ORGANIZING MNC INTERNAL NETWORKS TO MANAGE GLOBAL CUSTOMERS: STRATEGIES OF POLITICAL COMPROMISING

This is a so-called personal version (authors’ manuscript as accepted for publishing after the review process but prior to final layout and copyediting) of the article: Elina Pernu, Tuija Mainela, Vesa Puhakka (2014), Organizing MNC Internal Networks to Manage Global Customers: Strategies of Political Compromising, in Torben Pedersen, Markus Venzin, Timothy M. Devinney, Laszlo Tihanyi (ed.) Orchestration of the Global Network Organization (Advances in International Management, Volume 27), Emerald Group Publishing Limited, pp.349376 Researchers are kindly asked to use the official publication in references. ORGANIZING MNC INTERNAL NETWORKS TO MANAGE GLOBAL CUSTOMERS: STRATEGIES OF POLITICAL COMPROMISING Elina Pernu 1, Tuija Mainela2 and Vesa Puhakka2 University of Oulu Business School, P.O. Box 4600, FIN-90014 University of Oulu, Finland, 1 Department of Marketing, tel. +358 294 48 2893, elina.pernu@oulu.fi, 2 Department of Management and International Business Running head: Political compromising to manage global customers in MNC internal networks Abstract The present study approaches multinational corporations as internal networks that are constantly newly organized on the basis of relationships, operations, activities and tasks at hand. It combines MNCs-as-networks view with the research on supplier-customer relationship development to conceptualize the relational dynamics in the MNCs. The dynamics are seen created as the interplay of organizing within internal networks and managing of the global customer relationships. Through an empirical study on a project business MNC and analysis of the events in its global customer relationship the study defines strategies of political compromising in MNC internal networks. Keywords multinational corporation, internal network, global customer, politics, strategy INTRODUCTION MNC Alpha has been operating two years in India through its Subunit I that has Project I with a locally headquartered MNC Beta’s Unit India. Based on the Project I, Project II is initiated between Alpha’s Subunit II and Beta’s Unit Zambia. Alpha’s Subunit I has a local office in Zambia and therefore Subunits I and II cooperate in the Zambian operations. Subunit II can use the local office of Subunit I and, because Subunit I does not have direct contacts to Beta’s Unit Zambia, Subunit II acts as Alpha’s representative in all local matters. Initial contacts between Alpha’s Subunit II and Beta’s Unit Zambia lead to negotiations on Project II with many meetings and debates, about price, in particular. After half a year communications Alpha’s KAM and project manager of Beta’s Unit India are invited to the negotiations because of their previous good relationship developed in Project I. These two individuals agree on the Project II terms. Subsequently, the CEO of Beta’s Unit Zambia states that he would have never agreed on the project with that price. A significant supplementary agreement is added to Project II after half a year of implementation. As illustrated above, multinational corporations (MNCs) are organizationally complex multidimensional entities (Galbraith, 2012; Ghoshal & Bartlett, 1990; Gupta & Govindarajan, 2000) that consist of the headquarters and often numerous of local units and multiple inter-unit relationships (Holm & Sharma, 2006). Hence, MNCs are typical network organizations that are in practice much less hierarchical than the organizational charts imply (Hedlund, 1986; Noorderhaven & Harzing, 2009). Some units belong to multiple functional groups and any given unit may be a member of several technological systems. As a result, an MNC is not a single network but consists of multiple internal networks that are constantly newly organized in relation to relationships, operations, activities and tasks at hand. As the above case example also illustrates, the MNC internal networks are formed at several levels. The use of teams and project groups, in particular, leads to formation of both planned and emerging intra-organizational networks based on the relationships and expertise of individuals without regard to the unit borders (Möller & Rajala, 1999). Furthermore, the case example presents the process of managing global customer relationships as a major change catalyst in the organization’s internal network (Campbell, 2003). Internal networks in MNCs differ between customers and over time. The handling of these intra-organizational and inter-personal relationships between different units in two MNCs is a prerequisite for successful management of inter-organizational customer relationships (see Möller & Rajala, 1999). We focus on this dynamism of the MNC internal networks in relation to its global customers. The research question of the study is: how are the MNC internal networks organized in relation to managing of the global customer relationships. We approach an MNC as a loosely coupled organization that is embedded in external networks of relationships to variety of different actors (Piekkari & Welch, 2010). The research on MNCs has for long discussed the MNC structures and also the managing of different levels within the heterogeneous organizations. However, the interfaces of the internal and external structures are covered primarily as a question of standardization vs. local adaptation in the process of internal decision-making (Bartlett & Ghoshal, 2002; Meyer, Mudambi, & Narula, 2011; Nohria & Ghoshal, 2 1997). What we emphasize is that there is a need to create connections between internal and external structures that exist both at organizational and individual levels. Moreover, we claim that the collective and intentional orchestration behaviors in relation to the global customers are crucial boundary work in MNCs (cf. Santos & Eisenhardt, 2009). We delve into the details of this boundary work by analysis of changes in the internal networks of a project business MNC in specific events over development of its global customer relationship. In MNCs boundary work is by necessity circumscribed by politics and constant negotiations (Mintzberg, 1985; Williams & Lee, 2009). This makes political compromising a key to orchestration of MNC internal networks. In the following we will discuss the MNCs-as-networks view and research on supplier-customer relationship development. MNCs-as-networks view has focused on, for example, subunits’ external networks (e.g. Forsgren, 2008) and headquarter-subunit relationships (e.g., Birkinshaw, Holm, Thilenius, & Arvidsson, 2000; Holm, Johanson, & Thilenius, 1995). This study extends the discussion by emphasizing that there are multiple internal networks in MNCs built around specific customer relationships and that these networks are the dynamic platforms and driving forces of the operations of the organization. The customer occupies a key role in defining the internal network and the internal networks activated in specific events influence the customer relationship. The empirical research follows process research strategy to examine how things evolve and why they evolve in a particular way based on data on a selected global customer of an MNC. As a result, the study shows how the changes of the internal network in connection to various relationship events are related with variety of strategic ways of behaving to create common views. We explicate strategies for political compromising as the finding of the study. ORGANIZING MNC INTERNAL NETWORKS IN RELATION TO CUSTOMERS Business network perspective on MNCs focuses on the network of relationships in which the operations of the firm are embedded (Forsgren, 2008; Piekkari & Welch, 2010). A fundamental characteristic of this network is the headquarters being an outsider in the subunit’s network and considered to be one player among others (Forsgren, 2008: 121-122). Furthermore, we rely on the notion that an organization’s ability to develop and manage successfully its relationships with other actors is a core competence and source of competitive advantage (Möller & Halinen, 1999; Ritter, Wilkinson, & Johnston, 2004; Wilson, 1995). For the purposes of examining the change of internal networks in relation to evolvement of global customer relationships we’ll discuss prior research on organizing in MNCs and on customer relationship development. Organizing in MNC internal networks The answer to the question “what is an MNC?” is not straightforward. Concepts such as multinational corporation (e.g., Birkinshaw & Morrison, 1995; Dörrenbächer & Gammelgaard, 2010), multinational enterprise (e.g., Giroud & Scott-Kennel, 2009; Manev, 2003; Yamin & Forsgren, 2006), transnational corporation (Bartlett & Ghoshal, 2002) and global firm (Vahlne, Schweizer, & Johanson, 2012) are often used interchangeably (see also Aggarwal, Berrill, Hutson, & Kearney, 2011). The roots of the MNC research are already in Hymer’s studies in 1960s when it 3 was primarily a question of foreign direct investment. In later study of the role and functions of different MNC units the research has focused on MNCs as structures that consist of headquarters and subsidiaries and their relationships. Whether named as “heterarchies” (Hedlund, 1986), “interorganizational networks” (Ghoshal & Bartlett, 1990), “differentiated networks” (Andersson, Forsgren, & Holm, 2002; Nell, Ambos, & Schlegelmilch, 2011; Nohria & Ghoshal, 1997) or “internal networks” (Dörrenbächer & Gammelgaard, 2010) MNCs are network organizations. There is always a question of behaviors by multiple actors and of interactions in various kinds of relationships between them. Traditional, hierarchical definition of MNCs draws a picture of single country mandated subunits each focusing on their own supplier and customer relationships. Todays diversified MNCs cover multiple geographical markets with multiple product lines (Doz & Prahalad, 2005: 21). Although the subunits may be internally differentiated in their products, business conditions, structures, and coordination processes (Forsgren, 2008, 86; Ghoshal, Korine, & Szulanski, 1994), the subunits are required to cooperate in terms of various country operations and projects. Therefore, MNCs actually consist of multiple internal networks embedding the units differently over time in the home and host country networks (Dörrenbächer & Gammelgaard, 2010) as well as in the technological, functional and project-based networks. The MNC internal network, hence, is a dynamic structure that needs to be understood in its particular context. In the MNC internal networks, the actors are quite independent in relation to many issues (see Ritter & Gemünden, 2003). Multiple perspectives always exist on choices and decisions and there are multiple internal and external stakeholders (Doz & Prahalad, 2005: 21). Different units develop in different and inconsistent directions (Holm et al., 1995). Still, the subunits may act in same country markets or serve same global customers in different markets. The strength of MNCs is fundamentally in their nature as social communities (Kogut & Zander, 1993; Piekkari & Welch, 2010) that develop competitive advantage through accumulation of knowledge and competencies from different parts of the world (Adenfelt & Lagerström, 2006; Andersson et al., 2002; Gupta & Govindarajan, 2000; Holm & Sharma, 2006). Quite often, headquarters, however, do not have sufficient knowledge of the networks and actions of the subunits (Vahlne et al., 2012). Coherent worldwide operations require extensive inter-unit coordination and integration (Ghoshal et al., 1994) and, therefore, there is a need for structuring the interfaces between functions and units. This structuring we see as the process of organizing. Organizing is an internal process to which belongs activities, such as, creating organizational structures, staffing and implementation of the ways of communication in relation to particular operations (e.g., Ritter, 1999). Furthermore, organizing denotes to processes those take place in constantly changing relationship networks (Håkansson & Snehota, 1995: 10). Thus, organizing is a behavioral process, in which the internal networks become re-formulated when new relationships are built, old decay or existing relationships change their character (cf. Möller, 2010). Organizing affects the organizational level operations but also includes the enactment of the individuals in internal network (cf. Weick, 1979). Critical events in internal networks or in customer relationships are always an occasion for organizing (Weick, 1979: 3-4). Organizing can thus be seen as the production of collective understanding in organizational networks developing over time. 4 The dilemma confronting MNCs is how to reconcile the global role of the operating subunits with the need for cross-divisional communication and co-ordination at corporate, continent and country levels. As being networks with some hierarchical, but varying, powers, MNCs feature struggles between headquarters and subsidiaries as well as between different subsidiaries (Forsgren, 2008, 123). This means that politics are significant part of organizing MNC internal networks. Managing global customer relationships All companies need to be engaged in exchange relations, and some of those relationships develop into close, long-term relationships (Håkansson, Ford, Gadde, Snehota, & Waluszewski, 2009; D. Wilson, 1995). Customer relationships, in particular, are described as the most important resources that companies have (e.g., Dwyer, Schurr, & Oh, 1987; Ritter et al., 2004). Therefore, an organization’s ability to successfully develop and manage its relationships with other actors is a core competence and important source of competitive advantage (Möller & Halinen, 1999; Ritter et al., 2004; Wilson, 1995). Management of customer relationships is a question of understanding and serving customer needs and often also co-developing new products and services (Ritter et al., 2004). As organizations become more global, their need to deeply understand customers and carry on a meaningful dialog with them even increases (Young & Javalgi, 2007). Multinational customers demand global based contracts, prices and products instead of just country-based services (Harvey, Myers, & Novicevic, 2003; Montgomery & Yip, 2000). This means that if a supplier is unable to serve a customer globally, it is unlikely to continue to serve the customer at a national level (Campbell, 2003; Wilson & Weilbaker, 2004). The management of customer relationships in MNCs requires the reconciliation of the need for global coordination and control with the local needs of customers in the context of increased levels of organizational complexity and cultural diversity (Luo, 2001; Luo, 2002; Millman, 1996; Wilson & Weilbaker, 2004). Thus, MNCs are striving to meet both the global and local needs of their customers (Wilson & Weilbaker, 2004) and for that cooperation between different units, locations and projects in MNCs is needed (Evaristo & van Fenema, 1999). This is often a question of political compromising between different interests. The relationships between suppliers and customers are dynamic and affected by the individual episodes, which take place within them (Håkansson, 1982). Interactions in the episodes affect the technical, knowledge, social, administrative and legal aspects of the relationships although they may be beyond the control of individuals acting in organizations (Håkansson & Snehota, 1995). Still, it is important to know what precedes the current situation and frames the evolution (see Ford & Håkansson, 2006; Tidström & Hagberg-Andersson, 2012). This comes about as understanding of relationship events, i.e. changes caused by nature or outcomes of human acts (Hedaa & Törnroos, 2008), and how they are connected with each other in the past, present and the future of the relationship development (Hedaa & Törnroos, 2008; Tidström & Hagberg-Andersson, 2012). The 5 events can be regional, local or global in scope but they act as engines for relationship and network change as mediated by the actors (Hedaa & Törnroos, 2008; Kamp, 2005; Schurr, 2007). Human actors give meanings based on their previous experiences (Arthur, 2001); therefore, also events are actually socially constructed (Halinen, Medlin, & Törnroos, 2012; Tidström & Hagberg-Andersson, 2012). In differentiated MNCs, then, events and their causes in the global customer relationships are often perceived and interpreted by the actors in different manner. This opens up relationship management challenges whose solving is a process of politics, in particular. Politics at the structural and behavioral interfaces Developing spaces connecting structures and action that cut across the established boundaries within the MNC are critical for its competitiveness (Lee & Williams, 2007). These spaces are the arenas for boundary work (Santos & Eisenhardt, 2009) at both structural and behavioral interfaces of the MNCs, in which MNC politics take place. The political arenas are organizational situations of influence in conflict between individuals (Mintzberg, 1985; Williams & Lee, 2009), organizational units (Williams & Lee, 2011) or between the existing structures and behaviors of organizing and managing (cf. Foss, Foss, & Nell, 2012). Individuals within MNCs often interpret events in a different manner and give multiple meanings to the cause of the events (cf. Hedaa & Törnroos, 2008). Especially when experiences differ, the understandings tend to clash with each organizational group representing its opinions to the other in the form of an argument that stands for its unique model of what makes sense (Drazin, Glynn, & Kazanjian, 1999). In these situations conflict and political influence appear and affect the organizational action (Drazin et al., 1999). When significant enough an event to be called a crisis occurs, negotiated order between opposing groups is needed (Drazin et al., 1999). This negotiated order within the MNC internal network we name as the act of political compromising at the interface of organizing behaviors and internal network structures. Furthermore, political tensions also arise in managing the customer relationships, in particular, when the customer’s situation and networks change (cf. Forsgren, Holm, & Johanson, 2005). Due to the local market embeddedness the MNC customer relationship management involves significant amount of decentralized bargaining and negotiations (cf. Dörrenbächer & Geppert, 2006). This we see as the act of political compromising at the interface of the managing behaviors by the MNC and the customer relationship. Crossing boundaries is, in particular, needed to organize MNC internal networks in relation to the inter-organizational level customer relationships, which in practice develop through projects and personal relationships. Views of the customer by necessity differ at different organizational levels and in units as well as the actions of individuals in relation to the customer inside the MNC. Still, creating a collective understanding of the customer is needed to successfully manage interorganizational level customer relationships. Organizations are thus required to make political compromises between opposing groups and units (Drazin et al., 1999) and through that ensure the overall development of the customer relationship. Understandings may not be completely 6 shared, but will nonetheless guide the behavior in the organization. How conflicts are solved between different views determines how MNC internal network is organized and how customer relationships are managed and thus guides the development of an MNC as a whole. Thus, we see that the last act of political compromising existing at the interface of organizing internal networks and managing customer relationships. In this research the concept of internal network is used to describe the operations of an MNC in relation to specific customers. Networks are not seen as permanent structures, instead, it is seen that each network in relation to specific customer is unique and dynamic. Internal networks consist both of formal structures between headquarters, different technological and geographical units as well as of informal relationships in projects and between individuals involved with specific customers. Figure 1 below connects internal MNC networks and global customer relationships and shows the interfaces where political compromises are made. “Take in Figure 1” MNCs organize their internal networks including both organizing informal relationships between actors and in a long term adjusting their organizational structures to become more customer-centric. As different understandings of the customer relationships exists based on the different experiences, actions and actors involved, political compromises in organizing MNC internal networks are made. MNCs manage their customer relationships at multiple levels, including continuous interorganizational level relationships and discontinuous project-level relationships. Developing interorganizational level relationships may require different understanding and actions than managing single, discontinuous projects (Alajoutsijärvi, Mainela, Salminen, & Ulkuniemi, 2012). MNCs strive to organize both formal structures and informal relationships in their internal networks as well as to manage customer relationships at inter-organizational and project level. Combining different levels is bound to include disagreements as the objectives differ, thus, creating the need for political compromises. RESEARCH DESIGN The research paradigm adopted is moderate constructionism (see e.g. Guba & Lincoln, 1994: 109; Järvensivu & Törnroos, 2010). Constructionism is interested in how people, as individuals or as groups, interpret and understand social events and settings (Crotty, 1998: 43; Eriksson & Kovalainen, 2008: 19). In moderate form of constructionism utilized in this research, it is seen that the truth exists as dialogue, critique and consensus in different communities and new, usable knowledge can be created through these multiple viewpoints of the truth (Järvensivu & Törnroos, 2010). In line with relativism, the underlying assumption here is that there are multiple, sometimes conflicting social realities based on human experience and therefore the form and content of reality is dependent on individual persons or group holding the constructions (Guba & Lincoln, 1994: 110111). Knowledge is seen as personal and dependent on individual (Guba & Lincoln, 1994: 111). Research strategy and the selection of the case 7 Following process research strategy (see Feldman & Orlikowski, 2011) the study strives to understand how and why things evolve and uses process data consisting of stories about what happened and who did what when – events, activities and choices over time (Langley, 1999). Historical data collected through retrospective interviews and documents are combined with data collected in real time to examine relationship development over time. Case study is chosen as the method to gain knowledge in a complicated, cross-cultural research setting (Marschan-Piekkari & Welch, 2004: 7-8). The case company is a global, consolidated company (subsequently, Supplier Company) with three business units. It provides technology to entire value chain in processing minerals to metals in the mining and metals industries. It deliveries from single equipment to turnkey plants and comprehensive services having multiple simultaneous projects with different subunits and customer units around the globe. Subunit I offers mostly smaller projects through geographically mandated units and is seen by other subunits primarily as an equipment supplier. Subunit II is a product based business unit, which is internally divided based on the used technologies. Subunit III offers most comprehensive services, which means that the projects are bigger and last longer. Subunit III was acquired in 2001 and its main unit is in Germany and therefore it operates quite independently. Each of the subunits has multiple geographical units located typically near main customers. This research focuses on a selected customer relationship (subsequently, Customer A) of the Supplier Company. Customer A was defined as important to the Supplier Company by its top management. It is a senior mining house that has multiple production units mainly operating in India, Zambia and Australia and it can have projects with all Supplier Company’s subunits. A more intensive relationship with Customer A started in 2003 but not all supplier subunit have equal relationships with the customer. Still, multiple units both on customer’s and supplier’s side are involved in the relationship. Data collection and analysis The empirical study builds on altogether 48 interviews. The first set of primary data consists of 16 interviews, which were done with the managers of the Supplier Company in multiple organizational units and at various levels in relation to Customer A. The interviews lasted from one hour to two and a half hours and were all tape-recorded. The interviews produced 18 hours and 16 minutes of recording. The interviews concentrated on the specific customer relationship and the internal events and actions of the Supplier Company in it. The themes discussed were the history and development of customer relationship, features of the relationship, features of the projects with the customer, cooperation between the companies and roles of different internal units. According to the multilevel approach the interviewees tell about their own personal relationships (individual level) inside their own unit (unit level) and these relationships form an overall relationship with the customer (organizational level). Another set of primary data consists of 32 interviews that are made within the case company by other researchers of the larger research project on relationships in MNCs. These interviews are not directly linked with Customer A but offer data at the overall company 8 level. These interviews were utilized before the first set’s interviews to create understanding of the company, its operation logics and its customer relationships. This research also utilized a multitude of complementary data. Various written sources, such as the web-pages of the firm and its customer, annual reports, offering circular and brochures, were reviewed. A number of project memos and other workshop and seminar materials provided casespecific data. The complementary data was extensively used during the research process and especially before the interviews to create comprehensive understanding of the industry context and the operations of the case firm. Data analysis has been done in several phases intertwined with several phases of literature review, data collection and the process of casing. The iterative nature of data collection and analysis (Dubois & Gadde, 2002; Zalan & Lewis, 2004) allows theory to develop simultaneously with the formulation and reformulation of the research problem (see Ghauri, 2004). QSR Nivo program was used to store the data and to assist systematic coding of it. As the first analytical step a story of the customer relationship was written based on the experiences of the interviewed individuals. Then, the network-like customer relationships at multiple organizational levels were depicted. After this the focus was shifted into the events and from each interview the actions in events and the meanings that individuals give to them were mapped. In the following the narrative of the customer relationship development is presented through the internal networks in relation to the events in the customer relationship development. In the end, events are analyzed in terms of strategies employed for political compromising as they present conflict and influence within the internal networks. EMPIRICAL ANALYSIS Customer A is an Indian metal producing company that has grown by acquisitions as a significant global player. It owns mines in India, Zambia and Australia. It has experienced rapid growth, which offers substantial opportunities to the Supplier Company. Customer A does not invest in research and development; rather, it focuses on producing metals at a low cost and attempts to find ways to conduct projects as inexpensively as possible. Although Customer A is listed on the stock market, it can be defined as family-owned; the top management of the company is two brothers. The internal cooperation is strong, and top management is well informed about business and project details. Table 1 summarizes the development of the relationship in terms of six major events. “Take in Table 1” The development process of the MNC’s global customer relationship The relationship between Supplier Company and Customer A started with a few equipment sales in 1980s and 1990s. During this time, the Supplier Company was using agents, and each of the subunits had its own agents. The Supplier Company did not regard the Indian market and Customer 9 A as very important. Personal contacts were scarce and the relationship distant. The coordination of agent relationships was perceived as a challenge and handling cultural differences difficult. The relationship experienced a second start in 2003 when the President of Market Area India was appointed (subsequently, CustA KAM). His role was to enhance the company’s involvement in the Indian market and to act as a global account manager in the relationship with Customer A. CustA KAM went to India to explore the possibilities for different subunits of the Supplier Company and to activate the relationship at the personal level. The good reputation of the Supplier Company helped to create relationships and open doors and CustA KAM first created contacts at the lower organizational levels in the customer organization. In May 2003, the first negotiations of a large project between Customer A (Unit India) and Subunit I commenced (subsequently, Project I). The Supplier Company heard about the project through an agent, and CustA KAM was able to present the Supplier Company to the customer. Subsequently, the Supplier Company was asked to place an offer. In the project negotiations, CustA KAM acted as a chair of a separate committee and did not belong to the project organization. Four companies were initially involved in project negotiations, which lasted from May to December, and the longest individual negotiation lasted six weeks. At the end of 2003, there were two companies remaining, but price was an issue. The Supplier Company first refused the project at the suggested price, but the contract was created the following night. The relationship with Customer A (Unit India), and the contacts with the top management were created solely through this project. The Supplier Company was the main contracting party, but it also had an Indian engineering office as a partner and supervised the partner’s actions. Customer A would have wanted the project to be turnkey project, but the Supplier Company saw the risk too big in an unknown country. The duration of the project bidding and launching phase was a year and a half. The relationship with unit India was created through Project I, but the relationship with other parts of customer organization did not yet develop. Since 2004, the Supplier Company strived to create new relationships to Customer A and to obtain knowledge of its decision makers and ways of action. Customer A experienced rapid growth and made big investments in the 2003-2006 period. The Supplier Company was able to participate in the bidding but Customer A aggressively strived to find the least expensive solution and emphasized completion with different suppliers. During this period, the contacts at different levels and between different units multiplied. CustA KAM acted as the global account manager marketing the Customer A project openings internally to different subunits and geographical units and participating in the sales negotiations. The two year activity in India led to major Project II between Subunit II and Customer A (Unit Zambia). Project II was located in Zambia, where the local office of Supplier Company was Subunit I’s office. Subunit II used the local office of Subunit I and, because Subunit I did not have direct contacts to Customer A, Subunit II acted as Supplier Company’s representative in the market. In spring 2005, a project manager from Customer A (Unit Zambia) contacted Subunit II with interest in their technology. The requested information package with references was provided with a rough cost estimate. Negotiations lasted until the end of 2005 and included many meetings, debates and misunderstandings. In December 2005 CustA KAM became involved as the technology used by the 10 Supplier Company was better than that of its competitors, but price was an issue. The representative from Customer A (Unit India) was invited to the negotiations because of his previous connection with CustA KAM in Project I. These two individuals made the final negotiations, and the representative from Customer A (Unit India) ultimately asked CustA KAM to make the final decision because he perceived CustA KAM as fair. Subsequently, the CEO of Customer A Unit Zambia stated that he would have never agreed on that price. The contract was signed on January 3, 2006. In fall a significant supplementary agreement containing technical support was added. Simultaneously to Project II with Subunit II, Subunit III had multiple projects with Customer A and the cooperation as a whole grew and diversified. In 2007 the technological management of the Supplier Company made the decision to establish a local unit in India and a local managing director was hired in fall 2008. The Indian unit was designed to be a local full-service unit with sales, engineering, manufacturing, and service because local operations were deemed necessary in India. In fall 2008, Subunit III and CustA KAM met with Customer A’s top management. Customer A’s managers expressed their desire to develop the relationship as closer and more long-term to strive for a strategic partnership. The request was generally viewed as positive development. However, for Subunit III, the revenue logic in the arrangement remained a question, as the customer would still want to invite many companies to bid. Therefore, the Supplier Company decided to contemplate the answer to this question. Local personnel were recruited to the Indian unit in 2009 and the remaining agent relationships were terminated. Meanwhile, Project II ran into trouble. Project II was technically demanding because the raw material used was not typical for the chosen technology. The project consisted of the sale of a technology package involving a certain process, instructions on how the process works and the guarantee for the end result. The Supplier Company provided specifications on the equipment, but customer was able to decide how strictly it wanted to follow the instructions. The execution had begun in spring 2007 and the customer hoped that the plant would be operational in February 2008. The Supplier Company foresaw that the plant would be operational in the summer of 2008 at the earliest. Launch included several problems and after many changes, the plant commenced operations in October. On Christmas Eve 2008, a serious technical problem emerged in the plant. It disrupted the operations, and there was also a risk of a great accident, although it was fortunately avoided. The local office in Zambia, Subunit II in Finland and CustA KAM were informed of the problems. After the first incident, two more technical problems emerged in February and April 2009 and also affected the operating of the plant. The problems were reported in news all over the globe, and the customer was not satisfied with how the problems were addressed. The challenges with Project II strained the relationship in the following six months, and because of the problems in Project II between Subunit II and Customer A (Unit Zambia), Subunit III lost a sale with Customer A (Unit India). In a technological sense, the Supplier Company would have had strong know-how and references. The negotiations with Customer A progressed normally, but Customer A had an order from top management not to buy anything from the Supplier Company, which was subsequently told to CustA KAM. The operations of Customer A are highly centralized. If one field or one delivery has problems, it will affect the overall relationship. The negotiations for 11 a more strategic relationship ended, and all discussions at different organizational levels centered on the problems of Project II. Despite the loss of the bigger project, there were smaller deliveries. As CustA KAM states, “we were not on a corporate-wide black list”. There have also been improvements in the relationship after the problems were solved. All of the subunits have had sales during the development of the customer relationship. Subunit I has had a few sales. Subunit II has had the most actions with the customer. Monetarily, Subunit III has had the largest sales. Today, the greatest potential in the relationship with Customer A lies with Subunits II and III. The importance of the customer also varies inside of the subunits; Customer A is notably more important to Subunit II, unit 1 than to unit 2. Subunit III has the closest and longest relationship with the greatest potential with Customer A. Figure 2 illustrates the change of the internal network of the Supplier Company in relation to the Customer A over time. “Take in Figure 2” Political compromising strategies over the relationship development As the relationship in question consists of multiple unit and individual level relationships, conflicts are bound to exist. Units and individuals are required to make compromises to ensure the overall development of the customer relationship. Political compromising is a key for creating collective understandings of the customer relationship and having these shared understandings gives MNCs the possibility to organize internal networks in relation to the customers. Figure 2 in previous chapter depicted the changes in Supplier Company’s internal network in relation to Customer A. As the customer relationship develops, also the internal network evolves and the individuals and units involved change. From the development of customer relationship, we identified five transitions involving a conflict-compromise situation. In the beginning the customer relationship consisted of equipment sales conducted by agents of each subunit, which meant that each subunit had substantial autonomy to act with the customer. In the first transition the relationship shifted from equipment sales through agents to a relationship coordinated through key account manager. The conflict aroused as each subunits’ agent relationships were eventually terminated and relationship coordinated through headquarter level key account manager. The decision came from corporate level and affected all subunits. We name this as the strategy of mandating customer interface. In the second transition the single unit and single project relationship changes as multiple unit relationship and simultaneously from one customer production unit to another. As multiple units become involved the conflict arises from different ways of operations. “I was able to get in to our [subunits] negotiation teams. Some were willing to take me in, others managed it so cunningly that I was not involved; we are not in matrix organization or so disciplined. So I had to sell myself internally which is understandable. Why would for example Canadian or German team want me to come with? What do I bring into that?” (CustA KAM) 12 For example, after Project I with Subunit I, another project negotiation between Customer A and Subunit III failed. CustA KAM explained that the sale was brought to them and that the failure had a negative effect on the relationship. According to him, the failure was not caused by the price; rather, it stemmed from the lack of understanding on the Supplier Company’s side. This way of behaving is focused on the selling of oneself as internal trustee. Another conflict arouse when negotiating Project II. When Subunit II negotiated with Customer A’s business Unit Zambia with respect to Project II, the negotiations did not progress after a certain point, and the customer called the Indian manager from Project I to negotiate with CustA KAM because of their previous connection in Project I. The incident both showed the existing gaps in the internal networks as well as the need for stabilizing the relationship and creating common practices through personally mediated problem solving. The same Project II illustrates the strategy of project based resource combining as the Subunits I and II worked closely together hiring the resources needed from each other to avoid conflict in the internal network in relation to representation towards the customer. The negotiations for Project I and II were difficult and individuals and units involved described the Customer A as challenging. With both projects the negotiations, execution, payment and lack of clarity created the third transition when Supplier Company sifted from challenging project negotiations into the era of more continuous projects. For example, the relationship between Customer A and Subunit I was built through Project I, and the challenges in that project lead Subunit I to conclude that the relationship with Customer A is less important to them. “In [Sub I], many key individuals felt that they had burned their wings. It was like poorly aimed shots in hunting season; the poor bird didn’t die but got hurt badly -- this is the metaphor that comes to mind. Still the same persons have done business or tried to do business with [Customer A], but that project strained the relationships on a personal level; many decent engineers felt that they got criticized without reason and too few compliments.” (CustA KAM) Subunit I supports other units in their relationship with Customer A, even though Subunit I feels that the relationship is not beneficial for them. The compromising strategy has originated from the need to stabilize and maintain the relationship. Actions of Subunit I were thus directed towards the customer relationship and as a strategy showed collective responsibility taking. The challenges in project negotiations and resistance towards the customer have led also to another outcome. The Supplier Company has learned how customer operates and the correct ways to operate with the customer. In addition, units are more responsive towards organizationally coordinated relationship. The fourth transition occurred when first Customer A wanted to develop the relationship into a strategic partnership with Subunit III. This development was interrupted when Project II run into problems. The relationship between Customer A and the Supplier Company grew tense after these problems, which also affected the actions of Subunit III. According to Subunit III, the customer was not satisfied with the technical support that the Supplier Company was giving, 13 but Subunit II was viewing the situation differently  there were differences in opinions, which, according to the head of proposal management at Subunit III, “left a bit of a bad taste.” Subunit III feels that it was blamed for something that was not their fault. “I was in a meeting, and [the top manager] was shouting at me for things for which we were not responsible. He told me, ‘you’re in the [Supplier Company’s] management group. You have to tell that your people.’ So they were not happy about that.” (Vice President, Sub III) According to CustA KAM, the project loss occurred because the top management of Customer A momentarily lost trust in the Supplier Company. Customer A had difficulties understanding why the attitude of the Supplier Company was so distant with respect to their massive problems. Eventually the customer relationship shifted from the stage of emerging strategic cooperation through loss of sales eventually toward recovering the relationship. This was seen as an important turning point in the relationship. Behind the shift we see intense sharing of experiences for corporate level narrative in relation to the customer. The problems in Project II harmed the relationship from both sides. The important transition occurred when the attitude towards customer inside Supplier Company shifted from disaffection towards collective understanding of the importance of the customer. From Supplier Company’s side, different views on why the Project II ran into problems meant that the situation was not dealt with sufficiently, including both technical problem solving and relationship management. CustA KAM in charge of the overall customer relationship felt that the Supplier Company did not react to customer needs sufficiently quickly. CustA KAM feels that Subunit II act correctly in terms of engineering, but the management of the overall customer relationship did not succeed. The representative of Subunit II describes Project II as highly technical and feels that the customer lacked sufficient expertise in plant operations. The belated launch of the project was caused, among other reasons, by the late deliveries of equipment that the customer had ordered. Because of these delays there were an insufficient number of personnel to supervise and educate the customer. The subunit representatives also felt that the customer did not listen to them on how things should be done and that advices were accepted only when problems already existed. The need for creating shared understanding arouse when it was seen how closely connected different customer’s units are and how one problem also affects the operations of others. The transition included a lot of resistance but eventually led to shared feeling of importance of the customer. “I think I used the metaphor of sitting on the same bench and looking in the same direction. After April, both organizations finally realized that, hey, this is a shared problem, and only by working together can we make this right.” (CustA KAM) To conclude, the MNC internal network evolves as the customer relationship is developed. Formal structures may stay stable in short run, but informal relationships related to the customer relationship change as well as importance of these relationships as the importance of the customer to different supplier units varies in time and vice versa. Eventually this will also lead to changes in organizational structures, e.g. establishing a local unit to India to create local presence that reflects 14 the strategy of mandating customer interface. The actors involved in compromising differ and can be individuals, units or corporate actors. Also the level of compromise differs as it can be done within the MNC internal network or on the customer relationship. In any case, these compromises in MNC internal network are needed to develop and manage customer relationships. Table 2 summarizes the strategies for political compromising in organizing the MNC internal networks to manage its global customers. “Take in Table 2” 4. CONCLUDING REFLECTIONS Our aim was to examine the relational dynamics in the MNCs as the interplay of organizing within internal networks and managing of the global customer relationships. We argued that the MNCs-asnetworks view, combined with the research on supplier-customer relationship research, is appropriate for studying the orchestration processes in MNCs; the core activity is the creation of shared views. We suggest political compromising as the crucial boundary work and social practice at the structural and behavioral interfaces of the MNCs through which the challenges in customer relationship management can be solved. Political compromising manifests as concrete ways of behaving, named as behavioral strategies, activated in particular in the transition periods of the internal networks. Fundamentally, political compromising is a productive force of orchestration creating places for new thinking, convincing others of possible solutions, narrating the value of contradictions for the further development and telling stories of the common past to strengthen the shared social spaces. Rather than showing that there are certain beneficial outcomes of the political compromising, the emphasis was placed on the transforming and moving of the complex situations as orchestrated settings. Inspired by our observations, we propose three directions into which research on orchestration of network MNCs might develop. Many theories on MNCs are based on the descriptions of activities of an efficient bureaucracy (cf. Meyer et al., 2011). We have a strong theoretical and practical legacy to see and apply the image of a bureaucratic organization with clear responsibilities, structures and positions of power (cf. Hodgson, 2004). However, we stand for usefulness of flexible organizational and organizing forms in realization of MNC activities in relation to their global customers. MNCs, are, and should nowadays be, rather loosely coupled mycorrhizaes (Engeström, 2007), in which the objects of the organizational work are easily redefined, constantly escaping, and loosely associated webs of tasks. The key activities of orchestration in MNCs might best be directed towards the so called non-places (Augé & Howe, 2008), i.e. spaces of transition and movement that are part of the organizational work but do not happen under the official organizational structure. These might be the most typical of the spaces for political compromising in MNCs. There is also a growing body of research that sees organizations to be constructed in everyday work by people (e.g. Lee & Williams, 2007; Santos & Eisenhardt, 2009). MNCs could be conceptualized as behavioral objects of organizational work that develops the MNC level operations. By analyzing the everyday practices within MNCs we would be able to capture the dynamism and processuality inherent in the activities of MNCs (cf. Feldman & Orlikowski, 2011). Actualization of 15 organizational work can be investigated only if research takes place close to the practice itself. We should search for possibilities to observe and record the practice and allow for discussing and reflecting on it. Acknowledgement and understanding of the everyday practice at the individual and unit levels is a key to orchestrating MNCs at corporate level. Finally, network MNCs are about knowledge. But they should not be primarily about superior knowledge as an outcome of MNC activity but about knowledge as learning to renew itself (cf. e.g. Williams & Lee, 2009). Knowledge as learning is a process in which experimentation, experience, reflection and interpretation are in interaction. 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Cheltenham: Edward Elgar. 21 Organizing Managing Behavioral level Political compromises Political compromises Political compromises Internal networks Customer relationships • Formal structures • Informal relationships • Inter-organizational relationships • Discontinuous projects Structural level Fig. 1 Conceptual framework of the study. 22 SUPPLIER COMPANY CUSTOMER A SUPPLIER COMPANY 1 2 HQ HQ HQ HQ CEO CustA KAM Ext. agent Ext. agent Ext. agent SUB I CEO Lower org. level contacts Project I SUB II UNIT B (Zambia) UNIT B (Zambia) SUB III Ext. agent SUPPLIER COMPANY 3 2nd in command UNIT A (India) Pres., SubI Ext. agent SUB III Ext. agent SUB I UNIT A (India) Ext. agent Ext. agent Ext. agent SUB II CUSTOMER A SUPPLIER COMPANY CUSTOMER A 4 HQ HQ CEO CustA KAM CUSTOMER A HQ HQ CEO CustA KAM 2nd in command 2nd in command Toward strategic relationship Internal marketing SUB I SUB I UNIT A (India) FIN UNIT A (India) CEO AFR New unit to India SUB II UNIT B (Zambia) SUB II FIN1 FIN2 Project manager Project II SUB III SUB III Pres., GER GERSubIII Head of prop. mgt SUPPLIER COMPANY 5 UNIT B (Zambia) CEO CUSTOMER A SUPPLIER COMPANY 6 HQ HQ CEO IND CUSTOMER A HQ HQ CEO CustA KAM CustA KAM 2nd in command SUB I UNIT A (India) SUB I UNIT A (India) UNIT B (Zambia) SUB II UNIT B (Zambia) 2nd in command AFR SUB II FIN2 Rep.of SubII Problems in Project II FIN 2 Rep. of SubII CEO Project manager CEO Project manager Loss of sale SUB III Pres., GERSubIII Head of prop. mgt SUB III Headquarters Geographical/ technological unit Subunit Individual n Active relationship in the event Existing relationship between units i Fig. 2 Change of Supplier Company’s internal network in relation to Customer A. 23 Table 1. Relationship development with Customer A. Events in Importance Timing relationship 1. Equipment sales Start of the relationship, using agents Beginning in the 1970s 2. Activating the Defining the current stage and Early 2003 relationship possibilities of the relationship, creating contacts Project I Growing market share, closer 2003 relationship, contact with top management, role of CustA KAM is strengthened 3. Internal Creating unified ways of actions and 2004 onwards marketing one point of contact to the customer Project II Having a wider relationship to the customer 2006 4. New unit to India Toward strategic relationship 5. Problems in Project II Creating a local presence 2007 Customer’s desire to have a closer relationship Customer plant suffered downtime, which affected production numbers Fall 2008 Loss of sale 6. Improving relations Sub III loses a sale because of problems in Project II with Sub II Working together and building the trust that was lost December 2008 Spring 2009 Summer 2009 Organizational units involved All HQ (CustA KAM) Sub I Finland HQ (CustA KAM) HQ (CustA KAM) Sub I Finland Sub II Finland, Sub III Germany Sub II Finland (unit 2) Sub I Southern Africa HQ (CustA KAM) HQ Local office in India HQ (CustA KAM) Sub III Germany Sub II Finland Sub I Southern Africa HQ Sub III Germany HQ (CustA KAM) Sub II Finland Sub III Germany HQ (CustA KAM) Table 2. Behavioral strategies for political compromising. Behavioral strategy Personally mediated problem solving Collective responsibility taking Mandating customer interface Selling oneself as internal trustee Project-based resource combining Sharing experiences for corporate narrative Actor Individual Unit Corporate Individual Unit Corporate Level of compromising Relationship Relationship Relationship Internal network Internal network Internal network 24