Prahalad & Doz
An Approach to Strategic Control
in MNCs
Ruth Aguilera
September 2008
Prahalad & Doz An Approach to Strategic
Control in MNCs
Dilemma: Centralization vs.
decentralization
“Subsidiaries mature and become
autonomous with respect to strategic
resources, such as technology, capital,
management, and access to markets,
the HO’s ability to control the strategies
of subsidiaries is significantly reduced”
(p. 5).
An Approach to Strategic Control in
MNCs
• What’s strategic control for the HO?
– influence over a subsidiary concerning decisions that
affect their strategy
– monitor subsidiary’s progress
• What are the typical decisions reflecting the
strategy of a subsidiary?
–
–
–
–
–
–
choice of technology
definition of product market
emphasis in different product lines
allocation of resources
expansion and diversification of subsidiary operations
willingness to participate in a global network of product flows
among subsidiaries
Why should we care?
(1) Increasing share of sales & profits from
overseas subsidiaries… need to send
abroad larger part of their assets
(2) Often, higher growth potential than the
home country
 Impact of Global Competition
HO manager wants to decentralize
 Impact of Host Government Demands
Host gov’t demands penalize decentralization
 Joint Ventures
Changing Nature of
HO-Subsidiary Relationship
Tendency: Control TOO MUCH!!!!!!
HO must depend on mechanisms other than
control over strategic resources (capital,
technology, management, or access to markets)
as a basis for strategic control.
STRATEGIC CONTROL DILEMMA:
1) Reciprocal dependence btw the HO and
subsidiaries
2) Responsiveness and flexibility in strategy
must coexist w/ desires for global
rationalization
3) Strategy must be responsive to environment
demands => satisfy resource commitments.
4) Support proactive changes in strategy =>
5) HO and subsidiaries must perceive the
legitimacy of these changes


Subsidiary dependence should NOT be the basis for strategic
control (resources)
Subtle Mechanisms => Creation of an Organizational Context.
Shifts in Control Mechanisms in HO-Subsidiary Relationships
O1
High
High
S
Dependence of
HO on
M
Dependence of
subsidiary on
HO for
M1
M
Strategic
Organizational
Context
Resources
Control Gap
Low
O
New firms
S1
Mature Firms
Low
Figure 1:
Dependence of subsidiary on HO for
strategic resources versus Dependence of
HO on organizational context for
controlling subsidiaries
Creating an Appropriate Organizational
Context as a substitute for Substantive
control:
•
A complex organization is an aggregation of
four orientations (possibly aligned):
–
–
–
–
•
Cognitive
Strategic
Power
Administrative
Organizational Mechanisms that managers
use to manipulate these 4 orientations.
–
–
–
Data Management Mechanisms
Manager Management Mechanisms
Conflict Resolution Mechanisms
STRATEGIC CONTROL DILEMMA IN MNCs
Goal: Coordination
(Figure 2, p. 11)
High
Context
Organizational
AUTONOMOUS
Low
(B)
INTEGRATED
(A)
FRAGMENTED
(C)
DEPENDENT
(D)
Low
Strategic Resources
High
STRATEGIC CONTROL DILEMMA IN MNCs
Goal: Coordination
(Figure 2, p. 11)
High
Context
Organizational
AUTONOMOUS
(B)
Low
FRAGMENTED
(C)
Low
Strategic Resources
INTEGRATED
(A)
DEPENDENT
(D)
High
Controlling and Coordinating MNE
“Kentucky Fried Chicken (Japan), Ltd.”
(1) What should Dick Mayer do about Loy
Weston?
(2) What does it take to succeed in the fast food
franchising business?
(3) What implications does this have for the way
KFC should manage its international
operations?
(4) What recommendations would you make to
Dick Mayer on the issues he raises at the end
of the case?