The role of procedural justice for global strategy and subsidiary initiatives

Abstract

Research Summary The global strategy literature highlights the role of headquarters (HQ) in realizing global integration benefits while enabling independent subsidiary strategic initiatives. We construct a game‐theoretic model of the interaction between HQ and subsidiaries, and, building on procedural justice theory, we analyze the motivational costs that can result from the anticipation or realization of HQ intervention in subsidiary initiatives. We also analyze the implications for MNC‐level value creation when HQ managers, fearing subsidiary managers’ emotion‐based reactions, refrain from intervening. We derive a number of counter‐intuitive results, for example, that good HQ behavior may involve forgoing opportunities for value creation, and that procedural justice systems may sometimes be counterproductive. Managerial Summary Headquarters (HQ) in multinational corporations are required to balance global integration and local autonomy within the organization. This balancing act sometimes requires HQ to intervene in subsidiary matters and to overrule the subunits’ decisions. While an intervention might create integration advantages, it may also have a negative impact on the motivation of subsidiary managers, who might feel that their effort and their decisions are overruled. We focus on such motivational issues and investigate how fair decision‐making processes applied by the HQ influence subsidiaries’ entrepreneurial behavior and their reactions to the overruling. Our findings show that, under specific conditions, HQ need to forgo value‐creating interventions, and that a strong focus on a procedural justice culture within the firm can be detrimental.

How corporate headquarters add value in the digital age

“…Indeed, CHQs that possess extensive knowledge about their subunits are in a better position to determine which activities to delegate as well as when and how to intervene in subunit matters (Campbell et al 2011;Jacobides 2007;Sengul and Gimeno 2013). In some cases, adding value would even mean restraining CHQs from involvement in subunit matters (Asmussen et al 2019). Eventually, these flexible organizational structures could help empower subunit managers who will still possess unique tacit and contextualized knowledge about their activities.…”

“…For instance, CHQ managers could use advanced analytics to evaluate the extent to which particular processes must be adapted to the various subunits. Additionally, with more accurate data and information about their subunits, CHQ managers can become more knowledgeable about when to involve themselves in subunit matters and overrule some of the decisions made in the subunits (Ciabuschi et al 2011b;Asmussen et al 2019). In this regard, one CHQ manager from a consumer goods company stated that "thanks to digital tools and systems, there will be more aspects where headquarters have exactly the same insight into facts on the ground as local management, enabling a quicker and more educated dialogue with local operations."…”

What's in a Name? How Senior Managers use Name‐Based Heuristics to Allocate Financial Resources in Multinational Corporations

“…The diversity in knowledge, culture, and geography that enables multinational firms to reap returns on innovation and develop innovative capabilities is indeed also what complicates the governance of entrepreneurial processes (Asmussen et al, 2019; Birkinshaw, 1997; Birkinshaw et al, 1998; Meyer et al, 2011). When deciding which initiatives to support, senior managers at headquarters face uncertainty regarding the context of the initiatives (Mahnke et al, 2007).…”

“…From the perspective of senior headquarters managers, however, allocating resources to entrepreneurial projects in an optimal way is far from trivial as there are many uncertainties (Busenbark et al, 2017;Dellestrand and Kappen, 2012;Schmid et al, 2014). 1 The diversity in knowledge, culture, and geography that enables multinational firms to reap returns on innovation and develop innovative capabilities is indeed also what complicates the governance of entrepreneurial processes (Asmussen et al, 2019;Birkinshaw, 1997;Birkinshaw et al, 1998;Meyer et al, 2011). When deciding which initiatives to support, senior managers at headquarters face uncertainty regarding the context of the initiatives (Mahnke et al, 2007).…”

Viewing global strategy through a microfoundations lens

“…Thus a complete understanding of global strategy is inherently multilevel in nature, involving intricate relations between what goes on at different levels, that is, here the macro (country or global environment), meso (firm), and micro (manager and decision‐maker) levels. For example, to understand how a procedural justice system works inside a MNC may require probing managerial decisions, the MNC's strategies and goals, as well as country laws and culture (Asmussen, Foss, & Nell, ). Given such complexity, is any level more privileged than the others?…”