forum or Works Council.

2. Local Strategies and National Business Systems: Working under Different Rules Perhaps the most striking contrast in the positional strategies pursued by the three subsidiary plants concerns their relationship to external actors within the local environment, where Horsens and Lake Mills in particular can be located at opposite poles. Thus operational ﬂexibility at Horsens depended on long-established collaborative relationships with an extended network of specialized subcontractors in the surrounding ‘stainless steel corridor’. These subcontracting relationships were conducted on a high-trust, highcommunication basis which therefore proved capable of sustaining the temporary withdrawal of orders and insourcing of work during the initial crisis accompanying the APV takeover.3 At Lake Mills, conversely, the plant’s high overheads and endemic production bottlenecks resulted in no small part from its antagonistic relationship with external suppliers. Outsourcing of key parts was viewed by the workforce, union leaders, and even local 2 In this respect, Horsens operated less as a Mecca for acolytes of advanced technology and design, like ABB’s historic transformer complex in Ludvika, Sweden, than as a great seminary from which industrial missionaries fanned out to spread the gospel of good practice and cooperation around the world, like ABB’s Vaasa plant in Finland, acquired from the Stro¨mberg group in 1986, which quickly became an exemplar of cross-functional organization and short-cycle production for the Swiss-Swedish group’s transformer division as a whole (Be´langer et al. 1999). For a more extensive comparative discussion of APV and ABB, see Ch. 8 below. 3 For a more detailed examination of Horsens’s relationship with its suppliers, see Nygaard (1999: esp. chs. 4–5).

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management as a temporary expedient to be reversed as quickly as possible, evoking opportunistic pricing behavior by suppliers and reluctance to invest in specialized tooling and equipment necessary to meet tight tolerances and other technical requirements. This stark contrast in the two plants’ relationships with external suppliers stemmed not only from the strategies adopted by local actors, but also from the very different rules governing their respective labor markets, rooted in the broader institutional structure of the Danish and American national business systems. Thus the organization of industrial relations, skill formation, job security, and social welfare provision all combined to focus Lake Mills workers on the defense of employment within the plant, while instead integrating their counterparts at Horsens more smoothly into the wider local and regional labor market. Yet these were not the only possible outcomes in each country. Thus, for example, at John Deere & Co.’s lawn and garden equipment works in Horicon, Wisconsin, during the early 1990s, unionized workers initially resisted outsourcing of machining operations to external suppliers while collaborating in an internal reorganization of production layout and pay systems similar to that at Lake Mills. But once it became clear that plant management was determined to go ahead with the outsourcing as part of its broader ‘extended enterprise’ strategy, the local union accepted the new arrangements in return for a voice in the process, and has supported efforts to upgrade suppliers’ productive capabilities (and thus their ability to pay higher wages) through the Wisconsin Regional Training Partnership (WRTP) and the Wisconsin Manufacturing Extension Partnership (WMEP), a state-funded agency which includes both labor and business representation. As quality, efﬁciency, and lead times improved at Horicon due to the restructuring, new product lines were brought into the plant, and employment increased despite the outsourcing from 700 in 1989 to 1,000 in 1995.4 In the US, as is well known, union density declined from 35 per cent of the workforce in the mid-1950s to 15 per cent overall and less than 10 per cent in the private sector by the mid-1990s. In Wisconsin, the decline in union density has been only slightly less steep than the national pattern, falling from 33 per cent in the early 1970s to less than 19 per cent in the late 1990s. With few exceptions, collective bargaining agreements in the US, like union representation rights, are conﬁned to individual plants or companies, with no formal mechanisms for extending their provision to non-signatory 4 On outsourcing and restructuring at Horicon, see Luker (1998); Rickert (1999). On WMEP and the Wisconsin Manufacturers’ Development Consortium, in whose creation Horicon managers played a key role, see Ch. 11 below.

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employers, and their coverage likewise dropped from 26 per cent of the workforce (23 per cent of the private sector) in 1980 to 16 per cent (11 per cent of the private sector) in 1996. Informal mechanisms for inter-ﬁrm wage coordination such as pattern bargaining and ‘spillovers’ of union pay settlements to non-union employers have also lost most of their effectiveness over the past two decades. The result of these trends has been a substantial if eroding wage gap for similar work between union and non-union plants in the same industry and region. In Wisconsin, average hourly wages for union workers were 23 per cent higher than for the average non-union worker in 1998, while at Lake Mills, as we saw in Chapter 4, wage rates in non-union subcontractors were one-third below those in the plant itself.5 In Denmark, where unemployment insurance is administered by unions under the so-called ‘Ghent system’, membership density rose from 60 per cent of the workforce in 1970 to 78 per cent in 1995. Formal collective bargaining coverage remains much higher than in the US, at 69 per cent overall and 52 per cent in the private sector in 1996, and rose substantially during the late 1990s after a slight decline during the preceding decade. Even among employees not covered by collective agreements, widespread spillover effects ensure that their pay and conditions tend in practice to follow those negotiated for comparable covered groups. Since the late 1980s, minimum wage rates for metalworking occupations have been agreed between employers and unions, at ﬁrst at sectoral and more recently at industrywide level, with varying levels of coordination by national confederations on each side and a public conciliator empowered to ‘concatenate’ proposed settlements into a single package which must be voted up or down as a whole. Actual earnings, however, are negotiated between managers and shop stewards at plant level, with informal coordination through the publication of regional league tables and competition for skilled workers combining to limit the range of inter-ﬁrm pay differentials. The creation of codetermination councils (Samarbejdsudvalg) after the Second World War and the provision for employee representatives on enterprise boards by the Joint Stock Company Law (Aktieselskabslov) of 1973 progressively enlarged the role within the ﬁrm played by shop stewards and conveners, who are elected at plant level, but approved and actively trained by the external unions. According to a recent study (Kristensen 2002), these reforms had prepared the ground for workplace representatives to form highly active partnerships 5

For overviews of changing patterns of unionization and wage determination in the US, see Osterman (1999: esp. ch. 2); Osterman et al. (2001). Figures on national union density and collective bargaining coverage are drawn from Traxler et al. (2001: tables II.11, III.15) and Osterman et al. (2001: 46). Figures for Wisconsin union density and wage differentials are drawn from Dresser and Rogers (2000: 35).

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with management from the beginning of the 1990s. By supporting the shift to new bonus-based wage systems, intensifying further training for incumbent workers, and participating in factory reorganization, many conveners and shop stewards were actually taking over a multiplicity of managerial roles. The effect of this active partnership role was that wage negotiations took on a new orientation. It became obvious to managers that rapid improvements in plant performance owed a lot to the shop-ﬂoor workers, whom they wanted to compensate accordingly. But employers’ associations in this period sought through moral suasion and other sanctions to prevent their members from conceding large wage increases in local negotiations, summoning offenders when discovered for consultation and criticism. Thus in many plants, the convener and shop stewards tried to achieve wage increases that would clearly signal reciprocation of workers’ commitment by the employers, but would not expose the latter to their colleagues’ opprobrium. As a result of these trends, blue-collar employees, particularly the ‘specialized’ workers, experienced a decade of continuous wage increases above the level of many salaried groups, contributing to the overall Danish exceptionalism in moving towards still greater income equality during the 1990s.6 These sharp disparities between Danish and American patterns of wage determination and employee representation are echoed and reinforced by related differences in the formal and informal rules governing skill formation, career mobility, job security, and social welfare provision in the two countries. Thus in the United States, most vocational education and training is conducted either in schools or in ﬁrms, with little relation between them. Outside of professional occupations and the building trades, few non-supervisory employees possess transferable qualiﬁcations such as certiﬁed apprenticeships, in part because of employer fears of the poaching of skilled labor by their competitors. On-the-job training in ﬁrm-speciﬁc skills typically does not yield increased earnings with other employers, and workers without a college degree who lose their jobs therefore experience great difﬁculty in ﬁnding new employment at comparable wages and beneﬁts. There are no statutory restrictions on individual or collective layoffs (apart from those imposed by anti-discrimination legislation); hence job security for workers in unionized plants depends crucially on the seniority provisions of legally binding local labor contracts. The stakes for American workers in holding on to particular union jobs are raised still further by the 6

On the recent evolution of unionization, collective bargaining, and wage determination in Denmark, see Due et al. (1994); Scheuer (1998); and Jørgensen (2000). Figures on union density and collective bargaining coverage are drawn from Traxler et al. (2001: tables II.11, III.15), which also reviews the robust cross-national comparative evidence on the role of the Ghent system in sustaining high levels of union membership over the past two decades (pp. 85, 89–92).

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fact that health insurance and supplementary pensions are tied to employment in individual ﬁrms, while unemployment insurance provides only a relatively low level of replacement income for no more than six months under restrictive eligibility conditions which effectively exclude the majority of those out of work.7 In Denmark, by contrast, a large proportion of the workforce has general, transferable skills which enable them to change jobs easily without suffering a loss of earnings or career prospects. Initial vocational training for skilled workers is organized through an institutionalized system of craft apprenticeship, supplemented by off-the-job classroom instruction, under the joint governance of employers and occupational unions. In response, the Specialized Workers’ Union (SiD) has developed its own network of training schools or AMU Centers to assist its members in competing for jobs with apprenticed craftsmen. Both groups beneﬁt, moreover, from an elaborate system of continued education and training supported by plant-level training agreements and public educational-leave programs, which has expanded considerably since the late 1980s. Frequent job-changing by employees at all levels is underpinned not only by the resulting diffusion of transferable qualiﬁcations, but also by Denmark’s decentralized industrial structure, dominated by small and medium-sized enterprises; by craft traditions of journeymen perfecting their skills through working at a series of different ﬁrms; and by local reputational networks. In this setting, there are few statutory restrictions on hiring and ﬁring, and Denmark is regularly ranked alongside the US and the UK among those developed economies with the lowest levels of formal employment protection. But employers are legally required to inform shop stewards before laying people off, and often negotiate with the latter about how to minimize the impact on individuals and work teams, while maximizing the use of various Danish welfare-state programs to reposition displaced employees without allowing them to become formally unemployed. For those who do lose their jobs, moreover, the impact is cushioned by a high ﬂoor of universal, tax-ﬁnanced welfare beneﬁts such as health care and pensions, together with a generous system of state-subsidized unemployment insurance administered through the unions themselves. Since the early 1990s, public support for the unemployed has been increasingly channeled into activation schemes aimed at getting them back into work, training, or education, thereby reinforcing the virtuous circle between skill formation, job mobility, and the welfare state. Thus Danish labor market arrangements over the past decade are widely considered to constitute a de 7 For overviews of skill formation, job security, and social welfare provision (including ‘private’ but tax-subsidized fringe beneﬁts) in the US labor market, see Osterman (1999); Osterman et al. (2001); Lynch (1994); Crouch et al. (1999: esp. 205–13).

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facto system of ‘ﬂexibility with security’ or ‘ﬂexicurity’, comparable to the Netherlands’ de jure regime based on legislation and collective agreements.8 The relationship between Howard and its local economic environment was closer than in Lake Mills, but less collaborative than in Horsens. The neighboring pump ﬁrms which had spun off from Howard over the preceding forty years were linked to one another through competition for mobile skilled workers in an ‘incestuous’ labor market. These pump ﬁrms also shared common specialized suppliers, such as a precision parts machine shop, half of whose capacity they jointly utilized and effectively co-owned. But unlike in Italian or Danish industrial districts, mutual suspicion blocked any direct sharing of information or joint learning among rivals in Eastbourne’s ‘pump valley’. Thus, for example, to prevent any possible leakage of design secrets, local pump ﬁrms were prohibited from entering their joint supplier’s premises when competitors’ parts were being processed. As in the case of Horsens and Lake Mills, the peculiar relationship between Howard and its local environment was rooted in institutional features of the British national business system as it evolved during the post-war period. One key factor in shaping the antagonistic relations between Howard and its local competitors was the long-standing weakness of trade associations as mechanisms for inter-ﬁrm cooperation and information sharing in the UK, exacerbated by the imposition of strict legal controls on cartel agreements from the late 1950s onwards. Both of these features of the institutional environment encouraged British manufacturers to compete head-to-head on price for the same customers rather than to specialize on complementary products, in contrast to the specialization cartels permitted by the West German anti-trust legislation of 1957 or the less formal sanctioning mechanisms based on collegial codes of conduct prevalent among Danish ﬁrms in some districts to discourage rivals from poaching one another’s customers (Nygaard 1999). In the UK labor market, too, institutional mechanisms for inter-ﬁrm coordination of wages and employment conditions, though more signiﬁcant than in the US, lost much of their force during the post-war period, especially after the advent of Thatcherism in 1979. Union density, whose incidence had always been highly uneven given the absence of a 8 On the interplay between skill formation, industrial structure, and career mobility in the Danish business system, see Kristensen (1995). For the development of the Danish system of continuing education and training during the late 1980s and ’90s, see Kristensen and Petersen (1996). On the recent evolution of the Danish welfare state and labor market policies, see Madsen (2002: 243–65); Madsen (1999); Torﬁng (1999). For the high level of job-changing and low formal employment protection, see Madsen (1999: 246–9); ‘Employment Protection and Labour Market Performance’, OECD Employment Outlook, July 1999, ch. 2; Nickell (1997: esp. table 4). For Danish labor market arrangements as a de facto system of ‘ﬂexicurity’, see also Ferrera and Hemerijck (2003).

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statutory recognition procedure before New Labour’s 1999 Employment Relations Act, fell sharply from just over 50 per cent of the workforce in 1980 to 32 per cent in 1995. British sectoral employers’ associations, which had historically been less cohesive and solidaristic than their northern and central European counterparts, lost most of their bargaining functions and much of their membership during the 1970s and ’80s, accounting for just one in eight workplaces by 1990. Closely related to both developments was the diminishing inﬂuence of industry-wide wage agreements over the determination of plant-level earnings from the 1950s onwards, a process which culminated in the abolition of national bargaining in engineering altogether in 1989. Collective bargaining coverage at any level likewise plummeted from 72 per cent of the workforce (66 per cent in the private sector) in 1978 to 37 per cent (22 per cent in the private sector) in 1996. The widely documented result has been a dramatic increase in wage dispersion during the 1980s and ’90s, tempered by inter-ﬁrm competition for skilled workers, union coordination of plant-level bargaining, and managers’ continuing reliance on the sector as an informal frame of reference, especially for working-time arrangements.9 Yet Eastbourne workers also remained more strongly attached to the external labor market than their Lake Mills counterparts. Despite the abolition in the 1980s of the Engineering Industry Training Board, which had provided a tripartite framework for funding and design of sectoral VET programs, several of Eastbourne’s pump ﬁrms, like many British metalworking employers, continued to train craft apprentices in collaboration with the local technical college. Hence a signiﬁcant proportion of the town’s manual workers had obtained recognized occupational qualiﬁcations such as apprenticeship lines and City and Guilds certiﬁcates which enabled them to change jobs easily, buttressed as in Horsens by the diffusion of reputational knowledge about individuals within the local labor market.10 As in the US and Danish cases, moreover, these patterns of skill formation and career mobility were reinforced by the wider institutional arrangements governing job 9 On the historic weakness and post-war decline of British trade and employers’ associations, see Tolliday and Zeitlin (1991: esp. 296–302); Zeitlin (1995); Sisson (1987); Turner (1988). On the impact of competition policy on inter-ﬁrm agreements in post-war British engineering, see Zeitlin (forthcoming); on German specialization cartels, see Herrigel (1996: esp. 170–4). For changing patterns of wage determination and the decline of multi-employer bargaining in post-war Britain, see Gospel (1992: esp. ch. 7); Brown et al. (1995); Arrowsmith and Sisson (1999). Figures for union density and collective bargaining coverage are drawn from Traxler et al. (2001: tables II.11, III.15). 10 For the paradoxical combination of the decline of craft apprenticeship with the continued if eroding salience of occupational skills and identities in the UK, which has inspired a variety of reform efforts in the 1990s such as the introduction of Modern Apprenticeships and National Vocational Qualiﬁcations, see Marsden and Ryan (1995); Marsden (1995); Gospel (1995, 1998); Crouch et al. (1999: esp. 126–33, 157–61, 183–92).

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security and social welfare provision in the British national business system. Thus legal constraints on layoffs are substantially weaker than in most of continental Europe, with no pre-notiﬁcation or consultation requirements, though long-serving employees are entitled to redundancy payments, and unfair dismissal claims may be appealed to an industrial tribunal with powers to order compensation but not reinstatement. Unlike the US, seniority arrangements for layoffs and promotion are rare even in unionized metalworking ﬁrms in Britain, though ﬁrm-based supplementary pensions and other fringe beneﬁts have become an increasingly signiﬁcant element of compensation during the post-war period. Despite nearly two decades of Conservative welfare state retrenchment in the 1980s and ’90s, the UK’s National Health Service, state pension, unemployment beneﬁt, and social assistance systems still provide a more robust safety net than in the US, though markedly less universal and less generous than in Denmark. The combined result of these institutional patterns has been a segmented labor market characterized by substantial external mobility but also signiﬁcant costs of job loss for workers without transferable skills, especially as they grow older, intensifying the ambivalent relationship between the inside and the outside of the ﬁrm observed at Howard.11

3. The Micro-political Constitution of Local Players as Collective Actors The capacity of local players to pursue successful positional strategies within the multinational association, however, depended not only on their initial strategic position or the resources they could draw on from their local environment and national business system, but also on their micro-political constitution as collective actors. This is clearest in the case of Horsens, where all the various groups in the plant, whatever their differences, converged on a single coherent narrative of its historical trajectory. This living narrative served as a cognitive framework for overcoming internal conﬂicts and integrating personal and institutional biographies into a common story, thereby constructing the plant as a collective actor or ‘we’ with whom its members could individually identify, as Carr (1991) has argued for the narrative constitution of identity more generally. The narrative, in other words, provided the means for each individual who entered Horsens to ‘take on the role 11

For job security arrangements, the limited development of internal labor markets, and rising costs of employment loss to unskilled workers in post-war Britain, see Dickens and Hall (1995: esp. 259–73); Gospel (1992: ch. 8); Siebert and Addison (1991); Gregg and Wadsworth (1995); Green et al. (2000). For comparative overviews of the British welfare state in the 1990s, see Ferrera and Hemerijck (2003); Rhodes (2000).

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of others’, to become a ‘me’ and to reﬂect on oneself as an ‘I’ in symbolic interactionist terms (Mead 1967/1934; Blumer 1969). To take on the role of others and become a ‘me’ enables a person to become an object for him- or herself, thereby opening up a self-reﬂective capacity, i.e. establishing the very possibility of ‘taking an ‘‘I’’ against ‘‘me’’ ’. In the Horsens plant, the overarching narrative helped each person continuously to ask themselves how their improved qualiﬁcations measured up to those of others in the ongoing contestation through which individuals gradually built up their own biographies as a distinctive contribution to the common upskilling story. But within this larger narrative, the worker collectivity always questioned whether the individual acquired further qualiﬁcations in order to secure personal promotion to managerial jobs or conversely to protect the blue-collar group as a whole from losing control over new skills—and thereby social space—to the white-collar staff. In other words, individual workers could not respond reﬂexively to their own roletaking without arousing doubt about their status as either friend or enemy to the larger collectivity. This second wave of self-reﬂection most often gave rise to another role-taking—a ‘me’—that was very active in symbolically demonstrating where the individual’s bonds of loyalty and commitment lay: most likely to the worker collectivity. Ironically, however, this sequence of role-taking and self-reﬂection inspiring active symbolic identiﬁcation with the workers’ collectivity could only encourage management still further to recruit workers for managerial tasks, thereby reinforcing the entire circle. No less importantly, this collective ‘we’ at Horsens was able to delegate the authority to act strategically on its behalf to a collective ‘I’, above all the convener and shop steward of the skilled metalworkers. Since the early 1980s, the convener had played the lead role in strategizing on behalf of the plant as a whole in collaboration with successive managers, while simultaneously maintaining his position as chief representative of the manual workforce. Crucial to this process was the convener’s ability to select managers willing to play along with the reputational dynamic of skill improvement within the plant and to get rid of those unwilling to do so, by supplying or withholding the cooperation of the workforce necessary to achieve positive business results. The convener was likewise acutely aware that if he were to collaborate with management in deciding the actions of Horsens’s collective ‘I’, he had to remain an aggressive worker representative, demanding wage increases at the high end of the scale whenever possible, extending the rights of his constituency, and speaking with a radical voice in local union politics. In engineering the further training agreement, the APV European Forum, and many other achievements, the convener earned a reputation that could

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be cashed in when needed. No one was ever able to campaign against him as a ‘class traitor’, even though he worked closely with management in reorganizing the plant. Whether by chance or by design, the convener played this double role effectively, in part because negotiations over wages and working conditions were never conducted directly with the managing director. Demands in this area were raised, often in a highly conﬂictual manner, with the production manager of the day, allowing the managing director to step in as a ‘supreme judge’ able to strike a just compromise in which no one—except sometimes the production manager—would lose face. Despite their involvement in APV’s global games, neither Horsens’s managing director nor the convener ever lost touch with the life of the plant. The managing director’s philosophy of knowing ‘every nut and bolt in the factory’, which he sought to extend to the Fluid Handling SBU as a whole on becoming its CEO, represents the polar opposite of the ‘bureaucratic phenomenon’ in France as analyzed by Crozier (1964). In the latter’s well-known view, French ﬁrms’ heavy and often dysfunctional reliance on bureaucratic rules stemmed largely from the avoidance of face-to-face relationships by different groups within the organization. At Horsens, conversely, such relations were continuously maintained by allowing people to integrate their biographies into the larger unfolding narrative of the plant’s history which gave meaning to the actions of the managing director and the convener alike, even when their careers achieved a global reach. Unlike Howard, moreover, Horsens had no need for a common enemy to transform itself into a collective actor. Although it of course faced ‘enemies’ at particular moments, the plant typically managed to transform such conﬂictual relationships into collaborative compromises whenever its own existence was no longer threatened. In the case of Unna, for example, the Horsens workers initially proposed to send a delegation to establish cooperative relations with their German counterparts, and only began to ﬁght back after their friendly overtures were rejected. Even then, as we have seen, the Horsens managing director and convener eventually accepted the need to allocate the new generation of world valves to Unna in the wider interests of the Fluid Handling SBU. Howard, by contrast, had developed an elaborate but exclusive narrative of innovation, betrayal, and suspicion sustained by the long-serving technical director. As archivist and semi-ofﬁcial steward of the plant’s collective memory, he kept a careful record of the products it had invented and the ideas that had been stolen by former employees to set up their own companies, which had gradually been acquired by new multinational owners,

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while continuing to compete ﬁercely with one another within a narrow geographical area. This narrative in turn gave rise to a collective identity based on common enmity towards the rival pump ﬁrms within the district, from which the mobile workforce was excluded as potential defectors. The technical director, as we have seen, served as a self-appointed strategist, but was unwilling to mobilize this narrative to become a full-ﬂedged collective ‘I’ for Howard’s ‘we’, partly because of distrust of the workforce and fear of information leakage within Eastbourne’s ‘incestuous’ labor market. This in turn undermined his own project of safeguarding the plant’s future as a world production location for a new generation of rotary lobe pumps. Neither was there another leader who could reinterpret Howard’s narrative and harness it to an alternative strategic vision. Unlike at Horsens and Lake Mills there were no union representatives to speak for the workforce, while the Danish manager who had presided over the plant’s turn-around and decompartmentalization of work roles quickly departed to pursue the next step in his career back home, and the Scottish accountant who replaced him lacked the technical expertise and shop-ﬂoor understanding necessary to continue along the same path. Lake Mills, ﬁnally, had successfully constructed a collective identity based on a shared narrative about the plant community, which proved a powerful resource for overcoming internal divisions and conﬂicts among social and occupational groups. This collective identity involved not only rivalry with competing ﬁrms in the same locality producing similar products, as at Eastbourne, but also hostile relations with external subcontractors in the surrounding region. Moreover, unlike both Horsens and Howard, Lake Mills’ collective identity also placed it in conﬂict with APV’s London headquarters and other units within the multinational association insofar as their restructuring plans threatened the plant’s integrity as an integrated productive complex. As at Horsens, it was union leaders who served as the plant’s collective ‘I’ and the guardians of its shared narrative, particularly the former steelworkers’ president, who had been promoted to labor relations manager. But union leaders’ ability to carry out the plant’s strategic project was undercut by the absence of a management partner: while, at Horsens, the steelworkers’ president actually had to become a manager in order to pursue the workforce’s interests in restructuring. In light of the frequent shifts in plant management, the unions’ strategy of socializing each new arrival through the use of consultants appeared Sisyphean, while externally imposed changes in personnel and policies constantly threatened to undermine the workforce’s fragile support for collaboration with management and trust in their own leaders.

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4. Strategic Capabilities of Local Players: A Comparative Multi-level Analysis We are now in a position to compare the strategic capabilities of the three local subsidiaries at each level of action within the global game of the multinational association. The most fundamental contrast which emerges from the preceding analysis is that between Horsens on the one hand and Howard and Lake Mills on the other. Thus Horsens continually expanded the scale and scope of its action within APV, transforming itself from a peripheral component-manufacturing plant to the home base of an alternative global center of coordination and integration, the focal point for the Fluid Handling SBU, the Danish Maﬁa, and the European Forum. Despite their impressive performance improvements and new product development initiatives, both Howard and Lake Mills found themselves instead trapped in selflimiting strategies, each for different reasons. The successful pursuit of positional strategies by local players in the longer term thus appears to have required the development of a capacity for collaborative action at each of three distinct levels: . . .

within the site itself (constitution of a collective actor); within the local economy (establishment of collaborative relations with supplier ﬁrms and supporting institutions); within the MNC (establishment of collaborative relations with other units).

Table 8.1 sets out the results of this comparison in schematic form. Thus only Horsens, as we have seen, was capable of collaborative action across each level. Lake Mills was capable of collaborative action within the plant, but not within the local economy or the MNC. Howard was capable of collaborative Table 8.1. Strategic Capabilities of Local Players: A Comparative Multi-level Analysis Site

Capacity for collaborative action Within the site Within the local economy Within the MNC

Horsens

þ

þ

þ

Lake Mills

þ

þ=

þ

þ

þ

Howard Innovative foreign subsidiary (So¨lvell and Zander 1998)

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action within the MNC, and to a more limited extent within the plant, but not within the local economy. This comparative analysis also suggests the possibility of a missing combination, shown in the ﬁnal row: the case of an innovative foreign subsidiary, proposed by So¨lvell and Zander (1998) and discussed in Chapter 1 above, which becomes an insider within the local innovation system but an outsider within the parent MNC itself. 5. Lygon Place: Corporate Headquarters as a Local Player What happens when we consider APV’s London headquarters as another local player in the global game of the MNC following the same comparative framework? A ﬁrst striking contrast with all three subsidiary plants was the absence of any common narrative or collective identity at Lygon Place, the elegant Regency townhouse complex in London’s Belgravia which served as APV’s global headquarters. Thus unlike at Horsens, Lake Mills, or Howard, none of our London interviewees explained current strategic developments in terms of the long-term history of APV or its acquired companies—not surprisingly, given their own recent arrival on the scene. Only one of the secretaries, who had worked there far longer than the executives she served, saw the dividing line between the previous directors and their successors in terms of the intersection of individual biographies with the passing of the old APV. Lygon Place did not even contain a copy of the company’s ofﬁcial history (Dummett 1981), which was given to us by the technical director at Howard, who had collected a treasure trove of materials about APV in hopes of gaining a better understanding of the peculiar multinational association his ﬁrm had joined.12 The London headquarters was riven by open conﬂicts between divisions, functions, and the individuals responsible for them (sales and engineering vs products, ﬁnance vs production, to name only the most salient), even though many of the persons concerned had hybrid careers involving qualiﬁcations spanning more than one professional ﬁeld.13 Careers at Lygon Place were 12 It is striking that would-be ‘global managers’ seem to despise ‘history’. Once one of us visited a new APV plant which does not form part of the current study, and was introduced to the new foreign plant manager as ‘a researcher familiar with APV’s history’. This made the plant manager exasperated, and he sought to convince this ‘academic’ that the past played no role, only the present and the immediate future. For reasons which were then not clear to us, such country-hopping managers seem offended by the very fact of collective narration, which they cannot control though they may ﬁgure in such narratives as both enemies and heroes. 13 Thus the CEO and former ﬁnance director had a Ph.D. in theoretical chemistry; the executive director of the Specialist Businesses division had a degree in chemical engineering as well as an MBA; the executive director of the Product Business division had been trained in production engineering and marketing as well as in general management; and many of the engineers at SBU level had received advanced training in ﬁnance and international management.

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always recounted in individual terms, involving mobility across different MNCs rather than within them. Even when elements of a common narrative could be detected, as in the case of Product Business, where the executive director had brought along a key aide from his previous company, this did not serve as a basis for broader collaborative action within the headquarters, but instead reinforced the division’s identity in opposition to the rest of the group leadership. As in the case of the subsidiary plants, Lygon Place’s capacity for strategic action within the multinational was also shaped by its relationship to other key actors in the local economic environment. Despite being an MNC with global competitors and operations around the world, most of APV’s stock and corporate debt was in fact held by a relatively small number of Londonbased institutional investors and banks, operating according to the rules of what City insider John Golding (2001) has termed the ‘institutional equity nexus’. The key external point of reference for APV’s top executives, as we have seen, was this local ﬁnancial community of fund managers, analysts, brokers, bankers, and journalists, whose conﬁdence and support were crucial to sustaining the group’s share price and credit rating, and thus the headquarters’ ability to defend its autonomy against potential takeover threats. The brutal rules of this local game were well-known to all the players. Top managers of large, publicly quoted companies such as APV were expected to set and meet ambitious ﬁnancial performance targets in the short as well as the long term, with plausible explanations for any setbacks. At the same time, they were expected to be able to tell a clear and consistent story about company strategy, ﬁtting neatly into well-established categories such as ‘growth’, ‘consolidation’, ‘restructuring’, and ‘recovery’. Senior executives were then held responsible for any failure to meet market expectations, with a ‘grace period’ of no more than 18 months to three years for new incumbents before being required to show tangible evidence of improved performance. Deviations from these rules were regularly punished by stock price falls, vocal demands for replacement of top management, and the ultimate sanction of support for hostile takeovers. Since few managers could hope to transform company performance by reorganizing existing operations within such a short time frame, CEOs facing the pressures of what ﬁnancial journalist John Plender has called ‘the game of ambush’ felt increasingly pushed to pursue ambitious but high-risk takeover and divestment strategies. And corporate executives were also pulled in this direction by a constant stream of deal-making proposals from investment banks, which stood to beneﬁt ﬁnancially from such transactions; by unsolicited public advice from analysts employed by these same banks; and by generous ‘golden parachutes’ and incentive pay packages linked to the share price,

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which skewed the balance of potential risks and rewards to such acquisitive strategies even further towards the upside.14 The codiﬁcation of these rules and their internalization by British corporate managers reﬂected in turn the distinctive evolution of the broader national business system during the post-war period. Among the key steps in this process was the emergence of an active market for corporate control from the late 1950s onwards, spurred by shifts in public ﬁnancial regulation on the one hand and the expanding role of institutions such as insurance companies, pension funds, and investment trusts in managing private savings on the other. Between the mid-1950s and the early 1980s, many UK industrial ﬁrms experienced periodic ﬁnancial crises like that which struck APV in 1956–8, due in no small part to the instability of domestic demand, interest rates, and credit availability induced by Britain’s distinctive pattern of stop–go macroeconomic management. A characteristic response to such crises, promoted by company auditors and outside consultants often acting at creditors’ behest, was to strengthen the ﬁnance function, resulting in the ascendancy of accountants over engineers within British manufacturing ﬁrms, and heavy reliance by international standards on ﬁnancial controls in their management. As mergers and acquisitions reached new peaks in each successive boom, British top managers increasingly began to build their careers by moving upwards, across rather than within, ﬁrms—a tendency reinforced by the spread of the US business-school model of general management education beginning in the mid-1960s.15 With the abolition of exchange controls, deregulation of domestic capital markets, and consolidation of share ownership in the hands of large institutional investors, the remaining pieces of the system were set in place by the end of the 1980s. City institutions, whether British or foreign-owned, often found themselves ‘locked in’ to investments in large, publicly quoted companies, whose shares they could not sell off without moving the price against them. Since fund managers employed by institutional investors were themselves benchmarked quarterly against their competitors and the overall share 14 For incisive analyses of the rules of the City investment game from the perspective of an academically trained practitioner with wide experience of different roles and sectors, and a prominent ﬁnancial journalist and corporate governance reform advocate, respectively, see Golding (2001) and Plender (2003). 15 For overviews of the shifting relationship between British industrial ﬁrms and City ﬁnancial institutions during the post-war period, see Golding (2001: ch. 1); Kynaston (1994–2001: vol. IV); Wilson (1995: 181–204). On the linkage between stop–go macroeconomic management and demand instability in post-war Britain, see Zeitlin (2000b, forthcoming). On the changing structure of British industrial ﬁrms, the ascendancy within them of accountants and the ﬁnance function, the diffusion of formal management education, and the evolution of management career patterns, see Wilson (1995: 204–41); Matthews et al. (1998: esp. ch. 6); Larson (2003); Stewart et al. (1994); Storey et al. (1997).

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index, with draconian consequences for any persistent shortfall, they became increasingly aggressive in orchestrating the departure of top managers from companies believed to be underperforming. By the 1990s, as authoritative observers noted, public criticism of City ‘short-termism’ by British industrialists had effectively disappeared, largely because CEOs and ﬁnance directors of quoted companies now shared the time-scales and priorities of the ﬁnancial institutions themselves.16 As they maneuvered within the multi-level game of the MNC, APV’s top managers thus found themselves facing a series of countervailing imperatives. First, they had to defend their individual positions against rival colleagues within the Lygon Place headquarters. Second, they had to meet the short-term ﬁnancial performance expectations of City institutions and avoid hostile takeover by potential predators. Third, they had to orchestrate cooperation among the group’s constituent units to compete successfully with other MNCs operating in the same markets. How to reconcile these countervailing imperatives was a genuinely difﬁcult task which consistently bedeviled APV’s successive efforts at organizational restructuring. Real uncertainty, as we have seen, surrounded the question of developing an appropriate organizational structure for an MNC of this type which had expanded rapidly through mergers and acquisitions rather than organic growth. Since it no longer seemed possible or efﬁcient to internalize all the activities involved in the design and construction of turnkey process engineering projects, which should be kept inside the group and which sold off? And how should the remaining parts of the MNC be coordinated? Consultancy projects and continuous restructuring of APV’s organizational chart represented a genuine attempt to resolve these problems on the one hand, but also a political football in the internecine power struggle within the MNC headquarters on the other. Perhaps the clearest example was the reorganization which followed the purge of the Product Business divisional director in January 1997: as we saw in Chapter 6, this tortuous exercise appeared to follow a political logic of redistribution of power among persons within the executive board rather than an organizational logic of redistribution of functional responsibilities for improved coordination. This politicization of APV’s organizational restructuring was merely one symptom of a deeper problem: namely that top managers’ preoccupation with local games within the MNC headquarters and the surrounding ﬁnancial district inhibited them from developing the intimate knowledge and 16 For the anatomy of these developments and their perverse effects on investment decisions and performance, see Golding (2001) and Plender (2003).

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collaborative relationships needed to coordinate the subsidiaries more effectively. Rather than allocating standard pumps to Horsens and standard valves to Unna, for example, it would have been possible to allocate standardized production of both pumps and valves to Unna, while reserving Horsens’s more ﬂexible capacity for customized products and development projects with critical time schedules. Howard similarly could have played an important role in expanding the group’s access to markets outside its current reach. Had the plant been able to attract a continuing ﬂow of employees from the other pump producers in the district, it would have been able to draw on their tight relations with existing customers. But without corporate support for measures aimed at employee retention, Howard continued instead to lose ground to its local competitors, as it had been doing since the ﬁrst hostile spin-off in the late 1950s. In the case of Lake Mills, too, a better-informed top management, concerned to build on local strengths for broader corporate objectives, could have focused the plant on quick turnaround service parts for domestic customers and for the development of new models or product variants to meet US technical standards; it might also have used the customization capabilities of the tank shop as a front-ofﬁce mechanism for marketing other related APV equipment. Finally, had APV’s headquarters been serious about turning Lake Mills into a global business park, it could have encouraged a spin-off of the ice-cream equipment business as an independent venture, rather than allowing the plant’s strongest technological capabilities to atrophy simply because they now fell outside the MNC’s redeﬁned core business. Analyzing APV’s London headquarters within the same comparative multi-level framework previously applied to the three subsidiary plants thus yields a distinctive and rather surprising conﬁguration of strategic capabilities, as can be seen in Table 8.2. In contrast to the other local players, especially Horsens, Lygon Place was able to establish collaborative relations with other external actors in the local environment, but not within the site nor with other units within the MNC. This conﬁguration seems inherently unstable, since top managers’ maintenance of positive relations with other external actors in the local ﬁnancial district was dependent on the group’s ability to meet the expected performance targets, which in turn required, at least in the longer term, the establishment of effective collaboration not only within the headquarters itself but especially with other units within the wider MNC. Persistent failure to meet performance expectations would thus lead to a loss of conﬁdence and withdrawal of support for corporate management by the ﬁnancial community, which no internal power games or scapegoating could counteract. And this is, in fact, precisely what happened to APV following the dismissal of the

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Table 8.2. Strategic Capabilities of Local Players: A Comparative Multi-level Analysis Site

Capacity for collaborative action Within the site Within the local economy Within the MNC

Horsens

þ

þ

þ

Lake Mills

þ

þ=

þ

Innovative foreign subsidiary (So¨lvell and Zander, 1998)

þ

þ

Lygon Place

þ

Howard

Product Business director and its ﬁnal organizational restructuring in the spring of 1997, leading to the success of Siebe’s renewed takeover bid a few months later. This analysis of Lygon Place stands in stark contrast to the widely held view in the literature that one of MNCs’ major advantages is the gradual creation of administrative routines and heritages, which constitute the very ownership advantages that make the multinationalization process cumulative in character (see Chapter 1). Thus our ﬁndings appear highly enigmatic compared to such theoretical expectations. But there is a perfectly rational explanation of the fact that Lygon Place directed its energies primarily towards the City investment game. As Golding (2001) and Plender (2003) show, fund managers imitate each other in the portfolios they build up, in order to avoid the risk of underperforming stock market indices and other relative performance benchmarks set by their internal or external employers. This is essential to survive the next contract negotiations. The result is that the demand for and price of those equities which form key components of the London and New York stock market indices becomes disproportionately high. For companies to be included in fund managers’ portfolios thus raises their share price and reduces the cost of capital, whether in the form of new rights issues, corporate bonds, bank loans, or commercial paper. But it is far from easy to enter or remain on this elite list. The company’s shares have to be highly liquid and available in sufﬁciently large volumes that they can be bought and sold without affecting their price. So to be included in the stock market index, a company must be large enough to match the others on the list. And to stay there, a corporation

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must also grow at a pace equal to that of other listed ﬁrms and also of the rising stars which are constantly trying to displace it. Either way, mergers and acquisitions are the name of the game. Conversely, companies whose share price is falling become obvious targets for hostile takeovers by other ﬁrms seeking to break into the charmed circle. Thus compared to the earlier theoretical rationalizations for the growth of MNCs discussed in Chapter 1, this ‘institutional equity nexus’ now carries greater explanatory weight. Hence it becomes understandable why the City investment game absorbed so much of APV’s top managers’ attention.

6. Narratives of Power and the Power of Narratives: Games, Players, and Strategies In this chapter, we have provided an overview of strategic positions and positional strategies among the local players in the global game of APV as an MNC. Participants were clearly entangled in sets of games at multiple levels that increasingly inﬂuenced their moves, plans, and perspectives. Interestingly, the aggregate or ‘master’ narrative—the dominant interpretation shared by almost all players within APV—was to characterize the interactions among subsidiaries and headquarters as ‘warfare’ or a ‘war game’. Such a master narrative does not emerge simply from past actions and interactions, nor from the structure of the interdependencies among the participants. In many instances, it would have been perfectly possible to narrate particular actions otherwise and thereby ‘sideshadow’ towards a ‘world of possibilities’ (Morson 1994; Bernstein 1994; Sabel and Zeitlin 1997).17 Even the opposite ‘collaborative’ narrative would have been possible. In the case of APV, the warfare narrative became dominant because the HQ gradually lost those executives who were able to create an alternative master narrative of collaboration from the speciﬁc local narratives of its subsidiaries. By playing the local game of the City cooperatively, the London HQ transformed its executives into ‘scapegoats’ and thus lost those players who could indeed narrate alternatively, conﬁguring instead a reciprocal Machiavellian game. With 17 ‘Sideshadowing’, a term coined by literary theorists Gary Saul Morson (1994) and Michael Andre´ Bernstein (1994), refers to narratives which represent historical events (whether real or ﬁctional) as the contingent outcome of a process of more or less deliberate choice among an open (though not of course inﬁnite) set of alternative possibilities, more than one of which might in fact have been realized. ‘Foreshadowing’ and ‘backshadowing’ narratives, by contrast, abuse hindsight to recount events as if their outcome were predetermined and could be used to judge the choices of actors irrespective of what the latter could realistically have been expected to know at the time. For an adaptation of Morson and Bernstein’s concepts to an historiographical context, see Zeitlin (2000a, 2003).

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poorly developed mechanisms of communicative interaction with ‘others’ in the subsidiaries and internal enmity within Lygon Place, warfare could easily be writ large and used to extend the local perspective of the HQ to the master narrative.18 Narratives, however, are addictive. They not only help make sense of a situation, but also help constitute the situation itself: ﬁrst, by characterizing the game; second, by selecting the set of possible or rational moves for various players; third, by orienting the players’ expectations of each others’ moves; and, ﬁnally, by shaping the moral standards according to which the actors evaluate their own actions as good or bad. In short, the way in which a game is narrated gives it identity and helps to stabilize its path. Narration thus easily risks becoming self-reinforcing. It speciﬁes ‘how the sequence of experience is punctuated’ (to borrow an expression from Bateson 1972: 293) and what type of ‘emplotment’ of events is imaginable. It ascribes the status of heroes and winners to certain actors rather than to others. In the game we witnessed, there seemed to be no self-corrective mechanism that might have steered the players away from their mutually selfdestructive path as guided by the self-defeating master narrative. APV followed this pattern of strategic interaction until the path ended when City investors withdrew their support and endorsed the ﬁrm’s takeover by Siebe, which leading analysts justiﬁed by reference to APV’s ‘incoherent structure’ with ‘lots of businesses ﬁghting each other’ (see Chapter 6). This plotline in which APV became the victim of its own overarching narrative, the reader may respond, should have been predicted and therefore corrected by the HQ executives. Had they not imagined that such a denouement might end their story? But of course they had. Fear and the risk of a ‘hostile takeover’ were the primary motivations for continual attempts to reform and restructure both the architecture of the organization and its operations. To a certain extent, the role and powers of the HQ within APV themselves depended on the permanent risk of external hostile takeovers and the consequent need to sort out the mess created by internal warfare. Partly motivated by the goal of restoring a unitary meaning and order to the MNC, APV’s executives brought in one consultancy ﬁrm after another to provide them with an ongoing stream of changing strategic plans. We could see this use of external consultants as a serious effort to alter the way in which 18 Eero Vara (2002) has discussed the importance of narration in understanding post-merger integration. Depending on whether a merger is narrated as a success or failure, this may lead to overly optimistic or pessimistic views of what managers can do in such a post-merger situation. While Vara’s study focuses on managers’ narration of post-merger situations, which as at Lygon Place emphasize the allocation of blame to scapegoats and praise to heroes, he neglects employee and subsidiary narratives, which in our case seem to have played a more active role in ‘sensemaking’ within the corporation.

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experience was punctuated within the MNC from the logic of internal warfare to the discourse of modern, global corporate strategies. But according to their own indigenous narrative, the consultants struggled in vain, since the subsidiary managers were stuck in a local perspective and continued to pursue their own parochial interests rather than the common global vision. Ironically, the consultants thereby reinforced the warfare narrative within APV and thus the internal roles and self-narrative of the HQ executives. The latter’s own collective power rested precisely with these failed restructuring attempts and their active narrative through which the situation of the MNC became increasingly deﬁned as us (the HQ) against them (the subsidiaries). However, these restructuring plans also reinforced the feeling of mutual warfare between the subsidiaries themselves and of arbitrary decision-making by the HQ. For instance within the local narrative of Lake Mills, the development of the prize-winning new ice-cream freezer was a major victory, and the Wisconsinites hardly understood that such an achievement represented instead a mistaken investment in ‘non-core business’ in the discourse of the new HQ strategy. In the eyes of Lake Mills, the HQ had thus declared war. Probably, it came as just as big a surprise to Horsens that their hidden subversive strategy when revealed made them the new manufacturing heroes, because the same discourse was now favoring ‘lean production’. When managerial discourses and subsidiary narratives only occasionally intersect, as in these situations, they might collide and render some players in the power game of the MNC powerless. In other cases, however, narration and discourse may suddenly complement one another and lead to a quantum leap in power for certain players. Thus the corrective measures taken by the HQ were fully in line with the best professional advice of the day on how to improve the management of global engineering ﬁrms. Yet far from correcting the situation, these measures instead reinforced the dominant narrative of internal warfare. But the ‘emplotment’ of the ﬁrm’s story as a tale of external takeover due to internal warfare did not lead to an unhappy ending for the HQ’s executives. Their track record was not considered bad in terms of managerial initiatives. What was ‘rotten’ in the APV narrative, as interpreted by the ﬁnancial press, was the state of internal warfare within the company with which its top managers had to contend. After the Siebe takeover, many of APV’s executives could therefore continue to work in high-level positions either there or at other London HQs.19 19 Insofar as APV’s top managers may have ‘blotted their copybooks’ in the eyes of the City, it was by voting themselves a generous incentive package based on the group’s future share value the day before Siebe’s offer was announced, a move which was reported to have left ‘a very sour taste in the mouth’ of institutional investors. See Ch. 6 above.

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In interpreting the APV story, it is indeed paradoxical that all the participants seemed to agree in their assessment of the ﬁrm’s predicament and its possible outcome in the form of a hostile takeover. Hence it is all the more intriguing that no one tried to transform the situation by taking on a new role. From the perspective of symbolic interactionism, the great socialpsychological branch of American pragmatism (Mead 1967/1934, 1956; Blumer 1969; Joas 1997/1985, 1993), we might expect actors in such a situation to have mutually aligned their behavior in a stabilized if selfdestructive pattern by taking on the role of others within the ‘warfare’ master narrative, since they lacked access to the local narratives of the other players. This may help to explain why there was no further ‘stimulus’ in the situation for these actors to ‘take an ‘‘I’’ against ‘‘me’’ ’ through self-reﬂection that could lead to the adoption of a changed role. On the other hand, it remains nonetheless enigmatic why none of the players was motivated to engage in such self-reﬂection and role-changing, given the ubiquitous tensions throughout APV (except perhaps the HQ) between the corporation’s generalized master narrative and the various local narratives. From a symbolic interactionist standpoint, it is this possibility of internal tensions and self-reﬂection even within seemingly stabilized behavioral roles that allows situations to be seen as, and thereby become, open and experimental, while it is through the sequence of mutually deﬁning and corrective role-taking that ‘normal’ behavior is renegotiated and redeﬁned. From this perspective, the entire social process takes on an experimental character in which the community of role-takers and their interaction can both stabilize and destabilize situations. New developments may emerge simply because the existing situation changes, but a situation may also be transformed by the fact that certain individuals, by reﬂecting on their role or ‘taking an ‘‘I’’ against ‘‘me’’ ’, change their relationship to other role-takers and in so doing initiate a chain reaction of mutual role redeﬁnition, by which the participants become ‘new’ objects to themselves and others.20 Within APV, it appears as if the narratives that characterized the game, ascribed players a role, and deﬁned a plot, had a poisonous effect on the experimental nature of situations and self-reﬂection about role-taking. First, because achieved or ascribed roles were carried over into the next situation, the latter in turn were already narrated into a given past (backshadowing) 20 In contrast to atomistic perspectives that see individuals as naturally self-seeking, symbolic interactionism offers an account of the development of the self in which persons only become objects to themselves—i.e. individual ‘me’s—through a process of socialization whereby they take on the role of others to deﬁne their own (see for example Mead 1956: 349, or Blumer 1969: 2). In this chapter we have followed a similar approach to the constitution of positional strategies, which have been presented as emerging from the way that individual actors and groups ‘read’ the strategies of other actors and groups in their own context.

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and projected towards a predetermined future (foreshadowing), whereby it was easy to ignore or misinterpret individual perturbations of the established pattern of interaction. Actors might have evoked potentially novel situations by revising their own roles, but other role-takers might easily interpret this as just another move in the ongoing war game. Thus the taking of ‘I’s against ‘me’s may have occurred in vain. This mechanism, of course, is part of the explanation of how situations can become stabilized into a sequence by which a game is played out in a predictable way. But the second reason for this poisonous effect is possibly even more interesting. If narratives attribute unpleasant characteristics to a game, they deﬁne ‘situations’ by inducing people in predeﬁned roles to try to avoid such encounters, and instead make the participants imagine what might happen if they were actually to occur. Thus role-takers seek to avoid meeting each other face-to-face, and no corrective role-taking is possible to redeﬁne the situation. In this way narratives may eventually gain weight as much from imagined as from actual encounters. These two poisonous effects were mutually reinforcing at many levels within APV, in such a way that misunderstandings increased, the properties of the game became reiﬁed, and a structure of power positions emerged. The phenomenon of narratives structuring power positions and behavioral patterns can be observed at both local and central levels within the MNC. The narrative of the Lake Mills plant focused on creating an ‘us’, in which participants imagined each other’s roles in such a seamlessly comprehensive way that the coherence of the community depended on the coherence of the plant—and vice versa. The plant’s internal labor market was wide open for advancement—either through seniority or through training—but the regional, external labor market was rather closed. Either you were part of the company and the community or you had to leave both. There was no wider local system of job mobility that could make contacts to other ﬁrms emerge gradually, and ‘farming out’ work to other companies—if not an unavoidable expedient—was seen as betraying the internal balance between blue-and white-collar positions. In the same manner, there were no active attempts to explore an alternative possible story within which Lake Mills could get something from other parts of APV in exchange for providing new services for the MNC as a whole. Interactions with the external world were narrated in such a way as to reinforce the path of an isolated vertically integrated company, and few people at Lake Mills sought to engage in situations that contested this self-narrative. The narrative of the Eastbourne plant focused on former employees who defected, imitated the plant’s products, and became competitors. The division between ‘us’ and ‘them’ ran partly through the plant itself, as the

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technical staff regarded players from other departments as potential traitors. Competitors were believed by nature to be inclined to steal the plant’s ideas and for that reason, suspicion should guide any interaction with rivals or suppliers. Consequently, internal and external interaction became very limited, being seen as subversive yet continuously going on because by its very nature it had to be concealed. Interestingly the town’s mobile labor market was not characterized as open or ﬂexible, but rather as ‘incestuous’. This narrative allowed the technical department to collaborate quite constructively with other units of the MNC, but even the most generous and intensive collaboration nonetheless became coded negatively as a foreign ‘conquest’. Both Lake Mills and Eastbourne seem to have become victims in terms of power and position within the MNC by the way in which they narrated the behavior of actors in their local context and/or within their internal organization. The way in which local actors took on the role of others meant that their narratives could not open up the possibility of alternative forms of interaction and allow them to imagine a variety of possible plots for their story. ‘Stay the same or lose’ seemed to be the message of the longue dure´e in these plants, and any action that broke with that golden rule would only serve to end the story. At Horsens, the self-narrative was both more unifying and more surprising. Whether it was because as a ﬁrm and as a labor market Horsens was ‘forced’ to interact much more with its surroundings, since its people moved about more frequently and had their role-taking towards others continually contested, or whether it was because Horsens’s narrative focused on the reputation ascribed by others to the ﬁrm and its members is difﬁcult to determine. In any case the ﬁrm’s long history went through a dramatic sequence of ‘novel situations’ where its members had to change their understanding of both themselves and others. The division between ‘us’ and ‘them’ became a motive for engaging in interaction and mutual communication, through which the ﬁrm’s horizon was continually changed, forcing participants to redeﬁne the game in which they were engaged and to reﬂect on whether their reading of it was necessarily the right one. In Horsens it was possible to engage in ‘sideshadowing’ and think of oneself and others as a ‘world of possibilities’, in which roles may shift when the actors get to know each other better. By institutionalizing ﬁrst the Danish and then the European Forum, the Horsens convener and managing director did in fact try to create new mechanisms for producing alternative narratives. But the many beneﬁts Horsens gained from altering its deﬁnition of others probably made it all the easier for others to see the plant as the worst of the corporation’s warlords.

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If this mode of narration did the job for Horsens, the HQ should also have looked for a way of changing its self-narrative as an MNC. But this was not easily done, with executives coming and going, and, because of the nature of the game itself, acquiring too little knowledge of the MNC as a whole to be able to author convincing versions of a shared master narrative. The alternative would have been to orchestrate an intensive set of communicative encounters and interactive situations among the MNC’s constituent players, which could have challenged their prejudices about one other and eventually forced them to discover alternative possibilities of mutual role-taking. But such a process might easily have risked empowering APV as a collectivity in the eyes of its shareholders and its subsidiaries alike, while destabilizing the volatile power game among the executives at the HQ. Since one of the key functions of the executive in any corporation, as we shall see in the next part of this book, is to orchestrate the ﬁrm’s master narrative, such a process of mutual interaction would probably have had to be evoked from outside the HQ and directed against its existing top managers, who legitimated their interventions by the existing war-game story.

Part III Managerial Challenges and Human Promises of Globalization

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Chapter 8 Managing the Multinational: Administrative and Human Challenges Our study of the making of a global ﬁrm and its constitution through strategic interaction among subsidiaries and headquarters has revealed a process in which these actors play roles that break with the received expectations of how they should behave towards one another within an organization. The most surprising ﬁnding is perhaps that the London HQ was able to establish collaborative relations with other external actors in the local ﬁnancial district, but was able neither to integrate itself effectively, nor to establish collaborative relations with subsidiaries that would have enabled it to orchestrate the process of unifying the MNC as such. One possible reaction to the ﬁndings of our study is that they actually conﬁrm the received wisdom in the ﬁeld. On this reading, APV was undermined by the incapacity of its HQ to do a proper job in controlling and coordinating its subsidiaries so as to create a stable and rational division of labor within the MNC whereby each could optimally exploit the comparative advantages of its locality and cooperate with one another to reap possible synergies. No wonder then that this MNC became the target of a hostile takeover. Thus according to this line of reasoning, our study could be seen to demonstrate precisely that the process of mergers and acquisitions basically operates to impose the rationality of the market, through which the more successful MNCs take over the less successful ones, to the beneﬁt of shareholders, (most) subsidiaries, and their various stakeholders. In this way our story would become a textbook case of how some MNCs fail and lose their independence to more efﬁcient and powerful competitors with superior ownership advantages, thereby advancing the international economy’s progress towards globalization. This view of the London headquarters is admittedly not far from one which we initially shared with certain observers in APV’s subsidiaries. But as we gradually began to understand the complexities and ambiguities involved in managing even a comparatively small MNC like APV, we came to adopt a humbler perspective. This part of our book seeks to develop this humbler

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perspective into a theoretical approach that can reframe the managerial problems of globalization and sketch out a way of reconstituting the function of executives in a global setting. In developing this approach, we will be seeking answers to a number of fundamental questions about the challenges involved in managing contemporary MNCs. How is it possible to civilize the reciprocal game among the players within an MNC? How can a headquarters establish a legitimate role for itself in relation to the other constituent parts of the MNC? In what sense might it be possible to think of an MNC as unifying itself ? As we have seen in earlier chapters, subsidiaries from different locations differ considerably in how they play their cards in the reciprocal game within the MNC. Some observers may consider the very fact that such games are being played as the problem, believing that managers’ primary task is to reduce such ‘opportunism’ and ‘shirking’ to the lowest possible level. According to Williamson (1975, 1986), ﬁnding effective means to reduce opportunism, shirking, and free riding is exactly what led ﬁrms to seek out and adopt new organizational forms such as vertical integration and multidivisionalization. But applying the prescriptions of the standard strategy– structure–performance literature to MNCs is far from easy. There is wide agreement in the organizational and managerial literature that MNCs face a huge structural dilemma: ‘On the one hand, you need to co-ordinate over product lines, on the other over geographical territories’ (Bartlett et al. 1990: 19). The difﬁculties encountered by APV’s HQ in developing an appropriate corporate structure are thus illustrative of the deeper problem of organizing across national and product divides, which creates a rich array of internal contradictions and paradoxes, as discussed in Chapter 1. But should the HQ necessarily try to eliminate the reciprocal strategic game among subsidiaries by developing a speciﬁc organizational structure capable of controlling and coordinating such internal competition? It is apparent from our analysis in previous chapters that under pressure from internal rivalries, APV’s various subsidiaries were able to mobilize local resources effectively in support of their struggle for social space to improve their position within the MNC. This strategic game could thus be seen as an unintended method for the HQ to intensify exploitation and exploration of given foreign social territories by playing off its subsidiaries against one other; and it seems as if the more advanced this game becomes, the better the potential long-term outcome for the MNC as a whole. Horsens, for example, was exploiting and exploring the advantages of Denmark as a production location more efﬁciently than the headquarters could plan or imagine, in no small measure due to its own offensive strategy of self-defense against the proposed reduction of the plant’s product mandate by its German

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controllers. But in pursuing this strategy, the subsidiary invented new comparative advantages that enabled the MNC as such to undertake turnkey projects in a smarter way. In a similar manner, the Lake Mills plant developed a prize-winning new ice-cream freezer in record time by creating a crossfunctional product team of engineers and blue-collar workers, while Eastbourne initiated a state-subsidized development project for a new worldwide generation of rotary lobe pumps. In each of these cases, the actors responded to the challenges of life within the MNC by mobilizing local resources in continuation of a pattern of strategic behavior that had gradually evolved in the past. Thus it could be said that APV did not fail to stimulate the particular abilities of each subsidiary to solve problems, initiate search processes, and improve its performance in relation to its own internal and external points of reference. Even the strategic actions of the HQ can be seen in this light as an expression of its own distinctive path and context-dependent behavior pattern. Having established itself through mergers and acquisitions among formerly competing ﬁrms, it is difﬁcult to imagine that the HQ could indeed overcome the mutual rivalries and tensions among subsidiaries within a short period after their inclusion into the MNC. Such a transformation would be all the more difﬁcult because each of the players involved might interpret the behavior of other actors as opportunistic, rent-seeking, shirking, or free-riding, while considering their own actions as the most rational way of managing the situation facing them. Thus if asked to change their ways, each player could be expected to revolt openly or secretly, since in their eyes they were being asked to act against their own best knowledge and experience, thus damaging both themselves and the wider interests of the MNC.

1. Modern Multinationals: Integrated Networks or Warring Fiefdoms? From another perspective, APV could be said to have inherited the very mutual competition which more centrally coordinated MNCs are said to have initiated and sought to institutionalize since the ﬁrst oil crisis of the 1970s. The academic debate on how MNCs should be managed has changed signiﬁcantly over the past two decades, during which the market and internal competition have come to play predominant roles. Terms such as ‘integrated network’ (Bartlett and Ghoshal 1989), ‘differentiated network’ (Nohria and Ghoshal 1997), ‘heterarchy’ (Hedlund 1986), ‘multi-focus ﬁrm’ (Prahalad and Doz 1987), and ‘multi-center ﬁrm’ (Forsgren 1990) all signal the fact that the relations among MNC units have been undergoing radical changes not captured by conventional hierarchical conceptions of the organization. In the

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remainder of this chapter we compare our observations with a number of studies of MNCs that have emerged from this recent turn in the literature. Our purpose in so doing is twofold: ﬁrst, to situate our ﬁndings in a wider empirical landscape, and second, to assess their generalizability. Whether this new turn in the literature is due to the fact that the academic community has only recently begun to study MNCs in sufﬁcient empirical detail or to the fact that major changes have indeed taken place within such ﬁrms themselves is impossible to say. But many observers believe that they reﬂect important changes within the objects of study themselves. According to Bartlett and Ghoshal (1989), intensiﬁed competition and global restructuring challenged MNCs in the 1980s to such an extent that their traditional forms of organization proved inappropriate and unable to cope effectively. The decentralized federation of the classic European MNC, which had advantages in responding to national differences, was unable to capture global economies of scale and other necessary cost-reduction advantages; the centrally coordinated American and Japanese international and global corporations had advantages in cost efﬁciency and knowledge transfer from their home bases but were unable to respond to and learn from local circumstances sufﬁciently. All three forms had simultaneously to cope with ‘global efﬁciency, multinational ﬂexibility, and worldwide learning’ to stay competitive in the new global climate (Bartlett and Ghoshal 1989: 137). In this situation, worldwide companies from all developed regions simultaneously faced crises in the coordinating principles derived from their ‘administrative heritage’. The Americans, relying on formalization and standardization, were unable to cope with the growing need for ﬂexibility in hostcountry markets. The Japanese saw their centralization breaking apart due to the overload of information and decisions at HQ as they expanded overseas. At the same time, the Europeans were facing huge costs in trying to adapt their traditional methods of international coordination through socialization of key managers to a world of rapid growth through mergers and acquisitions. Thus, none of the coordination methods for worldwide corporations that had evolved from different traditions in Europe, the US, and Japan was able to cope effectively with the new circumstances in which the corporations found themselves. It is in this context that HQs are said to have deliberately introduced the governance principle of the ‘invisible hand’ of the market inside the MNC itself, a method advocated by Bartlett and Ghoshal as a low-cost mechanism requiring less direct management supervision. On top of this ‘self-regulating’ coordination through internal markets, Bartlett and Ghoshal think that a differentiated portfolio of coordination tools should be directed towards

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each individual subsidiary, depending on its assigned role as ‘an implementer, a contributor, a black hole or a strategic leader’. To support this diversity of subsidiary roles and coordination methods, the HQ should also control the allocation of capital, both human and ﬁnancial. It is also noteworthy that the strategic roles that subsidiaries can play depend in this view on the host market in which they operate, rather than on the capacity of the host environment to provide resources for their entrepreneurial development (Bartlett and Ghoshal 1989: 105–13, 166–73). But Bartlett and Ghoshal also argue that a successful HQ must be able to strike balances and make countermoves in response to the continuous process of immanent, ongoing change in the relationship between the MNC and its environment. They illustrate this point with reference to the case of the Swedish telecommunications company Ericsson: Maintaining a balance among business, geographic, and functional management capabilities is a continuing challenge for the transnational company. . . . Ericsson’s organization has never allowed one organizational perspective to dominate and others to atrophy. Management has not hesitated to adapt its organizational processes and management structures to respond to environmental change. But rather than search for an idealized, static concept of organizational ﬁt, Ericsson has pragmatically accepted that ambiguity, overlap, and change in management responsibilities are inevitable. The resulting organizational diversity and ﬂux generates internal tensions and management conﬂicts, and Ericsson and other companies that have been successful in maintaining diversity have found various means to resolve the differences that arise. . . . [W]hen its overseas units became too independent, it increased headquarters’ control; and when product divisions seemed too parochial or short term oriented, it built up the role of the functional groups. Rather than search for unidimensional strategy-structure ﬁt, Ericsson management has historically focused on environment-organization ﬂexibility. . . . Indeed, the company seemed almost to encourage a degree of misﬁt, to create dynamic tension in the organization . . . [which] seemed to encourage an entrepreneurial spirit in the units. (Bartlett and Ghoshal 1989: 152, 154)

Bartlett and Ghoshal’s ideal of an ‘integrated network’ or a ‘transnational solution’ is far from being a stable structure marked by clear divisions of labor, lines of authority, and hierarchical levels. First, the volatile deﬁnition of roles may cause problems: ‘Instead of encouraging innovative ﬂexibility, ambiguous roles and overlapping responsibilities could lead to anarchy, yielding unproductive conﬂict rather than creative tension’ (Bartlett and Ghoshal 1989: 155). But the organizational devices suggested for escaping from anarchy—task forces, project teams, and committees that can take conﬂicts ‘off-line’—seem rather weak compared to the challenges that MNCs face in their analysis. Second, the authors openly acknowledge the

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limitations of the invisible hand of the market as a coordinating mechanism within the MNC: The risk was that if participants in the self-regulating system were not thoroughly indoctrinated in broader organizational objectives, parochial attitudes or selfserving behavior could turn the process negotiations into horse trading, which produces acceptable compromises and trade-offs rather than shared commitments. But if management can protect the process against such risks, the ‘invisible hand’ mechanisms can be powerful supplements to the managed tools we have described. (Bartlett and Ghoshal 1989: 169)

Bartlett and Ghoshal’s study focuses primarily on the overarching organizational structure and strategies of ﬁrms operating across national borders, as seen from the managerial apexes of their HQs over the last three decades of the twentieth century. Nonetheless, the experimental processes which they observe among the ‘worldwide’ corporations in their study seem very similar to the games played by the actors in ours. What they describe is a constant search for new ways of doing things, and the resolution of some conﬂicts by provoking others. When they speak of ambiguity, it is for good reason, since none of the ﬁrms they investigated seemed to have found stable solutions, and when they had done something ‘positive’ in one area, they had to balance its negative side effects by countermoves in others. Thus we get a lively picture of an endless stream of challenges experienced by managers populating the HQs of worldwide corporations. Compared to Bartlett and Ghoshal, our study reveals similar experimental processes, but we give much greater weight to how the subsidiaries perceive the situation. And this change in perspective makes an important difference. Certainly Bartlett and Ghoshal recognize the need to ﬁnd differentiated ways of dealing with subsidiaries as strategic needs change, and that balanced responses may require subsidiaries to play different roles. But in focusing on problems as experienced at the HQ, Bartlett and Ghoshal largely neglect how this experimental process is experienced and may lead to an accumulation of frustrations within the subsidiaries. But their study puts ours in perspective. Many of the principles of how to manage the transnational company that Bartlett and Ghoshal prescribe come close to the reforms implemented by APV’s London HQ. So is there a speciﬁc reason why these reforms did not seem to work in the ﬁrm we studied? As Bartlett and Ghoshal frankly admit, the transnational company ‘risks deteriorating into organizational anarchy—or worse, an international network of warring ﬁefdoms’. In their view, the basic protective device for escaping this situation is to ensure that managers share common perceptions and behavior based on an understanding of, and identiﬁcation with, company purposes,

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values, goals, and agendas: ‘Such a management mentality becomes the ‘‘global glue’’ that counterbalances the centrifugal forces of the transnational structure and processes’. Creating such a mentality involves communicating the company’s goals and slogans across borders through systematic procedures for the recruitment, training, and career development of managers—in short global human resource management (HRM)—through which the latter are ‘co-opted’ into the transnational solution (Bartlett and Ghoshal 1989: 175 and ch. 10, passim; cf. also the new ch. 11 on ‘developing transnational managers’ added to the second, 1998 edition). Thus in comparing Bartlett and Ghoshal’s concrete recommendations with what happened in APV, one might think that the top managers at Lygon Place had simply copied these authors’ program step-by-step. And yet the outcome in this case was something much closer to ‘warring ﬁefdoms’ than an ‘integrated network’. What made the difference? Compared to the worldwide corporations that Bartlett and Ghoshal studied, APV did not introduce these reforms into a well-established organizational structure and shared administrative heritage, whether of US formalization and standardization, Japanese centralization, or European socialization. So when the HQ managers at APV introduced the new managerial principles advocated by Bartlett and Ghoshal, these could not be seen as an incremental reform of a pre-existing system. They represented instead a radical transformation of many distinct local systems, which had very different effects in different parts of the MNC. Whereas other worldwide corporations may experiment within a pre-existing structure of subsidiaries well-known to the HQ, APV had to experiment with modifying many different administrative heritages and forms of coordination of which its top managers had little knowledge. In this respect our case might be extreme, but today in many worldwide corporations, which grow primarily through acquisitions and mergers, a similar state of warring ﬁefdoms may easily emerge despite all the countermoves suggested by Bartlett and Ghoshal. Most of the worldwide corporations studied by Bartlett and Ghoshal had been operating for many decades, gradually imposing their coordination principles—whether based on socialization, centralization, or standardization and formalization—on new establishments as they expanded. These coordinating principles indicated that the game had rules, and at least there was a system deﬁning when rules were broken. With the situation in the 1980s many worldwide corporations are reported to have felt a need to modify and change these rules. If that is true, it is important that these changes could be communicated effectively to the subsidiaries because they occurred against a background of pre-existing structures and practices. In

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this new situation, it would perhaps have been possible for some HQs to take on the new role of actively attributing new roles to the subsidiaries, underpinned by control over the direction of capital ﬂows, through which such corporations are claimed to have become an ‘integrated network’. In other words, a ‘new logic’ could be communicated because an ‘old logic’ existed and could serve to deﬁne ‘difference’ and ‘sameness’. Obviously, this situation was far from the case at APV. Through their own initiatives, the subsidiaries engaged in a game in which each observed their own indigenous rules and saw them violated by the other players, though the latter too doubtless played their cards in accordance with their own rules. Superimposed on this game, the HQ itself played a game of reforming structures and rules, but how the many interactive processes taking place within the MNC were integrated into a narrative depended entirely on the position from which it was being told. Through that process, a distribution of roles among the subsidiaries was gradually emerging, but as this could be rationalized neither from an overarching central perspective, nor from that of the various local perspectives, it did not serve to create a mutually accepted division of labor among the subsidiaries. It was through its own actions that Horsens captured a role in developing the new generation of centrifugal pumps, Eastbourne the new rotary lobe pump, and Lake Mills the new ice-cream freezer. It was through local action that Horsens experimented with new, ﬂexible ways of organizing work, and Lake Mills the new ‘pay-for-knowledge’ system to reform its seniority rules. That Horsens by this move won an extraordinary role as a ‘strategic leader’ whereas Lake Mills largely lost out to become an ‘implementer’ seems to have been the result of selective attention on the part of the HQ rather than informed decisions and foresight. As the Horsens manager was placed in charge of the global Fluid Handling SBU, he was able to transfer lessons learned in the Danish plant to other subsidiaries by assigning managers whom he trusted personally to implement them. Thus though unplanned by the HQ, APV in a strange conﬂictual way seemed to be moving towards a heterarchy or integrated network. But this state was reached by resistance rather than by design, and there was no agreed framework for deﬁning the pre-existing corporate order so that the players could recognize and evaluate each other’s moves towards a new framework based on a new set of roles. Such a ‘compromise’ may seem just as volatile as any intermediary move in the process that led to this state. Our study is not the ﬁrst to emphasize subsidiary initiatives and HQ–subsidiary relations. The changing image of the MNC has triggered new interest ﬁrst in the different roles played by subsidiaries, and then in the relatively autonomous nature of their development: a literature which em-

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phasizes the possibility for subsidiaries to capture new roles or mandates partly through their own strategic actions (Birkinshaw and Hood 1998). Ed Delany (1998: 242) in particular emphasizes that what the traditional parentcentered literature sees as a distribution of roles from the corporate center, the new subsidiary-centered literature views as a question of local ‘strategies’ and ‘strategic initiatives’, in which the ‘subversive strategists’ win out over the ‘boy scouts’ who ‘simply wait for orders from head ofﬁce’, especially if the former seek out actions that beneﬁt both the subsidiary and the parent. From this perspective, the parent does not distribute roles, but subsidiaries instead win them, which is clearly much more in line with the process which our study reveals. This entire process may be obscured if there is no pre-existing order or framework of expectations within the MNC against which strategic maneuvers can be interpreted by the other players. In that case, ‘warring ﬁefdoms’ may be not merely a risk, but the most likely outcome. Just as parent-centered MNC studies focus on the distribution of roles among subsidiaries and the overall functioning of corporate organization, but neglect how subsidiaries might experience such role allocation and functioning, subsidiary-centered studies seldom analyze how the system as a whole actually functions—or does not. The result is that a gap has emerged within current discussions of MNC organization between empirical studies of how subsidiaries behave on the one hand and the literature proposing normative solutions or models of how these worldwide enterprises should ideally function on the other—whether in the form of ‘integrated networks’, ‘heterarchies’, or ‘multi-centered/multi-focus ﬁrms’. Our study seems to be located precisely in this gap, as it investigates both the implications of the subsidiaries’ strategizing behavior for the larger corporate federation on the one hand and the (mal)functioning of the integrated network/heterarchy on the other. From our perspective, it becomes easy to see that the MNC needs to create a role distribution to stabilize the processes of its evolution, but that such a role distribution may easily become arbitrary— and therefore destabilizing—in the subsidiaries’ eyes when it is engineered by HQs that have little or no knowledge about what goes on in the latter. This observation calls into question another of the normative foundations of the ‘integrated network’ or ‘heterarchy’: its purported ability to organize worldwide ﬂows of local learning and innovations. In recent years, a growing number of researchers have studied this issue. Examining German ‘vanguard’ subsidiaries in Britain and the ‘reverse diffusion’ of new practices to their parent companies, Ferner and Varul (2000) found that this occurred in half of the cases studied. These authors focused on HRM practices such as the management of performance, careers, and ‘culture’, as well as Japaneseinﬂuenced ‘lean production’ techniques based on inventory reduction,

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continuous improvement, and teamworking. They found that reverse diffusion of these practices from British subsidiaries to German parents occurred more strongly in corporations with worldwide product markets rather than in polycentric subsidiaries serving national markets. In most cases such diffusion took place ‘casually as a result of informal information ﬂows’ (Ferner and Varul 2000: 130), but they also came across a few examples of more formalized transfer mechanisms proactively coordinated by the corporate center, such as management audits of operations in different parts of the world through which innovations in the periphery could be identiﬁed by the central HQ; cross-national ﬂows of personnel; and human resource committees with representatives from many countries. In other cases, however, subsidiaries themselves had to take an active role in diffusing new ideas: [S]ome of the case-study companies revealed an important lesson for subsidiary management: in order to inﬂuence the centre, they had to understand and even assimilate the management style and thought processes of the German company. It was almost as if the subsidiary had to ‘Germanize’ itself before it could ‘AngloSaxonize’ the parent. One way this was achieved was through individuals who had an intimate knowledge of how the centre worked, perhaps because they were German themselves, or had spent time there. This allowed them to innovate successfully without falling foul of the micropolitics of the subsidiary-HQ relationship. (Ferner and Varul 2000: 135)

In other words, subsidiaries must learn ‘how to play the game’ of the HQ if they want to inﬂuence and inform their corporate parent. Furthermore, according to Edwards (1998; cf. also Ferner and Varul 2000: 133), this ‘vanguard’ role is more likely to be played by larger, brownﬁeld subsidiaries than small greenﬁeld plants, suggesting that it takes experience and power for a subsidiary to succeed in imposing on HQs the processes of the ‘integrated network’ or ‘heterarchy’. The organization does not spontaneously function in that way, but may be induced to do so by local action. In a recent study Tony Edwards (2000) comes almost to the opposite conclusion. Like Ferner and Varul, Edwards also looked for reverse diffusion from subsidiary to parent in ten British-owned plants. He divided the MNCs in his study into four categories: (1) small conglomerates (structured around national subsidiaries with little integration across borders); (2) small single-product MNCs (with a moderate degree of production integration); (3) medium and large related-product MNCs (possessing a matrix structure and moderate production integration within each division); and (4) globally integrated ﬁrms (with highly integrated production within divisions). In neither of the ﬁrst two categories did he ﬁnd examples of reverse diffusion. Even more surprisingly, reverse diffusion was hardly visible in the third

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category either. Only in the two MNCs which fell into the fourth category were there clear signs of reverse diffusion. Edwards uses these ﬁndings to dispute how widespread in practice are transnational heterarchies or integrated networks among MNCs. He believes reverse diffusion to be almost unthinkable in young MNCs, as a lengthy process is required to build the ties that allow for such integration, and in most cases (the only exception he mentions is ABB) it also takes a centralized authority to get the job done. In other words, in order for a heterarchy to function in practice as it is supposed to in theory, must it be a hierarchy? Measured against both Ferner and Varul’s and Edwards’ ﬁndings, APV, though falling somewhere between the second and third categories of the latter’s typology, seems to demonstrate an abundance of cross-border learning and reverse diffusion. In this light, our case could be understood as one in which global integration and cross-border diffusion of innovations and practices has been very successful, rather than being interpreted as a case of confused experimentation. But insofar as APV was successful in this regard, it was obviously because the local players carried their local learning to other localities and involved them willingly or reluctantly in their own experiments. The central HQ in London, by contrast, was basically cut off both from this process of experimentation and from the communication of its results. What emerges, however, from our case as well as from these studies on reverse diffusion is the fact that MNCs only rarely seem to have built up formal systems capable of tracking subsidiaries’ contributions to companywide learning, process improvement, and product development. Mechanisms seem to be lacking through which different organizational units might learn to recognize or to fear the creative contributions each actually makes within the ongoing stream of reciprocal strategic interaction within the MNC. If this is true, then instead of engaging in an endless process of integrating the MNC, HQs may be occupied instead in orchestrating the mutual rivalry among its constituent subsidiaries, seeking thereby to diffuse centrally developed innovation and management concepts. This view emerges most clearly from a number of studies conducted during the ﬁrst half of the 1990s (Mueller and Purcell 1992; Mueller 1996; Martı´nez Lucio and Weston 1994). The core of the argument is that as a result of globalization and especially the completion of the single European market, ﬁrms in industries facing strong competitive pressure and high capital costs—notably automobile manufacturers—are striving to integrate their operations along just-intime principles at a regional level as well as in individual plants. This cross-border logistical integration makes such ﬁrms more vulnerable to disruption through strikes. But it also enables central management to use

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the threat of withholding future investment to discourage strike action, ensure compliance with corporate policies, and put pressure on local bargainers. In addition, ‘such ‘‘reward-and-punish tactics’’ can be backed up by cross-border quality and productivity comparisons’ (Mueller and Purcell 1992: 20). Primarily to increase capital utilization and machine running time, but also to secure rapid diffusion of Japanese-style work organization, European automobile manufacturers are reported to have pressured their subsidiaries in different countries to compete with one another in concession bargaining with local unions over ﬂexible working practices through selective allocation of new investments vital for plants’ current and future viability. In this case it is the HQ that diffuses new practices from the center to the periphery in a very forceful way, sweeping aside local regulations and constitutional orderings. Thus the concepts of ‘the invisible hand’ and internal competition within the MNC are orchestrated and intelligently exploited by the central HQ, which could be said to impose a centrally developed rationality on the subsidiaries, who beneﬁt if they abandon their local rationalities. In a subsequent article, Mueller (1996) sees the strategic negotiations involved in this process as capable of securing both efﬁciency and commitment through a contingent use of ‘fostering’ and ‘forcing’ tactics, thereby eliminating the need for the normative integration and cultural cohesion postulated by Hedlund’s model of heterarchy. To advance such a process HQs, rather than seeking to understand their subsidiaries, have allowed themselves to ignore their distinctiveness. As Mueller observes in relation to the automobile industry: [D]ependence upon local resources, need to gain local legitimacy, and reliance on sales in local markets have not signiﬁcantly changed. What has changed, however, is MNCs’ increasing willingness to engage in ‘regime shopping’ irrespective of the consequences for their legitimacy or even sales in certain national markets. This heightened readiness may be due in part to the uncertainty surrounding the multitude of factors inﬂuencing either of those variables. (Mueller 1996: 353)

Although we did not observe much competition for investment at APV, primarily because few new projects were being authorized during a prolonged period of divestments and head-count reduction, it is nonetheless obvious that HQ managers were not greatly concerned to ensure the legitimacy of their actions in the eyes of subsidiaries and host countries. Perhaps this reﬂects a shift from a situation in which populations and governments were skeptical towards foreign investments and takeovers towards one in which states, regions, municipalities, and unions compete with one another to attract such investments. Our case provides an extreme illustration of this

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tendency, as it was the national business groups, including the unions, who took the initiative in seeking to be acquired by the foreign MNC. If this general diagnosis is correct, it may be the case that during the same period when internationalization of business has intensiﬁed, favorable political conjunctures have allowed central HQ managers to neglect or ignore the more difﬁcult managerial challenges of running an MNC. And this may also explain the limitations of the managerial approaches reported in the literature. The research on both investment bargaining and reverse diffusion observes that managers are mainly trying to diffuse certain ‘Anglo-Saxon’ adaptations of Japanese HRM and work organization practices, together with various benchmarking and performance measurement procedures. Some commentators such as Mueller (1996) see this process as leading to a new wave of convergence in which established national patterns of work organization and industrial relations are being destroyed. If this were true, one could say that the consequence of this speciﬁc political conjuncture, which allows MNC managers to ignore the diversity of the subsidiaries they are managing, would ultimately be to destroy the foundations of that diversity itself. But other recent studies of these issues are more careful in their empirical observations and more nuanced in the conclusions they draw. Thus for example Martı´nez Lucio and Weston (1994), who also studied the European automobile industry, show that MNC HQs may strengthen unions and works councils in host countries through the very process of investment bargaining by giving local workforce representatives access to new types of company information, thereby unintentionally triggering demands for further information and participation rights, as well as the establishment of ‘loose organizational networking’ with their counterparts in other plants to advance these goals. Management efforts to change working practices, these authors report, not only ‘continued to confront the reality of externally and historically constructed legacies of individual worker rights’ in countries like Germany, Spain, and the UK, but through the responses they evoke from the workforce and its representatives may even reinforce the distinctiveness of national industrial relations systems (Martı´nez Lucio and Weston 1994: 120). In a similar manner Ferner and Varul (2000: 137) are careful not to overestimate the tendency towards convergence resulting from reverse diffusion: [T]here is some evidence that the practices disseminated from vanguard subsidiaries of German MNCs may become transmuted into elements within a managerial repertoire that remains basically German. For example . . . components of the Anglo-Saxon notion of business ‘culture’ are being adopted (sometimes enthusiastically) by German MNCs, but they are being assimilated in such a way as to change their signiﬁcance. . . . In other words, one may be witnessing a process of ‘AngloSaxonization in the German manner’. . . rather than the radical weakening of the

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German model . . . . To appropriate the terms of cultural anthropology, borrowed elements may be regarded as objets trouve´s, whose original purpose is transformed as they are inserted into a preexisting set of structures and values. This is the business equivalent of Levi-Strauss’s notion (1966) of ‘bricolage’—using ready-made elements to construct very different cultural artefacts.

Thus what emerges from these studies and from the contrasting positions in the broader debate is a hazy if not altogether contradictory picture, but also one in which few participants have felt the need to address the full intensity of the challenges involved in managing diversity within global ﬁrms. Thus at one extreme, MNCs can be seen as ‘warring ﬁefdoms’, while at the opposite pole they appear highly centralized, able to provoke mutual rivalry among subsidiaries and to discipline divergence into convergence. In some MNCs, primarily of Anglo-Saxon origin, there has been a clear policy of seeking to diffuse Japanese-inspired practices by ‘forcing’ and ‘fostering’ through investment and concession bargaining, i.e. a policy based on techniques of domination. In others, primarily of continental European origin, there has been a willingness to learn from subsidiaries’ experimentation with new practices, or rather the subsidiaries have learned to strategize in such a way as to impose on HQs practices they have discovered that might help to improve the performance of the MNC as a whole. But in neither case do there seem to have emerged structures or deliberate administrative processes that could tame the interaction among the various parts of an MNC. Even the more normative literature, when examined closely, seems to be easy to dislodge from its idealized vision of smoothly functioning organizational design into a social space of ‘warring ﬁefdoms’. Consequently, the processes we encountered at APV seem not at all exceptional but rather pretty well in line with the larger experimental setting in which MNCs have sought to construct themselves as organizational actors over the past two decades.

2. ABB: The Transnational Solution in Action? In the absence of a robust intellectual template for organizing the sociopolitical processes within MNCs, managers have often looked for inspiration to companies which the business press has identiﬁed as especially excellent. Jack Welch of General Electric and his ‘ﬁx it or leave it’ recipe of retaining only those businesses which could be ‘either number one or number two’ in the world market for their product attracted a lot of admiration, and probably caused many HQs to sell off products and subsidiaries, despite

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the fact that Welch and GE actually spent many years developing businesses that did not originally meet these criteria.1 Similarly the Swiss-Swedish multinational Asea Brown Boveri was among the most widely admired companies of the 1990s, and has often been considered one of the best living examples of the integrated network or heterarchy. Thus as Bartlett and Ghoshal (1998: 259) remark in the second edition of their book: ABB . . . was putting in place many of the concepts we were describing in Managing Across Borders at precisely the same time we were writing about them. Formed in 1998 through the merger of the $7 billion Swedish power equipment giant, Asea (a truly international organization in our terminology) and its $6 billion Swiss-based rival, Brown Boveri (an archetype of the multinational organization), ABB has developed into a classic transnational organization.2

In one of the most careful and detailed studies available on any MNC, Be´langer et al. (1999) paint a very different picture, focusing particularly on ABB’s power transformers business. This Business Area (BA) was created through a succession of mergers and acquisitions involving not only ASEA and Brown Boveri but also Westinghouse, GE, and various local contenders. This is an industry in which there used to be strong national linkages between equipment suppliers and electrical utilities, who developed the technology in close interaction. At a higher level, transformer manufacturers used to collaborate through international cartel agreements, and in recent years this business has experienced a rapid process of consolidation as ABB, GEC/Alsthom, and Siemens enhanced their presence on the global scene. With the gradual privatization and deregulation of electricity suppliers in many countries, this business has undergone a dramatic change, resulting among other things in declining demand for power transformers. ABB may be seen as distinct within the family of MNCs insofar as it has stuck to a matrix structure in which each subsidiary is connected to two lines of authority, the national ABB managers and the international BA managers: Jokingly, but only partly so, the BA managers are called the ‘bad guys’, looking for results expressed in proﬁts and physical performance, throughput times in particular. The BA managers are blamed for initiating downsizing and closedowns. The national ABB managers, on the other hand, are called ‘the good guys’, taking responsibility for local customers and their own employees and honored for defending threatened workplaces. (Be´langer et al. 1999: 37) 1 In 1995, Welch was opposed by a group of middle managers who rejected his general policy and convinced him through dialogue of the need to develop new businesses which would only achieve these goals at a later date. According to Hansen (2001), a major share of GE’s 64% growth between 1996 and 2001 can be attributed to this policy shift. 2 Cf. also Bartlett and Ghoshal (1993); and Ruigrok et al. (2000), who term ABB a ‘network multidivisional organization’.

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In the Be´langer et al. study we learn primarily about the strategic interplay between the BA and subsidiaries. Compared to our study of APV, the BA managers were able to assume a very powerful and strategic role. This was no doubt rooted in the fact that the subsidiaries were each forced to focus on their own national market, whereas responsibility for the allocation of export orders rested with the BA, which thus functioned like a powerful secretariat for implementing international cartel agreements. In addition to this key task, however, the BA also assumed the role of promoting a synthesis between localized manufacture and global economies of scale. As a means of achieving this synthesis, it adopted American-inspired techniques, partly borrowed from General Electric, Westinghouse, and Motorola. Despite possessing only a small headquarters staff ‘with a handful of vice presidents and a secretary’, the Power Transformers BA embarked on an ambitious set of worldwide performance improvement initiatives: the Common Product Program, the Lean Supply Program, the Six Sigma Total Quality Management Program, the Model Factory Program, and the Customer Focus Program. Across these programs ran a coherent philosophy of Time-Based Management, coupled with a performance measurement system known as ‘Seven Ups’ (a forerunner of the Balanced Scorecard), which benchmarked each plant and subsidiary according to return on capital employed, result margin, revenues, failure rates, throughput times (both manufacturing and total), along with other quality and efﬁciency indicators. In other words, the BA chose seven measurement ﬁelds: quality, efﬁciency, production, supply management, training, sigma rating, and customer satisfaction, while the metrics dealt with total throughput time, test failure rate, Six Sigma value, training statistics, etc. To administer this performance benchmarking process, the BA operated a computerized reporting system, and subsidiaries paid a ‘tax’ to the BA to cover the cost of running the centrally initiated programs (Be´langer et al. 1999: 54–6, 251). From Be´langer et al.’s account it becomes quite evident that this form of program management in association with benchmarking provided the subsidiaries with a common framework that created a comprehensive set of rules for their reciprocal strategic game. Especially for plants coming from the Westinghouse legacy of low investment, membership in ABB offered a chance of catching up with the higher performance standards of the former ASEA facilities, while the Seven Ups system gave them a chance to prove that new investments combined with downsizing could improve their benchmarking scores. Some managers used this system to put pressure on local industrial relations, in accordance with the ﬁndings reported by Mueller (1996) and Mueller and Purcell (1992). But interestingly enough, certain subsidiaries, able to earn high proﬁts due either to especially favorable local

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customer relations (one plant in Canada and the plant in Australia) or to technological superiority (the old ASEA core plant in Ludvika, Sweden) were reluctant to participate in the general game, and only started to participate when performance at some of the former laggards started to outpace their own benchmarks. And this system also gave another plant (Vaasa in Finland) the opportunity to move from a peripheral role to become the templatemaker for an entire new program, the ‘Model Factory’, for the BA as a whole, and as in the case of Horsens to take on broader international responsibilities (initiating and managing a new plant in Vietnam). When comparing our study with that of Be´langer et al., there is a striking contrast in the BA’s effectiveness in implementing its plans on the ground, which in the case of APV often remained little more than blueprints conﬁned to its London HQ. Part of the explanation is no doubt that ABB’s Power Transformers BA had much more efﬁcient sanctions available to punish disobedience: BA headquarters has two potent means of correcting unsatisfactory plant performance, namely, export allocation and management promotion, notwithstanding the matrix. Export allocation carries a lot of weight. If no exports are given, it might mean the end of a plant. A good reason for allocating export orders according to the BA management would be superior plant performance in general, especially swiftness and on-time delivery record. When a plant is performing below the norm and expectations, the allocation is normally withheld. The local plant has to get its house in order before it gets orders. Exports are not used as a way out of local crises. Management promotion is a riskier way of inﬂuencing plant performance. There is a considerable turnover of plant managers, especially in important and consequently ‘hot’ positions. Ludvika has, for example, seen seven plant managers during ﬁfteen years without dramatic improvement in performance . . . . The very successful plant manager of Vaasa was in that position for eight years but is now in charge of the Hanoi venture. (Be´langer et al. 1999: 58–9)

In Bartlett and Ghoshal’s (1989, 1998) own terms, ABB’s Power Transmission BA may thus be said to have changed a multinational federation into an international or global rather than a transnational organization. Adopting American-inﬂuenced variants of Japanese management practices led to standardization and formalization of the subsidiaries’ operations rather than to attempts to identify a differentiated set of roles for them to play towards one other in the international game. The major achievement was to furnish many national markets with modernized, world-class plants that could each cater for their domestic customers in a competitive way. But as most of these national markets have declined or stagnated following privatization and deregulation, ABB seems to have created a highly efﬁcient and standardized system of plants that could deal in a similar way with a rapidly

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declining market. For each of the plants involved, the situation looks increasingly difﬁcult, because today more than ever export markets are held by wellperforming plants. Especially for the former ASEA plant in Bad Honnef, Germany, Rainer Schutz-Wild (1999) paints a picture where there was no obvious way out. The Ludvika plant, which hardly conformed to the BA’s policy and tried instead to take the technological lead in developing a new type of power transformer, seemed to have much better options. And the Vaasa plant, by outperforming all others in benchmarking rivalry, put a small player in a very favorable situation. But as the modernization of laggard plants came to an end and most survivors were performing fairly well, the business of allocating exports was becoming less and less important, which also means that the BA’s position was becoming weaker. Thus by the end of Be´langer et al.’s study, ABB’s Power Transformers BA appeared to be entering a much less clear reciprocal game among its players. This development has signiﬁcant consequences for the balance between convergence and diversity. It is obvious in the case of ABB’s Power Transformers BA that a set of American-inspired management techniques led to a high degree of uniformity and standardization, which may dominate for a certain period how the subsidiaries operate in their national settings. But as the study of ABB makes clear, benchmarking competition among subsidiaries also leads to renewed divergence even in a mature industry like power transformers, as innovative plants like Vaasa draw on their local customer relationships, social arrangements, and institutional resources to develop new ‘best practices’, which in turn become ‘role models’ for the others (Be´langer et al. 1999: 262–3). In more innovative Business Areas, such as Automation, or more skill-based ones, such as Power Plant Production, Behr (1999) and Berggren (1999) show that ABB functioned much less coherently, and resembled more closely the situation we found at APV. Though these businesses were also managed according to ABB’s central benchmarking system, this seems to have had much less direct impact there than in the Power Transformers BA. Thus as Behr (1999: 221) observes: The result of my research is that speciﬁc incentives for improvement are not derived from centrally espoused programs such as Customer Focus, TBM and TQM, but mainly from increasing customer demands regarding delivery times and precision, price and quality. Another principal factor is the dramatic increase in competitive pressure, both from external competitors and other plants in the network. From this perspective, implementing central programs means ‘translating’ actions, which are in any case necessary, into the terms of a relevant program and reporting them as program activities.

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For Behr it is an important part of the life of a multinational that managers adopt similar terminologies, but what these terms cover differs sharply from one plant to the next. To demonstrate this point he shows how the common concept of ‘group work’ or ‘teams’ means very different things in ABB plants in Poland, Switzerland, Germany, and Sweden, each of which ‘pursues different organizational objectives, different degrees of decentralization, and different approaches to reorganization’, leading to wide variations in outcomes, which run the gamut from ‘traditional’ and ‘structurally conservative’ to ‘polarized’ and ‘innovative’ (Behr 1999: 222–8). It is signiﬁcant that such differences in the local interpretation and application of apparently general concepts such as ‘group work’ ﬁnd no place within the corporate reporting system, nor do they appear to be understood or acknowledged by the lean, program-oriented BA managers. If subsidiary managers seek to articulate such differences, they are perceived instead as making ‘bad excuses’. When the authors of the ABB study summarize how learning has taken place within the MNC, they conclude: Bad ratings do not only inspire learning and improvements but a lot of excuses as well. One of the most frequent ones is to question the measurement system. Creativity is triggered on explaining away bad results, not on planning and taking action with the aim of improving them. This unlucky outcome seems to be most likely when the ranking list is revolving, that is, when plants and companies that used to look on themselves as the very best, as teachers and missionaries, have difﬁculties in readjusting to new roles as hopeful pupils. Denial and repression are two well-known psychological defense mechanisms that apparently function on an organizational level as well. How to handle falling former stars is a challenge that the Seven Ups approach has difﬁculties in coping with, but it has worked very well for some of those in an early catch-up position. (Be´langer et al. 1999: 254)

Whether this is the authors’ interpretation or expresses the views of the BA managers (as seems likely) is of crucial importance. If it echoes the latter, it illustrates that the BA not only had institutionalized a language that obscures differences in contexts and practices, but also was determined not to understand the critical responses of the subsidiaries as anything other than ‘bad excuses’. To the analysts, however, this should immediately raise a red ﬂag. For it might be difﬁcult for innovative subsidiaries to have their performance properly assessed and recognized if they have developed entrepreneurial abilities that do not ﬁt the standard metrics. In our study of APV it was considered an important problem, especially in Horsens, that the London HQ did not properly account for the plants’ track records. Though the ABB Seven Ups system is no doubt much more elaborate, the dismissal of ‘bad excuses’ could be a sign that it has similar defects. At ABB, moreover, the

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performance measurement system was applied with great consistency for nearly a decade, whereas at APV, new metrics seemed to come and go in response to changing managerial fads embraced by new executives or consultants. Paradoxically this could mean that the BA policy in ABB was much more efﬁcient in producing damaging effects. No doubt this policy institutionalized reciprocal competition among its subsidiaries, but it also focused this competition very narrowly on a small range of issues. In the ABB case, the BA was able to recognize subsidiaries’ contributions, but only to the extent that they ﬁt within the limited framework according to which the HQ measured the world. Indeed, as the HQ appears to have translated all critical messages into bad excuses, it systematically ignored whatever alternative paths of development might have been possible.3 And it may thus come as less of a surprise to discover that over the past few years ABB has fallen rapidly off the list of ‘most admired’ companies amidst a collapse in its share price triggered by mounting ﬁnancial liabilities and corporate governance scandals, which analysts now consider symptomatic of deeper and longstanding structural and strategic weaknesses.4

3. Balancing Competition and Cooperation Thus much of the recent empirical literature on MNCs concurs that HQ managers either institutionalize or accept competitive rivalry among subsidiaries and that the latter engage quite willingly in such reciprocal games. But 3 For a parallel critique of the limited ability of ABB’s transnational matrix organization to mobilize dispersed knowledge from its operating units, largely because of the way its performance measures and incentive systems rewarded ‘farmers’ rather than ‘explorers’, see Doz et al. (2001: 90–100). 4 The proximate cause of ABB’s recent difﬁculties was the exposure of vast asbestos liabilities stemming from the acquisition of the US Combustion Engineering group in 1989, followed by a highly public dispute over pension payments to the company’s former star managers Percy Barnevik and Go¨ran Lindahl. But ABB also lost hundreds of millions of dollars during the late 1990s on a new generation of gas turbines which were rushed to market without proper testing in order to meet ambitious corporate growth targets, leading to the sale of the group’s entire power generation business to Alsthom in 2000. Financial analysts attributed these debacles to continuing board-level inﬁghting among nationally rooted managers and investors, together with structural weaknesses in ABB’s product-country matrix organization, which was modiﬁed in 1998 and replaced in 2001 by a new structure based on a combination of four customer and two product segments. As the new chief executive Jorgen Centerman himself now argues, ‘Our problem was that we worked as a loose federation of businesses rather than one company. We need to concentrate on the synergies’—a refrain strikingly similar to that voiced by top managers during successive waves of corporate reorganization at APV. See Christopher Brown-Humes et al., ‘From Admired to Mired: A Powerhouse Adrift’, FT, 11 Mar. 2002; Peter Marsh and Dan Roberts, ‘ABB Chief Offers Lesson in Being Upbeat’, FT, 7 June 2002 (quotation); William Hall, ‘ABB Entrusts its Future to ‘‘Brain Power’’ ’, FT, 12 Jan. 2001.

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compared to this literature, our case seems more profound, as the strategies adopted by APV’s subsidiaries were more offensive and farther-reaching than anything we have seen described elsewhere, demonstrating the persistence of an independent entrepreneurial spirit in each of the units. In our case, for example, both Eastbourne and Horsens autonomously initiated the development of a new generation of ‘world pumps’ in advance of any central guidance or direction. The case of APV likewise demonstrates that this competitive game may in fact develop into ‘warring ﬁefdoms’. Competitive positioning and struggle for social space among the subsidiaries and SBUs in this case not only led them to pursue improvements in their own performance, but simultaneously to attempt to harm their counterparts elsewhere. As the studies by Be´langer et al. (1999), Mueller and Purcell (1992), and Mueller (1996) demonstrate, centrally orchestrated competitive rivalry may be controlled (at least for a time), but only at the cost of limiting the innovative potential of subsidiaries to the implementation of HQ-invented or-initiated ‘programs’. It is strange that none of these studies try to explore in greater depth how multinationals may strike a balance between competition and cooperation, and how such a balance may be monitored. And there do indeed seem to be important mechanisms meriting further exploration. In discussing the studies by Ferner and Varul (2000) and Edwards (2000) earlier, we did not call attention to the fact that the former found evidence of reverse diffusion in 50 per cent of the German-owned subsidiaries in their sample, whereas the latter encountered this phenomenon in only two of ten Britishowned MNCs. This could indicate that the very diverse managerial practices of the two countries (cf. Stewart et al. 1994) may give rise to very different ways of balancing competition and cooperation, but to our knowledge no study has investigated how and why. It could be, for example, that the cooperative hierarchy said to characterize German MNCs made it easier to strike such a balance (Whitley 2001).5 This might also suggest an empirical limitation on the generalizability of our ﬁndings from the APV case. As Morgan (2001: 17–18) points out, British and American MNCs may be distinctive for the absence of social and technological ‘integrating mechanisms’ around which cooperation and learning can be deliberately constructed. In the literature on industrial districts, by contrast, there is broad agreement that the most successful regions have been able to strike a balance 5 Alternatively, as Edwards and Ferner (2002: 98) argue in a recent article on employment practices in American multinationals, the greater incidence of reverse diffusion in German MNCs may be due to the tendency for ﬁrms to use their subsidiaries in more successful or ‘dominant’ economies such as the US (or by extension the UK) ‘to gain access to new practices which are subsequently diffused across their operations’. But such ‘dominance effects’ do not satisfactorily explain why UK ﬁrms should not be more interested in reverse diffusion from their foreign subsidiaries, including those in the US.

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between competition and cooperation. But here too there is little consensus on how and why this balance becomes established and is maintained. Some commentators focus on how trust has emerged through historical accidents and serves to embed economic transactions within a larger set of social relations in which advancement becomes impossible if individuals aim only at instrumental gain. Others emphasize instead the distinctive evolution in particular places of network ties among local actors based on a common culture of mutual obligation and respect. Either way, however, industrial districts are presented as unique historical artifacts which can be found but not made, whose example only serves to underline the difﬁculty of harnessing self-interest to cooperation through conscious design.6 At the opposite end of the theoretical spectrum, as Charles Sabel observes, rational-choice analysts have responded to the widely acknowledged impossibility of ‘devising optimal incentive schemes that align the interests of principals and agents’ by falling back on the idea of cooperation as the result of self-validating expectations of long-term mutual gains among potential collaborators. This is the theme of the theory of repeated games: If each actor calculates substantial gains from long-term cooperation with the others, and puts a high value on future as against immediate returns, then none will put these returns at risk by defecting opportunistically from current agreements. From this point of view a reputation for fair dealing is the equivalent of a performance bond posted at the beginning of each transaction. . . . If the actor is caught cheating, the bond is forfeit; thus fear enforces ﬁdelity to promises. The limitation of the view, of course, is that cooperation can unravel as quickly as it is woven: Any change in expectations about the likelihood of future dealings, their return (as valued in the present), or the possibilities of undetected cheating . . . can abruptly make cheating attractive for some of the potential collaborators so that the prospect deters the others from proceeding. (Sabel 1997: 114)

When an MNC is created through mergers and acquisitions of former rivals, no historical bonds of trust or networks of mutual obligation and respect are likely to exist among its constituent units. Thus collaboration might be more 6 Other analysts, including one of the authors of this book, have argued instead that relations of trust within industrial districts should be seen more as a consequence than a precondition of practical cooperation among local actors. Institutional mechanisms for dispute resolution and provision of collective services, on this view, have historically played a key role in balancing competition and cooperation within industrial districts. While the social consensus necessary for the smooth operation of a decentralized industrial structure may build on common formative experiences in the past, it can only be sustained over the longer term through the creation of conﬂict resolution procedures whose operation is considered fair by all the parties concerned. For this perspective and a critical review of the literature, see Zeitlin (1992); Sabel (1992); Sabel and Zeitlin (1997). We will return to these arguments in discussing the need for organizational mechanisms to ensure procedural justice and mutual commitment in HQ–subsidiary relationships within MNCs in Chs. 10–11.

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plausibly fostered by the expectations of longer-term gains from repeated games. In our case study, such expectations did in fact motivate the individual national entities to seek membership of the multinational federation, but something seemingly went wrong in the process and the reputational bond became forfeit. From this perspective, it may be interpreted as a very strong symbolic action in favor of cooperation that the British MNC structured itself as a conglomerate association of rather independent national corporations/ holding companies in the ﬁrst place, only distributing cross-country coordinating responsibilities at a secondary level. By so doing, the London HQ signaled that these national corporations could continue to operate as in the past, but would gradually learn to beneﬁt more and more from working together within the larger association. And APV’s painful decision to close down its own home manufacturing facilities at Crawley could also have been interpreted as a sacriﬁcial offering to stimulate the development of crossnational collaboration and trust within the new multinational association. It was doubtless with the best of intentions, similarly, that the German Rosista managers launched their plan progressively to reduce valve production at Horsens and to concentrate it in the Unna plant, believing that the resulting specialization and economies of scale would in the longer term beneﬁt APVas a whole. For that very same reason, as we have seen, Horsens too was eager to cooperate and to prove its worth as an excellent provider of pumps and valves for the entire APV group, resulting in a head-on clash between these two competing projects of collaboration. This is a highly revealing example, which illustrates that actions intended cooperatively may be interpreted by others as the opposite—if not as deliberate cheating then as an act of enmity. Another case in point is the fact that the HQ sold and leased back its ﬁxed assets after having acquired the Danish business group. From London’s perspective, this was no doubt seen as a highly responsible action, since the HQ could thereby expand the resources available for its subsidiaries while reducing corporate debt, thereby minimizing the potential threat to the multinational association as a whole of a hostile takeover bid. But this protective act, as we saw earlier, was interpreted by Horsens as a sign of APV’s limited loyalty towards its Danish subsidiaries. Within Horsens’s own particular narrative, this act served as a strong indicator of the British MNC’s lack of long-term commitment to Denmark, and thereby provoked its radical suspicion. It did not help reduce this suspicion that the HQ simultaneously admitted openly that it was prepared to sell off any ‘non-core’ subsidiary if offered an appropriate price. Even external observers may imagine that such a declaration could be read as an open declaration of the war of each against all. Yet this was also seen in London as a very responsible act, which could increase the HQ’s ability to stabilize the situation for the remaining

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subsidiaries. That the HQ would be prepared to sell off its loss-making activities is comprehensible to most of the proﬁt-earning entities, but that they were also prepared to sell off even its best-performing subsidiaries seemed to represent a total imbalance between inducements and contributions. Nor did the division of units into ‘core’ and ‘non-core’ activities make the process appear less arbitrary, since this classiﬁcation changed repeatedly with each successive corporate reorganization. As we have seen, moreover, losses and proﬁts were not necessarily distributed among the subsidiaries in line with their actual performance, so from this perspective, too, the divestment policy could be considered beneﬁcial for the entire group in London’s eyes. And it might also be possible to imagine situations in which it would be reasonable for the HQ to transfer resources from proﬁt- to loss-making subsidiaries in order to be able to sell off the latter at a better price for the beneﬁt of the remaining group. What we see in this process is that bonds of cooperation are forfeit not as a result of deliberate cheating but because of the inability of the players to make proper sense of what lies behind and motivates each other’s actions. Each actor did indeed reﬂect intensively upon the other’s actions, but since they attempted to make sense of these from their own local narrative perspective, they arrived at highly distorted interpretations. None of them ever tried—or were given the chance—to explain to the others the reasons for their actions. As external observers, we have done our best in the preceding analysis to make sense of how the actions taken in London could be seen as collaborative. But the HQ hardly sought to do so, nor did managers try to explain the basis for their actions to the subsidiaries. Thus Lygon Place seems to have been just as encapsulated within its own indigenous self-referential world as were its subsidiaries. But it was even more harmful that rather than using misunderstandings to initiate corrective reﬂection on each other’s behavior, the individual actors seemed to accumulate one misunderstanding after another. In effect, each subsidiary’s aspiration to contribute cooperatively to the association was transformed into suspicious expectations. Fairness and balance were assumed to be scarce resources. Such vicious circles of non-cooperation might be expected between actors engaged in arm’s-length market transactions. But would we expect to ﬁnd them so systematically entrenched inside an organization such as an MNC? Should this not be seen as a case of managerial failure? If so, the problem is to establish what the failure is all about. Thus Weberians would see it as a failure to institutionalize proper bureaucratic regulations for the ofﬁce-holders’ behavior and to delegate the right authority to the proper levels within this huge organization. Culturalists would see it as a failure to infuse the

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organization with the values through which people could participate in actions in a consistent way, making it possible to harvest the gains of an emerging heterarchy. In the next chapter, we will argue instead that these failures should be understood as a consequence of APV’s adoption of a multidivisional organization characterized by a sharp separation between strategic and operational decision-making. Confronting this organizational form with the necessary functions of the executive identiﬁed in the classic work of Chester Barnard (1968/1938) will offer us a better clue to determining what went wrong. Far from being exceptional, as we shall see, APV’s difﬁculties in orchestrating collaboration among its constituent units seem thus to have originated in an administrative heritage common to many MNCs which have developed along multidivisional lines.

9 The Functions of the Executive Revisited: Contributions, Inducements, and Constitutional Ordering 1. The Multidivisional Form: Part of the Solution or Part of the Problem? Multinational corporations, as we have seen in previous chapters, are widely agreed to pose a thorny challenge to organizational theory, since there is no obvious structural solution when a ﬁrm needs to be coordinated both across product lines and geographical territories (Bartlett et al. 1990: 19). Doz and Prahalad argue that the distinctive management problems of diversiﬁed multinational corporations (DMNCs) compared to simpler forms of business organization stem from the fact that they are not only multidimensional but also internally heterogeneous: Multidimensionality results from the very nature of DMNCs: they cover multiple geographical markets with multiple product lines in typically multifunction activities such as sales, manufacturing, service, R&D, and so on. DMNCs therefore face the problem of structuring the interfaces among multiple dimensions intrinsic to their activities. In turn, multidimensionality means that no simple, unidimensional, hierarchical solution to the issue of structuring the DMNC exists . . . . Beyond the structural indeterminacy of DMNCs lies the need to handle multiple stakeholders, externally and by reﬂection internally, and multiple perspectives on choices and decisions. Simple concepts of centralized versus decentralized organizations break down in the face of structural, strategic and political multidimensionality, calling for more complex, ‘multifocal’ approaches that constantly reach trade-offs among priorities expressed in different dimensions . . . and embodied in different management subgroups. Heterogeneity results from the differences between the optimal tradeoffs for different businesses, countries, functions and tasks as a function of a whole range of economic and political characteristics that differ between countries and affect individual businesses and tasks in quite varied ways . . . . To be applied to DMNCs an organizational theory must therefore incorporate a differentiated approach to businesses, countries and functions and provide enough ﬂexibility for different trade-offs among multiple dimensions to be made. (Doz and Prahalad 1993: 25–6)

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Beyond this multidimensionality and heterogeneity, however, the variability of necessary ‘trade-offs’ across countries and subsidiaries simultaneously makes it difﬁcult if not impossible for the different parts of a diversiﬁed MNC to recognize and understand each other’s behavior. It may not be readily apparent to others within the MNC how far each unit is engaged in appropriate trade-offs, as opposed to shirking, free-riding, or pursuing opportunistic goals, since balances among conﬂicting objectives that seem reasonable in one context do not immediately make sense in another. Thus subsidiaries and other units within a diversiﬁed MNC can be expected to behave differently and may not easily be able to interpret one another’s strategies and actions correctly. From this line of reasoning, it could be inferred that MNCs call for innovations in organizational structure similar to the transformations that large domestic corporations underwent when they sought to resolve their internal governance problems by changing over from the functional or unitary (U) form to the multidivisional (M) form. By devolving responsibility for operational decision-making and routine administration to divisional and plant managers, the M-form structure was supposed to have enabled top executives and their staff to focus on long-term strategy and planning, while at the same time facilitating the headquarters’ ability to monitor, coordinate, and control the corporation’s constituent units (Chandler 1962, 1977). Williamson summarized the promises of the M-form as follows: 1. The responsibility for operating decisions is assigned to (essentially selfcontained) operating divisions or quasiﬁrms. 2. The elite staff attached to the general ofﬁce performs both advisory and auditing functions. Both have the effect of securing greater control over operating division behavior. 3. The general ofﬁce is principally concerned with strategic decisions, involving planning, appraisal, and control, including the allocation of resources among the (competing) operating divisions. 4. The separation of the general ofﬁce from operations provides general ofﬁce executives with the psychological commitment to be concerned with the overall performance of the organization rather than become absorbed in the affairs of the functional parts. 5. The resulting structure displays both rationality and synergy: the whole is greater (more effective, more efﬁcient) than the sum of the parts. (Williamson 1975: 137) Another major advantage attributed to the M-form by Williamson and others was its role as a ‘miniature capital market’, allowing the top executives and the general ofﬁce to allocate cash ﬂows impartially to the most promising

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projects or quasi-ﬁrms, in contrast to the U-form, where such investment decisions were believed to be more easily inﬂuenced by vested interests and political pressures from the corporation’s constituent units (cf. also Williamson 1986: ch. 11).1 Much of the literature takes for granted that the M-form does in fact work this way and attributes the widespread diffusion of this organizational form to its demonstrated functional advantages (see for example Whittington and Mayer 2001; Kogut and Parkinson 1998). The M-form corporation is thus presented as having struck an effective balance between competition and collaboration among its various quasi-ﬁrms. Yet our account of APV calls into question the wisdom of this sharp separation between ‘strategic’ and ‘operational’ decision-making, since it was precisely the gulf between the headquarters and the operating units that made possible the cumulative process of mutual misinterpretation which turned the MNC into a war of each against all. A growing body of work re-evaluating the diffusion of the M-form and its impact on ﬁrm performance has begun to question whether divisionalization really has solved the problems associated with the growing size and diversity of corporations, or just framed them differently.2 In a recent pioneering study, Robert Freeland (2001) has challenged many of the empirical premises on which the beneﬁcial qualities attributed to the M-form rest. Digging deeper into the history of General Motors (GM), the critical case for Chandler’s (1962) original study celebrating the advantages of divisionalization, Freeland shows that the separation and division of labor between the general ofﬁce and the divisions was initially neither so clear nor so radical as the pure or ‘textbook’ M-form prescribed. Despite public statements to the contrary by Alfred P. Sloan (1986/1963) in his autobiography (on which Chandler himself collaborated) and elsewhere, the chief architect of GM’s M-form structure deliberately included division managers on committees that approved policy, authorized appropriations, and reviewed divisional performance when he was allowed to do so by the du Pont family, the corporation’s inﬂuential owners. Even more surprisingly, Freeland (2001: 6) discovered that 1 Williamson also explicitly argues that the M-form structure was well-suited to the task of ‘extend[ing] asset management from a domestic base to include foreign operations’. Because ‘the transformation of the corporation along M-form lines came earlier in the United States than in Europe and elsewhere’, he contends, ‘U.S. corporations were for that reason better qualiﬁed to engage in foreign direct investments at an earlier date than were foreign-based ﬁrms. Only as the latter took on the M-form structure did that multinational management capability appear’ (Williamson 1986: 291). 2 For an extensive and balanced review of the literature through the early 1990s, see Hoskisson et al. (1993).

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GM’s long decline began only after it reintroduced a textbook M-form in 1958, following the most proﬁtable and successful decade in its history. For most of its corporate life, GM was governed by an M-form that violated the principles of efﬁcient organization and, according to prevailing theories, should have failed miserably. Yet during those periods, GM succeeded magniﬁcently, becoming one of the largest, most proﬁtable corporations in the world. In 1958, following decades of struggle between owners and managers, GM ﬁnally implemented an M-form that established a ﬁrm distinction between strategic planning and daily operations. The new organization kept division managers out of planning by putting executives at headquarters ﬁrmly in control of top committees responsible for strategy formulation. But the new structure created internal dissension and contestation that played a key role in GM’s eventual economic decline. Not only had GM’s success deﬁed the prescriptions of organization theory, so too did its failure.

One of Freeland’s major ﬁndings is that so long as there were organizational mechanisms that enabled lower-level managers to participate in a dialogue where they could question the policies and decisions of top managers, General Motors seemed to develop prosperously; but when corporate headquarters relied excessively on ﬁat, it risked transforming the consensual exercise of authority over subordinates into a mutually destructive power struggle. Creating space for voice and consultation in one form or another seems to have made the difference, while also institutionalizing new ‘rules of the game’ for ‘selling’ decisions that made justiﬁcation, rational argument, and well-informed criticism legitimate ways to contest formal, hierarchical authority among managers (Freeland 2001: 66). Freeland’s account shows how Sloan and GM eagerly experimented with different types of committees and policy groups for institutionalizing such discourses and reconciling the conﬂicting position of different stakeholders within them. In other words, within this so-called multidivisional corporation, continuous experimentation with constitutional ordering seems to have occurred, to such a degree that the principles of the M-form organization itself were periodically called into question. Thus in a 1945 letter, Sloan clearly identiﬁed the dangers for the corporation’s constitutional order of the textbook M-form advocated by the du Ponts: I accept the fact that there are on the Administration Committee executives who [have conﬂicting interests]. However, I believe . . . it is far better to have differences . . . identiﬁed, laid on the table face up and discussed. No good is ever accomplished by trying to keep differences away from people because they always know about them anyway. It leads to suspicion and lack of conﬁdence. . . . [Y]ou urge that we set up a group of supermen who have no direct operating responsibility but who lay down the major policies of the Corporation. As I said before, that is legislation

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without representation . . . . No group of supermen are [sic] so super that they know all the answers to all intricate problems involved in the business of the magnitude of General Motors. If we set up an organization of supermen, you will ﬁnd, as sure as night follows day, that this super-organization . . . will become more and more separated from what is going on in the business . . . . That gets to the point that we have not only legislation without representation, but legislation without knowledge. And that is worse. . . . [S]uch supermen would, of necessity, become academic, hence would be a greater liability to the business than an asset. (Sloan to Walter S. Carpenter, 14 June 1945, cited in Freeland 2001: 172)

As Freeland observes, Sloan’s warnings did not go unnoticed by the owners. But they did not convince the latter, who held the contrary view, expressed by Lammot du Pont, that ‘the governing committee of a corporation is not . . . set up to secure cooperation, but is set up to rule the business of the corporation’ (cited in Freeland 2001: 173). During the late 1950s and ’60s, the situation that Sloan had warned against came to pass. In response to an antitrust suit that would eventually force the du Ponts to divest their GM holdings and the owners’ growing dissatisfaction with the ‘autocratic centralization’ of power in the hands of operational management, the corporation was reorganized on textbook M-form lines in 1958. Authority was concentrated in an Executive Committee dominated by ﬁnancial men without much previous operational experience, and divisional managers were excluded from participation in strategic decisionmaking. The consequence of these changes was that strategy and accounts were increasingly discussed within a purely ﬁnancial framework, where operational concerns could hardly be expressed. This resulted in the centralization of key decisions concerning product pricing, parts standardization, and creation of a common assembly division despite warnings from operational management, whose right to participate in policy-making was explicitly rejected. Divisional managers gave up trying to inﬂuence corporate decisions and began to resist central directives, leading the general ofﬁce to rely more and more heavily on ﬁat, while lacking the detailed operational knowledge to assess how far its orders were really being carried out. As Freeland (2001: 286) points out: the absence of operating men on the corporation’s top planning committees made it more difﬁcult for New York to audit the operating side of the business; lacking experience in and knowledge of operations, these men found themselves unable to evaluate divisional proposals using anything except ﬁnancial criteria. With headquarters unable to ‘evaluate [operating] programs on any basis except the numbers,’ divisional management ‘learned how to make the numbers ‘‘come out right’’ ’ by manipulating the plans they submitted to the general ofﬁce.

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Freeland thus depicts the institutionalization of a vicious circle of mutual distrust and destruction of subordinates’ consent to top management authority very similar to what we encountered in the case of APV. Far from representing a solution to the problems of balancing competition and cooperation within large diversiﬁed corporations, Freeland sees the implementation of a textbook M-form structure at GM after 1958 as a source of organizational degeneration due to the loss of inﬂuence and participation in decision-making by managers with operational knowledge and experience. Chandler (1994) himself comes to a very similar conclusion about the degeneration of the M-form in post-war US industrial corporations, but by a different causal route. In his view, the growing proportion of MBA-trained executives fostered the belief that managerial skills were unrelated to speciﬁc products or industries. In the face of intensifying international competition and increasingly tight antitrust restrictions on vertical and horizontal integration, this outlook led to a huge wave of mergers and acquisitions during the 1960s that carried US corporations into ever more distantly related activities. Such ‘freewheeling diversiﬁcation’ in turn separated top managers more sharply than in the past from middle managers with operating responsibilities, not least because of the much greater size and complexity of the expanding companies, which now could embrace forty to seventy divisions, compared to the ten to twenty-ﬁve typical of large, diversiﬁed international enterprises before the war. ‘[F]ew senior executives’, as Chandler (1994: 18–19) observes, ‘had either the training or the experience to evaluate the proposals and monitor the performance of so many divisions in so many different activities’; hence they and their corporate ofﬁces ‘increasingly had to rely on statistics’. But such statistical data and analytical techniques, as developed by academic institutions and practiced by professional accountants, were themselves becoming increasingly divorced from direct operational knowledge and concerns. The generalized consequence of these developments, according to Chandler (1994: 19–20), was more or less identical to what Freeland observed in the speciﬁc case of GM: Statistical ROI [Return on Investment] data about performance, proﬁt, and longterm plans were no longer the basis for discussion between corporate and operating management. Instead, ROI became a reality in itself—a target sent down from the corporate ofﬁce for division managers to meet. Since managers’ compensation and promotion prospects depended on the ability to meet targets, these middle managers had a strong incentive to adjust their data accordingly. . . . Top management was basing decisions on numbers, not on knowledge, a practice that made it all the more difﬁcult for the corporate ofﬁce to carry out their basic functions of monitoring

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current operations and allocating resources for future activities and that exacerbated the separation between top and operating management in many companies.

Even before the publication of Freeland’s and Chandler’s studies, an important current in the strategic management literature had already begun to conclude that the realization of economies of scope from related diversiﬁcation required closer cooperation between divisions than that postulated by the pure or textbook M-form model. Under conditions of related diversiﬁcation, as Hoskisson et al. (1993) point out in their insightful review article, ‘there is a need to coordinate the activities of otherwise independent divisions so that skills can be transferred, resources shared, and complementary investments made.’ Such coordination, this literature suggests, requires in turn not only ‘some degree of centralized control over the strategic and operating decisions of interdependent divisions’ but also ‘integrating mechanisms to achieve lateral communication between divisions’ of varying complexity depending on the degree of mutual interdependence, ‘from simple liaison roles and temporary task forces to permanent teams.’ Far from resulting in inferior performance, as Williamson predicted, some empirical studies have found that ‘cooperative’ or ‘corrupted’ M-form structures actually yield superior ﬁnancial results in related diversiﬁed ﬁrms (Hoskisson et al. 1993: 281). But such efforts to promote coordination between interdependent divisions, as Hoskisson et al. (1993: 282) emphasize, also create serious performance ambiguities: [W]hen divisions lack complete autonomy with regard to operating and strategic decisions, objective rate of return criteria, which might be used to assess divisional performance, do not constitute an unambiguous signal of divisional efﬁciency. Poor ﬁnancial performance of a certain division might be due to inefﬁciencies within that division, inefﬁciencies within another division with which it is tightly coupled, or poor central input into key operating decisions. Without access to more information, it can be difﬁcult to assign accountability.

The strategic management literature proposes two major solutions to this problem of performance ambiguity under conditions of divisional interdependence. One is to ensure that ‘reward and incentive systems emphasize interdivisional cooperation rather than the performance of each division as an independent unit’, for example by linking bonus schemes for managers to corporate rather than divisional proﬁtability. The other general solution is for top management to widen the range of criteria used in evaluating divisional performance and allocating cash-ﬂows, emphasizing ‘more subjective measures’, such as ‘ability to innovate’, alongside ‘objective’ measures like rate of return (Hoskisson et al. 1993: 282).

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Both of these solutions to the problem of performance ambiguity, however, depend on the ability and willingness of managers at different hierarchical levels to take a broad view of the corporation’s interests and the ways they might be furthered by interdivisional cooperation. But as we have seen from the work of both Freeland and Chandler, the transformations of professional training and career patterns associated with the rise of the ﬁnancially dominated textbook M-form and unrelated diversiﬁcation have rendered it increasingly unlikely that managers, whether in the corporate headquarters or the divisions, possess either the knowledge or the behavioral orientation necessary to make such cooperative solutions work effectively. Under these conditions, far from taming opportunism and shirking, the adoption of the M-form can instead be expected to institutionalize a new self-seeking game in which numbers and statistics that more or less misrepresent the underlying operational reality become a tool for advancing individual managerial earnings and career prospects.3 In one of the very few recent studies that we have found of how the new world of corporate organization structures managers’ behavior, Jackall (1988) paints a related but slightly different picture. In this world, as Jackall’s managerial informants themselves told him, ‘people know their own shortcomings’ and often feel that they ‘are sitting in jobs . . . bigger than they should be in.’ Hence there is simultaneously a lot of fear and anxiety among managers about making mistakes for which they could be held responsible, and a code of behavior where such uncertainty is concealed beneath ‘carefully nurtured images of competence and know-how’. As a result of the contradictory situation in which they ﬁnd themselves, ‘many managers become extremely adept at sidestepping decisions altogether and shrugging off responsibility, all the while projecting an air of command, authority, and decisiveness, leaving those who actually do decide to carry the ball alone in the open ﬁeld’ (Jackall 1988: 79–80). One of the effects may be that managers choose short-term safety over long-term gain. Both Jackall (1988: 82–3) and Chandler (1994: 19–20) link this to the way the numbers game was being played. As corporations adopted capital-budgeting models that took into account the cost of time and through this the risk involved (the longer the time horizon, the greater the risk, and the higher the necessary rate of return), managers could speak with greater authority and decisiveness when arguing in favor of projects with a short payback, while it became easy to criticize projects with a longer-term vision. To argue in favor of high thresholds of return could thus allow 3 For a discussion of these problems within extensively diversiﬁed M-form ﬁrms, see Hoskisson et al. (1993: 276–8).

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managers simultaneously to present a tough-guy image and protect themselves from responsibility for projects and decisions that might later run into trouble for one reason or another. Adding to this source of short-termism, Jackall describes how corporate managers’ working days are fragmented by a stream of unconnected events that must be dealt with immediately, so that issues are seldom dealt with in an integrated, holistic way. For this reason [t]he very consciousness of managers gets fragmented at work. Fragmentation of consciousness makes the history and structural roots of problems unimportant and therefore long-term solutions unlikely . . . . [O]ne focuses attention on important problems of the moment that must be solved. Since these are always plentiful, they justify postponing less pressing concerns . . . . [T]he pressure for annual, quarterly, monthly, daily, and even hourly ‘results’, that is measurable progress plausibly attributed to one’s own efforts, crowds out reﬂection about the future . . . . This goes to the heart of the problem. Managers think in the short run because they are evaluated by both their superiors and peers on their short-term results. Those who are not seen to be producing requisite short-run gains come to be thought of as embarrassing liabilities. Of course, past work gets downgraded in such a process . . . . Managers feel that if they do not survive the short run, the long run hardly matters, and one can only buy time for the future by attending to short-term goals. (Jackall 1988: 84)

Such a system is bound to produce failures in large numbers, while at the same time lacking ‘any tracking system to trace responsibility’. This does not mean that there is no allocation of blame, but rather that it is directed to ‘fall on unwary and inexperienced underlings’, who become scapegoats when things go wrong. In Jackall’s view, this is why top managers systematically diffuse responsibility down the ladder. In this way ‘bureaucracy expands the freedom of those on top precisely by giving them the power to restrict the freedom of those beneath’ (Jackall 1988: 86–8). In such systems, managers have to busy themselves with covering their own asses and becoming part of powerful coalitions to protect themselves from being blamed and scapegoated. At the same time, they can also take precautions against responsibility for their own errors. ‘Most important, they can ‘‘outrun their mistakes’’ so that when blame time arrives, the burden will fall on someone else’ (Jackall 1988: 90). The most promising strategy for individual managers is to get on the ‘fast track’ of career promotions, so that the consequences of any failures will fall as blame on their successors. To manage one’s image by moving into a new position, making a fast change that results in hitting desired numbers, and then leaving responsibility for hidden failures to a successor, seems to have a double effect, i.e. to advance rapidly oneself and at the same time harm a potential competitor. The best

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way to do this is by ‘milking’ plants and assets under one’s control in the expectation of moving quickly to a new position: Some managers become very adept at milking businesses and showing a consistent record of high returns. They move from one job to another in a company, always upward, rarely staying more than two years in any post. They may leave behind them deteriorating plants and unsafe working conditions or . . . in marketing areas where ﬁxed assets are not at issue, depleted lines of credit and neglected lists of customers, but they know if they move quickly enough, the blame will fall on others. The ideal situation, of course, is to end up in a position where one can ﬁre one’s successors for one’s own previous mistakes. (Jackall 1988: 94)

At GM in the 1980s and ’90s, knowledgeable observers similarly reported a widespread pattern of rapid job movement and promotion among young ‘high potential’ managers or ‘HI-POTS’ being ‘groomed for executive or senior staff positions in the general ofﬁce’, which resulted in ‘a lack of accountability for anything but short-term results’ and undermined plant and divisional performance across a series of functional activities from product development to industrial relations (MacDufﬁe 1996: 95, 103). As one retired executive bitterly complained to a prominent industry journalist: [Y]ou get promoted because you’re sponsored by someone; you get promoted before they catch up with you. I can go through a litany of those clowns. They go from this plant to that complex and then, all of a sudden, they’ve got plaques all over their walls that say how great they’ve done—but the plant’s falling apart and the division’s falling apart. (Keller 1988: 34; quoted in MacDufﬁe 1996: 103)4

Jackall (1988: 95) goes so far as to call such behavior the ‘institutional logic of the corporation’. If this is so, it is easy to see what characterizes managers who are promoted to top positions and how they must view others at comparable levels, if they imagine that their own perspectives may be ascribed to these colleagues. Yet there seems to be a way of creating mutual trust even within such a group of self-seeking managers, by demonstrating an ability to keep secrets and to be discreet when necessary in relation to superiors and powerful peers. To master this game takes a highly developed ‘dexterity with symbols’, where innuendo is more effective than direct statements and where it is helpful to be able to speak in a euphemistic language. ‘In this sense, the 4 In recent research on metal and plastic component manufacturing in the US Midwest, suppliers similarly complained about frequent turnover among purchasing managers as a key barrier to developing and sustaining collaborative relationships with their large OEM (original equipment manufacturer) customers across a wide range of end-use industries from motor vehicles, electrical appliances, and industrial machinery to agricultural and construction equipment: see Whitford and Zeitlin (2004).

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corporation is a place where people are not held to what they say because it is generally understood that their word is always provisional’ (Jackall 1988: 136). The advantage of this is not only to demonstrate an ability to keep secrets and be discreet, but also to maintain the maximum possible space for alternative subsequent interpretations and ex post rationalizations. But such use of language of course has serious implications: For example, an upper-middle level manager in ‘Covenant Corporation’ points out what he observes among his peers: ‘What’s interesting and confusing at the same time is the way guys around here will switch explanations of things from day to day and not even notice it. It is astonishing to hear the things people say. Like they explain the current stagnation of our stock one day by referring to the Falkland Islands war; the next day, it’s the bearish stock market . . . . And so on and on. And they don’t remember the explanations they gave a month ago. They end up going around believing in fairy tales that might have no relationship to reality at all. (Jackall 1988: 146–7)

Thus from Jackall’s study, we might conclude that the corporate game is being played to create an impression of truth by persons who have no higher ambition than to take on and ﬁll the attitudes and roles that will bring them the gains such a constructed truth may produce. To draw the arguments of this section together, it could be said that when the numbers game was unleashed by the separation between top and operational management within the M-form corporation, opportunism became generalized and self-referential. In this game, managers behave collaboratively towards those whom they perceive as belonging to the upper echelon of their own coalition or clan, while they jointly ﬁght one another. But it is also obvious that it would be very difﬁcult to talk within such a game about establishing collaborative relations between different collective entities within the corporation, such as divisions and subsidiaries. In Jackall’s analysis, these entities become mere instruments to be manipulated to achieve high or low numbers and fast or slow promotion for managers. Thus insofar as the bleak portrait drawn by Jackall can be generalized, organizational units such as headquarters, divisions, and subsidiaries have lost their role as vital instruments for the collective development of the M-form corporation and become mere tools for the mutual positioning of managers. In our study, we have not focused interest on this particular game among individual managers, but rather on the positional game among quasi-ﬁrms as collective entities. But if managers within APV perceived their mutual game in Jackall’s terms, it would indeed be understandable that the headquarters never succeeded in promoting effective collaboration among its constituent units, despite having implemented several of the key

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recommendations of the strategic management literature for governing related diversiﬁcation such as incorporating divisional representatives on the executive committee, tying their bonuses to the proﬁtability of the corporation as a whole, and developing a range of non-ﬁnancial key performance measures. If Jackall is right, then rapidly promoted top managers are precisely those who experience the corporation as a series of different settings for short-term relations, which according to game theory create incentives for cheating rather than cooperation. It may be that these managers had managed to play repeated games with certain stable principals (e.g. in the City ﬁnancial community) with whom they developed some mutual understanding, but in relation to subordinates and colleagues at similar levels, Jackall’s analysis suggests that in their experience it appeared smart to cheat in order to outrun others. And it would be strange if this experience had no enduring effect on how such managers made sense of their own actions. The other side of this coin, of course, is that the potential for cooperation based on lived experience can be expected to be much more prevalent at the lower levels of an organization, because this is where people who have never managed to outrun or outsmart their colleagues have wound up. Here they will be more likely to engage in long-term social relations and for that reason the likelihood, again from a game-theoretic point of view, of repeated interactions may give cooperation a chance. It is under these conditions that possibilities for common knowledge about actors’ willingness to cooperate, norms of reciprocity, and modes of punishment can all be established (Miller 1992: 186–7). From this line of reasoning, it is no enigma that the capacities for collaborative action within APV were distributed as shown in Table 8.2 (p. 177). We would expect most if not all subsidiaries to collaborate internally, while contending with one another and the HQ even in purely domestic diversiﬁed corporations organized along M-form lines which had experienced the transformations traced by Freeland and Chandler. But it is also very obvious that any attempt by subsidiary managers to explain the real situation of their units would fall on stony ground at corporate headquarters, where top executives would see such efforts as attempts to escape the blame that must be carried by subordinates according to the unwritten rules of the bureaucracy. Here the alien language of voices speaking from the subsidiaries’ world would add to the communication barriers already erected by the fact that even within a single country senior middle-level managers belong to a very different social-psychological world than do the ‘high-ﬂyers’ who come to populate corporate headquarters. On the one hand, one could say that by establishing an organizational structure aimed at minimizing transaction costs and by installing incentive

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systems and accounting rules based on the teachings of principal–agent theory, managers are indeed trying to the best of their abilities to advance the interests of the corporation’s owners. In so doing, on the other hand, they also create a system of mutual competition in which it becomes extremely difﬁcult to establish vertical and horizontal cooperation among the corporation’s constituent units. Under these conditions, as Jackall’s study demonstrates, it is likely that in struggling for position individual managers will seek to create an image of their own performance that will favor them compared with their colleagues and that in so doing they will distort the rationale of the governance system that was initially installed. Furthermore, it is highly probable that the very working of the governance system will distort its own internal ability to repair the resulting damage. Gradually, indeed, it becomes increasingly unlikely that the managers who reach the top by creatively playing the system will be able to imagine the advantages of implementing collaborative relations at lower levels, or for that matter will dare to see them develop, as such cooperative ties might eventually call into question the very premises on which they themselves were promoted in the ﬁrst place. From this perspective, the situation we observed in APV fully conforms to what might be expected from recent analyses of M-form corporations that have tried their best to install modern incentive systems and promotional practices. On this view, adding in the multinational dimension merely reinforces a set of dilemmas that had already emerged within large diversiﬁed domestic corporations. In his analysis of the organizational economics literature, Miller (1992: 3) concludes that results described in the literature of social choice theory, principal-agency theory, and incentive compatibility reveal built-in logical inconsistencies that make it impossible to design an incentive/control system that simultaneously disciplines the self-interested behavior of both superiors and subordinates. For every incentive system that has other desirable characteristics, there will always be an incentive for some individuals to ‘shirk’—to pursue a narrower deﬁnition of interest that results in equilibrium outcomes that everyone in the organization can recognize as deﬁcient.

The paradox is thus that large M-form organizations created to establish efﬁcient principal–agent relations at the same time create a system of incentives whose overall performance is far from optimal, thereby dissatisfying all the participants. The consequence, for Miller, is ‘that those organizations whose managers can inspire members to transcend short-term self-interest will always have a competitive advantage’ (Miller 1992: 3). Having developed

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this claim using game-theoretic arguments drawn from neo-classically inspired organizational economics, Miller goes on to suggest that we should look to a very different stream of literature—initiated by Chester Barnard’s treatise on The Functions of the Executive (1968/1938)—to understand how to remedy the characteristic dilemmas of modern large-scale organizations such as APV.

2. Barnard Writ Large: A New Vision for Managing the MNC Chester Barnard identiﬁes four functions of the executive that may help foster or reproduce cooperation within an organization. The ﬁrst, balancing contributions and inducements, we have already referred to above by observing that the members of APV did not experience such a balance. The second lies at the system-building level, where it is the function of the executive to design a formal ‘scheme of organization’ or constitutional order that promotes collaboration. In Barnard’s vision, managers leave day-to-day coordination and collaboration within and between work groups to the informal organization of the company. But if these groups develop new routines according to their own professional aspirations and ethos, they will eventually provoke conﬂicts with one another over how to do a proper job. When this happens it is the function of the executive to create a constitutional order that enables conﬂicts to be resolved and the various groups within the organization to pursue their professional aspirations. Thirdly, managers must learn that authority does not ﬂow from holding an ofﬁce but is ascribed to its holders by those over whom authority is exercised. Hence they must exercise authority with great care so that it falls within subordinates’ zone of indifference, where ‘orders are acceptable without conscious questioning’ of their legitimacy (Barnard 1968/1938: 167). Finally, it is the function of the executive to deﬁne goals for the organization in such a way that they provide the informal cooperative groups with appropriate guidance as to how they can pursue their own professional aspirations while at the same time advancing the broader collective purpose. From this perspective, it is obvious that top managers within APV and other MNCs that evolved out of the M-form as described above failed to fulﬁll all four of the key functions identiﬁed by Barnard. Rather than acting as executives in his sense, they behaved instead like a ‘partisan’ professional group struggling for individual positions and collective social space, leaving the MNC without ‘constitutional fathers’, unless others took on that role in their stead. In the discussion below we will examine in greater detail how these failures manifest themselves within the setting of a multinational

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corporation in order to identify what would be required to overcome them by executive action. As will become apparent, we do not believe it possible for executives alone to perform the functions necessary for promoting cooperation within the MNC, since these turn out to require the institutionalization of a different style of decision-making processes involving a broader range of actors at multiple levels. Balancing contributions and inducements belongs through the design of incentive systems to one of the most classic themes in management science. Yet it is clear that in the case we studied, as probably in many MNCs, the system for striking these balances was poorly developed if not indeed counterproductive to fostering cooperation. In APV, the system of annual evaluations was supposed to rate managers at all levels according to their contributions provided that their boss behaved fairly. This evaluation process would give individuals access to better careers, training, and salary raises if their ratings were above average. The HQ executives believed these evaluations to be of cardinal importance, remarking that their subordinates ‘would give their left arm’ to know how they were individually rated. But no scheme existed whereby a high-contributing subsidiary organization as a whole could beneﬁt because it had been able to cooperate internally, with its regional partners, and with the entire MNC. As we saw earlier, it was possible for managers at subsidiaries like Howard to extend the annual evaluation system to blue-collar employees, but as the total payroll was not automatically raised if a subsidiary had performed well, the implementation of this system risked offending rather than rewarding workers. A collective contribution was thus translated into individual inducements, and might risk disastrous effects for the collectivity and the cooperative orientation of a subsidiary. Often it might be the experience of a highly cooperative subsidiary that its collective contributions pushed a few individuals up the ladder in the opportunistic game of mutual positioning among managers, and by so doing the collaborative game at the bottom fed into and reinforced the self-destructive and short-sighted ﬁght over executive positions described by Jackall. This dilemma is serious, since subsidiaries, as we saw in Part I above, joined the MNC for the mutual long-term beneﬁt of both parties. Yet, after their incorporation into the MNC, it is difﬁcult to see any systematic relation between the contributions subsidiaries made and the inducements they received in terms of salary increases, capital investments, employment growth, or increased decisional and allocative autonomy. Sometimes there was such a relation, sometimes not. Sometimes high performance showed up in the accounting records, sometimes these were deliberately distorted by the HQ. Good subsidiary performance might lead

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to the promotion of managers who had orchestrated or at least played their part in the local cooperation responsible for such success, and their replacement by less able managers, so that a former high-performing subsidiary might suddenly see itself outperformed by one that was now managed by its former manager. Or worse still, workers having made extraordinary contributions to an improvement in plant performance might in return be met with extraordinary demands for downsizing of the yearly ‘head count’ in budget negotiations. The result is that rather than eliminating the possible gains from opportunism, shirking, and free-riding, the HQ seemed in the eyes of subsidiaries to have institutionalized this behavior, since there seemed to be no predictable relation between contributions and rewards. Balancing inducements and contributions across a heterogeneous set of subsidiaries is no simple problem for HQ executives, and it is connected to the deeper question of how to deﬁne an ‘enterprise’ itself. This issue has been hotly debated in recent years, but received considerable attention during the last quarter of the nineteenth century, when political economy discussed it in relation to the wider issues of the distribution of income among entrepreneurial proﬁts, interest, and wages. In 1890, the German historical economist Gustav Schmoller commented on the debate as follows: Every enterprise originates in the context of existing customs and legal relations and as such has a particular function and legal status . . . . We are in need, at the present moment, of a deeper insight into the social context of the enterprise. We ought to know where it originates, under what conditions it takes various forms, what are the psychological determinants and legal regulations that govern its existence, who are the persons and groups that play a role in it . . . . Finally, we should discover its consequences for social and cultural life, and the interrelations of the enterprise with other organs and institutions of society. (Schmoller 1953/1890: 6)

What Schmoller makes clear is that if we have no clue about the history of its formation, the society from which it emerged, and the division of property rights among the groups involved in running it, we are simply unable to understand how this or that enterprise evolved in symbiosis with its local community. And we would add that it is exactly in this symbiosis that the balancing of contributions and inducements are assessed by the social groups which constitute a local enterprise. No wonder then that the distant measurements of contributions and decisions on rewards by HQs will often be seen by the subsidiaries as arbitrary at best. And it is easy to see from the few cases we have studied that the detailed knowledge of subsidiary operations that a headquarters would need to make fair measurements and decisions may be unattainable.

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Schmoller’s analysis offers an avenue for understanding the variances in play from one subsidiary to another. From the research program stated above, Schmoller set out to describe ‘the typical forms of enterprises in their developmental sequence’. To him one important source of enterprise came from clans, in the form of Arbeitsgenossenschaften (English equivalents are associations, communities, comradeships, brotherhoods, cooperatives, and gangs) and Schwurgenossenschaften developed to organize ‘plundering expeditions, raids for acquiring slaves and cattle’ etc., of which the banditwarrior organization of the Cossacks, the artel, is an archetypal example. Such associations were also used for more peaceful purposes, when cooperating groups of larger size were needed for tasks like building houses and ships or clearing forests. ‘These groups came together’, Schmoller (1953/ 1890: 11) observed, not on the basis on written contracts, but on the basis of tradition and ceremonies, which were regarded as binding. They united for the speciﬁc purpose of hunting, ﬁshing, or other common action, and the proceeds were to be divided according to traditional rules (per capita division, or in certain numerical proportions). The fraternal bond was established by kissing the icon, for instance, or by sharing a common drink. There existed no treasury, no common fund, no businesslike character, and no solid corporate organization.

Schmoller (1953/1890: 18) traces these associative principles for organizing enterprises into more modern periods where it was especially characteristic of Nordic communities, and found these forms of organization in activities such as shipbuilding, ﬁshing, seafaring, and other forms of transport where the participating stakeholders had rules for dividing gains and losses: Such organizations have in many places been preserved up to the present, probably because the members realized clearly that the total proceeds depended upon the devotion and skill of every individual in the boats, and that the successful ﬁshing demanded subordination and sacriﬁces for the common welfare. When boats became larger and more valuable, the only change was that the real co-operative was replaced by a proﬁt-sharing arrangement.

Obviously in such a system, tradition created very strong expectations among the individual participants in an enterprise that the more capital, skill, and working time they contributed, the greater would be their rewards. It was taken for granted in such ventures that participants could assess each others’ relative contributions and that rewards and legitimate authority in leading the cooperative had to be closely linked to the ability to strike such a balance if the entire enterprise were not to fall apart. But according to Schmoller (1953/1890: 21), such enterprises

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later . . . disappeared to a large extent or altogether and made room for other forms. The underlying spirit could never quite vanish. It has been vigorously restored in the modern co-operative movement, in labor unions, in collective agreements, and in large enterprises pervaded by a sense of moral responsibility. Any method of wage payment which through bonuses, premiums, proﬁt participation, and welfare arrangements creates a moral bond among the workers follows the same principle. . . . In other places, however, the natural process of history has brought about their decline. This happened wherever leadership became more difﬁcult and had to adopt wider views, where distant markets were to be discovered, and where business demanded larger capital and more complex techniques.

In contrast to this clan- and community-based form of organization, Schmoller identiﬁed a second source of enterprise, the oikos, which became the typical form growing out of aristocratic household economies, where large properties in land and capital coexisted with cheap slaves. Here the rule was rather ‘ruthless utilization of property for maximum proﬁt’, concentrated in the hands of the family patriarch, laying the foundation for the European conquest of colonies with overseas plantations based on slavery, by which ‘absolute authority’ could be applied. In such enterprises, obviously, it was customary that slaves and later wage laborers remained highly dependent on the individual mood and decisions of the patriarch, which could often be inﬂuenced by his special relations with particular individuals. Thus the notion of fairness was constituted very differently in an oikos than in an artel. To Schmoller (1953/1890: 24), it was obvious that since oikoi could use, or depend on the state to use military and political power to build and control large entities they would outperform artels. Hence in his view [t]he question why large enterprises have not generally been associations of equal partners is almost identical with the question why social organization in general has not been based on the partnership principle. To ask such questions seriously is to betray historical naı¨vete´, and also complete ignorance of psychology.

While Schmoller thus almost entirely rules out the possibility of analyzing the MNC as a form of partnership, he simultaneously makes it clear that these two very diverse sources of ‘the enterprise’ have served to create very different expectations in various parts of the world about the proper balance between contributions and inducements, the delimitation of ‘zones of indifference’, and the legitimate exercise of authority. Although we do not believe that all subsidiary ﬁrms could literally be classiﬁed as either oikoi or artels, it is important to understand that reactions to HQ inducements will differ depending on which of these two broad sources of enterprise has helped shape their world-view and expectations. While both types may have gradually incorporated elements from one

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another, the speciﬁc mix between them will nonetheless vary across subsidiaries, countries, and regions, as we saw in Parts I and II above. However rough and ready as an historical generalization, this conceptual distinction among the sources and forms of enterprise opens up a number of new lines of interrogation uncommon in the literature on MNCs, where formal ownership is generally taken for granted as legitimating command and authority from a center. First, because the different subsidiaries of an MNC come out of very different national contexts, they will differ in the extent to which they operate internally according to the principles of the oikos or the artel. When they join an MNC, each no doubt will assume that the larger association operates according to the same principle as they do themselves. Thus if they see themselves as an oikos, they will no doubt see the association as an oikos, while if they operate more like an artel, they will look upon the association as one in which the rules of artels apply. Second, as some of these subsidiary enterprises internally are far from the hierarchical constitution usually associated with oikos-type ﬁrms, this will necessarily lead to mutual misunderstanding if the MNC association is managed according to the traditions of an oikos. Whereas in the past oikoi could (at least in theory) depend on the military and political power of the national state to enforce on their subjects acceptance of their executives’ authority, MNCs generally cannot count on such external support to ensure subsidiaries’ cooperation. Why then have MNCs not been forced to change their ways? The acceptance by social groups within subsidiaries of the oikos type of behavior by MNC HQs today, said to be enforced through top-down benchmarking and competition for investment (e.g. Mueller 1992), might be explained by conjuncturally depressed labor markets or a tradition of acceptance of such external pressures (as at the ABB plants in Co´rdoba, Spain and Guelph, Canada, described by Be´langer et al. 1999: chs 5, 7). One question that arises in the former case is whether such behavior by the MNC would have provoked greater labor difﬁculties had the local employment situation been better. But another question is whether the positional strategies we have observed in our study of APV should not be seen as evidence of a silent pattern of opposition that is taking place deep down within the body of MNCs. In our case, we saw that the protest was not dependent just on labor unions. The ‘Danish Maﬁa’ may be seen as the collective protest of a whole network of SBU managers, belonging to a tradition based more on the artel, who rose in concert to protect the MNC against its HQ executives. But beyond this point, we could say that the more or less subversive strategies which some subsidiaries in our study undertook reﬂected their efforts to

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compensate themselves for the perceived lack of fairness by the MNC HQ in balancing contributions with inducements. To us it is an enigma that the general literature on MNCs assumes that a complex organization such as an MNC should be envisaged as an oikos rather than an artel, despite the fact that many MNCs are constituted by associating formerly independent enterprises with a century or more of history. Even general organization theory, exempliﬁed by the writings of March and Simon (1958) and Cyert and March (1963), would suggest that keeping such complex enterprises associated would require some form of proﬁt-sharing or distribution of slack resources to keep different coalitions together. It is remarkable that proﬁt-sharing in whatever form receives very little attention not only in our case, but also in the general literature on the organization of MNCs. Only occasionally do we encounter this question when the relations between different organizational levels are studied. For instance Be´langer et al. (1999) mention that the subsidiaries are taxed by the BA, and so it seems that the entire proﬁt is not appropriated by the central headquarters. More astonishing in the case of APV is that there was no sign of critical reﬂection indicating that this issue had been formally addressed to institutionalize collaboration within and among the constituent units of the MNC by economic means. There was no mechanism, for example, through which workers could secure stable or increased employment if they restricted their wage bargaining demands. Nor was there any indication that a bonus was achieved if a development project was accomplished more quickly or less expensively than originally planned. This seemed to be a world with no rules for reciprocity among collectivities, but only at best among managers. It may be that we are looking in the wrong place for an answer to how contribution and inducements are balanced. It may be that it is not when negotiations on the distribution of proﬁts are going on at the end of the year that this balance is reached, but rather when negotiations over the future budget are conducted at the beginning of the year that some measure of fairness is achieved. But to our knowledge no ﬁeld researchers have yet observed how budget negotiations may be used to strike a collective balance between contributions and inducements, which would seem strange if such negotiations were where the larger balance is indeed created. In our case study, at any rate, there was no sign that such broader concerns guided these negotiations.5 In the same way, there was no indication that the HQ managers were busy experimenting with constitutional orders aimed at enabling different groups 5 Cf. also the case studies of the informal politics of budget negotiations in British and German MNCs in Ferner (2000: esp. 535–6).

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to collaborate without the emergence of manifest conﬂicts. Developing such constitutional orders is in essence the problem created by the division of labor which Durkheim (1984/1893) originally addressed. In Durkheim’s view, as summarized by Charles Sabel, the precondition for decentralized cooperation among groups performing differentiated but interdependent functions was a ‘common moral framework, embodied and established in law and sanctiﬁed by palpable social consensus, upon which actors can rely in the case of disputes arising from their dealings’ (Sabel 1997: 102). For a national enterprise, such moral frameworks and regulations could be said to have gradually emerged partly as collectively negotiated rights and duties for each group within the individual enterprise, partly in the labor market or directly institutionalized by the state in various ways in different countries. Within the cross-national framework of an MNC, the challenge from this Durkheimian perspective is to create a constitutional order that allows for representation, negotiation, and peaceful collaboration among differently constituted organizational entities, each in turn constituted by a multitude of professions, guided by their own moral framework and distinct national laws. In the case of APV, there was indeed a clear consciousness that ‘a state of warfare’ existed among the constituent parts of the MNC, a state of affairs which Durkheim (1984/1893: xxxiii) also found to be general in Western societies at the end of the nineteenth century. But rather than seeking to create institutions in which underlying conﬂicts and misunderstandings could be sorted out through negotiations, the MNC tried to impose new organizational structures in the belief that such conﬂicts stemmed from failures in organizational design and could be remedied by new designs. Furthermore, if subordinate managers were measured by short-term accounting results, promoted for their ability to free superiors from blame and escape from blame themselves, it is very difﬁcult to see how they could initiate discussions over constitutional orders with the HQ without jeopardizing their own future in the organization. The result was that instead of triggering symbolic interaction in negotiations from which mutual understanding might also emerge, the HQ issued orders that yielded effects— intended and unintended. No doubt Horsens and Unna were in conﬂict over the allocation of valve production, but in the absence of a constitutional order in which opponents could negotiate, neither of the parties ever learned that both had indeed tried to resolve their differences according to the rules of the game in their own national context. In our case it is astonishing that the HQ initiated actions without the slightest feeling for their potential impact on the balances among groups within each of the subsidiaries, and without an administrative apparatus

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capable of monitoring whether these constructed imbalances serve the process of gradual improvement and mutual understanding that may simultaneously be achieved. The HQ may have considered it necessary for the MNC to stir up the institutional arrangements and to contest the regulations by which professional groups had stabilized their place in the division of labor in different host countries, but it is striking that such steps were taken without any consciousness of the uncontrollable social processes that they might touch off. And this omission is not conﬁned to the case of APV, but as we have seen runs through the entire literature on MNCs. Related to these national constitutional orders is the issue of authority. At APV, orders were issued by the HQ and expected to be implemented in the same way in each of the subsidiaries, no matter how the latter were constituted historically as enterprises. If Bendix (1974) is right, however, authority systems vary greatly across different national systems, and managerial action that falls within the zone of indifference in one country may be highly provocative in a different national setting. It would demand an enormous quantity of intelligence for an HQ to know in advance how different groupings in each national subsidiary might react to its initiatives. The surprise is that there appeared to be no system or organizational mechanism established to capture and comprehend such reactions in order to foster a gradual learning process by the HQ about how to proceed in different countries. On the contrary, with the ascendancy of the view that managers should embark on international careers and progress according to their ability to meet universal benchmarks, it becomes almost impossible to imagine that they could learn to manage within the zone of indifference in a distinct subsidiary. Thus rather than gradually cultivating knowledge about how authority may be exercised differently in different countries, the organizing principles of the MNC seem gradually but systematically to destroy the grounds for such learning. Finally, the task for HQ managers is to set the goals for the multinational association. At ﬁrst it seems as if this task was taken care of by the HQ, but again it seems to have be done in a very strange and awkward way. Rather than consulting the associated organizational units and negotiating with them as to what goals and values should guide actions in its diverse parts, the HQ called in a shifting array of external consultants to perform this task, effectively ignoring the aspirations of local groups and entire subsidiaries. This approach could be seen to reﬂect modern philosophies of how to provoke the initiation of the strategy-setting process, but only the most recent iteration, as we saw, seemed to aggregate the strategy through a process that could be characterized as logical incrementalism (Quinn 1980). In general, principles of ordering such discursive processes were absent, which

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might in itself have helped establish a universal feeling of living in ‘a state of warfare’. By reading Chester Barnard’s work (1968/1938) in this way, we discover that the HQ of APV—and possibly also many other MNC HQs—did not participate in the managerial processes whereby contributions and inducements may be balanced, constitutional ordering may proceed, authority may be exercised without overstepping the boundaries of zones of indifference, and goal setting may generate mutual commitment. Thus they did not create or cultivate the infrastructure for institutionalizing the collaboration that may emerge spontaneously from the informal organization of their subsidiaries or by their mutual interactions potentially conducive to cooperation, such as those associated with repeated games. HQ managers seem to suffer from the same deﬁciencies that have traditionally characterized absentee ownership according to Veblen’s (1997/1923) classic analysis.

3. Social Balances and Collaborative Entrepreneurial Capability of Subsidiaries The problem with absentee owners is that they may measure the productive and innovative performance of an enterprise without realizing that the activities involved are simultaneously an experimental process by which the economic unit in question continuously constructs and reconstructs itself as an integrated social community. Constitutional ordering that allows a multiplicity of professional and social groupings to coexist peacefully, though not necessarily without conﬂict, within a single enterprise constitutes the backbone for developing effective divisions of labor and joining together unique competencies that enable ﬁrms to innovate in distinctive ways (Whitley 2000). In practice, contra Durkheim, constitutional orders are very seldom found as static stages or structures. Instead, it is through the ongoing process of striking balances among social groups, their contributions and inducements, and by experimenting with the exercise of authority and goal-setting that constitutional ordering emerges. An absentee owner’s intervention into this ongoing experimental process no doubt adds an extra impetus to it. But by ignoring the rules governing the experimental process, the absentee owner simultaneously risks destroying through these interventions the whole local trajectory through which such constitutional orderings have emerged. The century of organizational experimentation in each of APV’s constituent quasi-ﬁrms, as described in Chapter 2, had launched them on particular pathways for creating such social balances, which in turn underpinned

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distinctive modes both of exploiting established routines and of exploring future prospects. Paths of constitutional ordering may be reached in many different ways. In some countries, these may be negotiated in a highly visible and formalized way. Germany is usually seen as a typical example of such a formalized order, where central negotiations between unions and employers, together with statutory codetermination arrangements within the ﬁrm, give rise to binding agreements among the contending parties. In France, by contrast, it is educational qualiﬁcations that largely determine access to particular types of jobs, relations among which are governed by formal bureaucratic hierarchies within the ﬁrm on the one hand and national wage grids underwritten by the state on the other (Maurice et al. 1986). In the three APV subsidiaries we studied, the paths of constitutional orderings were much less formal and constrained by the institutional framework of the wider society, within which each ﬁrm positioned itself in a distinctive way. Social groups in each ﬁrm had constituted themselves in a particular relation to the surrounding locality and wider society, making creative use of available institutions. Thus, for instance, workers in the US ﬁrm occupied a privileged place within the local community due to the strength of their union organization in a largely de-unionized labor market. Loyalty to the enterprise was reciprocated by seniority rules that rewarded long-term service. The skilled workers in the British subsidiary, by contrast, occupied a strong and unquestioned position in an unorganized shop within an environment that used to be highly regulated by union activity. In this way they traded lower pay for high discretion and a craft organization at work. Thus, what evolved in these ﬁrms during the course of their development were distinctive modes of balancing social positions, whose holders came to exercise distinct strategies. On the one hand, these positional strategies could be said to reﬂect the contextual rationalities of the larger society, since the actors who pursued them belonged to broader social groups with particular institutional rights and duties. On the other hand, however, the actors pursued these strategies in distinctive ways, as a result of how each ﬁrm had achieved a distinctive internal balance as a micro-society while making use of the institutions of the wider macro-society to which it belonged. This was true not least because within all three ﬁrms, the positional strategies of each social group had developed in relation to those of the others, resulting in a pattern of mutual checks and balances. Though formed from the local context, the precise conﬁguration of positional strategies and their mutual interrelationship was thus distinct for each enterprise. This mode of striking reciprocal balances was due much more to the ways different social groups

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engaged in an ongoing experimental process than to an established moral and legal framework as postulated by Durkheim, even if the latter may nonetheless have contributed to establishing the forms of constitutional ordering that he considered necessary to support an organic division of labor. The case of the APV subsidiary in Horsens provides an especially illuminating example of how such informal systems of checks and balances among positional strategies come together in the course of history to constitute a path of constitutional ordering. One might say that in the Horsens plant, the core, or deﬁning, positional strategy has been that of the skilled workers. As these have been recruited and selected from the very best of skilled workers in the district, their retention by the ﬁrm has depended on its ability to offer opportunities for constantly improving or maintaining their professional reputation. In this way, a balance has been achieved between inducements and contributions, whereby skilled workers are offered the chance to improve and maintain their property— the plant’s skill base—in exchange for using it to improve the ﬁrm’s performance. In this way, the plant helps the skilled workers in struggling for social space both within the local group of craftsmen and in the larger regional, national, and now international labor market, whereas the ﬁrm continuously improves its position in the competence hierarchy within its trade, district, and now the multinational group. Within this path of constitutional ordering of the mutual relations among workers and managers, different conjunctures have given rise to the construction of shifting and opposed positional strategies. In general, the skilled workers sought to maintain and even continuously to expand their social space within the factory both in relation to the unskilled workers and the managerial staff, by constantly trying to make their individual work stations more sophisticated. This enabled the work stations to be run more easily and to be readily redeployed on an increasingly wide range of tasks, thereby simultaneously protecting the skilled workers from encroachment by other groups and from speed-up. During the period when production managers believed in Taylorist techniques, especially in the form of piece-rate systems, they developed a new positional strategy towards this reputational game among the skilled workers. To managers of this generation, workers striving for ease and appropriateness on their work station appeared to be engaged in a cheating strategy by not revealing productivity gains for the beneﬁt of the enterprise. Consequently managers saw the new Taylorist techniques as the basis for a positional strategy of their own as a countermove to harness workers’ entrepreneurial activities to the proﬁtability of the ﬁrm. Time measurement could thus be seen as a tool for managers to ensure that improvements in working methods invented by the workers would also beneﬁt the ﬁrm. On

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the other hand, by institutionalizing such measures it undoubtedly became possible for workers to gain a high reputation among their peers if they developed their work station in such a way that they could earn a high piecerate without excessive effort. In a sense, mutual deception became the dynamic behind the traditional struggle for a skilled reputation. In retrospect it seems obvious that both positional strategies were needed in order to reach a balance between proﬁtability and the wage bill on the one hand and between inducements and contributions on the other. It is noteworthy, however, that the development of new working methods was not handed over to a technical department that was also responsible for time measurement. Had this occurred, one might imagine that a major conﬂict over social space would have broken out, as the workers would have lost their property rights over manual skills, which in turn could have eventually resulted in the breakdown of this basic path of constitutional ordering altogether. Yet it is remarkable how much change this path of constitutional ordering permitted so long as mutuality, reciprocity, and balances between inducements and contributions were maintained and authority exercised within the actors’ ‘zones of indifference’. With the shift in the 1980s to new payment systems based on hourly wages, the balance between the two positional strategies at Horsens was shaken, but the eventual solution did not disturb the underlying path of constitutional ordering. At this time a technical department was created to serve as a new positional strategy that changed the competitive game over skill reputation among workers. The task of the technical department was not to deﬁne in detail how new and old work stations should function, but rather to calculate whether there might be comparative cost-advantages to be gained by outsourcing some of the jobs performed within the factory. Skilled workers continued to engage in their traditional reputational rivalry, and the technical department simply evaluated the resulting performance of each work station in economic terms and compared it with what could be offered by potential subcontractors. Thus within this new setting, the reputational rivalry among skilled workers suddenly took on a larger scope. Now it could be seen not only as a way of securing one’s own technical reputation and the ability to develop one’s own job to be more intelligent and less ‘laborious’. Rather, by developing individual work stations beyond the level of the rest of the district, craftsmen would keep jobs in-house and ensure the reproduction of the ﬁrm’s team of skilled workers. This change also altered the positional strategy of the convener and shop stewards. Where they had earlier policed wage negotiations and the piecerate system, they now took on the role of systematically enhancing workers’ ability to develop the relative competitiveness of their work stations. Whereas

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previously, further training had been left to the private initiative of individual workers, in the new situation the convener and shop stewards made it an obligatory right and duty for workers, thereby unintentionally intensifying reputational competition, enabling the ﬁrm continuously to absorb new technology and use it experimentally in advanced and highly ﬂexible ways. The cumulative effect of these changes was thus a ﬁrm that constantly questioned and improved on its own routines, through the initiatives not only of the technical and managerial staff, but also shopﬂoor operations, where these routines were simultaneously exercised. As may be seen from this account, it was not through carefully institutionalized collaboration that these positional strategies came to interact in a cooperative way. Rather it was through an institutionalization of positional strategies that mutually checked one another in such a way that both the workers and the ﬁrm beneﬁted from the reputational race. Obviously, managers and workers were bound together by their positional strategies so that a balance between the prosperity of the ﬁrm, the number of jobs, and workers’ skill levels and thus their bargaining power was constantly reproduced at a higher level. Yet those engaged in this reputational race and those monitoring it were engaged in endless conﬂicts. Workers were jealously watching managers trying to reduce their own autonomy, whereas managers saw the workers as always trying to use their autonomy for their personal advantage. Skilled workers sought to resist the growing inﬂuence of both specialized workers and technicians, but the name of this game was mutual rivalry over each group’s ability to achieve superior skills, so that individuals within all three groups simultaneously made gains as they challenged one other. It could be argued that the interactions among these positional strategies represent nothing more than successive faces of a continuous ‘class war’. Yet each of these patterns of ordering simultaneously found a way to balance contributions and inducements, exercise authority within the zone of indifference of the skilled workers, and set goals for the development of the ﬁrm. This successful outcome, by which open clashes became very rare, was not created by a deliberate reﬂexive process, but rather through a complicated system of alliances, power relations, and institutionalization of conﬂict. Part of the explanation is that the majority of managers, whom the workers watched so jealously, had been recruited from their own ranks. Some of these managers no doubt sought promotion because they wanted to rule over their former peers, but most advanced to staff positions because they had achieved such high skill levels that the ﬁrm wanted to be sure of retaining their services. Some of these managers thus positioned themselves against the

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workers, whereas others instead saw themselves as peers who had been obliged to leave their original group. Depicted this way, the capacities for collaborative action attributed to Horsens in Chapter 7—within the site, within the local economy and national business system, and within the wider federation of the MNC—result from the fact that competing positional strategies have mutually checked one another, yet have each been able to satisfy their own aspirations. They have thereby been able to reproduce a set of social balances, and thus reciprocally create the dynamics by which the Horsens plant has met the challenges facing it in a particular entrepreneurial way. If a sense of collaboration has emerged, it is because the different groups in Horsens can now tell a story in which many parties’ contributions are jointly celebrated and retrospectively seen as responsible for the plant’s success. This narrative does not enable Horsens to foresee the next turn in the path of constitutional ordering, but it undoubtedly creates great sensitivity to any sign of change in the balance between social groups. From this awareness arises the possibility of constructing new positional strategies in response to potential imbalances. Neither the Lake Mills nor the Eastbourne plants was able to narrate a similar successful story. In their cases the local actors were just as innovative as Horsens in trying to strike new balances within their own paths of constitutional ordering, but the interventions or lack thereof from the London HQ seemed to distort the very path that had been established. Downsizing production operatives in a vertically integrated plant where contributions are rewarded according to seniority rules, as occurred at Lake Mills, obviously risked stirring up the whole social pattern and creating a vicious circle. The plant tried to repair this damage by developing new products in an organizationally innovative way that could have simultaneously stabilized employment across the production, engineering, and sales functions. Simultaneously, the ‘pay-for-knowledge’ scheme could have created a new reward structure in place of the seniority system to encourage experimentation with a more ﬂexible organization capable of reallocating workers and equipment across a shifting portfolio of products in response to their relative sales performance. By selling off the property rights of Lake Mills’ innovative new product to another corporation, however, London destroyed this highly developed approach to restoring the plant’s path of constitutional ordering, while the transferable skills that had been created in this process made it easier for employees to leave altogether. In a similar way, the reform of Eastbourne’s craft organization of production by promoting skilled workers’ to technical staff functions could have formed the basis for an offensive market strategy. But by restricting the plant’s

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growth, London simultaneously insured that internal promotions within the plant were used instead as individual assets to obtain new jobs as competitors. The discussion so far has been quite revealing. It has shown that local managers may change their positional strategy towards subordinates within a plant, and may even provoke short-term conﬂicts with other social groups in a subsidiary. But rather than destroying cooperation, this may generate an innovative search for a new balance or compromise between the positions involved. What seems to determine whether or not this balance can be found is whether the actors involved recognize that the innovative process must allow each group to ﬁnd a way of satisfying certain core aspirations associated with its position within the plant and the wider society. One could say that what workers, managers, and technical staff demonstrate in striking these balances is their ability to take on the role of others in constituting their own role (Mead 1967/1934). They are even able reﬂexively to change their own role in a way that contributes to the integration of the enterprise so long as in so doing they allow others to take a role that makes it possible to improve their position in the wider society. In this sense, each of the three subsidiaries studied seems to have displayed artel-like features. But it is equally obvious that when a large number of role-holders within a subsidiary become frustrated at being unable to improve their position in the wider society through strategies that reﬂect their broader aspirations, then this provokes a negative reaction in the form of exit. Absentee owners who do not originate from, or are not continuously involved with a particular subsidiary may play a positive role towards such micro-communities by disturbing existing balances and thus provoking a search for a new compromise among a reformed set of positional strategies that better allows for continuous improvement both of economic performance and worker skills—as in the Horsens case. The problem is that such owners will not be able to tell whether their interventions simultaneously prevent the position-holders from ﬁnding such a balance. By appointing managers to implement such changes on a short-term basis and promoting them according to their numerical results, absentee owners are represented by position-holders who risk being just as blind to the roles of the other positions within a subsidiary. And if these representatives of the absentee owners hold a monopoly in reporting back to the owners about their achievements, there is no way that numbers alone can reveal whether short-term improvements in performance result from the discovery of a successful new balance between positional strategies or simply from the realization of short-term savings from the exit of positional role-holders on whom its long-term performance depends.

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It is the continuous work of the constitutional ordering within a ﬁrm that makes it possible to deﬁne new options and thus allows for gradual improvements. And it is the collective defense of the path of constitutional ordering that makes enterprises successful in developing innovations through joint entrepreneurial activities. The HQ of an MNC as an absentee owner intervenes blindly in this process, and therefore risks destroying its own assets. If, for instance, London had initiated a program of short-term cost reduction and layoffs at Horsens, as they did at Lake Mills, this would have totally distorted the positional balance. No doubt Horsens beneﬁted from playing its oppositional game and capturing the benchmarking role, as a result of which it was even given the right of imposing its own ordering on other subsidiaries. But Horsens’s ultimate victory in winning the worldpump mandate may be precisely the wrong reward that could initiate a self-destructive circle for its very path of constitutional ordering, as it risks reducing demand for the offensive skill achievements of its workers. It follows from the preceding analysis that in order to perform effectively the Barnardian functions of the executive, the HQ of an MNC would require some conception—perhaps wrong, perhaps modest, but at least hypothetical—about how the distinctive operation of each subsidiary results from balances among positional strategies pursued in a distinct institutional context. It is this balance that gives each unit or quasi-ﬁrm its distinctive entrepreneurial capability and vitality. It is also this balance that shapes its strategies within the MNC and that may offer a clue as to which possible roles this unit could play in the longer-term division of labor among subsidiaries. Without such a conception the MNC’s top executives run the risk of allocating tasks, duties, and investments blindly, while destroying valuable assets that have taken decades to create and cultivate within subsidiaries. Obviously, an account of such dynamic balances for each subsidiary could be a precondition for auditing future strengths and weaknesses in order to choose a strategy and set goals for the entire MNC. But it could also be a tool for redistributing proﬁts because what will be a reward in some subsidiaries will be the opposite in others. Without such a conception, authority is exercised blindly, and risks provoking exit where voice and loyalty are needed, and conﬂict where collaboration might be preferable. From this perspective, the key managerial task of the HQ would be to assist the local subsidiaries in maintaining and adjusting the internal balance among positional strategies within them, and to create a portfolio of differently balanced subsidiaries—a balance of balances—enabling the MNC to stabilize a ﬂexible federation of ﬁrms based on a division of labor that beneﬁts each of its members. In such a continuously evolving framework, it should be possible to institutionalize a collaborative spirit in which the

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roles taken on by subsidiaries recognize those of other units, even if this may be maintained through continuous rivalries. Another way to view the balances within subsidiary ﬁrms is to see them as de facto artels in which contributors receive a fair share of the proceeds from the enterprise’s entrepreneurial explorations, allowing each of them to develop its own emergent identity through the MNC federation. The biggest barrier to such a development, however, seems to be the separation of strategic and operational decision-making within the M-form structure and the managerial processes thereby institutionalized. Through this separation, the HQ becomes isolated from and ignorant of the ongoing social processes within subsidiaries on the basis of which it could eventually build up the detailed knowledge necessary to perform a genuinely productive managerial role for the MNC as a whole. In its place, MNCs have institutionalized a standardized set of benchmarks by which their HQs seek to stimulate mutual rivalry among subsidiaries, which pushes the latter to develop more and more similar characteristics, thereby threatening to destroy the entrepreneurial diversity on which the adaptability and innovative capabilities of the federation as a whole depends. The effects of this process in APV, however, were both surprising and paradoxical. Although the HQ tried to integrate the MNC through shifting organizational designs and pressured individual subsidiaries to meet predetermined performance benchmarks, the response in each of the three plants we studied was the development of an increased capacity for adaptation and innovation. In all three cases, work organization became more ﬂexible and hierarchical roles less rigid, while careers began to traverse occupational and departmental divides. In each case, moreover (with the partial exception of Lake Mills), the redeﬁnition of the space occupied by the subsidiary within its own locality also resulted in expanded interdependencies, as it made more intensive use of a wider range of potential resources from the surrounding environment, with which it thus became more intimately involved. If such creative exploitation of differentiated local resources could be provoked by the unintended effects of HQ efforts to impose uniformity on its subsidiaries, how much more might they contribute to the MNC’s collective capacity for adaptability and innovation within an organizational framework explicitly designed to help each local unit develop its own distinctive capabilities?

10 Pragmatic Solutions: From Procedural Justice to Learning by Monitoring 1. Procedural Justice and Mutual Commitment Processes within MNCs Both our own case study and the broader organizational literature suggest that no purely structural solution can be found to the problems of managing diversiﬁed multinational corporations. Nor does it seem realistic to expect that MNC HQs could build up the detailed knowledge of the social balances among positional strategies across each subsidiary which would be necessary to perform effectively the Barnardian functions of the executive on behalf of the multinational association as a whole. For this would require the development of a central intelligence function that could codify how to balance contributions and inducements across the MNC, while at the same time keeping track of local paths of constitutional ordering, and providing guidance to lower-level managers about how authority may be exercised within zones of indifference and goal-setting carried out distinctively in each subsidiary. Such a role for the HQ seems all the more daunting insofar as it would also involve taking account of possible tradeoffs between each subsidiary and its local stakeholders, both internal and external. These tradeoffs, which, as we have seen, are becoming increasingly important as subsidiaries engage in innovative activities to defend and expand their place within the social space of the MNC, itself continuously redeﬁned by mergers, acquisitions, and divestments. One might imagine that these problems could be overcome if MNCs reverted to their older traditions of stafﬁng the HQ with experienced operational managers promoted from the subsidiaries and allowing them to build up long periods of service in such positions—as in the Swedish MNCs that inspired Hedlund’s model of heterarchy. But it seems unlikely that such promoted operational managers would simultaneously be able to strike the right tradeoffs with the external capital markets, a core relationship for the MNC and a critical test of the association’s ability to defend the interests of its subsidiary members. It is also difﬁcult to see how such career patterns

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could avoid distorting the HQ’s ability to function as a miniature internal capital market, if mergers and acquisitions continued and executives had selective relations only with the few subsidiaries from which they themselves had originated. Finally, it is evident that balancing inducements and contributions, constitutional ordering, exercising authority, and goal-setting in subsidiaries have become an ongoing experimental process closely connected with subsidiaries’ broader efforts to achieve continuous improvement across their operations. Hence any knowledge of particular subsidiaries that promoted operational managers might have, when they reached top executive positions in the HQ, would inevitably be partial and outdated in any case. These dilemmas seem quite fundamental as they call into question whether MNCs can actually develop into heterarchies or integrated networks of specialized centers of excellence. We agree with Doz and Prahalad (1993: 26) that structural theories of diversiﬁed MNCs and the matrix organizational forms they advocate have ‘little to offer’ beyond an acknowledgement of ‘structural indeterminacy’. And we likewise concur that analysts of MNCs should therefore ‘transcend the structural dimension’ and ‘focus on underlying processes’ of information ﬂow, inﬂuence, and power that determine ‘how the tradeoffs among multiple stake-holders and multiple perspectives are made’. But if we focus on such processes, it becomes apparent that neither in the ﬁrm we studied nor in the other cases reviewed in the preceding chapters were these institutionalized in any well-developed way. Both APV and ABB created excessively formalized reporting and management information systems, and yet these seemed unable to help in establishing distinctive tradeoffs or balances across their various subsidiaries. Perhaps what went wrong is easier to discover in the case of ABB than in that of APV. In ABB those not conforming to the standardized benchmarking system were assumed to be making ‘bad excuses’. Nowhere do we see any willingness on the part of the BA to reconsider its Seven Ups or to question its own ability to understand all the different tradeoffs and contextual factors that should be taken into account in order for the benchmarking system to work effectively in each subsidiary. Local disagreements with the reporting system were simply seen as ‘bad excuses’ by central managers, even though they often came from some of the most proﬁtable subsidiaries of the entire BA. This, of course, makes perfect sense within Jackall’s (1988) terms, as ‘bad excuses’ are seen by higher-level managers as a way for subordinates to escape from ‘blame time’, which should be prevented at all costs. Hence, neither in ABB nor in APV was anyone forced to question their own understanding of the ‘others’; each position-holder was allowed—or even encouraged—to continue interpreting others’ actions from his or her own perspective, and never

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sought to understand how these actions might look from the other’s standpoint. Thus what seemed to happen is that the struggle for inﬂuence and power within these MNCs simultaneously destroyed the process of information ﬂow and the capacity for real mutual learning. It is possible to identify causal reasons why MNCs have failed to institutionalize such processes that might enable them, if not to build up mutual understanding, then at least to reduce the rate of accumulating misunderstandings. Both the cases discussed above and the broader literature on corporate restructuring report how HQs at all administrative levels have been downsized and have adopted new techniques of program management and performance measurement. Often, especially in cases of acquisitions and divestments, such restructuring has involved a double process of clearing out ‘old managers’ who had reached HQ staff positions by progressing up a long career ladder through local subsidiaries, functional departments, and SBUs on the one hand, and hiring in their place MBAs trained in the latest business school concepts on the other.1 The process of building mutual understanding had previously been institutionalized within the career ladders and internal labor markets of MNCs. But when these began to be restructured in the 1980s and early ’90s, the unfavorable economic conjuncture made it difﬁcult for unions and other stakeholders to press for alternative modes of institutionalization. If this interpretation is correct, it suggests that a whole cohort of modern HQ managers can only maintain their outward self-assurance— whatever their inward uncertainties—by sticking rigorously and unreﬂectively to the concepts and techniques to which they owe their careers. In short, the situation which Alfred P. Sloan warned against at GM in 1945 seems to have come to pass more generally. An obvious question then is whether this problem might be overcome through the construction of speciﬁc organizational mechanisms, such as jurisdiction-spanning committees, where managers from different levels, functions, and units within the MNC could jointly discuss policy and strategy and participate in decision-making. No doubt there are and always will be fundamental conﬂicts among different interests over how to allocate ‘downsizing’ and investments among subsidiaries, and it is impossible to imagine that such mutual rivalry will ever come to an end. The solution to this dilemma, however, could be to recognize that acceptance of such decisions by the contending parties depends not only on the substantive outcome, but also on the legitimacy of the procedures through which they are reached. 1 For reviews of recent research on changes in managerial career patterns and the role of headquarters in large corporations respectively, see Osterman (1996) and Ferlie and Pettigrew (1996).

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Drawing on procedural justice theory, Kim and Mauborgne (1993a: 238) have investigated whether procedural fairness ‘can act as a catalyst to the effective execution of global strategies’ by focusing on the relationship between HQ and subsidiaries in strategic decision-making. Procedural justice theory, they observe, indicates that if the process by which decisions are made is viewed by those affected to be procedurally just, then the organizational members involved in the decision process exhibit the higher order attitudinal forces of commitment, trust and social harmony as well as the lower-order force of outcome satisfaction.

Since the work of Thibaut and Walker (1975), procedural justice research has focused on ‘how individuals’ evaluations of decisions are shaped by the dynamics of social interaction’ (Kim and Maubourgne 1993a: 239): in other words, what makes participants consider that decision-making processes are fair and should be complied with, even when their immediate outcome is personally unfavorable. This is particularly important for subsidiaries, whose managerial discretion and capacity for autonomous action has generally increased, but who are often expected to accept short-run sacriﬁces both for the beneﬁt of the larger MNC and in their own longterm interests. In an empirical study of nineteen MNCs spread across seven industrial sectors, Kim and Mauborgne (1993a, b) found that what makes subsidiary top managers consider strategic decision-making processes to be procedurally just, depends on the following criteria: the extent to which bilateral communication exists between managers of head ofﬁces and subsidiary units involved in global strategic decision-making; the extent to which head ofﬁces do not discriminate but apply consistent decision-making procedures across subsidiary units; the extent to which subsidiary units can challenge and refute the strategic views of head ofﬁce managers; the extent to which subsidiary units are provided with a full account for the ﬁnal strategic decision of the head ofﬁce; and the degree to which head ofﬁce managers involved in strategic decisionmaking are well informed and familiar with the local situations of subsidiary units. (Kim and Mauborgne 1993a: 253)

The more fully these procedural criteria were respected by the HQs of the multinationals investigated, the greater were the levels of organizational commitment, trust in corporate management, social harmony, and outcome satisfaction reported by the subsidiary managers concerned. This was especially true in more globalized industries, ‘wherein the need for extensive intersubsidiary exchanges and cooperations, for swift actions in a globally coordinated manner, and for the sacriﬁce of subsystem for system priorities and considerations ranks supreme’ (Kim and Mauborgne

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1993a: 252).2 These ﬁndings conﬁrm Sloan’s belief in the value of bringing conﬂicting interests in the strategy-making process out into the open where they can be identiﬁed and discussed, in order to create an atmosphere of trust, conﬁdence, and mutual commitment which can help to secure willing compliance or ‘consummate cooperation’ by the participants even with decisions whose outcome they consider unfavorable.3 Karl Weick has studied processes of mutual commitment in greater detail. In his 1993 article on ‘Sensemaking in Organizations’ (cf. also Weick 1995) he observes that even dissatisﬁed expectations can create behavioral commitment, and under certain conditions behavioral commitment can produce broader social commitment. The critical conditions for this virtuous circle of commitment-building, according to Weick (1993a: 12), are high choice, high irreversibility, and high visibility, while the key process is that of justiﬁcation. In the case of APV, the absence of such a justiﬁcation process is obvious on the side of the HQ, which interpreted the MNC’s property rights over its subsidiaries as sufﬁcient grounds for making decisions without further notice or explanation. But it is perhaps less obvious that the subsidiaries suffered similarly by not justifying their own strategizing. In the process of justifying themselves, the subsidiaries might have acquired the tools through which they could discover what we have called their path of constitutional ordering, the national and/or regional contextual rationalities behind it, the social balances among positional strategies shaping its current dynamics, and even new possibilities for modifying the latter. Up until now, we have developed these concepts as external analysts, but they have neither been discovered nor internalized by the subsidiaries themselves as tools of selfunderstanding. Had this justiﬁcation process occurred in such a way that the subsidiaries’ behavior became more mutually comprehensible, it would have been possible to create a communicative space where each could have begun to identify their comparative advantages and hence to develop new positional strategies that built on their respective strengths. Obviously, had the HQ simultaneously justiﬁed its own decisions, this would also have allowed the subsidiaries to develop local positional strategies which could have served the interests of the multinational association as a whole in providing shortterm cash-ﬂow and information to satisfy the London capital markets. Weick (1993a, 1995) himself presents organizing as a process that could effectively perform the four Barnardian ‘functions of the executive’ without concentrating them in a speciﬁc group of top executives. Thus the creation of a broad process of communicative participation might accomplish a 2 Kim and Mauborgne (1993a: 254) also emphasize, however, that what is considered procedurally fair might easily vary between different cultures and also at different levels of the subsidiaries. 3 This is a central theme of Freeland’s (2001) analysis of organizational change at GM.

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managerial task that seems almost impossible to institutionalize through hierarchical means when the Barnardian functions of the executive are writ large in the global world of the MNC. It might also offer a solution to the paradox identiﬁed in the APV case, that the HQ by exercising its property rights actually delegitimated the very notion of such rights—as absentee owners have so often done. In Weick’s view, circles of participation are also circles of ownership (since ‘ownership’ is simply a synonym for commitment). Hence it becomes apparent that if the headquarters uses its formal status to take decisions about projects towards which it has not been committed, then this will be received by those directly involved as the act of an intruding stranger and enemy. This perspective supports a further observation. It could be argued that in APV the subsidiaries themselves led the mutual commitment process astray from the outset. All their projects were initiated as strategies for the particularistic defense of local interests, and for that reason the plans concerned were only revealed to a narrow circle. Revealing these projects to a narrow circle was precisely a way of building mutual commitment within it, leading to the formation of secret brotherhoods aimed at subverting ofﬁcial HQ policies. This at least was the interpretation adopted by APV’s top managers in London, an interpretation which simultaneously allowed them to ignore the collaborative contributions to the overall performance of the MNC, which, as we have demonstrated, were also a key feature of all these local projects. Thus the subsidiaries partly engineered the HQ’s non-participation, and thereby prepared its delegitimation, when, for example, London unilaterally decided to sell off Lake Mills’ innovative ice-cream freezer business. But had such circles of participatory communication existed within APV, then the very same local projects might have been received quite differently, as a collaborative contribution to the collective goals of the multinational association. For as Weick (1993a: 21) explains: Committed interpretation . . . is a sense-making process that introduces stability into an equivocal ﬂow of events by means of justiﬁcations that increase social order. Confused people pay closer attention to those interdependent acts that occur in conjunction with some combination of choice and/or publicity and/or irrevocability . . . . As they become more fully bound to these interdependent actions, people are more likely to invoke some larger social entity to justify the commitment. This act of justiﬁcation, which often resembles reiﬁcation, invokes a presupposed order such as role system, institution, organization, group, or imputed interest group that explains the action, and on the other hand the residue from an episode of committed interpretation is a slight increase in social order plus a partial articulation of what that order consists of (e.g. role system, professional norms, group pressure, collective preference).

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If Weick is right that such micro-processes of mutual commitment can contribute in this way to the creation of a macro-social collaborative order, then it follows that many of the problems in making APV—and the descendants of the M-form corporation more generally—function effectively as an organization stem from the absence of committed interpretation. Through committed interpretation, a multitude of players may not only learn about each other’s different positional strategies and contextual rationalities, but they may also be able—through repeated reﬂexive interaction—to construct a shared understanding of the global game in which they are engaged, whereby they might come to recognize one another’s moves as collaborative and adjust their own strategies accordingly. While the outcomes of such mutual commitment processes thus seem very promising, they also appear easy and inexpensive to initiate. All it would take would be for participants to be prepared to interpret any committed act or statement by other players as a sign of a larger underlying collaborative pattern. When for instance ABB’s Ludvika plant criticized the Seven Ups benchmarking system, this would have been the time for the BA to ask questions rather than to conclude summarily: ‘bad excuses’. Elsewhere Weick (1993b: 642–3) identiﬁes the requirements for such mutual recognition in terms of ‘three imperatives for social life’: (1) Respect the reports of others and be willing to base beliefs and actions on them (trust); (2) Report honestly so that others may use your observations in coming to valid beliefs (honesty); and (3) Respect your own perceptions and beliefs and seek to integrate them with the reports of others without depreciating them or yourselves (self-respect).

This triangle of trust, honesty, and self-respect, he observes, was a critical missing ingredient in a number of well-known organizational disasters; and it likewise appears to have been absent in APV, ABB, and most of the relationships between HQs and subsidiaries reported in the broader literature. The problem, however, is not simply how to institutionalize participatory communication and committed interpretation as new processual practices in MNCs, but how to overcome the ‘institutional logic of the corporation’, as analyzed by Jackall and rooted in the structural transformations traced by Freeland and Chandler. Within this institutional logic it would be foolish for managers to respect the reports of others (since these may have been prepared by opportunistic colleagues seeking to outrun their previous mistakes), or to report honestly about their own activities and performance (since that might make them a scapegoat when some future blame is allocated). And how is it possible for managers to respect their own perceptions if, as Jackall

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reports, they have systematically been trained to speak in a euphemistic language, where innuendo is more effective than direct statements?

2. Learning by Monitoring: Pragmatic Solutions to Global Managerial Challenges Were it not for this difﬁculty, to which we will return below, the next step in our argument would follow almost of its own accord without much need for further explication. Mutual commitment within MNCs could be evoked by initiating a set of interdependent changes in organizational practice at three levels. At a ﬁrst level of analysis, the strategizing subunits within an MNC would simply need to stop operating in secrecy and start communicating openly with one another about their respective strategies. At a second level, it would be necessary to recognize the right and duty of all organizational subunits to participate in setting goals, deﬁning benchmarks, and proposing performance measures for the multinational association as whole, as well as to explain, justify, question, and criticize suggestions brought forward by themselves and others. At a third level, this organizational transformation would be completed by attributing the responsibility of performing the functions of the executive for the multinational association as a whole to all the subunits participating in this process rather than to the HQ alone. From a purely technical standpoint, these changes are neither particularly complex nor difﬁcult to implement. Take ABB as an example. The group’s power transformer BA has institutionalized an interlinked system of program management, benchmarking, and performance measurement among its various subsidiaries. A deliberative process of joint goal-setting, information sharing, evaluation, and mutual learning could easily be organized around these techniques. But rather than simply blaming those subsidiaries which do not meet existing benchmarks for offering bad excuses, the BA should ask them to explain and justify why this is the case. Such a process might reveal that the applicability of the BA’s performance measurement system is limited in certain respects, and that its programs are not fully adequate to meet the challenges and opportunities that some subsidiaries see emerging in their local contexts. These subsidiaries could then propose appropriate revisions to the metrics or even an entirely new BA-wide continuous improvement program. Inherent in such a process, of course, would be an equal right to ask the BA to justify itself and eventually formulate a program with associated metrics for the continuous improvement of its own internal management and services to the subsidiaries.

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Although in technical terms only a few organizational innovations would thus be necessary to institutionalize such a process of mutual commitment, this could nonetheless be seen as a giant step towards transforming the nature and governance of the MNC. The change required at the ﬁrst level of analysis could be compared with the ‘civilizing process’ in late medieval and early modern Europe which transformed feudal knights and their warring ﬁefdoms into the paciﬁed ‘court society’ of absolutist monarchs like Louis XIV in France, focused on intriguing games played out with sophisticated manners (Elias 2000). As Elias (2000: 398) shows, court society meant a huge transformation in how positional games were played, as life there followed rules very different to those of the preceding warrior society: Life in this circle is in no way placid. Very many people are continuously dependent on each other. Competition for prestige and royal favour is intense. ‘Affaires’, disputes over rank and favour, do not cease. If the sword no longer plays so great a role as the means of decision, it is replaced by intrigue, conﬂicts in which careers and social success are contested with words. They demand and produce other qualities than did the armed struggles that had to be fought out with weapons in one’s hand. Continuous reﬂection, foresight, and calculation, self-control, precise and articulate regulation of one’s own affects, become more and more indispensable preconditions for social success . . . . Every individual belongs to a ‘clique’, a social circle, which supports him when necessary; but the groupings change. He enters alliances, if possible with people ranking high at court.

In their mutual rivalry, the nobility no longer mobilized their own landholdings, peasants, and armies, but tried instead to position themselves favorably at court in relation to one another and the king. In the same way, subsidiary managers, rather than strategizing tacitly with their local resources, should be brought together to discuss their respective roles and positions in joint committees at the MNC HQ. This may bring about a cumulative process— if not of mutual understanding, then at least of mutual assessment. But it also creates the countervailing possibility that subsidiary managers, like the court nobility, may fail to manage their ﬁefs effectively, as their best abilities are redirected towards discursive rivalry at the corporate center. This in turn may lead to a renewed subsidiary revolt against absentee managers—just as the absenteeism of the court nobility helped to provoke the popular Protestant movements and peasant revolts of sixteenth- and seventeenth-century Europe (Te Brake 1998). To resolve the ensuing paradox would require wider participation in MNC decision-making by representatives of the subsidiaries themselves, as when European court society was gradually transformed to parliamentary rule.

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The change involved at the second level of analysis could be compared to Hegel’s famous discussion of the dialectic of mutual recognition between master and slave in the Phenomenology of Spirit (1977/1807: 111–19). Hegel’s problem, on Carr’s (1991) reading, is: what happens between independent selves when they encounter one another? In the ﬁrst stage of Hegel’s stylized evolutionary story, the two independent selves try to eliminate each other. In the second stage, they each seek to dominate or enslave the other. Only in the ﬁnal stage—which may or may not be reached—do the independent selves recognize one another, and acknowledge their reciprocal right to exist and to enjoy the fruits of their labor. The path to this ﬁnal stage, a community of mutual recognition among reﬂexive, independent individuals, as Hegel presents it, must pass through a series of rebellions in which the enslaved or dominated party tries to take over the role of the master. For Carr, at least, we are still living in the second phase of Hegel’s story. But the resulting forms of domination are inherently unstable, whether they ever actually explode or not. When they do, they can revert to the pattern of death and destruction or they can fall into their own cycle of domination and counter-domination. (Carr 1991: 143)

On the other hand, however, this destructive cycle may be broken if it gives rise to mutual recognition among the contending parties. For as Carr (1991: 143) summarizes the denouement of Hegel’s story: Each sought this recognition from the other all along, but failed to realize that it had to be mutual, that recognition had to come from one who himself was granted the legitimate status of an independent existence. Instead of disputing their territory or exploiting each other for its use, the parties now cooperate in its enjoyment.

Anyone familiar with modern European history knows how many wars have been fought to overcome such cycles of domination and how many constitutional designs have failed to contain them. Hence it is obvious that to go from the second to the third stage in this progression is far from easy. Recent Hegel scholarship tends in fact to view the outcome of the master–slave dialectic as a fragile and incomplete process of mutual recognition rather than as a progression to a ﬁnite and fully accomplished stage or end state. And this rereading of Hegel in turn feeds into a broader reconceptualization of mutual recognition within multinational societies by political theorists like James Tully as an ongoing, provisional, and contested activity: ‘Any form of mutual recognition should be viewed as an experiment, open to review and reform in the future in response to legitimate demands against it, and so viewed as part of the continuous process rather than as the telos towards

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which the activity aims and at which it ends’ (Tully 2001: 20; see also Tully 2000: 477).4 The proposed transformation of the corporation at the third level of analysis implies that the functions of the executive, properly understood, would become a joint responsibility of all members of the multinational association, not just a small group at the center. Continuing along the line of Hegel’s, Carr’s, and Tully’s analyses, this would mean that the independent selves not only mutually recognized one another but also reciprocally obliged each other to share ongoing responsibility for monitoring everyone’s contributions—including their own—to advancing the community’s common goals. By tying ‘mutual assessments of reliability to joint explorations of capability’, this step would, as Charles Sabel has proposed, simultaneously institutionalize a powerful new collaborative process of ‘learning by monitoring’ (Helper et al. 2000: 466; Sabel 1994). Through such a process, he argues, the apparently contradictory demands of learning and monitoring can be reconciled by creating institutions that make discussion of what to do inextricable from discussion of what is being done and the discussion of standards for apportioning gains and losses inextricable from apportionment. Through these institutions, discrete transactions among independent actors become continual, joint, formulations of common ends in which the participants’ identities are reciprocally deﬁning. (Sabel 1994: 138)

Comparing our remarks about how easy it would be to turn organizational techniques such as benchmarking and performance measurement to the support of a transformed MNC with the philosophical and political considerations raised at our three levels of analysis, creates a paradoxical impression: the transformation envisaged appears so near and yet so far. This paradoxical impression is reinforced by our own account in earlier chapters of how the globalization process in this sector was initiated by a series of independent enterprises which later came to be seen as dependent subsidiaries of a foreignowned MNC, but continued to behave as if they were autonomous while challenging the absentee-ownership behavior of the HQ. And it is deepened still further by consideration of the investment bargaining processes described by Mueller and others, in which MNC HQs have indeed been using program management, benchmarking, and performance measurement as technologies of dominance. Yet as we have seen from our analysis 4

For a comprehensive and illuminating review of recent debates over Hegel’s concept of mutual recognition, see Markell (2003), who argues for its replacement by that of a ‘politics of mutual acknowledgement’ in order to avoid any possible ascription to others of a stable, predetermined identity. We are grateful to Professor Markell for sharing his book manuscript with us in advance of publication.

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of ABB, growing experience with these practices also makes it increasingly likely that small experimental twists in their application could turn them instead into techniques for mutual recognition. In a series of seminal works, Sabel and colleagues have shown how such practices may be used to advance processes of learning by monitoring and ‘directly deliberative polyarchy’ or ‘democratic experimentalism’ in ﬁrms, public institutions, and the wider polity (Sabel 1994, 1996a, 1997; Helper et al. 2000; Cohen and Sabel 1997, 2003; Dorf and Sabel 1998). They take as their point of departure the ‘pragmatic collaborations’ and new organizational disciplines which have been spreading among proﬁt-seeking ﬁrms as the latter struggle to adjust to the ongoing shift from a relatively stable to an increasingly volatile and uncertain economy. The new ‘non-standard’ ﬁrms emerging from this transformation, these authors argue, are ‘federated, not centralized’ and ‘open, not vertically integrated’. At the core of such ﬁrms are teams or work groups with ‘responsibility to achieve goals mutually agreed upon with [their] collaborators, by means that are mutually determined through group deliberation’, and thus enjoying substantial autonomy to alter their own internal organization and choose inputs from suppliers inside or outside the company. Coordination within these work groups—and with their internal and external suppliers and customers— proceeds through an interrelated set of novel organizational disciplines based on iterative goalsetting, problem-solving, and information pooling, from benchmarking and simultaneous engineering to just-in-time production and ‘ﬁve-why’ systems of error detection and correction (Helper et al. 2000: 465–7). These new disciplines and the collaborations they enable may be understood as pragmatic insofar as they oblige the participants routinely to question the suitability of their current routines and continuously readjust their ends and means to one another in light of the results of such questioning. And they are likewise deliberative insofar as they depend on group discussion among a wide range of participants with diverse capacities, experiences, and perspectives to adjudicate among the many alternative solutions thrown up at each iteration of this process (Helper et al. 2000: 467–9). A key element of these pragmatic collaborations is the diffusion of new methods of performance measurement and assessment that permit ends and means to be continually discussed and revised by the collaborating teams at each level. Within such a learning-by-monitoring regime, as Sabel (1996a: 284) has argued, assessment plays a very different role than in more centralized and hierarchical forms of organization: In a stable economic world, performance measurement is a retrospective assessment of the relation between headquarters’ expectations and the operating units’ accom-

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plishments in the light of general standards of achievement, and hence an instrument to adjust institutional means to established ends. But the more decentralized decision making, the more important that goals and the indicators by which their achievement is measured be continuously revised to reﬂect learning through exercise of local autonomy. Assessment becomes the continual adjustment of performance measures in the light of experience as a way to redeﬁne joint goals while simultaneously evaluating progress.

Hence the problem of assessment becomes not one of identifying an optimal set of performance measures for any given situation, but rather of institutionalizing an ongoing (re-)evaluation of the metrics themselves by the participating units: Assessment thus grows out of and is meant to reﬂect upon and coordinate localized adjustment of means and ends to new circumstances throughout the ﬁrm; the task of assessment so understood is not to deﬁne once and for all the performance indicators appropriate to a particular setting, but to construct an institution that, in evaluating performance metrics, furthers coordinated, self-reﬂective adjustment. (Sabel 1996a: 288)

Such an institutional regime, it seems, could indeed be established through incremental steps and micro-level initiatives. Earlier we noted ironically that Bartlett and Ghoshal (1989: 155) thought it possible to escape from the anarchic world of warring ﬁefdoms within the MNC by creating ‘task forces, project teams, and committees that can take conﬂicts ‘‘off-line’’ ’. But such devices could accomplish precisely this task if they were simultaneously used to institutionalize the evaluation of performance metrics in the service of coordinated self-reﬂective adjustment. Their purpose, however, would then be very different than that of socializing managers to believe in the company’s values, goals, and agendas, which according to Bartlett and Ghoshal (1989: 175) are the ‘global glue’ that holds the MNC together. For the participants in such pragmatic collaborations, as we have seen, must be (or become) willing to challenge and redeﬁne established organizational goals as a result of comparing alternative means of advancing them in discussion with one another. Hence the institutionalization of such routines for questioning current routines through disciplined deliberation simultaneously becomes a mechanism for jointly determining the future strategic orientation of the collaborating units. In this way, the learning-by-monitoring process itself could serve as an integrated framework for performing the Barnardian functions of the executive across all levels within the MNC. But this optimistic vision of transforming the MNC into an open, federated ﬁrm through step-by-step implementation of the new pragmatic disciplines of learning by monitoring raises in turn two crucial questions. The

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ﬁrst is how to insure that participation in the process of mutual learning and strategic deliberation is opened up to all the various units and levels of the corporation, rather than conﬁned within a narrow circle or coalition of actors. For in the case of APV, as we have seen, it was a major problem that subsidiaries could not deﬁne their own role within the MNC by comparing themselves to other similar units according to commonly agreed criteria, nor did the information necessary for such comparisons seem to accumulate anywhere within the system. A second closely related question, to which we have already drawn attention, is how to prevent the emergent collaboration among the MNC’s constituent units from being undermined by opportunistic behavior on the part of managers at various levels seeking to advance their careers according to the pre-existing ‘institutional logic’ of the corporation. Helper et al. (2000: 472) suggest as a common answer to both questions that the process of learning by monitoring can itself be expected to expand the circle of information exchange while simultaneously controlling opportunism among the collaborating parties. Thus ‘the pooling of proposals and perspectives’ required by the new pragmatic disciplines breaks down distinctions between mutually ignorant specialists, each tempted to exploit the ignorance of the other. Where hierarchy produces the information asymmetries of mutual ignorance, learning by monitoring in effect creates an information-symmetricizing machine in which actors must keep one another abreast of their intentions and capacities. In simultaneous engineering and error-correction by the ‘ﬁve whys’, for example, actors must teach each other important elements of their respective specialties and reveal the logic of their intentions in order to make themselves comprehensible.

Moreover, as the collaborating parties enhance their command of ‘the search routines, the problem solving disciplines, and the re-conﬁguring of ﬂexible equipment’ involved in learning by monitoring, ‘product-speciﬁc resources are ‘‘de-speciﬁed’’, coming increasingly to resemble general purpose assets, and thus no longer the instruments or object of hold up’. The continuous information exchange and performance monitoring intrinsic to the whole process further protects the participating units against the risks of ‘engaging an incompetent or unreliable partner’ by ‘alert[ing] them to this danger before the consequences [become] ruinous’ (Helper et al. 2000: 472; see also Whitford and Zeitlin 2004). The problem with this view is that Helper et al. do not appear to recognize that the ‘mutually ignorant specialists’ may already be engaged in a preexisting game, which continues within and between ﬁrms despite deliberate efforts to move towards pragmatic collaboration and learning by monitoring.

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Whitford and Zeitlin’s (2004) study of the changing relations between original equipment manufacturers (OEMs) and component suppliers in the US Midwest shows how even companies seeking to cooperate in good faith often ﬁnd their efforts subverted by internal organizational obstacles such as high staff turnover, poor communication, cross-functional conﬂicts, and disjunction between plant and corporate-level policies. Particularly important in this context were individual managers’ search for short-term results in order to meet cost-reduction targets imposed from above—which frequently played a critical role in determining their own annual bonuses—and thereby advance their promotion prospects. Thus far from automatically containing opportunism, the transition to learning by monitoring and pragmatic collaboration may itself be obstructed by the ongoing strategic games within large multidivisional corporations. Our study of APV likewise makes us skeptical about the ability of this model to insure without further institutional support that ‘mutual assessments of reliability’ do indeed result in ‘joint explorations of capability’. If learning by monitoring were to lead, for example, to the allocation of the APV world-pump mandate to Horsens, then this might reﬂect the participation of the plant’s engineers in multi-level negotiating processes, without necessary taking account of the positional strategies and capabilities of its workers or the constitutional ordering under which they currently operate. In this respect, Denmark is indeed a good test case, since one of its historical peculiarities is that industrial specialist knowledge has effectively become the ‘property’ of its workers (Kristensen and Sabel 1997), so that the latter would need to participate fully in any realistic mutual assessment of reliability and joint exploration of capability. As mentioned above, the process of learning by monitoring may be initiated at many different levels within an MNC, but the key question is to what extent it spreads to involve all relevant parties. Laurence O’Connell’s (2001) case study of the Barlo Group, an Irish-owned MNC, is very illuminating about both how learning by monitoring may be organized and the unanticipated consequences to which it may give rise. This study demonstrates how the two networks of engineers located close to the SBU level of the MNC contributed both to initiating the questioning of current practices and to integrating different parties into deliberation about the alternative solutions emerging from this process. The ﬁrst network, ‘Engineering Barlo’, had no formal constitution or name, but was a ‘diverse, mobile group of skilled engineers report[ing] to the technical director of Barlo Radiators’ whose formal remit had nonetheless expanded to include technical responsibility for all the group’s manufacturing plants (O’Connell 2001: 169–70). Participation in the network’s activities was ﬂuid and variable, depending on

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the precise nature of the problem to be solved in particular plants and the priorities and targets established by divisional management. Although the group worked closely with senior management, following loosely deﬁned ‘rules resembl[ing] guidelines’, its members spent ‘signiﬁcant periods of time at the various plants’, where they developed close relationships with local managers, technical specialists, and external suppliers in helping to solve and in some cases redeﬁne the operational problems experienced at this level. In so doing, moreover, the network’s members could learn from one another’s experiences through both informal communication processes and more formal arrangements such as the circulation of memos, quarterly off-site seminars, and collective assessment of plant-level performance data (O’Connell 2001: 171–7). The second network was formed through a Young Engineers Programme established by Barlo Plastics to train engineering graduates by rotating them through a series of different plants working on the same project, such as the implementation of ‘World Class Manufacturing’ (WCM) techniques. The purpose of this program was to provide the SBU with engineers who understood and were trained ‘in all aspects of the division’s businesses, including the various processes, materials and cultures’ (O’Connell 2001: 179). Since the Young Engineers’ time was divided between the SBU project and tasks deﬁned by plant managers (e.g staff training, marketing and ﬁnance activities), they acquired direct personal experience of the relationship between corporate policies and local practices. Participants in the program also shared these experiences with one another through a variety of communication channels, including monthly meetings, video conferences, and daily phone or e-mail conversations. Among the division-wide assignments carried out by this network was a ‘Key Measurements Project’ aimed at developing common metrics to improve cross-national communication and performance comparisons among operating units. In drawing up these performance measures and benchmarking them against international standards, the Young Engineers consulted industry experts and the relevant technical literature, as well as the individual plants. But their experience in the local operating units simultaneously enabled these engineers to see how the same measures might work differently when confronted with the variety of approaches to production within each plant. Thus they discovered the complexities involved, and began to develop practical solutions to the problem of applying common metrics to the diversity of practices in the various operating units: To impose a set of rules or common metrics would ignore the substantial commitment that managers and employees may have to their existing approach. Thus while

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creation of a global list of measurements is possible, to implement these signiﬁcant local knowledge is required. The suggested measures and ideas must gain acceptance from local management and the Young Engineers addressed this issue of shared understanding at a local level. The importance of detailed understanding of the individual plants assumed a vital role as the team worked to achieve a common understanding of measurements across the plants, for example exploring with managers how to gather particular information. This process is ongoing and problems are arising; nonetheless the project is achieving inter-plant or multilevel dialogue. A series of measures now exist which enable comparisons across plants and this facilitates, for example, the implementation of WCM across the division which can provide scope for signiﬁcant improvement in performance. (O’Connell 2001: 183–4)

The creation of such metrics that combine WCM benchmarking standards with detailed local knowledge has allowed the various plants to engage in a genuine process of mutual learning, which can be properly categorized as learning by monitoring. The Barlo case could hardly stand in starker contrast to our observations of the program management and performance measurement processes in ABB and APV, where the metrics were almost entirely deﬁned at the central level on the basis of generalized international benchmarking techniques.5 Sabel (1996a: 282) himself insists that learning by monitoring—whether in the ﬁrm or the wider polity—depends on ﬁnding ways to orchestrate information pooling and comparison of alternative local solutions to common problems which do not suffocate decentralized experimentation: The prospect . . . is that solutions emerge as local units learn from each other, and that no model becomes so dominant that it is immune to challenge from successful local innovation. How, precisely, information about successes and failures is to be circulated among the local units and successes generalized without becoming institutionally entrenched are the increasingly urgent questions of the alternative reform projects, and the ones on which the decentralization in ﬁrms most directly bears.

According to O’Connell (2001), the Barlo Group has found an experimental solution to just this problem, despite the potential for resistance from central managers who ‘stand to lose by decentralization of authority’ and movement away from the ‘hierarchies that ownership establishes’ (Sabel 1996a: 289–90). In their place, a standard for discourses and a discursive standard is 5 The executive director and SBU managers of APV’s Product Business did hold regular discussions during the mid-1990s of the division’s key performance indicators to resolve differences across the operating units in the deﬁnition of measures such as ‘on-time delivery’. But this was counterbalanced by the divisional director’s heavy reliance on decontextualized evaluations by outside consultants in allocating product mandates and manufacturing responsibilities across the different plants. See Ch. 6, 150–2.

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established, where the language of certiﬁcation becomes the language for discussing and evaluating joint projects. And it is this discourse and language that the Barlo Group is said to have succeeded in creating experimentally without provoking negative reactions by central managers and from the hierarchy of ownership. This is indeed an achievement, since learning by monitoring challenges standard principal–agent models of enterprise governance and economic coordination: [T]he new forms of collaboration are neither markets nor hierarchies . . . . In contrast to hierarchy, there is no principal among the collaborators who can deﬁnitively partition tasks for others. Moreover, the collaborators’ positions within the new arrangements are contestable in a way that the places of hierarchical subordinates would not be. In contrast to markets, the collaborators do not merely signal each other through prices. They jointly explore what they want to do even as they are doing it. (Helper et al. 2000: 481–2)

More important still, learning by monitoring also challenges familiar conceptions of ownership as ‘residual control: the right to dispose of an asset insofar as its disposition is not subject to contract. Put another way, residual control is the owner’s right to ﬁll gaps in an existing contract to her liking, or to determine how to redeploy an asset once contracts controlling its current use have run their course.’ In the new pragmatic collaborations between customers and suppliers, however, which often involve co-development of products and manufacturing processes by engineers co-located in each others’ facilities, ‘joint control of the assets . . . shades into joint residual control, and thus a novel form of ownership’ (Helper et al. 2000: 482). In O’Connell’s study of the Barlo Group, however, there is no report that central managers have ceased to play the role of principals and learned to behave according to new rules of shared ownership. On the contrary, O’Connell ﬁnds it important that central managers lent their authority to both ‘Engineering Barlo’ and the Young Engineers. Why then did these initiatives seem not to provoke the emergence of ‘warring ﬁefdoms’? Contrasting the Barlo Group with APV might provide important clues as to how learning by monitoring may become established. First, there is no doubt that the behavior of both networks of engineers in Barlo contributed—apparently unintentionally—to the realization of the criteria for what we have previously referred to as ‘procedural justice’ within the MNC. Second, the ﬂow of information institutionalized in this way may simultaneously have induced central managers to behave as if they had accepted and understood their new role and the new ‘rules’ of ownership. Through such processes, mutual commitment may in turn be created. In short, once institutionalized, the

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new processes of participatory communication and procedural justice may help to create their own foundations. But this does not overcome the problem of how to initiate the institutionalization of these processes in the ﬁrst place, which would undoubtedly have been difﬁcult in the case of APV. O’Connell offers one possible interpretation of how this problem was overcome at Barlo. Following Laffan’s (2000) analysis of Ireland’s participation in the European Union, he suggests that Irish cultural and social traits create an ability ‘to engage in experimentation and micro-social interactions’ (O’Connell 2001: 206). If this is true, then Irish managers, in contrast to their counterparts at APV’s London HQ, may be predisposed to adopt experimentalist perspectives on internationalization by the fact that they are accustomed to view the world through the lenses of ‘peripherality’, and hence to approach their ‘subordinates’ or subsidiaries as potentially equal partners. Such an interpretation closely resembles the historical and cultural explanations of how competition and cooperation are balanced within successful industrial districts discussed in Chapter 8. Such explanations, we saw, present industrial districts as unique social artifacts which can be found but not made, and thus only serve to underlie the difﬁculties of establishing similar processes in other settings through conscious institutional design. But a rather different reading of the Barlo case to that proposed by O’Connell is also possible. It is evident that the networks responsible for institutionalizing learning-by-monitoring processes in Barlo consisted of engineers, who occupied similar or lower hierarchical ranks and career levels than the subsidiary managers with whom they collaborated locally. The institutionalization of learning by monitoring therefore appears to have been underpinned by an egalitarian community of reﬂexive individuals who mutually recognized each other as members of the same professional group. Perhaps the ‘Danish Maﬁa’ at APV represented the emergence of the same type of public, i.e. engineers as a group mobilizing an alternative discourse of their own against the language spoken by shareowners and HQ managers. But whereas the networks of engineers in Barlo were authorized, so that they communicated back to the (consequently shrinking) center, the ‘Danish Maﬁa’ instead was deliberately constituted in such a way as to cut out the HQ. Learning by monitoring may thus have been occurring at APV without being noticed by the HQ managers, whose actions would therefore have appeared uninformed and contemptible to the subsidiaries. At both Barlo and APV, albeit in different ways, engineers seemed to be the professional group responsible for creating a new organizational space within the MNC. If that is true, it raises the question whether such a profession is capable of creating a constitutional ordering that leaves space

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for the positional strategies and struggles of other social groups. If not, it may be that only a small part of the positional strategies in play is appropriately measured by the metrics adopted, which could mean that new warring ﬁefdoms may be likely to emerge, because engineers in redeﬁning their own role ignore those of other players. Such a scenario might even run the risk that by taking over responsibility for learning by monitoring, engineers may come to monopolize this function and transform it into a mechanism for reinforcing their own professional identity that simultaneously excludes the participation of other groups. But if learning by monitoring is to make full use of the tacit and informal knowledge available within the ﬁrm, employees and their representatives must also be able to play an active part in shaping the discursive standards used in the mutual assessment of projects and performance. Without such involvement, what can be learned through monitoring may be restricted to certain positional strategies and routines whose effects depend on being balanced by other positional strategies that remain unrecognized. And without broad participation by the workforce and its representatives in the learning-by-monitoring process, it may prove difﬁcult to overcome the organizational barriers to the development of pragmatic collaboration presented by managerial opportunism and traditional conceptions of ownership rights. The full-scale adoption of such a learning-by-monitoring regime would effectively transform the MNC into what Cohen and Sabel (2003: 366) call a ‘deliberative polyarchy’, in which ‘the constituent units are given autonomy to experiment with their own solutions to broadly deﬁned problems’ in return for furnishing the center with ‘rich information about their goals and the progress they are making towards achieving them’, as a basis for ‘elaboration of standards for comparing local achievements, exposing poor performers to criticism from within and without, and making . . . good (temporary) models for emulation.’ Contrary to the view presented in Helper et al. (2000), such an organizational transformation cannot be expected to be selfactualizing as a result of the step-by-step application of the new pragmatic disciplines (such as benchmarking, simultaneous engineering, just-in-time production, and ‘ﬁve-why’ error correction), but depends instead on the initiatives of speciﬁc actors, individual and collective, which must in turn be institutionalized and extended throughout the MNC.6 6

In a recent reply to such criticisms, Sabel 2004: abstract, v–vi acknowledges that ‘pragmatic collaborations are indeed less stable than some formulations in the original Helper, MacDufﬁe, and Sabel paper suggest’, but goes on to argue that ‘the instability derives at least as much from constitutive features of iterative cooperative design properly understood as from power imbalances’. From this he concludes that ‘Because of the inherent instability of iterated co-design as exasperated

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Both the practical effectiveness of such a federated MNC and its legitimacy in the eyes of its members further depend, as Cohen and Sabel (2003: 367) argue in relation to deliberative polyarchy more generally, on the broad participation of different actors in order to subject ‘its dispersed and coordinated decision-making to . . . the ‘‘full blast’’ of diverse opinions and interests . . . . Meeting the full-blast condition requires open-ended, informed discussion about the decisions taken by separate units and the coordinating center’. And this condition likewise means that the process of constructing discursive frameworks and institutional fora within the MNC for discussing and evaluating organizational goals and performance measures cannot be conﬁned to engineers or other professional groups (as in different ways at Barlo and APV), but must also involve the participation of employees and their representatives more generally. By encouraging a free ﬂow of information and voices from outside the circle of management, moreover, such full-blast participation may civilize the strategic game within the MNC and create an organizational framework for exposing and disciplining opportunistic behavior. And ﬁnally, the resulting engagement with voices from outside their own circle may also enable HQ managers to understand better what different social groups in the various subsidiaries expect from, and can contribute to, the development of the multinational association. by power imbalances, governance mechanisms are indeed required to stabilize emergent forms of collaboration. But these governance mechanisms can themselves be interpreted as embodying many of the features of the iterative co-design process itself ’—a position convergent with ours in this chapter.

11 Creating a Multinational Public for the Corporation If the MNC is to become a genuine vehicle for mutually beneﬁcial collaboration and learning by monitoring among its constituent units, as we argued in the previous chapter, organizational channels must be constructed to involve employees and their representatives in ongoing practical deliberation about the strategic objectives of the global ﬁrm and the performance measures used to assess progress towards them. Accomplishing such a transformation would entail the creation of a new multinational ‘public’ for the corporation, understood pragmatically as ‘an open group of actors . . . which constitutes itself as such in coming together to address a common problem, and reconstitutes itself as its efforts at problem solving redeﬁne the task at hand’ (Cohen and Sabel 2003: 362; see also Dewey 1954/1927). In this chapter, we examine a series of experimental projects and institutions which could give rise to the development of such a multinational public, beginning with European Works Councils (EWCs). As we shall see, the ambiguous experience of participation in these Councils, coupled with the contradictory effects of recent trends towards the coordination and decentralization of collective bargaining, have stimulated the appearance in Denmark and other European countries of efforts to create interregional networks of local actors operating at the interface between MNC subsidiaries and their host communities. Such interregional networks, we argue, could build on and reinforce the emergent multi-level architecture of experimental governance in the European Union, and could be extended to link up with more modest but analogous attempts to develop mutually beneﬁcial relationships between MNCs and local communities in the United States. Finally, we suggest that, by instituting new procedures for open coordination within MNCs, these interregional networks and the new multinational public associated with them could engage the existing ﬁnancial public in a constructive dialogue and thereby help to civilize the ongoing game between global companies and capital markets.

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1. European Works Councils: A New Public for the MNC? From this perspective, APV’s employee representatives showed remarkable foresight in seizing the opportunity to establish a pioneering European Works Council just two years after the passage of the EU Directive in 1994. In principle, they thereby created a forum for social interaction within the MNC, where different views could be exchanged, roles played and eventually changed, projects negotiated, performance measures re-evaluated, and mutual commitment rather than ownership authority developed. Indeed, according to the founding agreement, as we saw in Chapter 3, the APV European Forum was explicitly conceived as an institution in which strategic intentions could be discussed rather than simply announced and enacted. In general, expectations ran high when the EU adopted the European Works Council Directive, and implementation took off rapidly, spurred by the incentive for corporate managements to negotiate ‘voluntary’ agreements under a more ﬂexible procedure available before the statutory provisions came into full legal effect in 1996.1 As Jane Wills (2000: 85) observed, In just ﬁve years, more than 500 international networks of employee representatives and senior managers have been established in ﬁrms across Europe. Each of these networks meets at least once a year to discuss the changing ﬁrm, its business environment, employment issues and future plans. Senior managers present information to employee representatives who are asked to respond, and (in theory at least) consultation takes place over corporate decisions that affect workers in more than one country. Most EWCs allow employee representatives to hold their own meetings, with translation services, before and/or after the main session, and some are developing new forms of communication between annual events.2

Many European trade unionists viewed the EWC Directive as a signiﬁcant step towards greater industrial democracy which would facilitate transnational collaboration among workers and their organizations in a global economy. Though EWCs have no power to block or alter management decisions, they are widely seen by unions, especially at European level, as a valuable tool for understanding and responding to corporate change (see, for example, Hoffmann 2000: 644–7). And from our perspective, EWCs could potentially serve as an institutional framework for enabling the various 1 For the legal provisions of the EWC Directive and the distinction between Article 13 (voluntary) and Article 6 (statutory) agreements, see Ch. 3, n. 8 above, and the references cited therein. 2 By the end of 2001, nearly 700 EWCs had been created, covering approximately 10 million employees (Kerckhofs and Cox 2002: 154). For a recent survey of their organizational characteristics and operations, based on information from union EWC representatives in ﬁve countries, and which generally conﬁrms the overview provided by Wills, see Waddington (2002).

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parties within an MNC to challenge each other’s overarching narratives and initiate a mutual commitment-building process by explaining and justifying their actions and strategies. But empirical studies of the operation and development of EWCs suggest that the hopes invested in them have so far been realized only to a limited extent. Thus a detailed comparative research project covering 23 EWCs in the metalworking, chemical, food, banking, and insurance sectors found that only a minority of high-proﬁle Councils, some pre-dating the Directive itself, could be considered ‘project-oriented’ or ‘participative’, with an autonomous capacity to deﬁne tasks for themselves or negotiate with group management, whether on procedural or substantive issues. Many of the EWCs examined functioned primarily as ‘service agencies’, allowing participants to access, process, and exchange information about the MNC’s operations which would not otherwise have been available nationally. Even in such cases, however, there was often a substantial asymmetry of inﬂuence and information between representatives from the parent company’s home base and those from its foreign subsidiaries. And nearly half of the EWCs studied remained largely ‘symbolic’, with little ability to engage corporate management, inﬂuence the agenda for joint meetings, or build cohesive relationships among employee representatives from different countries (Lecher et al. 2001; Lecher et al. 1999).3 Reports of the work of EWCs often therefore reveal a high level of frustration among the participants. Wills (2000) describes the case of an EWC which operated mainly as a forum where HQ management could inform employee representatives about corporate decisions after the fact and respond to the latter’s criticisms and concerns. Nor did this EWC function effectively as a vehicle for transnational information exchange and solidarity among the employee representatives themselves. Thus the French representatives, who were already accustomed to dealing with issues of corporate strategy and decision-making through their national works council, always brought along an expert consultant whose independent analysis of the company’s situation enabled them to challenge senior managers on their own terrain. The UK representatives, by contrast, who lacked such domestic works council experience and external support, found it difﬁcult to respond in more than purely local terms to the company-level information and managerial discourses presented at the EWC meetings. In cases of this type, which the broader literature suggests are neither universal nor unusual, EWCs do not appear to be fostering a bottom-up communication about 3 For a comprehensive review of published research on EWCs, which largely supports the picture drawn by Lecher et al., see Mu¨ller and Hoffmann (2003).

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subsidiary concerns and capabilities which could compensate for the HQ’s lack of detailed operational knowledge of the MNCs’ constituent units. Instead such EWCs may function more as a vehicle for one-way communication of HQ strategy, aimed at securing acceptance by workforce representatives of top management policies and decisions, as well as at promoting the emergence of a common European corporate culture (Wills 2000: 101; Lecher et al. 1999: 214; Lecher et al. 2001: 61). Not only employee representatives, but also lower-level managers may be frustrated by corporate executives’ efforts to control the agenda of EWCs, limit the ﬂow of conﬁdential information, and restrict the range of issues discussed. Thus Weston and Martinez Lucio (1997: 776), who studied several EWCs during their formative years, observe that local management were increasingly keen to enhance their knowledge of the broader operations of their companies. There was a feeling among many managers that such structures as EWCs would help them understand what was happening in other areas of their company in terms of production, investment and personnel management; and that their formation might force corporate HQs to reconsider the whole question of company information.

The potential value of EWCs in this regard is underlined by the experience of several cases studied by Lecher et al. (1999), where the employee representatives received strategic information on group development plans which only reached local management later, if at all. At Rhoˆne-Poulenc, for example, representatives of local subsidiaries were allowed to participate in EWC meetings as observers, which provided them with ‘one of the rare opportunities . . . to be informed about corporate strategy directly by group management’, but they were not granted speaking rights. Conversely, managers of foreign subsidiaries of the Schmalbach-Lubeca group who were excluded from such meetings complained that they were less well informed about aspects of group policy than EWC members (Lecher et al. 1999: 149, 95). Thus even where the formation of EWCs did result in sharing of strategic information on corporate policies with employee representatives, this did not automatically lead to the institutionalization of a multi-level dialogue that could aggregate locally narrated positional strategies and integrate them with universal strategy discourses emanating from the HQ into a shared master narrative for the multinational association. Responding to such frustrations within European labor circles, Bob Hancke´ (2000: 38) has criticized the underlying assumption that EWCs should be ‘uniquely or predominantly seen as trade union instruments’. MNC managements, he argues, ‘increasingly regard the EWC as a forum for consulting workers’ representatives on difﬁcult issues of restructuring’,

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through which they can institutionalize ‘regime shopping’ and competition among plants in different countries and regions. Hancke´’s observations are drawn from the European car industry, where, as we saw in earlier chapters, multinational ﬁrms have been particularly aggressive over the past decade in using competitive benchmarking and investment bargaining to extract concessions from local unions and impose convergence around common organizational principles across plants. In his view, European MNC managers have thereby succeeded in turning the EWC into ‘one of the main institutional carriers of the new competitive regime in the European car industry’, whereas union representatives have so far failed to use it effectively as an instrument ‘for combating competition over working conditions’ (Hancke´ 2000: 39, 54). Hancke´ is clearly pessimistic about unions’ capacity to transform EWCs into organs where local actors could inform one another about their respective positional strategies, improve their mutual understanding, and enhance their ability to act cooperatively. But he also emphasizes that such a possibility is by no means ruled out by the structure of the institution itself. Whittall (2000) demonstrates how easily the situation may change as unionists from different countries get to know each other and ‘break down the trust barrier’ by acting in a non-chauvinistic way, as when German employee representatives on the BMW EWC helped to prevent the closure of the British Rover plant at Longbridge in 1998–9. In such cases, as recent research on the European operations of US multinational automobile ﬁrms shows, EWCs can effectively disrupt management’s efforts to divide and conquer by implementing a common restructuring project in parallel across different sites without central consultation and negotiation. Thus, for example, ‘as a result of EWC activities, management at General Motors was obliged . . . to involve employee representatives in the process of conducting a benchmarking exercise which they had originally hoped to implement entirely site-by-site in keeping with varying industrial relations systems and existing agreements.’ And EWCs at Ford and GM similarly succeeded in negotiating pioneering agreements with regional management which ﬁxed ‘common terms and conditions for all European employees affected by outsourcing and a joint venture respectively’ (Mu¨ller and Hoffmann 2001: 90, 116). But it is widely recognized that EWCs are not easy to turn into stepping stones for international labour solidarity. In a recent survey of Danish EWC representatives, many remarked that the Councils were used as a tool for ‘workplace egoism’, and the longer representatives had served and the higher their position, the more they emphasized that participants look after particular interests (Knudsen and Sørensen 2000: 77–88). Paradoxically, however, the participants also found the climate of EWCs collaborative and trustful both among employee representatives and towards management,

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again to an increasing extent the longer they had served and the higher their organizational position (Knudsen and Sørensen 2000: 77ff., 94). According to this survey, Danish EWCs do seem to function reasonably well in terms of information and consultation. A surprisingly large proportion of participants, for example, had succeeded in getting issues of concern to them placed on the EWC agenda for discussion. At the same time, however, the overwhelming majority of employee representatives also felt that their side could do much more to gain inﬂuence over corporate management and were dissatisﬁed with the way they played their own role—a sentiment that intensiﬁed with seniority and level of participation. And the managerial side simultaneously reported that employee representatives needed increased competencies to be able to participate more effectively in EWC consultations (Knudsen and Sørensen 2000: 52, 97ff.). These survey results could indicate that the EWCs have simply not yet found their appropriate form, as employee representatives have not learned to use them properly. One might expect from the widely reported tendency for MNCs to use EWCs as a tool for communicating managerial discourses that employee representatives would feel a strong need for additional training in dealing with budgeting, accounting, investments, corporate organization, and strategy, i.e. issues placed on the agenda by top executives. Such training issues do rank high among the concerns of the Danish employee representatives surveyed, but below ‘language’ and ‘knowledge about labour markets and working conditions in other countries’, the last of which they considered the most urgent priority (Knudsen and Sørensen 2000: 142). In other countries, too, EWC representatives likewise suffer from communication problems that are not simply caused by language difﬁculties but also by the lack of knowledge about the differing industrial relations systems represented at meetings. Translation implies far more than rendering meaning from one language into another. It entails understanding speciﬁc national logics and patterns of behaviour, and the problems these can generate. Different industrial relations systems also bring with them different styles of politics—some of which may be perceived to be incompatible, with consequent conﬂicts and factionalism within the EWC. Being able to put such political styles—which can range from co-operative and informal approaches to demonstrative and conﬂictual displays of power—to good use presupposes an understanding of the sources of power which employee representatives draw on in their respective national systems of industrial relations. (Lecher et al. 1999: 222)

Hence some unionists have called for a new ‘pedagogy of transnationality’ to prepare employee representatives for the challenges posed by the multicultural environment of the EWC through a combination of instruction in

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‘basic knowledge about . . . different national industrial relations systems and collective bargaining arrangements, the legal background, and the broader economic context in which EWCs operate’ on the one hand and ‘communication and conﬂict resolution skills, which facilitate the aggregation of potentially differing interests’ on the other (Mu¨ller and Hoffmann 2001: 72). These observations suggest that the establishment of EWCs has stimulated the emergence of a new multinational public, despite the absence of some of the tools needed to support this process. Danish EWC representatives report that they build trust very quickly in unofﬁcial settings outside the formal Council meetings. But these informal meetings are conducted without translation facilities, so command of foreign languages suddenly becomes crucial to understanding what others are saying, and it likewise becomes of great interest to the participants to learn more about the labor market and working conditions which lie behind each others’ statements. Differences in culture and ways of thinking make it difﬁcult for representatives from different countries to collaborate within EWCs, a feeling which does not improve over time, but rather increases with greater involvement in their activities. This could indicate that the more employee representatives participate in EWCs, the more they discover these differences, but without understanding what they are all about (Knudsen and Sørensen 2000: 84–7). The EWCs are thus raising questions rather than providing answers or enabling participants to explain and justify their actions. Probably for these reasons, many Danish EWC representatives feel the need to increase the frequency and length of meetings, in order as some put it ‘to discuss each other’s problems’ but also so that the process of consultation can change gradually into something more like codetermination (Knudsen and Sørensen 2000: 121–31). The situation revealed by these reports is extremely interesting. On the one hand, it seems that EWC representatives could easily form a new multinational public if they could gain access to the tools needed to support this process. On the other hand, however, it is also apparent that so long as such a public does not emerge, the management side may easily play employee representatives off against one another in competitive rivalry for jobs and investments. In such cases, rather than developing into a process of mutual justiﬁcation, commitment building, and codetermination, employee consultation within EWCs may be transformed, as Hancke´ (2000) argues, into a vehicle for managerial regime shopping and investment bargaining, leading to a downward spiral of competitive underbidding through plant-level concessions (see also Zagelmeyer 2001). But Martinez Lucio and Weston, who have studied such processes of investment bargaining across a number of European MNCs, emphasize that the increasing ﬂow of information from management to unions and

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employee representatives which these processes generate often creates new opportunities for strategic responses by the latter. In a number of cases, for example, these authors report that the practices of competitive benchmarking associated with this ‘politics of investment’ have ‘given rise to a loose organizational network between certain unions in different plants who have been exchanging information on production issues and investment’ (Martı´nez Lucio and Weston 1994: 120; see also Weston and Martı´nez Lucio 1997). Where managements have ‘intentionally increased employee representatives’ interests in and awareness of . . . performance and productivity measurements’, they further observe, ‘EWCs may provide a forum and a point of reference for exchanges of information across different plants which the new managerial regime attempts to divide and rule’ (Martinez Lucio and Weston 2000: 210). But even in such cases, they argue, ‘a key issue is . . . the underpinning of EWCs through alternative networks and relationships’ with unions and other actors at national and European level (Martinez Lucio and Weston 2000: 211).4 Hancke´ (2000: 55) agrees that ‘management’s strategy of involving the EWC in decision-making structures may lead to a situation where its members start to use information on strategic issues in a cooperative way’. Unions, he argues, could foster and build on such developments, but only if they reorganize their own structures to strengthen the links between local branches, national unions, and EWCs. ‘What ultimately matters’, he concludes, is what the relevant actors make of the EWC. If management has been able to turn what was conceived as a means to control them into a useful instrument to facilitate industrial restructuring, unions are at least in principle equally able to apply EWCs to their own ends. If European trade unionists become convinced of the necessity for mutual links and for coordination between their local agendas (which also requires that they realize the shortcomings of their current ‘nationalist’ competition) they may start to engage in EWCs on their own terms. (Hancke´ 2000: 56)

European sectoral trade union organizations like the European Metalworkers’ Federation (EMF) played a crucial role in establishing European Works Councils from the outset, drawing up a set of minimum standards or benchmarks for EWC agreements based on existing ‘best practice’ during the ‘voluntary’ initial phase following the 1994 Directive. As a result, these European Industry Federations (EIFs) co-signed nearly one-third of the agreements concluded before 1996. But the EIFs did not always receive in 4 Similarly, in the collaboration between employee representatives at BMW and Rover, Whittall (2000: 78) remarks that ‘It was the networking process that emerged from these contacts, rather than the EWC as an institution, that played a decisive role in transnational negotiations.’

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return a formal right to participate in EWC meetings, thereby limiting their ability to provide follow-up support (Sisson et al. 2001: 10; Lecher et al. 1999: 229; Lecher et al. 2001: 16, 24). At the national level, unions were slower to endorse the creation of EWCs until after the passage of the Directive, when they concentrated on helping to set up as many as possible. This quantitative approach and emphasis on the ‘foundation period’ has created difﬁculties in maintaining subsequent contact between national unions and EWC representatives (Lecher et al. 1999: 229–31). Unions have focused primarily on the provision of training support, especially in foreign languages, while leaving responsibility for strategizing to individual employee representatives based on their local orientation and place within the social space of the MNC. Lecher et al. stress that unions in many countries have become confused about the status and role of EWCs within their overall strategy, particularly about whether they should be allowed to negotiate agreements with corporate managements at European level. ‘Such a step’, they observe, would confront the trade unions with a host of new problems as it would imply an upheaval in established national structures. One of the consequences would be that responsibility for an EWC—located with the largest trade union at the group’s headquarters—would no longer coincide with the geographically-deﬁned national negotiating powers of trade unions. Trade unions, whose geographical scope may embrace many multinationals but only a few corporate headquarters, would ﬁnd themselves confronted with a substantial European presence within their bargaining area. (Lecher et al. 1999: 233)

From this perspective, national unions ﬁnd themselves simultaneously pushed towards greater European-level coordination and towards increased support for and acceptance of local speciﬁcities, which they often regard as a ‘double bind’.

2. Coordinated Decentralization: Reconciling Local Flexibility and European Standards? For some observers, however, this emergent combination of horizontal coordination and vertical decentralization may itself provide a solution to the unions’ dilemma. Thus quite early in the EWC debate, Marginson and Sisson (1996, 1998) argued that the likely outcome of their diffusion would be the development of ‘arms-length bargaining’, in which negotiations continue to be conducted through existing industry and enterprise structures at national and subnational level, but where the positions of the parties are increasingly coordinated

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across European borders and outcomes are increasingly similar. (Marginson and Sisson 1996: 230)

Such an approach may appear most plausible if the goal is to defend certain minimum labor standards against the ‘social dumping’ that European unions fear to be emerging from investment bargaining and competitive benchmarking processes within MNCs, especially following the completion of Economic and Monetary Union (EMU) and the introduction of the Euro. The European Trade Union Confederation (ETUC) passed a resolution on the ‘Europeanization of industrial relations’ at its 1999 Helsinki Congress stressing the urgent need to develop new procedures for cross-national coordination of collective bargaining. The central responsibility for implementing this strategy was assigned in turn to the ETUC’s industry federations, who were expected to create appropriate structures and instruments, adapted to the needs of each sector. Faced with the unwillingness of employers to negotiate at a European level, whether directly or through the EU’s sectoral social dialogue committees, the European Metalworkers’ Federation has been particularly active in promoting unilateral cooperation among its national afﬁliates. In addition to adopting a common guideline or ‘coordination rule’ for wage increases, as recommended by the ETUC Executive Committee, the EMF is also seeking to establish European minimum standards for annual working time, vocational training rights, and other qualitative issues to be pursued through national negotiations. To reinforce coordination among its afﬁliates, the EMF has created an online European Collective Bargaining Information Network (EUCOB@) for continuous exchange and monitoring of data on current developments, and has encouraged the formation of cross-border collective bargaining networks in which union representatives in neighboring regions sit in on each other’s negotiations with employers. And the Federation also maintains a Task Force aimed at coordinating the policies of the 200 or so European Works Councils in the sector, though its impact remains unclear (Sisson and Marginson 2000; Schulten 2001a,b; Mermet and Hoffmann 2001; Mermet 2002). But even as the EMF and other EIFs are stepping up their efforts to coordinate national negotiations across borders, Marginson and Sisson (2002a: 341) point out that ‘the nature of sector-level agreements has been changing away from enumerating detailed provisions and towards establishing core pay and conditions along with guiding principles for subsequent negotiations at lower levels’ in response to the growing complexity of issues to be resolved at plant and company level. In most European countries apart from the UK, these authors contend, such ‘organized’ or ‘centrally coordinated’ decentralization is leading to a profound shift not only in the form of

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collective agreements, from standard substantive rules to more ﬂexible procedural frameworks, but also in the negotiating process itself, from ‘distributive’ bargaining in which there are winners and losers to ‘integrative’ bargaining (Walton and McKersie 1965) in which joint problem-solving can yield mutual gains (Marginson and Sisson 2002b: 674–80; Sisson and Marginson 2000, 2001). Ironically, however, Sisson and Marginson also see unilateral management coordination within MNCs as perhaps the strongest force pushing towards greater ‘Europeanization’ of industrial relations. By promoting isomorphism across their subsidiaries, they argue, the benchmarking process initiated by MNC HQs ‘is directly leading to the harmonization of many of the conditions of employment and indirectly encouraging trade unions to respond’ through their own coordinated bargaining efforts at different levels (Sisson and Marginson 2000: 38). The greater the convergence or ‘sameness’ produced by this process of harmonization, moreover, the easier it should become to orchestrate collective action through such coordination mechanisms. Sisson and Marginson’s work provides an illuminating analysis of the multiple pathways through which bargaining may be coordinated, and of how individual initiatives by small groups can evoke complementary responses from other quarters in an integrative process of mutual learning across the labor movement. In other words, they supply all the premises for showing how such a process of coordinated action and mutual learning could operate cross-nationally. But what is mistaken in their analysis from our perspective is the unilinear direction attributed to this process. MNC HQs may be conducting their competitive benchmarking processes in the way that Hancke´, Mueller, and others have depicted them. And such investment bargaining may also have forced workers and unions to accept reduced rights and increased duties, although as Sisson (2001: 608) observes in relation to a large-scale European survey of plant-level Pacts for Employment and Competitiveness (PECs), ‘virtually all . . . involved some form of ‘‘concession’’ on the part of the employer as well as employees’. But our study of APV demonstrates conversely how workers and union representatives have taken the offensive in experimenting with innovative ways of expanding their plants’ developmental possibilities, sometimes in collaboration with local management, but always outside the notice of the HQ. So while corporate centers are pressing for greater uniformity, their local subsidiaries are inventing new forms of difference. These observations suggest that although offensive local development strategies may emerge within each plant through informal patterns of interaction, these need to be communicated and justiﬁed through some form of coordinated bargaining if they are to become mutually understood and

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recognized within the MNC. By formulating explicitly the varying objectives of each plant, it would become possible to change the orientation of the benchmarking process into a mechanism enabling the MNC to discover the diverse capabilities of its subsidiaries and thereby institutionalize a more effective division of labor between them. The same could occur within and across unions, as they discovered that members engaged in a variety of regional and national labor markets, rather than competing with one another, could draw on complementary sources of comparative advantage. In this way the MNC would become an association of different plants following a diversity of paths, depending on the varying resources they were able to mobilize through their respective localities and labor markets. Unfortunately, however, the discovery of offensive local developmental possibilities and the formulation of defensive union bargaining strategies are very different processes, and shop stewards and conveners in both Horsens and Lake Mills sometimes had to oppose their own wider unions in order to ﬁnd experimental solutions to the challenges they felt themselves to be facing. Integrative bargaining processes, in which local managers and union representatives simultaneously seek to forge new plant-level development strategies and strike a balance between the different groups’ positions and roles within them, are difﬁcult to aggregate and may be seriously disrupted by more centralized distributive bargaining aimed at defending uniform standards. As Sisson himself acknowledges, the shift to ‘such integrative bargaining does not necessarily replace the more traditional forms of distributive or adversarial bargaining. Rather they sit side-by-side’ (Sisson 2001: 609). In some countries, this situation may explain why unions have come into conﬂict with their local constituencies. In other countries where unions have been less prescriptive, this has left their local representatives relatively isolated. Since national unions are not known for their willingness to take risks and initiate experiments, shop stewards and EWC representatives have often felt that when they began to participate in offensive change projects through an integrative bargaining process, they found themselves engaged not only in a game they did not understand, but also one in which they became more isolated from their union than ever. In such cases, local union representatives within MNCs have often felt themselves to be suffering from what Traxler (1995) terms ‘disorganized decentralization’, in which it is extremely difﬁcult to learn from one another and thereby expand the integrative bargaining process from the individual subsidiary to the MNC as a whole. In other words, the social space where shop stewards and other employee representatives could meet, discover shared experiences, and develop common strategies is already occupied by national unions that are geared more towards distributive than integrative bargaining, creating

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a double bind for the actors concerned. But if a growing number of shop stewards, conveners, EWC representatives, and local union ofﬁcers come to realize that they are in the same situation, they may engage in mutual interaction and dialogue through which they can experimentally discover how to break out of this double bind and simultaneously invent new ways of organizing collective action within both unions and MNCs.

3. Integrative Bargaining and Disorganized Decentralization in Danish MNC Subsidiaries Denmark is often taken to be a paradigmatic case of ‘organized decentralization’ (Sisson and Marginson 2000: 11–12; Traxler et al. 2001). But in an interview-based study of ten conveners and shop stewards from Danish MNC subsidiaries (Kristensen 2002), we found that the spread of integrative bargaining at plant level was creating a situation of disorganized decentralization, and with it a deeply felt need for mutual learning. The general pattern observed among these conveners and shop stewards closely resembles the behavior of the convener at the APV-Horsens plant described in Chapters 2–3 (pp. 27, 73). By engaging in various forms of integrative bargaining at the local level, these conveners and shop stewards have gradually developed a partnership with production management to allow upskilling of machine operators, integration of planning and execution at the level of the individual worker, and the creation of a lean managerial hierarchy. In many cases these partnerships have given rise to new forms of teamworking and group bonus payment systems, which permit performance measurement at the level of the work group and encourage the pursuit of continuous improvement. Under such conditions, front-line workers, whether initially ‘skilled’ or ‘unskilled’, become infused with a new professionalism and enter into a new dynamic of cooperation and rivalry that places conveners and shop stewards in a crucial monitoring role. This new dynamic and monitoring role in turn makes it apparent how individual, group, and plant performance may be linked and upgraded. In other words, shop stewards and conveners learn how local performance may be improved from below, while they are simultaneously pressured from above by the benchmarking processes initiated by the MNC HQ. As a result, they feel an increasing need to inﬂuence managerial behavior and corporate politics within the MNC as a whole, and often ﬁnd that their position offers them an experimental platform for this purpose. In so doing, the conveners and shop stewards may discover entirely new roles for themselves and for their unions by extending

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the reach of their partnership to the highest managerial levels. A few examples may indicate the range of strategic options which thereby open up. A convener from a subsidiary plant producing plastic containers for food products had collaborated with local management to raise skills, ﬂexibility, and quality, while also reducing scrap and cycle times, and doubling the number of machines each operator could control. An incipient corporate crisis then brought him into direct contact with the MNC headquarters. The sales department of the MNC had promised a customer a special highproﬁle container for a new product launch which had been prepared through an extensive marketing campaign involving magazine advertisements and television spots. Only a few weeks before the campaign was to begin, it was discovered that the sales department had forgotten to communicate its needs to the production subsidiary. The HQ therefore ordered the plant to work overtime for the next few weeks, including the Easter holidays. Since the reorganization of production had already led to a large-scale accumulation of overtime in the plant, many workers had already planned and booked extended Easter holidays. Hence the abrupt edict from above could be expected to arouse great anger and thereby risked destroying the sense of loyalty to the plant that the convener had carefully been nurturing. On behalf of the workforce as a whole, the convener therefore rejected the HQ’s demand for compulsory overtime, and opened negotiations about what would be offered to those operators who voluntarily agreed to give up their holidays. With a very attractive offer in hand, the convener then asked each operator individually if he or she would be able to work overtime during this period. In this way, he simultaneously reinforced both the individual loyalty and the collective solidarity of the workers, while also solving the problem facing the headquarters, which would otherwise have faced large penalties for failing to fulﬁll its contract with the customer. This incident served as a platform for subsequent action. As the plant had improved its products and reduced costs to far below the MNC average, other subsidiaries increasingly began to sell its products rather than those produced in their own factories. But corporate transfer-pricing rules stipulated that subsidiaries should sell their products to one another at a costbased price to create incentives for the emergence of a rational division of labor within the MNC. Meeting such internal demand, however, left this plant with too little capacity to sell products through its own distribution channels at a higher proﬁt. In other words, the better its technical and organizational performance, the less it could meet the HQ’s targets for proﬁt improvement. The convener therefore wrote a letter to the CEO of the MNC explaining this dilemma, and was able to obtain a reform of the transfer pricing system.

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An organizational restructuring later forced the convener to write again to the CEO. The MNC had adopted a divisional structure that centralized authority and budgets in the hands of SBU rather than subsidiary managers. For the subsidiary in question, this reorganization meant that they could no longer collaborate with their local customers to design, develop, and experiment with new containers, which the plant saw as the royal road to continuous upgrading. The convener then simply asked the HQ to increase the autonomy and budgetary discretion of the local managers, thereby engineering at the same time a change in the division of labor among managers at different levels within the MNC. Whereas the convener in this case protected the local managers from structural changes within the larger MNC, on another occasion he intervened to protect the plant from the career aspirations of its own local manager. As a result of his successful partnership with the convener, the plant manager had gradually increased his personal aspirations and begun to engage in corporate politics at the HQ level. To further an empire-building strategy, he hired a number of additional managers for new positions in the local subsidiary. Their high wages in turn hampered the ability of the convener and the work teams to meet the proﬁtimprovement targets they believed necessary to secure increased capital investment in the plant. Hence the convener wrote once again to the CEO, asking for an explanation of the intended role of these new managers, as he wondered how they were expected to contribute to the plant’s long-term viability. The answer arrived promptly in the form of an HQ delegation that investigated the local managerial team, resulting in its replacement and radical downsizing. This example shows how an entirely new role for conveners may emerge as they become capable not only of helping reorganized high-performance plants solve urgent new problems, but also of inﬂuencing wider corporate policies and constitutional ordering by pointing out where higher-level organizational structures and rules undercut the micro-dynamics of continuous improvement in individual subsidiaries. It is obvious that the higher the performance of the convener’s own plant, the more his voice will be heard and his inﬂuence increase. This voice is independent of individual career aspirations and may be used to regulate relations between managers at different levels more effectively than can the voices of the latter, which are seldom heard by their superiors without an opportunistic overtone. Perhaps the most radical feature of this story is that the convener may even break a local partnership which proves counter-productive after some years, and in so doing bring himself into a much more direct and intensive partnership with the HQ.

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This is precisely what happened to another convener interviewed in our study. He had been involved in a partnership with the managing director of a factory producing agricultural machinery to implement a similar continuous-improvement regime. Workers had put great energy into upgrading their skills as part of a new group-based production system and were eagerly learning how to rotate among numerous complicated work stations. But the managing director continued to introduce new concepts and production principles into this system, so the task facing the operators became nearly impossible. Fearing that the workers’ commitment would be transformed through despair into resentment and labor turnover, the convener unsuccessfully tried to convince his partner to slow down. Rebuffed by the managing director, he decided to write a letter to the HQ explaining the situation. The HQ took him seriously, and as his case proved convincing, the managing director was replaced by a new candidate selected in consultation with the convener for his openness to local partnerships. Both conveners later became involved in constituting EWCs, as these interchanges had helped to convince top managers at the HQ that they could beneﬁt from higher-level participation by workforce representatives. As a result, one of the conveners discovered a new and very important role in helping to re-evaluate and re-design the performance measurement system to ensure that rather than becoming a tool in the opportunistic game among managers it could enable the EWC to assess realistically the comparative performance of the MNC’s constituent plants. This then became one of the key ongoing tasks for the EWC in question. Interestingly enough, the participative dynamic of these two cases seems much more intense than those starting with the constitution of an EWC as a formal body. The literature we examined earlier reports few instances of serious participation by EWC representatives that have led to radical changes in MNCs’ organizational structures, management appointment patterns, or benchmarking systems. The experience of the APV European Forum might help to explain why. First, just to get such a body up and running confronted the participants with a formidable set of obstacles to cooperation (language, training, cultural/institutional differences, trust-building) that diverted attention from putting that body to work to inﬂuence corporate policies. And as we have already seen, managers may easily exploit such obstacles by using the EWC to institutionalize rivalry among representatives from different countries and plants. Second, as illustrated by the convener from Copenhagen who originally served as the ‘constitutional father’ of APV’s European Forum, ﬁghting for the mere survival of the EWC can become a full-time engagement. In his case, it was only due to steady and continuous work with shifting headquarters interlocutors that the Copenhagen convener

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was able to preserve the EWC after Siebe took over APV in May 1997 and then again when it merged with BTR to form Invensys in November 1998.5 In a global economy where mergers and acquisitions are common, such work depends in no small part on individuals’ ability to inspire credibility and trust among changing top managers, who may often be hostile to worker participation from the outset. Yet without such patient work, participation may never be fully institutionalized in global companies, despite the legal support provided by the EU Works Councils Directive, and will thus depend on individual conveners’ ability to build personal trust up the managerial hierarchy. Support from representatives of other plants, works councils, and unions is also crucial in such struggles to preserve an EWC through a series of mergers and acquisitions. Hence it is vital to ﬁnd ways of neutralizing the rivalry among different plants in the face of corporate restructuring which might otherwise undermine their capacity to cooperate within the EWC. Thus, for example, the Copenhagen convener was able to use the EWC to ensure that when Invensys was preparing to close one of its two homogenizer plants in Denmark and Germany, the decision would be entrusted to a manager independent of both facilities who would be able to undertake a neutral assessment. By establishing a level playing ﬁeld in this way, he helped both to civilize the managerial game within the MNC and to prevent the plants’ struggle for survival from damaging the EWC. From these cases, we can see that by engaging in decentralized integrative bargaining conveners and shop stewards have been accumulating a great deal of experience in running factories, organizing collaboration within and across teams, extending partnerships, and monitoring managerial roles for the entire MNC. But they also ﬁnd themselves increasingly isolated as a result. According to our interviews, these conveners and shop stewards feel isolated not only from their unions, since their activities often go beyond what is permitted by formal rules, but also from their own local constituents, who hardly understand their interest in the broader structure and design of global ﬁrms. Obviously, such ﬁgures are increasingly interested in discussing and developing strategies with other employee representatives in similar situations, and it is precisely through such exchanges that unions may learn how to redeﬁne their own roles and contributions. Other thoughtful observers of EWCs like Lecher et al. (2001: 138–40) have argued that networking through exchanges of information, experience, and good practice is the most promising path to strengthening their activities, enabling them to become an actor in their own right, and establishing more constructive relationships with trade unions at national and European level. In the next 5

On the Invensys merger and its outcome, see Ch. 12 below (p. 301).

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section we report on a speciﬁc Danish case, where a group of conveners in MNC subsidiaries have discovered that they share common situations and have come together to discuss ways to change them.

4. The Cross-Border Activity Group: A Danish Conveners’ Initiative In the spring of 1998, a three-day European conference on new work organization, local pacts, and strategies for continuous training brought together a group of conveners, shop stewards, and local union leaders on the island of Funen in southern Denmark. Discussions soon focused on the strategic challenge that these actors faced in coordinating the development of MNCs with that of the locality. The participants thereby came to realize that they occupied a crucial position at the intersection between two complex, heterogeneous, and often volatile spheres of economic activity, neither of which they fully understood. Willingly or unwillingly, these conveners and shop stewards, many of whom were employed in foreign-owned MNC subsidiaries, had become strategic actors at a nodal point of the new global economy, but neither their own experiences nor the impressive training system for plant-level representatives organized by the Danish unions had prepared them for this role. Their discussions revealed that many such conveners and shop stewards felt themselves similarly isolated, since few union ofﬁcials or professional staff seemed able to understand their situation. It gradually became clear as a result that the conveners and shop stewards were the real experts in this case, so that the best thing they could do as a group would be to exchange experiences about their work in different companies and thereby expand their mutual understanding of the strategic games in which they were involved. In the ﬁrst phase of its work, what became known as the Cross-Border Activity (CBA) Group concentrated mainly on exchanges of plant visits, arranging full-day discussions about the local subsidiary’s position within the larger multinational, usually based on presentations from managers and conveners. They also organized an experimental learning workshop in collaboration with the Danish Trade Union Confederation (LO) School in Elsinore, focused initially on enhancing conveners’ knowledge of strategic planning, and later on improving their information technology skills and English-language proﬁciency. Inspired by this collaboration with the CBA group, the LO School went on to develop a special training curriculum for conveners and shop stewards on regional and global strategies and participation in European Works Councils, and began to organize a high-proﬁle

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program of educational courses and international conferences jointly with researchers from Danish universities. This ﬁrst phase revealed that the conveners and shop stewards shared a mixture of positive and negative experiences from working on the border between localities and global ﬁrms. Following the collaborative strategy of Danish unions and their members, these plant-level representatives had generally managed to help transform their respective MNC subsidiaries into very ﬂexible and efﬁcient high-performance workplaces. They had contributed to this transformation by mobilizing the vocational training systems of the wider community to support a highly dynamic process of skill upgrading and continuing education by which many workers became committed to lifelong learning. In some localities, this process had resulted in increased inﬂuence for the conveners and shop stewards over the strategies and decisions of the MNC. In other places, however, they were unable to prevent plant closures by poorly informed HQs, which made it apparent that both their own efforts and the resources of the locality and the state had been wasted. The overall picture which emerged from these discussions was that the harmonization of local and global developments was a highly contingent hit-or-miss process whose outcome depended excessively on chance events. Only systematic dialogue in both directions—upwards to the MNC HQ and outwards to the local community—could change this situation. In learning how to organize such dialogues effectively, the group concluded, they would beneﬁt greatly from continuous exchange of information and experience with local actors in different countries. In the second phase of its activity, the CBA group therefore began to operate internationally. They visited other European countries, trying to extend their network to workers and managers in Swedish MNCs and to British unions involved in local social pacts. They also approached the EU Commission and the European Parliament to investigate possible means of institutionalizing such cross-border collaboration and experimentation on a more systematic basis. In Denmark, the group arranged meetings with national union representatives and government ofﬁcials to discuss how these institutions could assist actors like themselves in linking local and global developments more effectively. Together with an internationally oriented Danish research group (to which one of the authors of this book belongs), the CBA group then formulated a proposal for a third-phase project on ‘Experimentalist Regions and Global Collaboration’, Project REGLO, aimed at stimulating the emergence of a new European-wide public to address the problems of governing the interface between MNCs and their host localities. In the following section, we present a brief sketch of this project as envisioned by the CBA group.

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5. Visions for Project REGLO: From Local Dialogue to Interregional Cooperation The focal actors of Project REGLO are individuals and organizations of various types strategizing to maintain and develop the place of their local communities in the global strategies of MNCs. In working to insure that the host community beneﬁts from the presence of the MNC, these actors simultaneously seek to develop local resources, skills, and relationships in ways which can beneﬁt the global ﬁrm. Such focal actors could be conveners or shop stewards employed in MNC subsidiaries, as in Funen; but in regions where unions are less active, they also could be plant managers, employee representatives, or European Works Council members. In other localities, the focal actors might be suppliers to MNCs or associations of small and medium-sized ﬁrms; and in still other cases, they might instead be NGOs or public agencies. The primary task of Project REGLO as envisaged by the Danish CBA group is to create a trans-European network among these heterogeneous focal actors as a basis for systematic exchange of experience, mutual learning, and benchmarking of how best to perform this strategic role in different local settings. By bringing these focal actors together across regional and national boundaries, Project REGLO would establish a forum for dialogue among potential rivals, thereby stimulating the open communication and mutual respect which is a precondition for joint learning. Through this network, Project REGLO hopes to stimulate and empower each focal actor to establish a multilateral dialogue involving not only the MNC and their own organization or unit, but also the entire web of relevant bodies and stakeholders in the local community, both public and private. The aims of establishing such a dialogue between local actors and the MNC are to help each side to understand better the other’s strategic position, to build mutual trust, and to negotiate agreed standards or codes of practice for one another’s behavior. Where European Work Councils already exist, this local dialogue could catalyze the participants’ experimental efforts to make more intensive and constructive use of this institution. Where EWCs are absent, for whatever reason, this local dialogue could encourage their creation. By participating in Project REGLO, the MNC would gain access to knowledge about how such local dialogues function in other communities and ﬁrms, and could thereby be inspired to develop more effective ways of coordinating its own activities on a global scale. By participating in such a multilateral dialogue, local actors could likewise be spurred to formulate their aspirations for community development in the medium to long term. This process in turn could stimulate a variety of local organizations,

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authorities, and agencies to establish new objectives and benchmarks for their own activities, and to initiate concerted experiments or social pacts to increase employment, upgrade workforce skills, and improve support services to ﬁrms. It could also help the focal actors of Project REGLO to discover more speciﬁcally how the local community could play a more proactive role in relation to the MNC on the one hand and how the MNC could reinforce and beneﬁt from local development on the other. Finally, through participation in a trans-European network like Project REGLO, its focal actors could further enrich these local dialogues by drawing on innovative ideas and practices developed by their counterparts in other regions.

6. Building on and Reinforcing European Experimental Governance Project REGLO remains for the moment more an aspiration on the part of a group of Danish conveners and their academic and union advisers than a functioning collaborative network. But an interregional network of this type, linking focal actors engaged in local dialogues with MNC subsidiaries, could both build on and help to reinforce the emerging multi-level architecture of experimental governance in the European Union in a number of ways.6 Territorial Employment Pacts First, an interregional network like Project REGLO could build on the experimental program of ‘Territorial Employment Pacts’ launched by the European Commission. This program was intended to stimulate local development and improve the effective use of EU structural funds by supporting innovative ‘bottom-up’ projects based on inclusive partnerships of public and private actors and an integrated approach addressing both the supply and demand sides of employment creation. In order to qualify for EU support, these projects were expected to involve an agreement or ‘pact’ among the broadest possible array of stakeholders, such as local authorities, employers, unions, banks, educational and training institutions, community groups, voluntary associations, and NGOs. As in the case of Project REGLO, however, both the practical objectives of these pacts and the focal actors responsible for their coordination did not follow a single model, but could vary widely depending on pre-existing patterns of collaboration and perceptions of local needs. Between 1997 and 2000, the Commission approved 89 6 For an overview of this experimental governance architecture from the EU through the national to the local level, see Zeitlin and Trubek (2003).

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such territorial employment pacts across the EU’s ﬁfteen member states. In some countries, notably Italy, which was already in the process of introducing a similar experimental program at national level, the number of territorial pacts rapidly expanded far beyond the coverage of the EU scheme. In other European countries, such as Ireland, these pacts were often assimilated into the existing network of local area-based partnerships established with support from the EU’s anti-poverty programs and structural cohesion funds.7 In reviewing the experience of the territorial employment pacts from the perspective of Project REGLO and the Danish CBA group, two limitations stand out. One concerns the range of issues addressed. Beyond the formation or strengthening of local partnerships themselves, many of the pacts focused on initiatives central to the agenda of Project REGLO, such as promoting lifelong learning or adapting public training programs and labor market services to local needs. Yet few if any of these European pacts incorporated multinational subsidiaries as key partners or devoted explicit attention to the problems of reconciling local development initiatives with MNCs’ global strategies—perhaps, paradoxically, because of the program’s overarching emphasis on valorizing endogenous territorial resources. Only in cases like those of Turin in Italy (which was not sponsored by the EU) or Dundalk in Ireland (which built on an existing area-based partnership) did such territorial pacts focus directly on actions aimed at working with MNCs to upgrade the capabilities of local supplier ﬁrms or the skills of their employees (Pichierri 2001: 253–5; Sabel 1996). A second limitation of the European territorial employment pacts program concerns the restricted interaction among the participants themselves. The European Commission was concerned from the outset to promote mutual learning and the diffusion of ‘good practice’ across the pacts through informational seminars and workshops, publications, and a dedicated website and ‘innovation unit’ run by a group of external consultants. But interaction among the pact coordinators themselves was largely conﬁned to participation in occasional conferences, and the Commission’s review of the program’s initial phase highlighted the need to support ‘more intensive exchange of experience among the pact partnerships and between them and all the regions interested in this approach’ (European Commission 1999a: 8, 15). By linking local development partnerships to one another and encouraging them to benchmark their 7

For an academic overview of the territorial employment pacts and their operation, see Regalia (2003). For ofﬁcial presentations and evaluations of the program, see European Commission (1999a, b, 2001a, b). On the Italian case, see also Pichierri (2001); Trigilia (2001); Cersosimo and Wolleb (2001); Negrelli (forthcoming). On local area-based partnerships in Ireland and other European countries, see Sabel (1996b); Benington and Geddes (2001); Evers (2003).

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respective approaches for tackling the global challenge of MNCs, an interregional network like Project REGLO could thus contribute signiﬁcantly to that ‘opening up to the world’ of local communities’ survival strategies which Commission ofﬁcials themselves identiﬁed as an underlying goal of the territorial employment pacts (Lo¨nroth 1999: 3). The European Employment Strategy and the Open Method of Coordination More important still as a reference point and potential resource is the European Employment Strategy (EES), the institutionalized framework through which the EU and its member states have coordinated their employment policies since the late 1990s. Anchored in the new employment title of the Amsterdam Treaty and launched at the Luxembourg ‘jobs summit’ in 1997, the EES (or ‘Luxembourg Process’ as it is also known) has developed into an iterative process of experimental governance comprising the following steps in a regular multi-year cycle: .

.

.

.

Joint deﬁnition of common objectives, indicators, and policy guidelines, based on benchmarking among EU member states and other advanced economies; National Action Plans (NAPs) which assess performance in meeting the objectives, as measured against both common indicators and countryspeciﬁc metrics, and propose reforms accordingly; Peer review of these plans, including mutual criticism and exchange of good practices, backed up by country-speciﬁc recommendations for corrective action from the Commission and the Council; Annual re-elaboration of the NAPs, and at less frequent intervals, of the common objectives, indicators, and guidelines in light of the experience gained in their implementation.

Because the EES encourages convergence of national objectives, performance, and policy approaches rather than of speciﬁc institutions, rules, or programs, this experimental governance mechanism is particularly wellsuited to identifying and advancing the common concerns and interests of EU member states while simultaneously respecting their autonomy and diversity. By committing the member states to sharing information, comparing themselves to one another, and reassessing current policies against their relative performance, the Open Method of Coordination (OMC) pioneered by the EES is also proving to be a valuable tool for promoting deliberative problem-solving and cross-national learning across the EU. Hence the OMC has rapidly become a virtual template for EU policy-making in complex, domestically sensitive areas where diversity among the member states precludes harmonization but inaction is politically unacceptable, and where

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widespread strategic uncertainty recommends mutual learning at the national as well as the European level. Embraced at the Lisbon socioeconomic summit in March 2000 as a new governance instrument with broad applicability, the OMC has since been extended in different forms into a variety of policy domains such as social inclusion, pensions, structural economic reforms, immigration/asylum, and education/training.8 Not only the OMC approach, but also many of the EES’s substantive goals are closely aligned with those of Project REGLO. During its ﬁrst ﬁve years of operation, for example, the EES embraced new ‘horizontal’ objectives of enhancing quality in work, promoting lifelong learning, extending social partnership, and raising the employment rate, alongside the four original vertical ‘pillars’ of improving employability, developing entrepreneurship, encouraging adaptability of businesses and their employees, and strengthening equal gender opportunities (each of which incorporated a number of more speciﬁc guidelines).9 Empirical research on the EES, including the vast body of evaluation reports produced for the 2002 mid-term review (European Commission 2002a, b), suggests that it has raised the proﬁle and ambitions of employment policy at both European and national levels, while enhancing awareness across the EU of programs, experiences, and problems in other member states. In practical terms, the strategy appears to have been most effective in promoting administrative reorganization and revised approaches to employment policy at a national level. Thus in most, though not all EU countries, the EES has contributed to better horizontal integration among formally separate but interdependent administrative domains (e.g. labor market policies, social assistance, pensions, taxation), greater decentralization (especially of the public employment services), and increased attention to vertical 8 There is now a vast literature on the EES and the OMC. For overviews, see Zeitlin (2002, 2003); Cohen and Sabel (2003); Sabel and Zeitlin (2003); Trubek and Mosher (2003); Goetschy (2003); Jacobsson (2002); de la Porte and Pochet (2002). For a more extensive collection of papers and reports, see the OMC Research Forum of the University of Wisconsin-Madison European Union Center, accessible at . OMC processes vary in their precise modalities and procedures depending on the speciﬁc characteristics of the policy ﬁeld, the Treaty basis of EU competence, and the willingness of the member states to undertake joint action. 9 For the 2002 guidelines, see Ofﬁcial Journal of the European Communities 1.3.02, L. 60–9, available on the website of the European Commission’s Directorate-General for Employment and Social Affairs (DG EMPL), . Beginning in 2003, the EES will concentrate on three overarching objectives: achieving full employment by raising the employment rate, improving quality and productivity at work, and promoting cohesion and an inclusive labor market. The employment guidelines will focus on a reduced number of priorities supporting these objectives, such as active and preventative measures for the unemployed, fostering entrepreneurship to create more and better jobs, promoting adaptability in the labor market, developing investment in human capital and strategies for lifelong learning, increasing gender equality, and addressing regional disparities. See European Commission (2003a, b) and European Council (2003: 18–21).

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coordination between levels of government. In many areas, such as active aging, lifelong learning, gender mainstreaming, and the adoption of a preventative approach to combating unemployment, there is likewise evidence of broad shifts in national policy thinking, even if it seems better to speak of a two-way interaction rather than a one-way impact, since member states had begun to shift in many cases before the creation of the EES, whose guidelines they also helped to deﬁne themselves.10 At the same time, however, this empirical research also indicates that the EES has not fully capitalized on the theoretical promise of the OMC as a mechanism for mutual learning. Thus, for example, EU member states do not seem to have made much tangible progress in learning from one another at the level of local practice about how best to integrate labor market activation with social inclusion, balance ﬂexibility with security in modernizing work organization, or extend the scope of lifelong learning to reach a wider section of the population. Moreover, according to the Commission’s own technical evaluation of the territorial dimension of the EES, there are no (or at least very few) examples of upward transfer of promising local solutions, nor is there evidence that national programs or EU guidelines have been modiﬁed in response to sub-national experiences and needs. ‘[T]o date information has ﬂowed only one-way,’ the report concludes, ‘from the national to other levels’ (European Commission 2002c: 11–12). Much of the problem, as this last observation suggests, appears to stem from the fact that in many (though not all) member states, the EES remains little known or regarded as a narrow, technocratic reporting process primarily involving higher civil servants working in direct contact with EU institutions, rather than a broad, inclusive process of public policy-making, accessible to the participation of all stakeholders. Such criticisms have given rise to persistent calls from many quarters to ‘open up’ the EES to a wider range of actors, which have inﬂuenced both its guidelines and its procedures. Thus following pressure from the ETUC, the European Parliament, and the Commission, most member states have sought with varying degrees of success to involve central unions and employers’ associations more fully in the formulation of their NAPs, though the very tight timetable and the formality of the procedure along with disagreements among the parties over the objectives themselves, have remained continuing obstacles (Winterton and Foden 2001; Raveaud 2001; European Commission 2002d). From an early stage in the process, local and regional authorities, which often have direct responsibilities for employment and economic development 10 In addition to the sources cited in n. 8 above, see Zeitlin et al. (forthcoming). The national and Commission evaluation reports from the 2002 mid-term review of the EES may be consulted on the DG EMPL website (see n. 9 above).

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policies, also began to demand the right to participate more actively in the EES, lobbying at a European level through horizontal networks like the EU’s Committee of the Regions, the Council of European Municipalities and Regions (CEMR), and EUROCITIES. Between 1998 and 2001, the employment guidelines were progressively revised to call for the mobilization of ‘all actors at regional and local levels’ in the implementation of the EES; local and regional authorities in particular were encouraged to develop their own territorial employment strategies and to ‘promote partnerships between all actors concerned’ in carrying them out. The Commission organized a year-long campaign and consultation process on ‘Acting Locally for Employment’, and the European Parliament created a new budget line to support pilot projects that would ‘encourage cooperation, improve knowledge, develop exchanges of information, promote best practices, support innovative approaches and evaluate experience gained in implementing the National Action Plans for Employment at local and regional level’ (European Commission 2000, 2001c; Committee of the Regions 2001: esp. 20–4; CEMR 2001; EUROCITIES 2001). In response to these pressures, many member states have sought to involve subnational actors in the implementation and dissemination of their NAPs—often through the formulation of local and regional action plans (LAPs and RAPs), which have largely supplanted territorial employment pacts as the focus of EU support for innovative local development projects and partnerships. Few member states, however, have seriously attempted to broaden participation in the EES beyond the traditional social partners to civil society groups and NGOs, or to involve local and regional authorities in the formulation and monitoring of the NAPs themselves (European Commission 2002c, d; EAPN 2002; Zeitlin 2002; Pochet 2003). In its January 2003 communication on ‘The Future of the European Employment Strategy’, which echoed an earlier resolution by the European Parliament, the Commission explicitly called upon member states to ‘actively involve all stakeholders . . . in the development and implementation of national strategies’, including civil society and territorial authorities, as well as to encourage and support ‘partnership-based local and regional employment strategies’ (European Commission 2003a: 18). It remains to be seen how far national governments will prove willing in practice to open up their own policy-making processes to fuller participation from non-state actors and lower levels of governance.11 Whatever the ultimate outcome, however, it seems clear both 11

These injunctions were incorporated directly into the draft 2003 Employment Guidelines proposed by the Commission. But member state representatives in the EU Employment Committee insisted on deleting any explicit reference to civil society, acknowledging only that ‘relevant actors in the ﬁeld of employment at national and regional level have important contributions to make’. Compare European Commission (2003b) with European Union Council of Ministers (2003).

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that the EES will provide a promising platform for cross-national public mobilization in support of local development strategies, and that interregional networks like Project REGLO could in turn help to fulﬁll the OMC’s promise as a experimental mechanism for mutual learning by creating an autonomous framework for regular horizontal exchanges of experience and strategic benchmarking among local actors themselves. Indeed, the potential value of such an approach has already been demonstrated by an experimental network of local and national social partners associated with the EES, which was supported by the European Commission in 2001–2. The COPARSOC project was coordinated by the European Territorial Excellence Association (EUREXCTER), a pre-existing action-research network sponsored by the European Centre of Enterprises with Public Participation (CEEP), one of the three main organizations participating in the European Social Dialogue alongside ETUC and UNICE (the European private employers’ confederation).12 This project brought local and regional representatives of unions and employers from a dozen EU countries to France for a number of thematic workshops to share experiences, exchange good practices, and critically review the territorial dimension of the EES. It also involved a series of networked meetings between national union and employer representatives from nine EU member states to evaluate jointly the operation of the EES through comparative discussion of each country’s NAP. The project’s methodology drew explicitly on the peer review and multilateral monitoring developed within the OMC, emphasizing the importance of improving mutual understanding of cross-national differences in employment practices through reciprocal information about the institutional context and explanation of the local concerns motivating participants’ questions. Among the ‘good practices’ discussed by the ‘local players’ in these meetings were innovative approaches to working with MNCs like Volkswagen and Philips in cushioning the employment effects of industrial restructuring, supporting lifelong learning, and promoting regional development. Based on the experience of the COPARSOC project, social partner representatives from a number of the participating countries expressed their support for establishing ongoing networks at both local and national levels for peer review, exchange of good practices, and multilateral monitoring of employment action plans (EUREXCTER 2002). Promoting Corporate Social Responsibility As this last example suggests, interregional networks like COPARSOC and Project REGLO could also build on and reinforce the development of an 12

On EUREXCTER and its activities, see EUREXCTER (2001).

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emergent ﬁeld of European experimental governance: promoting corporate social responsibility (CSR). Following a year-long consultation process, the Commission published a communication in July 2002 outlining a European action framework for CSR, deﬁned as the integration by companies of social and environmental concerns into their business operations and interaction with stakeholders on a voluntary basis over and above legal requirements. The Commission proposed a wide range of actions, including the mainstreaming of CSR into all EU policies and the creation of a Multi-Stakeholder Forum comprised of high-level representatives from business and employers’ associations, trade unions, and NGOs to promote innovation, convergence, and transparency in CSR tools and instruments; to exchange experiences and good practices; and to assess the appropriateness of establishing a common European approach and guiding principles, which could also serve as a basis for international dialogue. Much of this CSR activity is aimed at inﬂuencing the global labor, environmental, and human rights practices of European MNCs, especially in developing countries, which like those of their US counterparts have come under increasing critical pressure from unions, NGOs, and consumer groups. But the EU action framework also emphasizes the social responsibilities of large enterprises towards their employees, suppliers, and local communities. Hence the Commission has launched a new initiative on ‘socially responsible restructuring’, aimed ‘at stimulating dialogue between [the] social partners in order to identify and develop best practices on anticipating and managing restructuring’, supported by the establishment of a European Observatory on Industrial Change attached to the European Foundation for the Improvement of Living and Working Conditions based in Dublin. The European social partner organizations have been formally consulted about the usefulness of establishing a set of principles to support ‘good restructuring practices’, and the desirability of embodying these principles in framework agreements at cross-industry or sectoral level. But whether or not this initiative eventually results in a something like an agreed European code of practice on socially responsible restructuring, it will surely fuel public debate and mobilization over the role of MNCs in community development across the EU, to which interregional networks of ‘local players’ like those envisaged by COPARSOC and Project REGLO could in turn make a vital contribution.13 13 For the emergent European action framework for corporate social responsibility, see European Commission (2001d, e), Bronchain (2003), and the website of the EU Multi-Stakeholder Forum on CSR, . For the Commission’s initiative on socially responsible restructuring, see also European Commission (2002f). In June 2003, the European-level social partners agreed a joint text on ‘managing change and its social consequences’: see EIRO (2003).

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European efforts to construct a multinational public for the corporation through interregional networking can thus build on a rich array of EU institutions and policies, from EWCs and territorial pacts to the EES and the Commission’s recent initiative on ‘socially responsible restructuring’. Interregional networking of this type could in turn help to overcome a major weakness in the EU’s emerging multi-level architecture of experimental governance by creating new channels for horizontal coordination and mutual learning among local actors. How can such networking of local actors be extended to MNC subsidiaries and their host communities in other world regions, notably the United States, which attracted more than 40 per cent of all foreign direct investment (FDI) in the OECD during the late 1990s (OECD 2002: 14)? Here again, the case of APV exempliﬁes broader international trends. Thus at the end of the millennium, domestic afﬁliates of foreign MNCs accounted for 14 per cent of US manufacturing employment and 18 per cent of industrial production (US Bureau of Economic Analysis 2002: 156; OECD 2002: 14). Nearly two-thirds of all inward manufacturing FDI in the US originated from Europe, with the UK as the largest single investing country, while the US in turn absorbed some two-thirds of EU FDI outﬂows (OECD 2002: 369, 371; US Bureau of Economic Analysis 2002: 153; European Commission 2001e: 12).14 Hence US manufacturing subsidiaries have become increasingly signiﬁcant for both their European parent MNCs and their American host communities. And they are no less important for any project aimed at constructing a multinational public to engage these corporations. American MNCs operating in Europe are in principle obliged to permit the formation of EWCs if they meet the employment criteria of the 1994 EU Directive, though some have succeeded so far in evading this requirement.15 But there is no comparable obligation for European MNCs to include their US employees in EWCs or other representative arrangements, and few have chosen to do so. The most conspicuous exception is the German-American automobile manufacturer DaimlerChrysler, which established a World Employee Committee in July 2002 with members from six countries, conceived as a forum for global networking among workforce representatives,

14 Some of this high proportion of European foreign investment directed to the US reﬂected the cyclical attraction of the ﬁn-de-sie`cle boom. Thus the US share of European outward FDI jumped from 37% in 1996 to 66% in 1999 (European Commission 2001e : 12). 15 For the notorious case of McDonalds, see Royle and Towers (2003).

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for information exchange, and for consultation with top management.16 This committee built on earlier efforts by German and US trade unions to institutionalize international cooperation among worker representatives following the 1998 Daimler Benz–Chrysler merger. But the spur for its creation came from DaimlerChrysler’s adherence to the ‘Global Compact’, a ‘multi-level, multi-actor policy network’ based on voluntary commitment to nine fundamental principles of human rights, labor rights, and environmental stewardship launched by United Nations Secretary General Koﬁ Annan in July 2000. The ‘Global Compact’ initiative is intended to serve as a ‘value-based platform for institutional learning’ and dialogue between private companies and other ‘critical stakeholders’ such as unions and NGOs about how these principles can best be implemented. In line with this approach, the ﬁrst task of the DaimlerChrysler World Employee Committee was to agree with management on a common set of principles for worldwide corporate social responsibility.17 Apart from exceptional cases like DaimlerChrysler, however, efforts to extend social dialogue and interregional networking across the Atlantic would have to engage a heterogeneous array of focal actors and organizations experimenting with strategies for developing mutually beneﬁcial relationships between MNCs and local communities—in the manner envisaged by Project REGLO. One such body is the Wisconsin Regional Training Partnership (WRTP), brieﬂy described in Chapter 4 above, in which APV’s Lake Mills plant participated in the mid-1990s. The WRTP, as we saw, is a labor– management alliance dominated by large, mainly unionized metalworking plants in south-east Wisconsin (many of them afﬁliated to US and foreignowned MNCs), which has been active for more than a decade in promoting collaborative workplace restructuring, cross-ﬁrm learning, vocational training, and recruitment of disadvantaged inner-city and ethnic minority workers into well-paying manufacturing jobs.18 Another closely related initiative with still greater potential impact on the relationship between MNC subsidiaries and their host regions is the Wisconsin Manufacturers’ Development Consortium (WMDC). 16

Volkswagen also agreed with its EWC in 1998 to create a World Group Council including representatives from the company’s sites in South Africa, the Americas, and Asia. But following the closure of VW’s US manufacturing operations in the 1980s, it no longer has any production employees in that country. See EIRO (1998). 17 For DaimlerChrysler’s World Employee Committee, see EIRO (2002), and ‘World Employee Committee Founded at Daimler Chrysler’, < www.daimlerchrysler.com/news/top/t20717_e.htm >. On the Global Compact, see also Khagram et al. (2002: 15–23); . 18 On the WRTP’s activities as an intermediary between large ﬁrms and local communities, see especially Dresser and Rogers (2003: 280–2).

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The WMDC is a public–private partnership of six large original equipment manufacturers (OEMs)19 and the Wisconsin Manufacturing Extension Partnership (WMEP).20 Originally known as the Wisconsin Supplier Training Consortium, the WMDC began in 1998 as a joint effort between WMEP and John Deere’s Horicon Works, where unlike at APV Lake Mills, as we saw in Chapter 7, the local union eventually accepted permanent outsourcing of machining operations to external suppliers as part of a collaborative restructuring process that eventually led to increased in-house employment. As a result of this experience, a Deere supplier development manager on the WMEP governing board became convinced of the growing importance of OEM–supplier relations not only to his own company but also to the Wisconsin economy more generally. He therefore joined with the director of WMEP in recruiting representatives from other leading OEMs to form a consortium aimed at upgrading the capabilities of small and medium-sized suppliers to meet the rising performance expectations of their customers. The Consortium partners also drew support from the state technical college system, with which WMEP already had a close relationship, and from the state budget, which provided a public subsidy enabling ‘strategic’ suppliers nominated by the OEMs to participate in high-quality training classes at a 50 per cent discount.21 The Consortium focused initially on training suppliers to achieve concrete performance goals such as cutting lead and cycle times, improving product quality and delivery, and reducing costs. It also sought to increase suppliers’ 19 The six original OEMs are the Ariens Corporation (a maker of snow-blowers and lawn and garden equipment), John Deere Horicon works (lawn and garden tractors), Harley-Davidson (motorcycles and motorcycle power-trains), Trane Corporation (industrial water chillers), Mercury Marine (boat motors), and Case-New Holland (agricultural equipment). Several of these OEMs are divisions of larger corporations producing for other markets from out-of-state plants (e.g. Deere construction and forestry and agricultural implements, Case construction, Harley assembly facilities), and nominate Wisconsin suppliers to these out-of-state plants. In 2001, these six OEMs purchased $844m in materials from more than 250 nominated suppliers employing close to 50,000 people. The consortium was previously called the ‘Wisconsin Supplier Training Consortium’. In early 2002, it added Oshkosh Truck, a manufacturer of truck and truck bodies for the ﬁre and emergency, defense, concrete-placement, and refuse-hauling markets. Mercury Marine has since withdrawn, leaving six participating OEMs. 20 WMEP is a public–private partnership that receives some funding from the National Institute of Standards and Technology, through the federal Manufacturing Extension Partnership (MEP) program, but also draws funding from other sources, including the State of Wisconsin, and earns revenue by selling consultancy services. Both unions and business are represented on its governing board. Although some manufacturing extension programs go back to the 1950s and 1960s, the Clinton administration made them into an important part of US industrial policy and provided considerable new funding. As a result, many new MEPs sprang up across the US in the 1990s (Turner 1999). 21 On the WMDC’s origins, activities, and development, see Whitford and Zeitlin (2004); Whitford (2003: ch. 7); and the reports by Rickert et al. (2000), Whitford et al. (2001), and Vidal et al. (2003), available at .

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understanding of OEM expectations, improve OEM–supplier relationships, and enhance suppliers’ abilities to win new customers. Over the course of time, both the training provided and the goals of the Consortium itself have become progressively broader. Thus the training demanded by suppliers increasingly concentrates on instruction in the general principles of ﬂexible manufacturing, and often goes together with more extended plant reorganization projects conducted with the assistance of OEM supplier development engineers or WMEP consultants (whose services are also subsidized). The course offerings have been rationalized to conform more closely to the Consortium’s original mission of consolidating their performance expectations into a common ‘curriculum of emphasis’ for suppliers, many of whom work for several participating OEMs. More recently, Consortium members have begun to discuss the possibility of harmonizing their supplier certiﬁcation procedures, beginning with a pilot project comparing their respective auditing systems. In January 2001, the Consortium reframed its mission in terms of becoming the lead organization for collaborative supplier development in the state and renamed itself the Wisconsin Manufacturers’ Development Consortium (WMDC 2001). These shifts in the Consortium’s objectives and activities have gone handin-hand with parallel transformations in its governance. The Consortium initially drew on Deere’s existing supplier development infrastructure for administrative services and much of the training itself. After the ﬁrst year, WMEP took over full management of the supplier training program, thereby enabling the other Consortium members to contribute more actively to shaping the curriculum. The WMEP’s enhanced role also allows the agency to serve as an ‘honest broker’ to ensure that the costs and beneﬁts of consortial activities are shared out fairly among the participants, discouraging opportunistic behavior by ﬁrms which often compete for the same customers and suppliers.22 In response to calls for more systematic incorporation of supplier perspectives, WMDC has added two supplier representatives to its governing body. To encourage cross-ﬁrm learning, horizontal information exchange, and joint problem-solving, as well as to provide an opportunity for collective voice in relation to the OEMs, the supplier representatives on the WMDC have recently organized a number of networking meetings, with a view to creating a regular discussion forum which could eventually evolve into an autonomous suppliers’ association (Whitford 2003: ch. 7). 22 This ‘honest broker’ role of public agencies has elsewhere been found to facilitate the success of collaborative partnerships among competitors in related areas of common interest such as joint research and development (Tripsas et al. 1995).

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The WMDC is already a key institutional interface between the procurement departments of large Wisconsin-based MNCs, local supplier ﬁrms, technical colleges, and state economic development agencies. But to become a focal actor for the kind of interregional networking envisaged by Project REGLO, the Consortium would need both to deepen its impact and widen its reach in ways which so far remain at the discussion stage among participants. Thus the WMDC does a relatively good job in providing access to effective training and development resources for small and medium-sized suppliers. Yet the latter’s greatest problem, as we observed in Chapter 10, is that even OEMs ostensibly seeking to develop open and collaborative relations with suppliers often ﬁnd their efforts subverted by internal organizational barriers, conﬂicting incentives, and opportunistic behavior by managers pursuing short-term results for career advancement. But there are ways in which a public–private consortium like the WMDC could be used to help member ﬁrms to overcome these internal dilemmas. The Consortium already serves as an external support network for procurement managers within OEMs committed to working collaboratively with suppliers. More ambitiously, it could push participating OEMs to draw up a common code of good supplier relations practice, based on their own ofﬁcial procurement policies. The compilation of such a code could stimulate the identiﬁcation and diffusion of good practice among member ﬁrms, while also guiding suppliers towards common performance expectations. Implementation of this code within the Consortium, along with data about the tangible impact of training provided on supplier performance, could be assessed by independent third-party monitors, as in the case of ISO 9000 and other quality assurance programs. OEMs found to be in breach of the Consortium’s code of practice could be asked to submit plans for correcting the problems identiﬁed by the external monitors within a reasonable time period. In cases of persistent uncorrected breaches of the code, Consortium members and the WMEP could then consider a range of possible sanctions, culminating in exclusion and loss of access to publicly subsidized training and other services. The third-party monitoring process could itself be harnessed to mutual learning through benchmarking of supplier development practices, thereby providing a systematic mechanism for generating continuous improvement in both the Consortium’s services and the code itself. Thirdparty reporting on the OEMs’ performance in implementing the collaborative supplier relations policies to which they are formally committed could potentially mitigate many of the organizational dysfunctions discussed above, while at the same time strengthening the position of reforming managers in these companies. As in the case of the emerging relationship between Danish union conveners and MNC CEOs described earlier, top

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management in these companies might thus come to see such external monitoring and reporting arrangements as a valuable tool for exposing opportunism among lower-level managers and reinforcing adherence to ofﬁcial procurement policies across the corporation. Important as the WMDC’s participating OEMs and suppliers are to Wisconsin’s economy, they represent only a small proportion of the state’s manufacturing base. Because the very effectiveness of the model is premised on ﬁnding groups of locally rooted OEMs with similar supply bases that are willing to work together to formulate common training curricula and performance expectations, substantial expansion of this particular consortium is probably not the best path to follow. A more promising approach would thus be to stimulate the formation of similar partnerships between OEMs, suppliers, and state economic development agencies in other sectors and/or geographical areas—as US states like Pennsylvania, itself inﬂuenced by the WMDC example, are doing. Supply chains do not stop at state lines, and there is evident scope for cooperation among manufacturing extension partnerships and consortia in neighboring states—especially in the Midwest manufacturing belt—to ensure the continued viability of this ‘supply base region’ by benchmarking each other’s programs, exchanging good practices, and discouraging counter-productive competition for inward investment or ‘smokestack chasing’.23 And such cooperative networking and mutual learning can and is beginning to be extended to local players further aﬁeld— including in Europe—facing similar challenges and experimenting with similar solutions, as in the case of the ‘Crescita Guidata’ or ‘Guided Growth’ consortial supplier-training initiative established during the late 1990s by Fiat and other large OEMs in the Piedmont region of northern Italy.24 Hence all the pieces are in place for developing a transatlantic dialogue between 23 For these proposals to widen the reach of the WMDC, see, in addition to the sources cited in n. 21 above, Ericksen et al. (2002). 24 On the ‘Crescita Guidata’ consortium, which formed part of the proposed territorial employment pact in the province of Turin mentioned above (p. 285), see Whitford (2003: ch. 8); Enrietti et al. (2002); Follis et al. (2004); Pichierri (2001: 253–5). In September 2002, the Center on Wisconsin Strategy (COWS) at the University of Wisconsin-Madison and the Advanced Manufacturing Project (AMP), an inter-university research consortium on the component manufacturing sector (to which one of the authors of this book belongs), convened a two-day conference on ‘Supply Chain Governance and Regional Development in the Global Economy’, with researchers, managers, unionists, and economic development policy practitioners from ﬁve US states, Italy, Germany, Denmark, and Mexico, including representatives from WMDC and consultants from the Piedmont regional administration involved in the ‘Crescita guidata’ consortium; for the conference program and papers, see . AMP researchers then attended a follow-up conference in Turin from 28 Feb. to 1 Mar., 2003. The WMDC is explicitly cited by Italian participants in these discussions as a source of inspiration for proposals to create a regional ‘Agency for the Promotion and Development of the Piedmontese Automotive Components Industry’: see Enrietti et al. (2003); Enrietti and Lanzetti (forthcoming); Whitford (2003: 202–7).

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regional networks of local actors operating at the interface between multinational subsidiaries and their host communities in both Europe and the United States.25

8. Engaging the Financial Markets The underlying aim of interregional networks like Project REGLO is to create a new multinational public for the corporation by instituting procedures for open coordination and social dialogue between headquarters, subsidiaries, and their host communities. Though such networks do not currently exist in anything like a fully developed form, we have seen in this chapter that many different actors on both sides of the Atlantic are experimenting with institutional responses to the local challenges of globalization that point in this direction. Through the capillary pressure and opportunities for constructive interchange resulting from these experiments, some MNCs at least could ﬁnd themselves in situations where a balanced assessment of risks renders collaboration with local players an attractive option. The ultimate victory would be attained if MNC HQs began to compete with one another to be recognized by the business press and the wider public for their efforts to create ever more advanced forms of open coordination and social dialogue as mechanisms for orchestrating a coherent strategy and promoting continuous improvement across their constituent units. Such internal pressures on MNCs from local subsidiaries to upgrade their procedures for consultation, participation, and accountability could also dovetail with external pressures from consumer groups, NGOs, and international organizations to raise their labor, environmental, and human rights standards, which, as Sabel and others observe, have led a growing number of companies worldwide to compete with one another in proclaiming their adherence to increasingly stringent codes of conduct certiﬁed by independent monitoring bodies.26 The new multinational public created by these convergent internal and external pressures could thus begin to engage in a constructive dialogue with the existing public of the ﬁnancial markets, which, as we have seen in previous chapters, has helped to trap MNCs like APV in vicious circles of internecine rivalry and mutual misunderstanding. As discussed in Chapter 7 25 Such interregional networking could, but is not likely to, be a subject for the Transatlantic Labor Dialogue initiated under the Clinton administration, which as Knauss and Trubek (2001) show has so far borne meager fruit due to the lack of substantive interest in the process from the peak labor confederations on both sides. 26 For the dynamics of such ‘ratcheting standards’ in the garment/footwear and forestry industries respectively, see Fung et al. (2001b) and Overdevest (2003).

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and analyzed in greater detail by thoughtful insiders such as Golding (2001) and Plender (2003), this Anglo-American ﬁnancial public gradually emerged during the post-war period through complex interactions among institutional investors, professional fund managers, analysts, ﬁnancial journalists, and corporate HQs. As these writers show, what Golding calls the ‘institutional equity nexus’ forms a behavioral system in which the actors are entangled in multiple interlocking games that increasingly inﬂuence each others’ moves, plans, and perspectives. It is the mutual benchmarking within these games that pushes MNC HQs to hire and ﬁre executive ofﬁcers; to acquire, divest, and downsize subsidiaries; and to subject the latter to topdown benchmarking and investment bargaining. The key test facing the multinational public emerging from Project REGLO and other experimental projects for reforming the MNC is whether they can build new coalitions of actors inside and outside the corporation able to counter and eventually redirect the pressures on executive ofﬁcers coming from the institutional equity nexus. The architecture envisaged by Project REGLO is exemplary in this respect since it seeks to construct an alternative game between networks of local focal actors and top managers which challenges the latter’s established pattern of behavior while simultaneously laying the foundations for new partnerships. For a considerable period, the intersection between these different types of games would place the executive ofﬁcers of MNCs in a cross-ﬁre and increase the ambiguity of their situation. At ﬁrst, the race for managerial career advancement would doubtless become even tougher and more difﬁcult to navigate. But we could gradually expect that the winners of such contests would be those best able to play both sets of games at the same time and to reconcile their competing demands. The upper echelons of MNCs would thereby become ﬁlled with managers capable of integrating these apparently countervailing considerations—the global and the local, the ﬁnancial and the industrial—into their own moves, plans, and perspectives. What experiments like Project REGLO could hope to accomplish by instituting new procedures for open coordination and social dialogue within MNCs is the construction of organizational channels for involving local focal actors in ongoing practical deliberation about the strategic objectives of the global ﬁrm and the performance measures used to assess progress towards them. These are the very conditions, identiﬁed at the beginning of this chapter, for transforming MNCs into vehicles for mutually beneﬁcial collaboration and learning by monitoring among their constituent units. The outcome of such a process would thus be a jointly agreed strategy for the MNC based on mutual commitments to common goals, metrics, and monitoring procedures. Such a strategic plan would be very different

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from the current style of strategy documents, which are often produced by external consultants recycling the managerial fashions of the day to suit the imagined tastes of ﬁnancial journalists, analysts, fund managers, and investors. But the ﬁnancial public could gradually be expected to learn that strategic plans generated in this way are more likely to be implemented and offer more trustworthy predictors of medium-term performance than those produced by the conventional process of corporate strategy formation.27 And this public may also discover that such participatory goal-setting and monitoring procedures provide better mechanisms for exposing and disciplining opportunistic behavior at all levels than current practices of ‘independent’ auditing by large accounting ﬁrms ﬁnancially beholden to top management (Berenson 2003; Plender 2003: ch. 7). In these ways, institutionalizing open coordination and social dialogue within MNCs may help to civilize the ongoing game between them and the ﬁnancial markets. In such a scenario, executive ofﬁcers at MNC HQs would gradually learn to see their role as bringing together a series of local narratives and projects into a coherent master narrative and mutually binding strategic plan that could give a much more realistic picture of how the long-term division of labor within the corporation should develop. Such an understanding would simultaneously make it possible to identify which components required for such a global strategy are missing and what competencies should be added to the MNC to carry it out successfully. In this case top managers would be able not only to explain more effectively how the corporation’s current activities may evolve in the future, but also to tell more convincing stories about why they need support from the ﬁnancial markets for speciﬁc mergers and acquisitions. Such stories already have a major impact on relative share prices through their inﬂuence on the decisions of fund managers and individual investors (Shiller 2000; Golding 2001). By learning to construct convincing narratives in a very different way, some MNCs may thereby become able to set new standards for storytelling within the institutional equity nexus. This nexus itself could thereby be transformed into a force pressing companies to formulate their plans through open coordination and social dialogue rather than by following the standardized templates of the latest strategy texts. 27 CalPERS, the California Public Employees’ Retirement System pension fund, already seeks to ‘promote high-performance workplaces’ and ‘prevent short term vision’ by considering in its investment analysis ‘the availability of employee training and the degree of responsibility given to lower-level workers’ and pressing companies to develop ‘measures of performance that are based not simply on quarterly earnings and the most recent rise in the stock price’ (O’Connor 2001: 91–2). Cf. also the account of the collaborative approach to corporate governance pursued by Hermes Investment Management Ltd, a large UK fund manager owned by the British Telecom pension fund, in Armour et al. (2003: 548).

12 Conclusion: Sideshadowing the Future of Globalization Strong versions of the globalization thesis have been widely criticized by other social scientists. Paul Hirst and Grahame Thompson (1999/1996) in particular have convincingly debunked the myth of a fully globalized economy that subsumes and subordinates national-level processes, emphasizing instead the continuing role of nation-states in supporting and governing economic activity.1 Our study, by focusing on multinational corporations as the putative lead agent of globalization, reinforces these critiques by demonstrating that some of the international competitive rivalry which previously existed between ﬁrms from different countries has now been internalized within MNCs themselves. This in itself is hardly surprising. The real surprise is that neither APV nor the other MNCs described in the recent empirical literature seemed able to establish a workable balance between competition and collaboration among their subsidiaries and afﬁliates. Without establishing such a balance, it is doubtful that these corporations—whether multinational, global, or transnational —could successfully perform the leading role attributed to them. If this conclusion is even partly correct, then the strong globalization thesis requires modiﬁcation not only because of the continuing importance of the nation-state in economic governance, but also because of its mischaracterization of the key mechanisms underpinning the growth of multinational enterprises. In our view, what Bartlett and Ghoshal (1989, 1998) termed the ‘transnational solution’—reinterpreted as a deliberative polyarchy based on open coordination and social dialogue—offers a promising approach to the organization of collaborative competition among the globally dispersed units of a multinational federation. Within such a federation, as outlined in Chapter 1, local units in different countries could assist one another in securing access to markets, providing complementary competencies, enhan1

For related critiques of the ‘myth of the global ﬁrm’, see Ruigrok et al. (1995: chs 6–7); Doremus et al. (1998).

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cing ﬂexibility, diversifying risks, and stimulating mutual learning. By tapping into a wide variety of regional economies, labor markets, and the institutional frameworks that underpin them, multinationals organized along these lines could also create new opportunities for innovative crossfertilization in products and processes. In our case, for instance, APV could have taken greater advantage of the distinctive concentration of specialized skills in its various locations, such as rotary lobe pump-making and design in Eastbourne, complex systemic innovations and just-in-time component supply in Lake Mills, and integration of new product development with ﬂexible manufacturing in Horsens. Such capabilities are highly dependent, among other things, on the different ways employees organize their professional careers and progression through internal and external labor markets in various countries. It is often claimed, for example, that radical technological innovation is easier to accomplish with a highly mobile labor force like that of the US, while incremental improvements to established products and processes are facilitated by the internalized career ladders of German and Japanese enterprises (Hall and Soskice 2001; Whitley 2000; Casper 2000).2 By combining these different types of institutionally rooted capabilities and developing new forms of hybridization between them, multinational corporations could thus beneﬁt not only themselves but also the many local communities which they tap into and interconnect. Such innovative hybridization is a well-attested outcome of cross-national transfer and adaptation of technologies and organizational practices. But like mutual learning more generally, its successful exploitation depends on access to a variety of cognitive perspectives and problem-solving approaches among local actors operating in different institutional settings.3 Unfortunately, however, the ﬁndings of our study suggest that MNCs left to their own devices have been working in the opposite direction. Thus as we saw in previous chapters, investment bargaining and top-down competitive benchmarking by MNC HQs have pushed subsidiaries to adopt similar operating practices or else to develop subversive strategies that weaken their ties to the parent ﬁrm while integrating them more tightly into the local economy. 2 For suggestive comparative studies of variations in team dynamics among development engineers in different countries, see also Lam (1996, 1997). 3 On innovative hybridization as an outcome of cross-national transfer and adaptation of technologies and organizational practices, see Boyer et al. (1998); Zeitlin and Herrigel (2000); Boyer (2002); Zeitlin (2003). For diversity as an aid to mutual learning through comparative evaluation of alternative solutions to common problems, see also Sabel and Cohen (2003).

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1. Pathologies of the Institutional Equity Nexus An explanation for this paradox in the case of APV and other AngloAmerican MNCs may be found in the interactions between corporate HQs and the ﬁnancial markets within the ‘institutional equity nexus’ (Golding 2001). These interactions, as we also saw, have resulted in the ascendancy of ‘fast-track’ HQ managers, with limited experience of the wider MNC, pursuing short-term visions directed primarily towards driving up reported earnings for the beneﬁt not only of shareholders but also of their personal careers and fortunes. Such MNCs are increasingly run by executives who have specialized in sending the right signals to the ﬁnancial markets, thereby enabling fund managers employed by institutional investors to meet the tough short-term relative performance benchmarks required for their own survival. Together these actors have conﬁgured a brutal high-stakes game in which individual executives may acquire a local reputation capable of positively inﬂuencing share prices when they change jobs, but enjoy a ‘grace period’ of no more than 18 months to three years to achieve the promised turn-around in corporate performance before becoming vulnerable themselves to ambush and ouster by disgruntled institutional investors. Under these conditions, corporate executives equipped with ‘golden parachutes’ and generous incentive-pay packages linked to the share price are understandably attracted to high-risk, high-payoff merger and acquisition strategies promoted by investment banks, which beneﬁt ﬁnancially from such transactions whatever their eventual results, and are publicly encouraged by the latter’s in-house analysts (Golding 2001; Plender 2003). Compared to the rewards of this game with the ﬁnancial markets, proﬁts and losses from manufacturing activities may appear to be of secondary importance, even if the ﬁgures they generate are crucial to satisfying the expectations of analysts and fund managers. Ironically, this game continually draws in new players, since the better situated the HQ in relation to the institutional equity nexus, the more attractive membership in the MNC becomes to other industrial ﬁrms which lack these connections. It was this relationship to the ﬁnancial markets (among other assets) that initially made APV a desirable partner for Howard, Crepaco (Lake Mills), and the Danish Pasilac group. And it was when Lygon Place lost its reputation in the City for delivering the goods that APV itself became a target for acquisition by still more capable ‘courtiers’. However, the story of APV’s new owner, brieﬂy recounted below, illustrates even more clearly how the economic fate of an MNC may be determined more by its position in the City investment game than by the competitive performance of its subsidiaries in particular industrial markets—at least in the short term.

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Challenges and Promises of Globalization 2. From APV to Invensys: The First Time as Tragedy, the Second as Farce?

When Siebe took over APV in May 1997, as we saw in Chapter 6, the acquiring company beneﬁted from its high standing in City ﬁnancial circles. Under long-term CEO Barrie Stephens and his hand-picked successor Allen Yurko, Siebe had grown over the previous 15 years from an insigniﬁcant maker of safety equipment into the UK’s second-largest engineering group and a global leader in industrial control and automation systems through an aggressive series of acquisitions supported by frequent rights issues and a rising share price. Despite reservations about some of Siebe’s accounting practices (such as capitalization of intangible assets and revaluation of acquired ﬁrms), City analysts and ﬁnancial journalists regularly praised the company for its high margins, rigorous cost controls, and pioneering adoption of ‘lean manufacturing’ techniques like the ‘Six Sigma’ defect reduction system. And as we also saw, it was Siebe’s reputation for managerial efﬁciency and ﬁnancial performance, much more than any expected productive and commercial synergies, which underpinned the City’s support for the APV takeover.4 But long before the impact of this acquisition on either company could be assessed, it was overshadowed by a much bigger deal. In November 1998, Siebe merged with BTR, another large British manufacturing conglomerate, to create the UK’s largest engineering group and the world’s biggest control systems and automation company, with a combined capitalization of £9.4bn, 125,000 employees worldwide, and more than 10 per cent of the global market. Yurko, who became group CEO in what was effectively an agreed takeover of BTR by Siebe, justiﬁed the move as a response to global consolidation of the controls industry, arguing that the merged company would be ‘capable of going toe to toe’ with foreign giants such as Emerson Electric, Siemens, and ABB: ‘This is a big market and it needs big players.’ City analysts and journalists reacted skeptically to the deal, in part because of widespread disillusionment with BTR, once the seventh-largest company on the UK stock exchange, whose shares had lost 80 per cent of their value since 1994. ‘If BTR were a horse, it would be taken out and shot,’ one trader had remarked about the company two months before the merger was announced. But the lukewarm reception also reﬂected a shift of City sentiment against 4

On Siebe’s development and reputation at the time of the APV takeover, see the sources cited in Ch. 6, n. 20 above. On Siebe’s adoption of ‘Six Sigma’, now increasingly regarded as a fading management fad, see Peter Marsh, ‘Black Belts Combat High Costs, Poor Standards’, FT, 27 Apr. 1998; Simon London, ‘Why are the Fads Fading Away?’ and ‘The Cult of Six Sigma is So Last Business Cycle’, FT, 12 June 2003.

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acquisitive conglomerates, together with murmurs that Siebe needed the deal to compensate for the slowing growth of its own core businesses. Despite such reservations, however, Siebe’s reputation—and stock price—were more than sufﬁcient to persuade investors to accept the terms of the merger, based on an exchange of shares accompanied by a small cash payment.5 At ﬁrst, the performance of the merged group, rebranded as Invensys, appeared to vindicate the hopes of its architects. Following an initial slump in price, Invensys shares outperformed the UK engineering sector by 10 per cent during the ﬁrst half of 1999, raising the company’s market value to more than £13bn. To appease critics and sustain the share price, Invensys abandoned Siebe’s unorthodox accounting policies, pushed forward cost savings and head-count reductions in the merged operations, raised cash by selling off non-core businesses, offered to buy back 10 per cent of its own stock, and projected double-digit earnings growth.6 By early 2000, Invensys had returned to the acquisition trail, with rumors of a possible bid for the French Schneider Electrical group to boost its global standing. In the event, however, Yurko bet on a very different horse, paying £467m in June 2000 for Baan, Europe’s second-largest business software ﬁrm, in pursuit of a visionary strategy aimed at enabling Invensys to provide complete ‘off-the-shelf ’ systems integrating online supply chain management with factory automation and process controls. Although City analysts applauded Yurko’s bold technological vision, they highlighted the commercial risks of taking over the near-bankrupt Baan, and questioned Invensys’s ability to absorb the software company effectively just 18 months after the Siebe–BTR merger. Invensys shares fell sharply in response to the Baan deal, but the real collapse came in September 2000, when the group unexpectedly issued a proﬁts warning, blaming weak markets and competitive pressure on margins, only a few months after upbeat reports of trading prospects from top management. The stock price plunged by 44 per cent in two days, leaving Yurko’s credibility in shreds amidst shareholder fury about the creation of 5 Anthony Edgecliffe-Johnson and Peter Marsh, ‘Siebe is to Join Forces with BTR in $15bn deal’ (quotation) and Tony Jackson, ‘One-Man Shows’, FT, 23 Nov. 1998; Lex Column, ‘BTR/Siebe’, FT, 18 Dec. 1998; Peter Thal Larsen and Andrew Edgecliffe-Johnson, ‘Re-engineered Invensys Goes under the Analyst’s Microscope’, FT, 2 June 1999; Peter Marsh, ‘One Step Backwards in Pursuit of the Future’, FT, 19 Feb. 2002 (quotation). 6 Thorold Barker, ‘BTR Siebe to be Invensys in Rebrand Move’, FT, 24 Mar. 1999; Larsen and Edgecliffe-Johnson, ‘Re-engineered Invensys Goes under the Analyst’s Microscope’, FT, 2 June 1999; Peter Thal Larsen, ‘Invensys Set to Return £1bn to Shareholders: UK-based Engineering Group Aims for Double-Digit Earnings Growth’ and ‘Invensys Makes Maiden Adjustment to Answer Critics’, FT, 3 June 1999; Larsen, ‘Exasperated Autocrat Confronts City’s Challenge: Critical Doubts about Invensys Have Made Allen Yurko Even More Determined to Prove Them Wrong’, FT, 10 June 1999; ‘Peter Marsh Assesses the First Year of Progress at Invensys since it was Forged from the Merger of Siebe and BTR’, FT, 22 Nov. 1999.

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misleading expectations and the timing of the Baan purchase, completed just nine days before the proﬁts warning. Invensys management sought to stem the slide by ﬂoating or selling off the group’s proﬁtable power systems division and cutting costs and jobs elsewhere. But this defensive strategy was overwhelmed by the continuing deterioration of Invensys’s margins, cash-ﬂow, and market valuation as the global downturn in business capital investment deepened. After issuing three proﬁts warnings in ten months, Yurko resigned in July 2001 with concerns mounting about a possible breach of banking covenants on interest cover for the group’s £3.2bn net debt. Since its formation, Invensys had underperformed the UK index of electronic and electrical equipment shares by 65 per cent, while shedding 23 per cent of its initial workforce. Just as with APV a few years earlier, analysts and investors now excoriated management’s inability to integrate Siebe/Invensys’s disparate acquisitions into a uniﬁed company, together with their complete misjudgment of conditions in key markets. ‘We are paying managers to anticipate the future,’ complained one embittered shareholder at the group’s annual meeting. ‘Yet Invensys seems to have made no provision whatsoever for the future.’7 Crucial to Invensys’s survival was the appointment of a new CEO who could develop a credible turn-around plan to reassure the ﬁnancial markets and stave off the group’s creditors. Highly regarded by the City as a ‘cool head’ for his recent success in salvaging the Blue Circle cement group, Rick Haythornthwaite seemed like a perfect choice to replace the mercurial Yurko. Following Haythornthwaite’s ﬁrst public brieﬁng, Invensys shares surged by 34 per cent despite a sharp cut in the interim dividend, as investors welcomed his promises to repair the group’s balance sheet, improve cash-ﬂow, and raise margins through a combination of asset disposals, tighter cash management, and closer attention to customers. In February 2002, Haythornthwaite unveiled his new strategic vision for turning Invensys into a ‘compact, integrated company that would deliver more to its customers’ by focusing 7 David Owen and Gautam Malkani, ‘Schneider Shares Jump on Bid Talk’ and Gautam Malkani, ‘After Disposals, the Focus Shifts to Acquisitions: Invensys Aims to be a Leader in Automation and Controls’, FT, 4 Feb. 2000; Gautam Malkani, ‘Invensys Plans Supply Chain Shake-up’, FT, 1 June 2000; Martin Dickson, ‘Allen Yurko Sets Investors a Risk and Reward Puzzle’, FT, 3 June 2000; Gautam Malkani, ‘Share Price Fall Turns Invensys from Predator to Prey’, FT, 8 Sept. 2000; Gautam Malkani, ‘Investors Turn Up the Heat on Allen Yurko’, FT, 9 Sept. 2000; Lina Saigol and Charles Pretzlik, ‘Invensys May Spin Off Power Systems Side’ and Gautam Malkani and Charles Pretzlik, ‘Suitors Run Careful Eye over Group’s Uncertain Attractions’, FT, 27 Oct. 2000; Peter Marsh, ‘For Allen Yurko, it’s Tough at the Top, but Tougher Getting There’, FT, 25 June 2001; Charles Batchelor and Peter Marsh, ‘Invensys Chief Hands Challenge to Successor’ and ‘Invensys Chief Executive Resigns’, FT, 25 July 2001; Peter Marsh, ‘Yurko Beats Retreat with Ears Ringing’ and ‘O’Donovan Agrees to Stay at Invensys’ (quotation), FT, 26 July 2001; ‘Inner Conﬂict of Man Who Built Invensys’, FT, 28 July 2001.

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on factory automation and energy management systems, selling off non-core assets, and increasing the share of revenues derived from value-added services. Unlike the past, Invensys would henceforth ‘use our brain rather than our wallets’, concentrating on organic growth rather than acquisitions. Although the workforce was projected to shrink by a further 28,000 to a new total of 48,000 employees, this would be achieved primarily through the sale of non-core businesses as going concerns rather than through head-count reductions and factory closures, a policy supported by the group’s European Works Council. This time, however, the City was less enthusiastic. Invensys’s share price fell by 12 per cent amidst persistent worries about its ﬁnances— ‘the banks are becoming sweaty,’ one analyst noted—and disappointment with Haythornthwaite’s four-to ﬁve-year recovery timetable: ‘We could all be dead by then,’ another commented. ‘The markets care about margins in 2003, not 2006.’8 Whatever the underlying merits of this strategic vision, whose credibility some analysts acknowledged, it was soon overtaken by the continuing weakness of demand for the group’s products. As Haythornthwaite pushed ahead successfully with his asset disposal program and as he set demanding targets for increased operating proﬁts in the remaining businesses, bankers renewed Invensys’s credit facilities and analysts began to promote it as a promising recovery stock during the spring and summer of 2002. But the group’s share price dropped by 25 per cent in November on lackluster interim results and halved again in February 2003 on a proﬁts warning attributed to deteriorating trading conditions in key capital equipment markets. Invensys was then ejected from the FTSE 100 and its debt downgraded to sub-junk levels as it became apparent that substantial further asset sales would be required to avoid breaching banking covenants and to cover a huge hole in the group’s pension fund exposed by new accounting standards. (On top of everything else, it turned out that Siebe/Invensys had taken a 12-year pension contribution holiday.) As sales declined, margins eroded, and losses mounted, Invensys’s market value plummeted in April 2003 to just 5 per cent of its 1999 peak. To staunch the hemorrhage of cash and conﬁdence, Haythornthwaite now proposed to sell off two-thirds of the group’s businesses for whatever they would fetch—beginning with the loss-making Baan, divested in June for £83m, a fraction of the original purchase price. To defuse mounting 8 Peter Marsh, Florian Gimbel, and Lina Saigol, ‘Cool Head Takes Charge to Guide Invensys Forward’, FT, 1 Oct. 2001; Florian Gimbel, ‘Invensys Shares Soar as Cash Flow Improves’ and Lex Column, ‘Out of the Clink’, FT, 16 Nov. 2001; Marsh, ‘One Step Backwards in Pursuit of the Future’, already cited; Peter Marsh and Peter Kipphoff, ‘Engineering a New Vision for Invensys’ and ‘Invensys Will Shrink in Restructuring’, FT, 20 Feb. 2002 (multiple quotations). Haythornthwaite’s principal achievement at Blue Circle was to have negotiated a friendly takeover by the French Lafarge group several months after fending off a hostile bid from the same company at a lower price.

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shareholder complaints about ‘rewards for failure’, Haythornthwaite also took the extraordinary step of placing himself on a one-month rolling contract, thereby reducing his potential severance compensation by £800,000. This last-ditch survival plan sought to create a ‘smaller, more agile’ group focused on factory automation and rail signaling systems, with some 15,000 employees—just 12 per cent of the original total—of which the former APV operations would comprise the largest single component. But it remained far from certain whether even these drastic steps would prove sufﬁcient to preserve Invensys’s independence. The more likely outcome at the time of writing appeared to be an eventual takeover by another large multinational engineering group like Emerson, GE, or Siemens—which had already expressed a predatory interest in its core automation and rail signaling businesses.9 By mid-2003, Invensys had become ‘a byword for poor management and destruction of shareholder value’. Its outgoing chairman, Lord Marshall, openly confessed the group’s failure: ‘After the merger we found we had companies (the individual BTR and Siebe groups) of a certain size. But once we doubled the business they had trouble coping.’ Thus APV, as Haythornthwaite had earlier complained, ‘had been ‘‘sucked dry’’ through a series of botched management changes’. Equally fundamentally, Marshall admitted, ‘the merged group had failed to understand the need for investment on new products and capital equipment. This . . . caused Invensys to fall behind competitors such as Siemens and US group Emerson.’ Even many of the group’s own sales force cheered plans for its break-up, ‘welcoming the chance to rid themselves of unwelcome ‘‘bureaucracy’’ in London, and escape the shadow of bankruptcy that was scaring away future customers.’10 9 Marsh and Kipphoff, ‘Engineering a New Vision for Invensys’; Lex Column, ‘Invensys’, FT, 6 and 31 May 2002; Peter Marsh, ‘Invensys ‘‘Stabilized and On Track’’ for Recovery’, FT, 31 May 2002; ‘Invensys’, Investors Chronicle, 20 Sept. 2002; Peter Marsh, ‘Invensys Recovery Comes Ahead of Schedule: Disposals Have Secured the Future of the Company’, FT, 2 Oct. 2002; Marsh, ‘Rough Day for ‘‘Slick Rick’’ ’, FT, 15 Nov. 2002; John Kipphoff, ‘Invensys Shares Halve on Proﬁt Warning’, FT, 14 Feb. 2003; ‘Crisis Strikes at the Heart of Industry: Engineering Concerns Are Selling Proﬁtable Assets Under Pressure from a Credit Squeeze and Vanishing Customers’, FT, 12 Mar. 2003; Peter Kipphoff, ‘Invensys Unveils Plans for De Facto Break-Up of Group’, Tony Jackson, ‘The Long, Unwinding Road to the End of Invensys’, and Dan Roberts, ‘Breaking Up Proves So Very Straightforward To Do’, FT, 16 Apr. 2003; Peter Marsh, ‘Lord Marshall Owns Up to Failings at Invensys’, FT, 19 Apr. 2003; ‘Farewell Invensys’, Investors Chronicle, 25 Apr. 2003; Martin Arnold and Peter Marsh, ‘Siemens ‘‘Can Wait’’ for an Invensys Bid’, FT, 29 Apr. 2003; Liz Vaughan-Adams, ‘Invensys Gloom Deepens as Losses Reach £1.4bn’, Observer, ‘Roll With It’, Peter Marsh, ‘The Second Chance at Invensys: Rick Haythornthwaite Has Introduced his Latest Survival Plan’ and ‘Invensys Chief Heeds Critics with New Deal’, FT, 30 May 2003; ‘Invensys’, Investors Chronicle, 6 and 12 June 2003; Peter Kipphoff, ‘Invensys Hails ‘‘Good Start’’ to Sale Process’, FT, 24 July 2003; Michael Jikov, ‘Invensys Rumours Keep Bid Talk Bubbling’, The Independent, 10 Mar. 2004. 10 Quotations from: ‘Invensys’, Investors Chronicle, 12 June 2003; Marsh, ‘Lord Marshall Owns Up to Failings at Invensys’; Marsh and Kipphoff, ‘Engineering a New Vision for Invensys’; Roberts, ‘Breaking Up Proves So Very Straightforward To Do’.

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Comparing the fates of APV and Invensys might recall Karl Marx’s celebrated dictum that history repeats itself ‘the ﬁrst time as tragedy, the second as farce’ (Marx 1974/1869: 146)—were it not for the far greater scale of human and ﬁnancial damage wrought by Invensys. Taken together, moreover, the stories of these companies—and others like them—offer little assurance that the ﬁnancial markets are likely to produce new owners better able to manage Invensys’s surviving assets—including the remains of APV— without reforms in the organization and governance of MNCs such as those proposed in this book.11

3. Civilizing the City Investment Game We argued in previous chapters that if MNCs are to become genuine vehicles for mutually beneﬁcial collaboration and learning by monitoring among their constituent units, they need to create new organizational channels for involving employee representatives and other local focal actors in practical deliberation about the ﬁrm’s strategic objectives and the performance measures used to assess progress towards them. We further suggested that, by improving the reliability of corporate strategic plans and disciplining managerial opportunism through participatory goal-setting and monitoring procedures, the institutionalization of open coordination and social dialogue within MNCs could also help to civilize the ongoing game between them and the ﬁnancial markets. Yet such internal organizational reforms may prove of limited effectiveness in overcoming the pathologies of the institutional equity nexus discussed above without complementary changes in the rules and incentives facing key players on each side. Much of the recent Anglo-American debate on reform of capital markets and corporate governance in the wake of Enron and other high-proﬁle ﬁnancial scandals has understandably focused on urgently needed measures to reduce conﬂicts of interest and strengthen the independence of third-party gatekeepers like auditors and investment analysts.12 By themselves, however, such proposed reforms—which remain hotly contested on both sides of the Atlantic—would not necessarily help to avert corporate debacles like those described in this book. Neither at APV nor at Siebe/ Invensys, for example, does there appear to have been any evidence of fraud. Siebe’s aggressive accounting practices were widely discussed in the ﬁnancial 11 For similar meltdowns at two other large UK-owned manufacturing groups during the ﬁn-desie`cle boom–bust cycle, see also the case studies of ICI and Marconi in Plender (2003: ch. 5). 12 For overviews of the debate and reform proposals, see Plender (2003: ch. 11); Coffee (2003, 2001); Healy and Palepu (2003, 2002).

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press before the APV takeover, and the newly formed Invensys adopted more conservative asset valuation methods to reassure skittish investors. Similarly, although bullish analysts employed by self-interested brokers and investment banks egged on the acquisitive growth strategies of APV and Siebe through much of their histories, most nonetheless greeted the ill-fated BTR and Baan mergers with open skepticism from the outset. A more signiﬁcant impact in such cases may come from proposed reforms in executive pay. Both APV and Siebe/Invensys would likely have beneﬁted from tying top managers’ compensation to long-term improvements in corporate performance rather than to short-term increases in the share price. Such measures, coupled with restrictions on ‘golden parachutes’ for outgoing executives increasingly demanded by institutional investors angry about ‘rewards for failure’, could help to contain CEOs’ fatal attraction under the current rules of the game to high-risk, high-payoff merger and acquisition strategies. But the problem of misaligned incentives goes well beyond stock options, the central target of executive pay reformers in both the US and the UK. Thus, for example, stock options for top managers appear to have played no role at all in the rise and fall of APV, and only a secondary part in that of Siebe/Invensys.13 Corporate executives’ strategic behavior, as we have seen, is strongly conditioned by their need to satisfy the short-term ﬁnancial expectations of institutional fund managers, whose own survival depends on matching the performance of their rivals and the overall share index in quarterly benchmarking exercises. Hence any comprehensive reform of the institutional equity nexus, as a growing body of informed commentators argue, must include measures to lengthen investors’ time horizons and discourage ‘herding’ by fund managers.14 Among the most promising proposals in this area are those advanced by the recent review of institutional investment conducted for the UK Treasury by Paul Myners, former chairman of Gartmore Fund Management. His report (Myners 2001) recommended that pension funds (and with appropriate adjustments other institutional investors like insurance companies and unit trusts or mutual funds) should set explicit investment objectives for 13 For critical discussions and proposed reforms of executive compensation, see Daniel Altman, ‘How to Tie Pay to Goals, Instead of the Stock Price’, New York Times, 8 Sept. 2002; Healy and Palepu (2002: 32); Plender (2003: 263); Coffee (2003: 49). Yurko, who was CEO of Siebe/Invensys from 1995 to 2001, received some 4m share options in the new group in the years following the 1998 BTR merger, but was never able to exercise them due to the fall in its stock price. See Marsh, ‘For Allen Yurko it’s Tough at the Top, but Tougher Getting There’; and for subsequent controversy about share options and incentives for Invensys ﬁnance directors, ‘Invensys Under Fire over ‘‘Fat Cat’’ Pay’, eFinancial News (FT Information), 13 July 2003. 14 See for example OECD (1997: 35–6, 39–40); Golding (2001: ch. 6); Plender (2003: 259–61); Healy and Palepu (2002: 38); Coffee (2003: 51); Healy and Palepu (2003: 79–80, 84–5).

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fund managers, based on meeting their own future liabilities; select benchmarks and indices appropriate to those objectives, without imposing excessively narrow divergence limits that could create incentives to follow suboptimal strategies; and adhere to clearly deﬁned time-scales for assessing fund managers’ performance, normally extending over several years. The review also recommended that fund managers be mandated to engage actively with companies in which they hold shares ‘by voting or otherwise—where there is a reasonable expectation that doing so might raise the value of the investment’.15 To ensure the implementation of these principles, Myners proposed that institutional investors be encouraged to adopt a code of good practice, backed up by regular public disclosure of compliance. Such periodic reporting, he suggested, ‘should evolve into a forum where decisionmakers explain and justify their approach (including the relevant investment outcomes), and stakeholders oversee the decisions made on their behalf.’ But given ‘the scale of distortions identiﬁed’, Myners concluded, institutional investors should be legally required to report their compliance with these principles if the industry proved unwilling to embrace them voluntarily (Myners 2001: 15–16). Following broad consultation with institutional investors, fund managers, and other interested parties, the UK government formally endorsed the Myners principles with minimal modiﬁcations, and urged the industry to implement them rapidly if it hoped to avert legislative compulsion (UK Treasury/Department for Work and Pensions 2001). Pending the ﬁndings of the two-year review recommended by Myners, due in the autumn of 2003, it is difﬁcult to assess ‘the effectiveness of the principles in bringing about behavioural change’ (Myners 2001: 16). Surveys conducted for the pension fund industry claimed that the overwhelming majority of schemes had discussed the Myners principles and begun to implement certain key elements, such as the abandonment of peer group benchmarks. The Institutional Shareholders’ Committee, an umbrella organization of ﬁnancial industry associations, likewise adopted a code of good practice committing its members to develop and disclose clear policies for active engagement with companies in which they invest. But independent survey evidence suggests that many institutional investors remain reluctant fully to embrace the Myners principles and that their implementation was ‘moving at a glacial pace’. And it is also far from certain whether the New Labour government would ultimately be prepared to enforce compliance through legislation— 15 Myners (2001: quotations 14, 16). The active shareholder requirement for institutional investors, which Myners recommended should be incorporated into UK company law, is based on the US Department of Labor’s Interpretative Bulletin on the 1974 Employment Retirement Income Security Act (ERISA): see ibid., 16, 22, 92–3.

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which some of the largest pension funds have come to believe necessary—in the face of intensive lobbying campaigns by the rest of the investment industry.16

4. Sideshadowing the Future: Five Alternative Scenarios With such far-reaching and interconnected needs for reform not only of MNCs themselves but also of national and international capital markets, it is very difﬁcult indeed to foreshadow how the globalization process may develop. Hence ‘sideshadowing’ the future becomes even more essential than in conventional narratives whose outcome is known in advance (Morson 1994; Bernstein 1994).17 In our view, a number of different local responses to a globalization process driven by top-down competitive benchmarking, investment bargaining, and corporate downsizing are at least as probable as our own preferred strategy of step-by-step reform through open coordination, social dialogue, and interregional networking. Hence we will conclude this book by brieﬂy considering ﬁve alternative scenarios or possible futures of how the relationship between MNCs and local communities might evolve under the current unreformed international regime. Producing Disasters through Passivity Among the worst scenarios would be one in which local subsidiaries unquestioningly accept central benchmarks and programs while passively waiting to 16 Martin Dickson, ‘The Looming Dispute over Investor Activism: Opposition to Government Plan’, FT, 18 Apr. 2002; Tony Tassell, ‘Report Jolts Industry into Self Analysis’, FT, 5 June 2002; Institutional Shareholders’ Committee (2002); Florian Gimbel, ‘UK Funds Split over Regulation: Leading Schemes Advocate Mandatory Scheme Based on Myners Report’, FT, 10 March 2003; ‘UK Government Launches Probe into Investment Industry Compliance on Myners’, eFinancial News, 12 Mar. 2003; ‘Pension Funds’ Myners Compliance Reviewed: Surveys Reveal Schemes Are Changing Behaviour’, Manifest-I, Apr. 2003; Ben Wright, ‘Pension Funds Slow To Follow Myners’, eFinancial News, 18 May 2003; Ben Wright and Alistair Graham, ‘Pension Guidelines Legislation On Hold’, eFinancial News, 25 May 2003; ‘A Lasting Inﬂuence’, FT Pensions Week, 21 July 2003; Plender (2003: 259–60); Williamson (2003: 525–7). In the US, where deﬁned contribution pension plans and mutual funds account for a larger proportion of institutional shareholding than in the UK (Golding 2001: ch. 4; Plender 2003: 142–3), the most prominent proposals for lengthening investors’ time horizons have focused on the idea of a stock market transaction tax or a temporally graduated capital gains tax to discourage churning. See Hebb (2001: 4); Healy and Palepu (2002: 38); Healy and Palepu (2003: 84–5). These proposals would reduce liquidity both for individual shareholders and the market as a whole, thereby imposing a competitive disadvantage on any ﬁnancial center which adopted them in isolation. Hence they are likely to meet with ﬁerce resistance, especially in the current American political climate. 17 For a deﬁnition of sideshadowing as opposed to fore- and backshadowing forms of narration, see Ch. 7, n. 17.

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do as they are told. Such a scenario would not only extrapolate the current processes of top-down benchmarking described by Mueller et al. but also extend the centralized management practices of the Taylorist era by making multinational HQs the driving force for rationalization and entrepreneurial activity across the corporation as a whole. A good example of the disasters that can be produced by passively following corporate orders is SchultzWild’s (1999) account of ABB’s transformer subsidiary in Bad Honnef, Germany. This plant already performs well in terms of the transformer business area’s performance benchmarks and product/process standardization program, which it also helped to develop. Yet Bad Honnef is under intense competitive pressure from other modernizing transformer plants within ABB, especially those based in lower-cost regions, while companywide standardization threatens to undermine its established capabilities for innovation through incremental product and process improvements by highly skilled workers, technicians, and engineers. By agreeing to measure itself by the rules of centralized benchmarking and by faithfully implementing corporate rationalization programs even where these undercut its historic sources of competitive advantage, such a ‘boy scout’ subsidiary may come to ignore, at ﬁrst deliberately and later as a matter of habit, any innovative idea which may emerge from its everyday dealings with production problems and customer demands. Gradually, the only way such a subsidiary can remain competitive in the eyes of its absentee owners is by agreeing to reductions in wages and working conditions, while abandoning the path of constitutional ordering that has offered employees long-term payoffs in the shape of future career prospects. Compared to the three APV subsidiaries we studied, the more conformist behavior of such plants may also limit the alternative strategies available to corporate management. Under these conditions, there is a serious risk that rationalization and cost reduction rather than innovation in products and processes will become the only game in town. Such subsidiaries send few impulses for new development to the localities in which they operate, so their suppliers will be pushed to keep down wages in order to help meet increasing demands for cost reductions. Thus it is imaginable that the foreign-owned subsidiary may maintain its position as the most desirable local employer, continuing to attract the best and the brightest employees in the area. In this way, the MNC may inadvertently become a wind tunnel unleashing gales of uncreative destruction on the innovative and entrepreneurial talent of such localities. In some places, this pattern of development may provoke no frustration, but simply be conceived as part of the natural order: people who want something different may leave, while the local success stories celebrate those who have been promoted to high positions within the foreign-owned

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multinational. The middle ranks of MNC hierarchies may become populated by those who have been especially successful in forcing employees in their own home towns to accept unfavorable conditions in global investment bargaining. MNCs would accumulate such experience from many quarters and cross-fertilize knowledge across localities to develop new and as yet unknown moves in the game of regime shopping. And no doubt such a scenario would also help to instill in employees that attitude of passive resistance and ‘businesslike’ pursuit of short-term self-interest which Veblen (1997/1923) saw as a natural response to absentee ownership. Producing Passivity through Disasters Whereas disaster through passivity can result from mechanically following the parent company’s rules, passivity through disaster may be produced when a subsidiary ﬁnds that its innovative activities and readiness to make radical changes are ignored and discounted by the MNC HQ. APV’s Lake Mills plant offers a striking example. Following the Siebe takeover in 1997, APV Ice Cream, which included Lake Mills’ innovative freezer business, was sold off to Waukesha Cherry-Burrell, a local competitor owned by a rival multinational, the United Dominion Industries group, resulting in the loss of nearly one-third of the plant’s 500 remaining jobs. In 1998, the Steelworkers’ union local agreed a new ﬂexible labor contract aimed at keeping the plant’s tank shop in business. But in March 2000, Invensys abruptly decided to close the shop without further negotiations, laying off the last of Lake Mills’ highseniority Steelworkers, none of whom had reached retirement age. ‘We were told the job eliminations were a corporate decision and nothing could be done,’ reported the local union representative.18 In contrast to the previous case, passivity in this scenario leads not to the reinforcement of the principal–agent relationship between headquarters and subsidiary, but rather to its ironic subversion by the host community. Local narratives may be told in which individual workers and managers appear as heroes despite having lost their struggles against the MNC HQ. Such stories may serve to remind the members of the subsidiary community of their entrepreneurial capabilities, which under different organizational arrangements might have led to a more successful future. Thus in this case the MNC in its present form comes to appear as one of several possible worlds, and not the most promising from a local perspective. The entrepreneurial heroes of 18 Judy Newman, ‘Largest Employer in Lake Mills, Wis., Could Cut up to 175 Jobs’, Wisconsin State Journal, 20 Dec. 1997; ‘United Dominion to Acquire Ice Cream Equipment Producer’, PR Newswire, 16 Mar. 1998; Rick Barrett, ‘Lake Mills, Wis., Plant to Lay Off 50 Steelworkers’, Wisconsin State Journal, 29 Mar. 2000.

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the locality may be unrecognized, unpromoted, and even unemployed within the multinational, while enjoying a thriving reputation as informal leaders whose potential contribution to community prosperity was suppressed before it could be properly explored. Their aura of unfulﬁlled possibility in turn casts a shadow over the formal plant leaders, who come to be seen as representatives of the forces holding back the locality, further delegitimizing the absentee owner. In such a climate, principal–agent relations become highly volatile, as any newly appointed managers will face a severe dilemma. Either they may choose loyally to enforce HQ policies on the subsidiary, in which case they will catalyze all the local factions into forming a single oppositional coalition. Or such managers may form an alliance with particular local factions to win support for their own personal initiatives, but this strategy can only succeed if they are prepared to signal clearly their own detachment from the HQ. In a cynical version of this last scenario (for which there is no evidence in the Lake Mills case), the local subsidiary may be able to manipulate its reports in order to satisfy the absentee owners. Shirking is thereby extended from a private game for a few free riders to a widespread collective sport. And each time an MNC HQ falls victim to a hostile takeover, is a time for celebration. Not only have the locality’s distant enemies lost a war, but now a whole new bunch of inexperienced controllers and managers will arrive, on whom not only the same old game, but even the same old tricks, can be successfully played. Ironically, this local strategy is highly adapted to a world in which CEOs and top managers are preoccupied with playing the games of the institutional equity nexus. The organizational space between the local and central levels of such an MNC will gradually become populated with thoroughly pragmatic characters who know that they have been promoted for dubious reasons and are almost forced to behave opportunistically towards their closest colleagues, subordinates, and superiors. Ironically, the most legitimate action that a headquarters may take under these circumstances is to close plants and ofﬁces, which may be privately recognized as highly inefﬁcient by all concerned. Social Terrorism According to Alain Supiot (2001: 1; see also Supiot 2003), the real dynamic of labor law is constituted by balancing and counterbalancing the economic action of entrepreneurs with collective action by employees. In order to strike this balance effectively, ‘it is not sufﬁcient to recognize employees’ right to be represented, to act and to bargain collectively’; ‘it is also necessary’, he argues, ‘that they can take action where employers do. In other words, the collective

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rights of the workers must be able to match the forms that the entrepreneurs stamp on the organization of work’. Our suggestions on open coordination and interregional networking may be seen as a way of enabling employees to do this in an age of globalization, where many of the traditional forms of collective action against ﬁrms have lost their effectiveness. Without an effective right to strike, Supiot (2001: 3) wonders ‘whether the industrial countries would have ever succeeded in civilizing economic liberalism’. But this weapon is less and less well-adapted to global ﬁrms that can shift production from one place to another and where workers’ immediate employer may not be the key decision-making agent in the supply chain. In Supiot’s view, under conditions of globalization workers also have to mobilize other stakeholders to take action on their behalf. Consumers may be persuaded to boycott products if they learn that they are produced under sweatshop conditions. Shareholders—especially employee pension funds— may be convinced to divest the stock of MNCs that do not respect international social, labor, and environmental standards or codes of conduct. According to Supiot, this form of collective action depends above all on the diffusion of information, for which the Internet and other new communication technologies may serve as promising organizing tools. In these forms of protest, however, if you do not attract broad attention through the media or other means, no public is created and no collective action takes place. To secure this initial attention, workers might feel themselves forced into a vicious circle of ‘social terrorism’. Supiot (2001: 5) cites as an example the Callatex case, where ‘the workers in a textile factory in the Ardennes, threatened with closure after an endless succession of takeovers and ‘‘social plans’’, counter-attacked by emptying tanks of sulfuric acid into the Meuse, although it ﬂowed right through their own town’. This type of action, he argues, has often proved relatively successful (at least in France) in securing media attention and government assistance, so that it has widely been repeated by employees of ﬁrms in comparable situations. An obvious problem with this strategy is that it would gradually put pressure on workers to take more and more extreme steps in order to capture media attention. Furthermore it is difﬁcult to imagine how it could be collectivized, as it would be legally suicidal in most countries for unions to adopt such a strategy of escalating sabotage as a form of protest. But following the logic of the two ﬁrst scenarios, it seems extremely likely that many employees will ﬁnd themselves in situations where the MNC’s lack of local legitimacy appears sufﬁcient to justify embarking on a path of ‘social terrorism’, thereby reinforcing the antagonistic relationship between the global ﬁrm and its host communities. Ironically, these employee actions may prove so effective that they not only force employers into local negoti-

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ations but eventually destroy the MNC itself, either by driving it into outright bankruptcy or by depressing the stock price so much that it becomes easy prey for a hostile takeover. Engines of Industrial Districts One of the ironic possible consequences of MNC HQs’ managerial behavior is that they may unintentionally foster the emergence of dynamic and innovative industrial districts. Thus, for example, many of the small and medium-sized ﬁrms responsible for the international success of the industrial districts of the ‘Third Italy’ in the 1970s and ’80s were founded by skilled workers laid off from large manufacturing groups during the late 1940s and ’50s.19 Something like this could in principle have occurred in the case of Lake Mills, where downsizing imposed from London led to the sacking of many highly trained CNC machinists at the beginning of the 1990s, who were then re-employed by the plants’ external suppliers to meet the resulting demand for outsourced parts. But our study of APV suggests that the conditions for MNCs to act as unintended engines of industrial district formation may be much more widespread. Each of the subsidiaries we studied had experienced a period of extensive investment in cross-training and multi-skilling of their workforce. While this development could be seen as an extension of existing practices at Horsens, where employees were used to operating in a highly mobile labor market that enabled the locality to function as an industrial district (the ‘stainless steel corridor’), it was instead quite new to both Howard and Lake Mills. At Howard in particular, the skills and experience acquired through such cross-training and internal promotion had encouraged employees to develop novel career aspirations, which could then be further advanced by seeking jobs at other similar ﬁrms within Eastbourne’s ‘rotary lobe pump district’. If Mueller, Hancke´, and other observers are correct, however, MNCs more generally have taken the lead within their subsidiaries in introducing new forms of ﬂexible work organization based on teams of multi-skilled operatives exercising direct managerial responsibility. In this way, the skills and experience these team members acquire could eventually enable them to become highly successful independent suppliers to MNCs, since they have learned from within how to meet the latter’s quality and price demands, while also being familiar with their global benchmarking practices. 19 For overviews of this phenomenon and its contribution to the rise of Italian industrial districts, see Sabel (1982: 220–1); Alaimo (1999: 179–81); and for a detailed case study, Solinas (1993).

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Along with new technical and administrative skills, these former employees will also have acquired extensive experience of dealing with the MNC HQ as an unstable, short-term-oriented principal. Hence in starting up or signing on with new spin-off supplier companies, they will know from the outset that these should avoid excessive dependence on orders from the parent MNC, whose loyalty cannot be taken for granted. Thus many of the social and political conditions for creating self-conscious and collaborative inter-ﬁrm networks are present in these local communities, as in the industrial districts of post-war Italy. Unlike the latter, however, where orders from big companies were often difﬁcult to obtain before the ‘productive decentralization’ of the late 1960s and ’70s, small and medium-sized enterprises (SMEs) in these emergent districts can take advantage from the very outset of the large-scale outsourcing policies adopted by global ﬁrms.20 Such developments, moreover, could push the second scenario described above (‘producing passivity through disasters’) in a more positive direction, as disaffected leaders of the subsidiaries (whether formal or informal) learn to make local use of the MNC’s global networks as a resource for the economic development of their communities. Mobilizing Regional Finance for Global Reach The mystique of globalization has been closely associated with the internationalization of ﬁnancial markets. During the 1990s, holdings of foreign equities by US pension funds and other institutional investors increased rapidly from a low initial base, and similar trends could be observed in a number of OECD countries. But even in the most internationalized economies such as the UK and the Netherlands, foreign holdings rarely exceed 30 per cent either as a share of domestic institutional investors’ assets or of national stock market capitalization, while in others like Germany, Japan, or the US itself, the foreign share of both inward and outward portfolio investment is still signiﬁcantly lower.21 Hence as Hirst and Thompson (1999: 38– 42) among others have emphasized, the correlation between domestic savings and investment remains high across the OECD. In some countries, like France, Germany, and Japan, foreign equity investors have pressed with varying success for changes in corporate governance 20 For contemporary examples of the emergence of such local networks in the pharmaceutical, biotechnology, wireless telecommunications, and software industries from the restructuring of Swedish MNCs such as Astra, Pharmacia, and Ericsson, see Berggren (2003: 188); Glimstedt and Zander (2003). 21 For cross-national variations in ﬁnancial internationalization, see OECD (1997: 18–19); Hirst and Thompson (1999: 42–52; 2000); Myners (2001: 27–8); Monks (2001: 80–96); Schmidt (2003: 119–25).

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and management practice to align them with Anglo-Saxon procedural norms and commitment to maximizing ‘shareholder value’.22 But more signiﬁcant than the direct impact of US and UK ﬁnancial markets has been their indirect inﬂuence on other national systems. Just as the French court of Louis XIV and his successors set the style which smaller and less prestigious royal capitals tried to imitate, so Wall Street and to a lesser extent the City of London have become the fashionable models which other ﬁnancial centers now seek to copy. As in the case of the French nobility, who believed themselves truly recognized and esteemed when granted access to Versailles, corporate CEOs and ﬁnancial institutions today only feel fully valued if they are able to participate in the high-stakes positional game of Wall Street and the City. And like the court nobility in Norbert Elias’s (2000) classic analysis discussed in Chapter 10, who found that they could improve their social and material standing more easily by cultivating relations with the king than by seeking to conquer land from other nobles, modern CEOs and ﬁnancial institutions discovered that they could gain access to unprecedented rewards by joining this international game.23 Not only could such CEOs thereby command much higher levels of personal compensation than previously considered legitimate at home, but by obtaining a cross-listing on a US or UK stock exchange, their company’s shares would also then become acceptable to foreign institutional investors as valid currency for cross-border mergers and acquisitions.24 This dynamic contributed to the international contagion of the millennium boom, the largest bull market in history, which is now widely recognized as having been an unsustainable bubble, a product of herd behavior and ‘irrational exuberance’ (Shiller 2000; Plender 2003). Even during the boom itself, moreover, careful observers of Anglo-American ﬁnancial markets regularly pointed out that the collective behavior of actors within the institutional equity nexus caused both Wall Street and the City systematically to neglect potentially proﬁtable investments in small and medium-sized companies (Golding 2001: 181–91; Carey et al. 1993, quoted in Hebb 2001: 7). Such defects may become very important in the coming rivalry among the world’s ﬁnancial centers. Whereas most of these centers sought to learn how Wall Street worked, copying its techniques and developing new ﬁnancial 22

For careful reviews of the debate, which emphasize the relatively limited impact of foreign equity investment on corporate governance in these countries, see O’Sullivan (2000); Jackson (2003); Schmidt (2003: 119–25). 23 Elias himself (2000: 398) explicitly compares the court to a stock market. 24 O’Sullivan (2000: 167–8); Jackson (2003: 295–6); Coffee (1999: 676–83; 2002: 1815). Coffee (1999, 2002) also sees such cross-listing of foreign stocks on ‘high-disclosure’ exchanges as a mechanism whereby ﬁrms can signal to investors worldwide their superior attractiveness and growth prospects.

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instruments, they embarked on this process from very different starting points. As Lindgren (1994) shows, for example, the Wallenberg family imitated Wall Street in many respects in restructuring its banks and holding company Investor. But in the process, the family turned these ﬁnancial institutions into providers of services that could protect its sphere of inﬂuence in a small number of increasingly large-scale Swedish MNCs, which were thereby furnished with ‘patient capital’. In many countries, over the past two decades local and regional governments have sought to create new ﬁnancial institutions to serve the needs of SMEs more effectively. Thus in Emilia-Romagna, the economic development agency ERVET (Ente regionale per la valorizzazione economica del territorio) proposed in the early 1990s to ‘serve as the primary interface between the region’s SMEs and national and international sources of investment capital’, while at the same time opening up the extensive network of business services it already provided to Italian ﬁrms outside the region (Cooke and Morgan 1994: 112; see also Cooke and Morgan 1998: ch. 5). In Germany, similarly, federal, state, and local governments since the late 1980s have encouraged both public and private banks to create capital participation corporations (Kapitalbeteilungsgesellschaften or KBGs) to supply limited-term equity ﬁnance to SMEs. Some KBGs operate like venture capital funds, investing in new technology projects that can later be taken public, but most have concentrated on ﬁnancing innovative local Mittelstand ﬁrms in established industries, which can also draw on the increasingly sophisticated export marketing support capabilities developed by national savings and cooperative banking associations (Deeg 1999: 118–21, 153–4, 235–6). In France, where a major decentralization of economic and industrial development policy has taken place since the mid-1980s, local and regional authorities have invested heavily in venture companies and socie´te´s de de´veloppement regional aimed at providing risk capital to SMEs in both new and established industries, often in partnership with business networks and national government agencies (Aniello and Le Gale`s 2001: 133–4). And even the UK, with its historically over-centralized ﬁnancial system (Zeitlin 1995), has recently created a new system of ‘regional venture capital funds’ aimed at ﬁlling the ‘equity gap’ for ‘small businesses with growth potential’, to which local authority pension funds have contributed in partnership with national government, private banks, and the European Investment Fund (Mason and Harrison 2003). Perhaps the most remarkable step in this direction has been the development of Labour Sponsored Investment Funds (LSIFs) in Canada. Beginning with the creation of the Quebec Solidarity Fund in 1983, these funds have expanded rapidly with the support of tax credits from federal and provincial

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governments, to account by 2000 for 50 per cent of the Canadian venture capital market (broadly deﬁned as investments in ﬁrms with assets of less than $50 million and fewer than 500 employees). Some LSIFs, based mainly in Ontario, Canada’s largest province and ﬁnancial center, were formed by existing investment ﬁrms purely to take advantage of tax concessions, with only a nominal connection to the sponsoring union. But others, notably the members of the LSIF Alliance, whose boards are directly controlled by union bodies, are committed to meeting broader economic and social objectives, including regional development, employee participation, and labor–management cooperation in investee ﬁrms. In provinces like Quebec and Manitoba, for example, Alliance member funds, operating in collaboration with local and regional networks of public authorities, banks, and other institutional investors, have become an increasingly important source of working capital and expansion ﬁnance for SMEs, especially those located outside the main ﬁnancial centers. Union members in Alliance LSIFs are encouraged to develop ﬁnancial expertise, sell shares in the funds to fellow workers and neighbors, contribute to social audits, and participate in corporate governance and decision-making. These labor-sponsored funds also work with investee ﬁrms to enhance management capabilities, adopt new forms of work organization, improve communication with the workforce, build trust with the local union, and foster employee stock ownership. Taken together, the participatory investment and decision-making processes promoted by these funds may lead to an effective joint control of assets, thereby redeﬁning the practical meaning of industrial property rights, while at the same time providing a powerful tool for local communities to tap into broader ﬁnancial markets.25 Such regionally based investment funds and ﬁnancial institutions have attracted wide interest among unions and other social constituencies in a variety of countries, including the United States (Fung et al. 2001a). Their expansion, fueled by growing disillusionment with the local impact of globalization, could have a double impact on the dynamics and orientation of MNCs. First, they would provide an alternative shelter for ﬁrms that currently feel obliged to seek protection from MNCs against the volatile ﬁnancial markets. As we have seen, this was a key motivation for all three of the subsidiaries in our story to join APV, and similar considerations continue to fuel the merger-and-acquisitions game so crucial to the dominance of the 25 For more detailed discussions of the Canadian LSIFs, see Lincoln (2000); Hebb and MacKenzie (2001); Carmichael and Quarter (2003). The Canadian system could be improved through provision for reciprocity agreements between regional funds, as proposed by US advocates of a national center for economically targeted investments. Such reciprocity agreements would enable funds to invest in their general geographical region without concentrating too high a proportion of plan assets in a single area. See Zanglein (2001: 201).

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equity–investment nexus between MNC HQs and the ﬁnancial institutions of Wall Street and the City. Second, they would offer an alternative source of ﬁnance to subsidiaries following a ‘subversive strategy’ of engaging in local knowledge exchange in order to innovate in products and/or processes and enlarge their global mandate without the HQ’s formal approval. Like conventional ‘merchant’ venture capital companies, such regional funds would be well-placed to ﬁnance spin-offs of innovative local subsidiaries from their parent MNCs, whether in the form of management buy-ins/buy-outs or of employee-owned enterprises. In other cases, MNC HQs might allow subsidiaries to raise additional capital locally for innovative projects, thereby not only enhancing the latter’s scope for strategic initiative, but also compromising their own exclusive property rights through the development of crosscutting obligations to regional investors and ﬁnancial institutions. In the longer term, it might even become possible for some subsidiaries to serve as alternative funding channels for others in ways that begin to challenge the centrality of the HQ itself within the MNC.26 Any of these ﬁve scenarios—either individually or in combination—would not only serve to disrupt the smoothness of the globalization process, but would simultaneously undercut the ascendancy of its putative lead agent, the multinational corporation. Compared to our own preferred strategy of stepby-step reform of the MNC and its relationship to the ﬁnancial markets through open coordination, social dialogue, and interregional networking, these alternatives seem at least as likely but their consequences much less desirable. Civilizing globalization through the experimental reform process proposed above would transform the MNC into an institution that could extend the possibilities open to local communities pursuing their own distinctive paths of development while enabling the world to maintain and expand the diversity from which humanity has always prospered. If observers like Castells (2000) and Held et al. (1999) are correct, MNCs achieved a new dominant role in the 1990s, not by themselves organizing an increasing proportion of world production, but rather by becoming the central nodes of transnational production networks, tying together the capabilities of many localities. As presently constituted, however, these organizations lack both the intelligence and the humility, as well as the civility, to master such a tremendous responsibility. 26

This would mark a partial return to the inter-war pattern, when multinationals often ‘felt some pressure to give their subsidiaries a more ‘‘local’’ appearance by selling part of the equity to local investors or appointing nationals to local boards’, and foreign units not only sometimes undertook their own R&D but also made independent third-country investments (Jones 1996: 122, 115; Wilkins 1974).

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INDEX ABB 197, 200–3, 230, 243–4, 249, 250, 254, 259, 304, 313 accountability 218, 221, 298 administrative heritage 10, 11, 14, 27–8, 68, 190, 193, 211 aims and interests, trade-off 192, 212, 213 Alfa-Laval 32, 39, 62, 95, 143 Aluminium Plate and Vessel Co. 52 Amin, A. 2 APV: apprenticeships 53 core competencies 145 European Forum (AEF) 98–100, 101, 160, 168, 183 family ﬁnance 52 ﬁnancial crisis 57 friendly takeover 39–40, 45, 50 gearing ratio 139 going public 55 history 51–63, 64–5 internecine conﬂict 5–7, 19, 142–3, 145, 148 investor conﬁdence 139, 141–2, 148, 173, 177 Joint Production Advisory Committee 55 local mentality 152 market pressures 143–4 master narrative 178, 179, 181 move to Crawley 55–6 multinationalization 53, 58–63 patents and licenses 53, 56 polycentric construct 63–9 reason for expansion 135–6 reorganizations 61, 137–8, 139–40, 145–7, 154, 175–6 strategic capabilities 176–7 see also HQ

artel 228–31, 240, 242 authority 4, 14, 15, 23 backshadowing 181, 312 bad excuses 205–6, 244, 249, 250 Baker Perkins 62, 136–7, 149 bargaining: collective 6, 264, 270, 273 distributive 274–5 integrative 274–5, 276, 280 Barnard, C. 211, 225, 234, 241, 243, 247–8, 256 Bartlett, C. A. 9, 10, 11, 14, 15, 190–3, 201–3, 301 Behr, M. von 204–5 Be´langer, J. 201, 205, 207, 231 Belussi, F. 3 benchmarking 199, 202, 205, 241, 244, 258, 279, 283, 286, 310 in ABB 203–5, 244, 249–50, 253–4, 259 competitive 268, 271, 273–5, 312–13 global 317 mutual learning 296–7, 299, 302 negotiated 253–4 Seven Ups 249 standardized 244, 259 strategic 290 top down 230 Bendix, R. 233 Benson, P. 58, 60–1 Berggren, C. 204 Birkinshaw, J. 18, 19 Blackman, G. 54 blame 201, 232 allocation of 244, 249 and bureaucracy 220–1, 223

346

Index

Canada 320–1 Carr, D. 252, 253 cartel 201, 202 Castells, M. 322 CC&G 41–2 Chandler, A. D. 8, 214, 217–18, 219, 249 Coase, R. H. 8 Cohen, J. 262, 263 collaboration, pragmatic 254–7, 260, 262 collaborative action, capability for 2, 16, 22, 223, 239 collective bargaining 6, 264, 270, 273 commitment 19, 198, 209, 213, 246, 258, 279, 293, 319 as property right 248 shared or mutual 192, 208, 234, 243–51, 260, 265–6, 270, 299 communication, cross-country 20, 258, 269 comparative advantages 3, 6, 7, 8, 14, 187, 189, 247 competition and cooperation, local 49–50 competition-cooperation balance 6, 8, 14, 16, 188, 206–11, 214, 224, 261, 301 computer-numerically-controlled (CNC) machine tools 87–8, 317 constitutional ordering 198, 215, 234–9, 241, 243–4, 247, 261, 279, 313 consultants 150, 175, 179–80, 206, 233, 266, 285, 295, 300 continuous improvement 3, 196, 240, 244, 250, 276, 278–9, 298 contributions, collective 226 control and coordination 22, 187, 188–9, 213, 215, 218, 225, 256, 260 convenors and shop stewards 36, 39, 73–4, 90–2, 101, 237–8, 275–6, 280–3 convergence 199, 200, 204, 268, 274, 286, 291

cooperation 6 see also competition-cooperation balance coordinated bargaining 274 coordination: open 287–8, 290, 298–9, 300–1, 309, 312, 322 see also control and coordination corporate culture 195, 258, 267, 270 as global glue 193, 255 Creamery Package Co. (CP) 42–5 Crepaco 45–7, 61, 63–4, 67, 93, 94, 124, 125 see also Lake Mills Cyert, R. M. 231 Danish APV Forum 95–7 Danish Maﬁa 95, 97–8, 101, 126, 160, 261 Danish Sugar Factories 33, 35, 39 decisions, non-legitimate 248, 316 Delany, E. 195 democratic experimentalism 254 Denmark 276–82 ﬂexible labor market 164–5 Joint Stock Company Law 162 social welfare 74, 164–5 training 164 unionization and wage bargaining 162–3 see also Horsens; Pasilac directly-deliberative polyarchy 302, 254, 262–3 directors, struggle for position 149–50 distorted interpretation of acts 210 divergence 200, 204, 311 diversity, managing 200 division of labor 187, 194, 214, 232, 233, 236, 241, 275, 277–8, 300 downsizing 6, 201–2, 227, 239, 245, 278, 312, 317 Doz, Y. 244 Dunning, J. H. 11–12, 13, 15, 16 Durkheim, E. 232

Index Eastbourne 93, 94 competition and cooperation 49–50 friendly takeover 50 history 47–51 see also Howard Edwards, T. 196–7, 207 Elias, N. 251, 319 empirical studies 9, 13, 20 bottom-up 266, 284 top-down 230, 302, 312, 313 employee-representatives 276, 279–80, 284–5, 289–90, 297, 299 see also convenors and shop stewards; unions Engineering Employers’ Federation 53–4 European Employment Strategy (EES) 286–9, 290–1, 292 European Metalworkers’ Federation (EMF) 99, 271, 273 European Works Council 95, 98, 160, 264, 265–9, 271, 280–1 executive function 5, 15, 23 Barnard on 211, 225, 234, 241, 243, 247–8, 256 exploitation 14, 188, 242, 302 exploration 188, 207, 242, 253, 257 F. B. Fargo and Co. 41–2 Ferner, A. 195, 197, 207 ﬁnancial and accounting dependencies 65–6 ﬁnancial systems 320 ﬁrms’ context 18–19, 21–2, 190, 205, 213, 227–8, 230, 232, 235, 241, 250, 257, 270, 290 see also relationship with local environment ﬁve-why system 254, 256, 262 Fjord, Docent N. J. 29 ﬂexible working practises 83, 85, 88, 115, 125, 198 foreign direct investment (FDI) 7, 15–16, 292

347

foreshadowing 182, 312 Freeland, R. 214, 215–17, 249 fund managers 5, 21, 177–8, 299–300, 303, 310–11 General Electric 200–1 General Motors 214–15, 221 geocentrism 14, 16, 20, 66 Germany 98–9 see also Rosista Ghoshal, S. 9, 10, 11, 14, 15, 190–3, 201–3, 301 global business park 117–21 Global Product Manager 127 global web 17 Golding, T. 299 governance methods: experimental 14, 264, 284–91, 291–2 invisible hand 190, 192, 198 group deliberation 254 Hamilton, Peter 61, 140 Hancke´, B. 267–8, 270, 271 Harrison, B. 2 Haythornthwaite, Rick 306–8 head count reductions 305, 307 Hedlund, G. 3, 13, 14–15 Hegel, G. W. F. 252, 253 Held, D. 322 Helper, S. 256, 262 Herrigel, G. 79 heterarchy 3, 20, 189, 194–8, 201, 211, 243 hierarchical levels 191, 219 Hirst, P. 301, 318 Horsens 63–4, 67, 73–102, 133, 138, 276–82 career prospects 84, 86 convenor and shop stewards 36, 39, 73–4, 90–2, 101, 168–9 friendly acquisition 39–40 history 28–40 local relationships 73, 81–4, 86–7, 160–1

348 Horsens (cont. ) local strategy 159–60 managing director 73, 85, 92–3, 96, 101, 169 narrative of identity 167–70, 183 oversee Howard 125–6 proﬁt record 101–2 reorganization 35–6 reputation 183 subversive strategy 4, 86–92, 180 training agreement 74–7, 89 union 91 US contract 37–9 see also Pasilac Hoskisson, R. E. 218 Howard 93, 124–34 closure 134, 138 in the local labor market 130–2, 165 local strategy 158–9 managing director 124, 127–30 narrative of identity 167–70, 182–3 overseen by Horsens 125–6 technical director 132–4 see also Eastbourne Howard Investing in People (HIP) 129 Howard Pneumatic Engineering Co. 47–51 Howard Pumps 62, 63–4, 66 HQ 135–56 budgetary controls 78 internal conﬂict 172–3 narrative of identity 172 power struggle with subsidiaries 5, 6–7, 19 relationship with local environment 173–4 reporting to 140–1, 204 unintended consequences 68 see also APV human resource management (HRM) 21, 121, 193, 195, 199 Hymer, S. 7–8, 13, 15

Index incentives 204, 223, 224, 277, 296, 309–11 inducements, collective 226 industrial districts 1–3, 16–17, 82, 207–8, 260–1, 317–18 industrial relations 199, 202, 221, 268–70, 273–4 information, process of 12, 244–5, 259, 260 Institutional Equity Nexus 299, 300, 303, 309–10, 315 integrating MNCs 1, 19, 197, 207, 218, 257, 299 inter-subsidiary game 207 interregional network of local actors 264, 284, 286, 290, 292–3, 296, 298, 312, 316, 322 Invensys 305–9, 314 investment bargaining 199, 253, 268, 270, 273–4, 299, 302, 312, 324 investment decisions 151, 214 investors, institutional 5, 6, 21 iterative goal setting 254 Jackall, R. 219–24, 244, 249 John Deere & Co. 161 Jones, G. 7 just-in-time 254, 302 Kim, W. C. 246 Kolding 96 labor: global mobility 6 mobility 182, 183 multinational solidarity 268 Laffan, B. 261 Lake Mills 103–23, 133, 137 friendly takeover 45 history 40–7 local strategy 158–60 machine shop 117–19 management 106–7, 113–14, 115 narrative of identity 170, 180, 182

Index pay-for-knowledge 107–11, 113, 115, 118–19, 194, 239 relationship with local environment 160–1 restructuring 105–12, 116 Skill Enhancement Center 122 subversive strategy 4 see also Crepaco Lane, C. 79 language 5–6, 205, 221–3, 250, 260–1, 269–70, 272, 279, 281 Larsen, L. P. 29 lean production 195 learning: by monitoring 23, 250, 253–7, 259–62, 264, 299, 309 and innovation: cross-border 197, 281–2; reverse diffusion 195, 196–7, 199, 207 organizational 9–10 Lecher, W. 267, 280 legitimacy of procedures 188, 198, 230, 245, 252, 315 Lygon Place see HQ managerial committees: in GM 214–15 Sloan on 215–16, 245, 247 managerial game 207 managers: career prospects 84, 86 and employee-representatives 276, 279, 280, 284–5, 289, 290, 297, 299 evaluated 152–3 laid off 153 promotion 5, 203 turnover 11, 14, 203 March, J. 231 Marginson, P. 272, 274 Marshall, Lord 308 Martı´nez Lucio, M. 199, 267, 270–1 Marx, K. 309 Mauborgne, R. A. 246

349

mergers and acquisitions 4, 16, 19, 20, 27, 94, 135, 187, 189–90, 193, 201, 208, 217, 243–4, 280, 300, 310, 319 Messel, L. 51 Miller, G. 224–5 misunderstandings 210, 230, 232, 245, 298 Morgan, G. 207 Mueller, F. 198, 199, 202, 207, 313 multinational corporations (MNCs): bureaucracy 220, 223, 308 as centrally coordinated ﬁrm 189, 190, 273 civilizing 257, 281 as decentralized federation 190 as heterarchy 3, 14, 20, 189, 194–8, 201, 211, 243 as integrated network 189, 191, 193–7, 201, 244 integrating 1, 19, 197, 207, 218, 257, 299 the literature 7–21 M-form 213–18, 222–5, 242, 249 as multi-focus ﬁrm 189, 195 new role 260 as valuable organizational device 2–3 as Warring Fiefdoms 189, 192–3, 195, 200, 207, 251, 255, 260, 262 multinational public 23, 265, 270, 292, 298–9 mutual commitment 234, 246–9, 247, 250–1, 260, 265–6, 299 mutual recognition 235, 249, 252, 254 Myners, P. 310–11 narratives 22 of identity 167–70, 172, 182–3 master 178, 179, 181, 287, 300 self-reinforcing 179 structuring power positions 182 warfare 178–80 negotiation 8, 192, 198, 227, 231–2, 235, 237, 268, 272–3, 277, 314 Nelson, R. R. 9

350

Index

O’Connell, L. 257, 259 offensive local strategies 8, 274–5 oikos 229, 230–1 OLI paradigm 12 Open Method of Coordination (OMC) 286–8, 290 opportunism 9, 11, 23, 188, 219, 222, 227, 256–7, 262, 297, 309 organizational learning 9–10 organizational structure 10, 12, 19, 23 matrix structure 196, 202, 203, 209, 244 ownership: absentee 240, 253 advantages of 8, 9, 14, 187 novel form of 260 Paasch, W. 29 Paasch & Larsen (PLP) A/S 29–32 Pasilac 32–3, 39, 62, 78, 93, 95, 96, 136 see also Horsens pay-for-knowledge 107–11, 113, 115, 118–19, 194, 239 Peat, Marwick, Mitchell and Co. 57 Penrose, E. 9–10 performance ambiguity 218–19 performance measurement: balanced scorecard 202 and opportunism 188, 219, 222, 227, 256–7, 262, 297, 309 seven ups 202, 205, 244, 249 Perlmutter, H. V. 13 Petersen, V. 29 Petit, Miss 48–9 Plender, J. 299 politicization 175–6 polycentrism 13–14, 16, 20, 27, 63–9, 196 positional strategies 230, 235–41, 243, 247, 251, 258, 262, 267–8 power game, HQ-subsidiaries 5, 6–7, 19 Prahalad, C. K. 244 procedural justice 243, 246, 260–1 Product Businesses 147–52, 155, 175

product mandates 19, 188 product rationalization 103–4 product specialization 137–8 product-cycle theory 8 products, standardized global 151 Project Star 145–6 protest 230, 316 Purcell, J. 202, 207 Rannie 95–6, 98–9, 101 reciprocity rules 223, 231 regime shopping 198, 268, 270, 314 relationship with local environment: Horsens 73, 81–4, 86–7, 160–1 Howard 130–2, 165 HQ 173–4 Lake Mills 160–1 see also ﬁrms’ context repeated games 208–9, 223, 234 reporting actions 204 representation 19, 216, 232 reputation rivalry 236, 237–8 responsibility 11 tracking system of 221 Robins, K. 2 role, others’ 181–2, 240, 249, 252–4 Rosista 78–9, 137–8 see also Germany Rugman, A. M. 16, 17 S&G Warburg 57 Sabel, C. 208, 254–6, 259–61, 262, 263 St. Regis Paper Co. 43–5 scapegoats 5, 155, 176, 178, 220, 249 Schmoller, G. 227–9 Schutz-Wild, R. 204, 313 Seligman Bros. 53, 57 Seligman, G. 52 Seligman, I. 51 Seligman, P. 54, 58 Seligman, R. 51, 53–4, 55, 57 sense-making 248 shirking 9, 188, 189, 213, 219, 227, 315

Index shop stewards and convenors see convenors and shop stewards short-termism 84, 220 sideshadowing 178, 183, 312 Siebe 61–2, 136, 304–5 takeover bid 155–6, 177, 179 Silkeborg 32–5, 37, 39, 96, 103, 137–8 Simon, H. 231 simultaneous engineering 254, 256, 262 Sisson, K. 272, 274, 275 Sloan, A. P. 214–16, 245, 247 Smith, F. 61, 136, 137, 144 Smith, M. 145 social commitment 247 social position 235 social terrorism 315–17 social/professional groups 2, 227, 230, 233–6, 239–40, 262–3 So¨lvell, O. 18 Specialized Workers’ Union (SiD) 76 state of warfare see warfare Stephens, B. 304 Strategic Business Units (SBUs) 93, 116, 125–6, 133, 147, 159, 169 managers 93–5, 97, 121, 127, 150, 151 strategic capabilities 171–2, 176–7 strategies: local 158–60 offensive 8, 174–5 positional 230, 235–41, 243, 247, 258, 262, 267–8 subversive 4, 17, 18, 195, 230, 302, 322 strikes 197 Strowger, Clive 144, 148 subsidiaries: diversity among 3, 5, 101, 199–200, 204, 242, 258, 275, 322 independence 66 polycentric 196 power struggle with HQ 5–7, 19 strategic capabilities compared 171–2 subsidiary centered studies 195

351

subversive strategies 4, 17, 18–19, 195, 230, 302, 322 Supiot, A. 315–16 taking on the role of others 181–2, 240, 249, 252–4 teams 19, 191, 205, 218, 254–5, 278, 280, 317 see also work groups terminologies 5, 22 local use of 205 TerritorialEmploymentPacts 284–6,289 Tetra Pak 143 Thibout, J. 246 Thompson, G. 301, 318 time-based management 202 transaction costs 9 Traxler, F. 275 trust 194, 208–9, 221, 245–7, 249, 268, 270, 279–80, 283, 321 Tully, J. 253 unionization 161–3 unions 198–9, 229, 230, 235, 245, 264–72, 280–4, 288, 290–1, 293–4, 296, 314, 316, 321 European 271–3 International Association of Machinists (IAM) 104, 107–12, 112–15, 119 Specialized Workers’ Union (SiD) 76 United Steel Workers of America (USWA) 104, 107–12, 112–15, 119 United Kingdom: economic climate 174–5 Employment Relations Act (1999) 166 ﬂexible labor market 166–7 social welfare 166–7 Teaching Company Scheme 125 training 166 unionization and wage negotiating 165–6

352

Index

United States of America: ﬁnancial markets 319, 322 training 163–4 unionization and wage negotiating 161–2, 163 Varul, M. 195, 197, 207 Veblen, T. 314 Verbeke 16, 17 Vernon, R. 8, 13, 15 Walker, L. 246 war games 153, 178, 181, 184 warfare 147–8, 153, 178–81, 232, 234 Warring Fiefdoms 189, 192–3, 195, 200, 207, 251, 255, 260, 262 Weick, K. 247–9 Weizman, Dr. Chaim 52 Westney, E. 13, 21 Weston, S. 199, 267, 270–1 Whitford, J. 257

Whittall, M. 268 Williamson, O. E. 8, 188, 213 Wills, J. 265–6 Winter, S. 9 Wisconsin Manufacturers’ Development Consortium (WMDC) 293–8 Wisconsin Manufacturing Extension Partnership (WMEP) 161, 294–5 Wisconsin Regional Training Partnership (WRTP) 122, 161, 293 work groups 225, 254 see also teams workplace egoism 268 Works Councils 200 European (EWC) 95, 98, 160, 264, 265–9, 271, 273, 280, 281 world view 229 Yurko, Allen 304 Zander, I. 18