How Boundary Spanners Create Profits From Conflict

Conflict is considered a normal consequence of organizing and managing across national borders

Published: Dec 23, 2011

Accelerating globalization pressures, rapidly developing emerging markets, and technological advances require multinational corporations (MNCs) to constantly adjust both their strategies and organizational structures. These organizational adjustment processes and the increasing complexity of intra-organizational coordination frequently create conflict between MNC headquarters and their foreign subsidiaries.

Conflicts can be triggered by a multitude of factors at headquarters, the subsidiary, and the interpersonal managerial level including: differences in market and customer preferences, global and local competitors’ strategies, host-country and home-country regulatory requirements, asymmetries between local and global industry dynamics, managerial self-interests, psychosocial and cultural characteristics of managers at both headquarters and the subsidiaries, and many more.

Thunderbird Professor Andreas Schotter
Thunderbird Professor Andreas Schotter
In addition, growing levels of subsidiary and managerial self-sufficiency reduces subsidiary dependency on headquarters. Hence, more confrontational organizational-politicking becomes a feasible option for subsidiary manager when negotiating with headquarters. Despite increasing conflict potential and frequency, conflict today is not necessarily regarded as dysfunctional or the result of inefficient global integration.

Instead, conflict is considered a normal consequence of organizing and managing across national borders. The greater challenge then becomes how to know if a conflict is good or bad. Boundary spanners provide solutions to tackle this challenge.

What is boundary spanning?
Boundary spanning enables expertise sharing by linking internal and external groups or organizations from different hierarchical or functional levels that would otherwise be more inward looking. Hence boundary spanners are a means of increasing linkage economies.

The boundary spanning function is not a formal position or an explicitly defined task. The boundary spanning ability is intrinsically attached to the individual and his or her psychosocial and professional characteristics.

There are five core characteristics that all boundary spanners have in common, including high levels of what we call bipolar context understanding, high levels of professional expertise, strong and wide reaching social ties, awareness of the need for boundary spanning, and a global mindset.

The most critical tasks of boundary spanners in the MNC context are the identification of fringe business opportunities, the bidirectional transfer of knowledge, the management of functional intra-organizational interfaces between different subunits within the MNC, and the management of external relationship between the MNC and different stakeholder groups, including customers, suppliers, and other stakeholders.

Boundary spanners achieve these tasks through sensing of opportunities and threats (especially at the fringes of contextual environments, through bi-directional converting and translating of different contexts, and through multi-directional trust building. Figure 1 below describes the characteristics, tasks and functions of boundary spanners.

Who are boundary spanners?
Research and development managers, sales representatives, human resource executives, and IT professionals are examples of professionals who have explicit boundary spanning roles to fulfill. Boundary spanners become mission critical in situations that have the potential for perception gaps. In order for boundary spanners to be effective, they need the ability to identify and properly understand these perception gaps and to influence HQ–subsidiary conflict situations toward high levels of organizational effectiveness.

Therefore, boundary spanners need critical organizational knowledge at both headquarters and the subsidiary. In addition, a certain level of decision-making authority is required to influence the conflict negotiation process.

An important insight from our research that included more than 130 MNC HQ-Subsidiary Dyads was that boundary spanners draw from personal power instead of functional power to reduce tension and to build transnational trust. Lack of trust increases the likelihood of self-serving subsidiary behavior, including opportunism, rent seeking, and the engagement in drawn-out and costly conflict resolution processes.

Lack of trust also reduces voluntary support from headquarters members for subsidiaries. Boundary spanners facilitate multi-directional information flows in order to alleviate information asymmetry and perception gaps. Boundary spanners also interpret and guide critical situations toward higher levels of organizational effectiveness, especially in the absence of important information or in cases of high levels of across context ambiguity.

Goal incompatibility between headquarters and foreign subsidiaries is sometimes unavoidable. Our research revealed that despite their subordinate hierarchical positions, foreign subsidiaries regularly engage in conflict with their respective headquarters.

HQ–subsidiary conflicts can be characterized as negotiation processes between the two, and the outcome of conflict depends on the functional use of both organizational power and individual managerial power. In the absence of boundary spanners, positive conflict outcomes for the MNC as a whole were decreased by as much as 70 percent.

Interestingly, those managers that we identified as boundary spanners had been with their respective MNCs for at least 12 years and with few exceptions assumed the subsidiary general manager position. We observed that those managers who had substantial headquarters and subsidiary experience were able to appreciate the perspectives of both sides more than other managers who lacked similar dual experiences.

Boundary spanners are less driven by financial rewards. Thus, traditional controls are ineffective in aligning them with headquarters. Instead, their motivation is intrinsic to their individual personalities and prior professional career choices.

Boundary spanners in MNCs are most effective as subsidiary heads. Furthermore, the boundary spanning ability can be formalized only partly, but some MNCs are able to foster boundary spanners better than others. In some MNCs there is a mandate given to expatriate managers to actively reduce divergence of interests of foreign subsidiaries.

In other MNCs the dual interest coordination task appears more random and depends on the right person being in the right place at the right time. However, it needs to be pointed out that in our sample, expatriates did not represent the majority of boundary spanners. This is especially interesting when considering the positively skewed distribution of expatriates that occupy top management positions in foreign subsidiaries in general.

We would like to point out that in none of the cases did we observe a formal position or a job description that would specifically include the boundary spanning responsibility. This was surprising, especially considering that some of our sample firms invested a considerable amount of resources in managing the headquarters-subsidiary interfaces. Most of these efforts appeared to be aimed at reducing the ambiguity of boundaries (which is often boundary enforcing), rather than facilitating the coordination across boundaries in situations with more shared but less defined responsibilities.

We conclude that in order to become a boundary spanner individuals need to become either members of both communities of practice (e.g. headquarters and subsidiary), or at least they need to be successful in creating significant levels of trust on both sides of the dyad in order to eliminate the likelihood for dysfunctional conflict.

MNCs should create environments where individuals that possess boundary spanning potential thrive. Boundary spanners are deeply embedded in both a specific local context and the MNC as a whole. If they have short-term career aspirations, their decision-making could become biased through self-interest, which potentially could reduce their boundary spanning ability.

In addition, MNCs too often make the well-intended but critical mistake of promoting boundary spanners up to an HQ-position, away from their most effective location, the subsidiary. While boundary spanners can also reside at the HQ-level, they tend to be less effective there, as they must manage here multiple HQ–subsidiary dyads simultaneously without the close contextual embeddedness in the local contexts. This means that MNCs might have to reconsider common hierarchy-linked career paths and performance rewards in order to most effectively manage the global–local quandary.

The global–local relationship is dynamic, and conflict is indeed part of ongoing organizational and strategic adjustment processes. Managing these dynamics within MNCs should not be regarded as a dilemma, and global integration efficiency and local responsiveness effectiveness are equal sources of competitive advantage for MNCs.

Those MNCs that achieve high levels of both are among the best performing. Unfortunately, global integration and local responsiveness also represent two opposing forces. Therefore, the dynamic relationship of the two remains highly complex. In the end, MNC headquarters have to be prepared to manage the implication of HQ–subsidiary misalignment at times when global and local orientations collide, and overall organizational effectiveness is threatened.

Boundary spanners are the most effective tools for handling these dynamics. Managing the HQ–subsidiary relationship will therefore always be both an organizational process and an individual managerial task.

Andreas Schotter, Ph.D., is a professor of strategic management at Thunderbird School of Global Management in Glendale, Arizona. The article is based on ongoing research that he has conducted with several multinational companies for more than six years. The article builds on research that Dr. Schotter conducted with Dr. P.W. (Paul) Beamish, the Richard Ivey School of Business Director, Ivey Publishing Director, Asian Management Institute Director, and Engaging Emerging Markets Research Centre Donald L. Triggs Chair in International Business Canada Research Chair in International Management Fellow of the Royal Society of Canada. Before embarking on an academic career, Dr. Schotter was a senior executive with several multinational corporations in the automotive, industrial equipment, and consumer goods industries. He has lived and worked in Europe, Asia, and Canad

[This article has been reproduced with permission from Knowledge Network, the online thought leadership platform for Thunderbird School of Global Management]

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