Managing the tensions in integrating global organisations: The role of performance management systems

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Abstract

The paper explores the role of performance management systems (PMSs) in integrating global organisations (GOs). It investigates the ways in which the diverse entities that comprise a GO can be co-ordinated and integrated to achieve a global unity of effort, while leaving space for local adaptation, differentiation and flexibility. The business literature on GOs highlights several tensions that characterise processes of integration: vertical vs. lateral relations; standardization vs. differentiation of practices; centralization vs. decentralization of decision making. Interpreting PMS as a series of practices that carry organisational knowledge and rationales across organisations, the paper relies on the case of Nestlé Waters to study how PMS can be used to manage the tensions involved in integrating GOs. On the one hand, PMS can be used to re-shape existing boundaries by supporting the development of new organisational arrangements, where standardization and centralization around shared strategies are achieved. On the other hand, PMS can become trapped by the contradictory forces emanating from multiple centres of decision making. Importantly, when attempting to bind together distant entities in the same “organisational space”, informal control mechanisms may become relevant, but they have the capacity to both reinforce and damage the potential of PMS in managing the tensions involved in integrating GOs.

Introduction

The last 20 years have witnessed a massive transformation in global organisations (GOs), as market pressures have forced them to re-define their strategies, structures and processes (Govindarajan and Gupta, 2000, Ghoshal and Bartlett, 1996). Globalization has led to an increase in mergers and acquisitions, and has encouraged GOs to seek competitive advantage through greater standardization and co-ordination, but at the same time there continues to be a need for flexibility and local responsiveness (Ezzamel et al., 1999). In this market environment, the challenge facing GOs is the ongoing alignment of local business processes with global corporate strategies (Devinney et al., 2000). Researchers have identified various tensions that can emerge as GOs seek to combine standardization and co-ordination with local responsiveness and flexibility (see Roth and Kostova, 2003). But far from representing paradoxes that needs to be resolved, these tensions are implicated in the very nature of the GO, and have to be managed through appropriate mechanisms.1

The objective of this paper is to explore the role of performance management systems (PMSs) in managing these tensions as GOs seek greater levels of integration. In this context, PMS are sets of practices that support processes of strategic decision making, planning and control. Within these processes, PMS provide managers with a common language informed by accounting and non-accounting measures and information that are spread across the different parts of the organisation. In addition, we define integration as the effective collaboration, among diverse organisational entities, which is necessary to achieve a global unity of effort, while at the same time leaving space for local adaptation, differentiation and flexibility. Although the term ‘integration’ has often been used as the opposite of ‘differentiation’ (see Lawrence and Lorsch, 1967; see also Devinney et al., 2000, Malnight, 2001), in this paper we rely upon a broader notion of integration, as the outcome of a process through which various tensions are managed (see Section 2). In this context, integration does not simply imply homogenisation; rather it involves managing local adaptation and the preservation of peculiarities, through appropriate forms of co-ordination and standardization.

Although issues of integration and co-ordination have been widely discussed in the management literature (see for example, Govindarajan and Gupta, 2000, Ghoshal and Bartlett, 1990), the role played by PMS within processes of integration deserves further investigation (see Quattrone and Hopper, 2005, Busco et al., 2006b, Mouritsen, 1995). By portraying PMS as a set of practices that can act as carriers of organisational knowledge (Busco et al., 2006a, Burns and Scapens, 2000), we explore the role played by PMS in managing the tensions which can arise in the integration of GOs.

This paper combines theoretical insights from the literature on PMS and GOs, with the findings of a case study of the Water Division of Nestlé. Over the last 10 years Nestlé Waters (NW) has undergone a major process of change in order to achieve greater world-wide co-ordination, and has introduced a new PMS with common accounting practices to integrate its international brand strategies. We will use the case of NW to explore the ways in which PMS can contribute to the integration of GOs by managing the tensions that can arise in seeking to combine global standardization and co-ordination with local responsiveness and flexibility. The rest of the paper has the following structure. Section 2 reviews the international business literature on GOs to identify issues implicated in processes of integration. Section 3 then looks to the management accounting literature to examine the role of PMS in integrating GOs. Section 4 introduces the NW case and describes the new PMS which has been a major feature of its recent organisational re-structuring. Next, Section 5 combines the theoretical perspectives and empirical insights to discuss the tensions which emerged within NW, as it sought to integrate its global operations, and the role played by PMS in managing them. Finally, Section 6 summarises the main contributions of the paper, highlights some limitations of the study, and identifies opportunities for further research.

Section snippets

Integrating GOs: some unresolved issues

Generally, GOs are defined as groups of wholly or partially owned affiliates located in different countries (see Kostova and Roth, 2002, Chang and Taylor, 1999, Kogut and Kulatilaka, 1994). By their very nature, GOs are characterised by substantial complexity and heterogeneity, due to the multiplicity of their environments, the internal diversity of the various affiliates, and the different backgrounds of their employees. Roth and Kostova (2003) classified this heterogeneity as contextual,

The role of PMS within processes of integration

The roles played by PMS within modern organisations have been widely addressed in the management accounting literature. They include such functional roles as monitoring performance, identifying areas in need of attention, supporting strategic decision-making, enabling management by objectives, enhancing motivation, improving communication, facilitating scorekeeping, supporting learning processes, strengthening accountability and securing legitimacy (see, among the others, Henri, 2006, Atkinson

Integrating GOs: the case of Nestlé Waters

In this and the following sections, we will combine the insights from the literature reviewed in the previous two sections with our study of recent organisational and accounting changes which have been made in NW in an attempt to secure greater global integration. The study will explore the way in which a new PMS is involved in the mechanisms through which vertical and lateral relations, convergence and differentiation, centralization and decentralization are being managed. While, on the one

The role of PMS in integrating Nestlé Waters

In the previous section we described the strategy of integration implemented by NW. It was the need to co-ordinate activities in diverse local markets that led NW to re-define its business, not just by geographical areas, but also by product categories (i.e., international brands of mineral water). The aim was to strengthen co-ordination around international products across the different countries. The new strategy shaped the design of the formal PMS and led to the implementation of the ETE P&L

Conclusions

This paper explores the role of PMS within processes of integrating GOs by examining the main tensions that inform such processes. We relied on the relevant literature to identify vertical vs. lateral relations, convergence vs. differentiation of practices and centralization vs. decentralization of decision making as the crucial tensions that have to be managed in order to achieve the benefits of global co-ordination and the advantages of local responsiveness. Importantly, rather than

Acknowledgments

The authors acknowledge the support of the Institute of Chartered Accountants of England and Wales through the funding of a project titled “The role of performance measurement systems within global organisations” (project reference: 5-415). Additionally, the authors recognise and appreciate the beneficial observations and constructive criticisms provided on earlier versions of the paper by the participants at the 1st Management Control Association – ENROAC meeting, Antwerp, 8th April 2005, and

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