Cooperation and Autonomy: Managing Interrelationships docx

373
CHAPTER OUTLINE
CASE 1 The Hewlett-Packard Company
CASE 2 Hitachi Corporation of Japan
Introduction
Cooperation and Autonomy within
the Organization
Distinctive Competence
Organizational Structure
Off-Line Coordinators
Staffing
Reward and Performance Measurement
Systems
Shared Values and Corporate Culture
Achieving Strategic Alignment
The Nature of Interrelationships
Varying Emphasis on Cooperation
Shifting the Balance between
Cooperation and Autonomy
Factors Promoting Closer Cooperation
Change in Product Usage
Technological Convergence
The Rise of Multipoint Competition
Reduced Emphasis on Acquisitions
Increased Global Expansion Activity
Factors Promoting Greater Autonomy
Increased Acquisition Activity
Need to Avert Creeping Bureaucratization
Environmental Turbulence
Technology Fusion

The Problem of Internal Resistance
Resistance to Greater Cooperation
Resistance to Greater Autonomy
Dealing with Resistance to Change
Ethical Dimension
Fine-Tuning a Delicate Balance
Summary
Discussion and Exercise Questions
Cooperation and Autonomy:
Managing Interrelationships
WHAT YOU WILL LEARN
•
The importance of interrelationships
in sustaining competitive advantage
•
The need to balance cooperation and
autonomy in supporting
interrelationships
•
Factors that promote the need for
greater cooperation
•
Factors that promote the need for
greater autonomy
•
The concept of “technology fusion”
•
Sources of internal resistance to
organizational change
374 PART 4 Sustaining and Renewing Advantage

The Hewlett-Packard Company was founded in the 1930s to
manufacture sophisticated electronic test and measurement
instruments such as oscilloscopes (used to visually display elec-
tronic wave lengths), electronic counters (used to measure the
frequencies of emissions broadcast by radio stations), and
audio-oscillators (used to control the sound tracking in motion
pictures). Engineers and scientists in the radio, television, and
defense industries use these products daily. Now, Hewlett-
Packard (or H-P) is a diversified technology company that is a
leader in designing and producing a broad array of sophisti-
cated electronics-based products and services, including per-
sonal computers, servers, electronic test equipment, laser and
ink-jet printers, specialized semiconductors, and even imaging
and word-processing software. As of 1997, H-P’s revenues
were close to $43 billion (profits of $2.2 billion).
Life cycles for many of H-P’s products are short because of
rapid technological change. Competitive success requires a
high rate of technological innovation and fast product develop-
ment to accelerate time-to-market. Hewlett-Packard’s founders
believed the best way to encourage innovation was giving sub-
units freedom to try new approaches. They devised a highly
autonomous divisional system defined by (1) small units (most
included fewer than 1,000 employees, even after the company
had grown to substantial size); (2) extensive decentralization
(each division conducted its own product development, manu-
facturing, and marketing); (3) small corporate staffs (so as not
to interfere with divisional autonomy); and (4) delegation of
major decisions to divisions.
This arrangement served Hewlett-Packard well for many
years. However, the company was eventually forced to modify

it in favor of encouraging more cooperation among subunits. Its
growing involvement in computers was the chief development
leading to this change. By the 1990s, nearly half of Hewlett-
Packard’s forty divisions produced computers or computer-
related products. Many opportunities for cooperation among
divisions existed. For example, divisions could achieve product
compatibility, conduct joint marketing efforts, and share pro-
duction. The company’s highly autonomous organization
offered few incentives to facilitate joint efforts.
Developments in the company’s test instruments business
also increased the need for cooperation. By 1980, customers
were no longer using electronic test instruments as independent,
stand-alone items. Instead, they were incorporating them into
larger computer-controlled and integrated systems. As a result,
making test equipment and computers work together spurred
the need for cooperation and coordination divisional activities.
Additionally, during the mid-1980s, Hewlett-Packard entered
the related field of engineering workstations and RISC-based
microprocessors. These two areas require tight linkages
between functional and divisional activities.
Hewlett-Packard’s response to these developments was to
modify its organizational style to encourage greater divisional
cooperation. It involved the following changes to the company’s
formal structure:
•
Consolidating several computer subunits exhibiting high
potential to build interrelationships
•
Grouping all computer units into a single large “subgroup”
•

Forming a new unit to develop software for all Hewlett-
Packard computers
Hewlett-Packard also instituted a number of other changes
not directly related to formal structure:
•
Program managers were assigned to direct projects
needing cooperation from several divisions.
•
Task forces were created to manage initiatives involving
more than one division.
•
Strategic plans were developed outside of specific
divisions for multi-unit programs.
Not all Hewlett-Packard employees were pleased with these
changes. Divisional managers viewed them as intrusions on
their cherished independence. Many senior executives feared
that changes would undermine H-P’s innovative spirit, which
had been a long-standing competitive advantage. Employees
exhibited considerable ambivalence about the move to greater
interdivisional cooperation. Many aspects of the company’s tra-
ditional highly autonomous organization were firmly in place.
The reduction in autonomy created substantial tension through-
out the company. Divisions now had to battle corporate man-
agement for permission to introduce new products. Also, more
decisions were made in committees, which often resulted in no
decision or selection of the weakest of all alternatives.
While encouraging interrelationships, these changes created
a new set of problems. Several of H-P’s product introductions
during the early 1990s were overpriced. Products could not
compete with those of more nimble rivals, including Sun

Microsystems and even IBM. The rise of new distribution chan-
nels that sell personal computers directly to the consumer made
H-P’s centralized price-setting policies obsolete overnight. The
use of product development committees slowed response to
(Case 1) The Hewlett-Packard Company
1
CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 375
changing markets. The evolution of new technologies such as
RISC threatened to render obsolete many of H-P’s newest prod-
ucts. In short, the move toward greater coordination made H-P
more bureaucratic at the same time that emerging technologies,
evolving distribution channels, Internet on-line ordering sys-
tems, and new competitors (Intel, Sun Microsystems) were
eroding H-P’s market position.
Now, Hewlett-Packard is in the midst of returning to its
entrepreneurial roots. In the process, many of the steps taken
earlier to promote interdivisional cooperation are being
reversed. These changes are enabling H-P’s various business
units to accelerate the pace of new product development to out-
maneuver and outgun Japanese rivals in such products as laser
printers, color printers, electronic instruments, calculators, and
office equipment. In the past two years, H-P has introduced a
new line of hand-held computers to enter the market for per-
sonal digital assistants (PDAs). It has also regained market
share in sophisticated workstations from Digital Equipment
and is currently gunning for Sun Microsystems in specialized
UNIX-based and even Java-based applications. Its worksta-
tions use the latest RISC-based microprocessor technology to
help scientists and designers conceive and test new products.
Moreover, H-P has become a growing force in the personal

computer market; the company has become one of the top five
PC sellers. H-P has further strengthened its position in laser
printers, with faster introduction of its extremely popular and
versatile Laserjet series. Equally important, H-P remains a
world leader in the field of ink-jet printer technology, a prod-
uct popular in Europe and for industrial applications. Now,
Hewlett-Packard is rapidly gaining strength and stature as a
leading designer of customized computer chips used in various
commercial applications. For example, Hewlett-Packard’s
microcontroller chips are used in many laser printers and
instruments produced by its Japanese rivals and alliance part-
ners, including fast-moving Canon. Canon and Hewlett-
Packard have long collaborated in producing the “engines” that
are the mechanical workhorses of laser printers. Hewlett-
Packard is even teaming up with rivals IBM and Sun Microsys-
tems to develop fiber-optic networks that lay the foundation for
taking advantage of the convergence between telecommunica-
tions and computer networks. H-P has also begun working
with software giant Microsoft to combine new technologies
that are required to build set-top boxes and control devices that
will operate tomorrow’s interactive television systems. These
H-P-led ventures promise to accelerate video, data, and voice
communications along the Internet between users of telecom-
munications and consumer electronic applications. Many of
these network and Internet-related businesses are beginning to
replace H-P’s traditional measuring instruments as the “flag-
ship” products of the company for the next millennium.
Hitachi is one of Japan’s largest industrial companies. It manu-
factures everything from electrical-generating equipment to
high-speed trains, robotics, semiconductors, and consumer

electronics. Hitachi has been called Japan’s “General Electric”
because of its breadth of products, size, innovation, and long
history. Since its founding in 1910, Hitachi has become a $63
billion company with over 750 subsidiaries and 300,000
employees. Hitachi is an excellent model of Japanese corporate
management. Its tightly interwoven diversification strategy,
interactive management processes, interunit cooperation, and
technology are considered first rate by many management ana-
lysts. Hitachi’s diversification is based on core technologies
from which all of its key business units draw. These core tech-
nologies form the basis for new products that often require cut-
ting-edge research and development in both basic and applied
sciences. Despite recent economic difficulties in Japan and
Southeast Asia, Hitachi remains viewed as a formidable com-
petitor and technological leader by all of its global competitors.
By encouraging strong technological interrelationships and
sharing among its business units, Hitachi has built a strong
sense of corporatewide mission and purpose. Hitachi’s empha-
sis on promoting a high level of interdivisional cooperation has
enabled it to invest in leading-edge technologies faster than its
competitors, since the business units share the costs of projects
and new manufacturing technologies that no one unit could
afford on its own. Despite the company’s strong corporatewide
policy of fostering interdivisional cooperation and sharing
among business units, Hitachi is nimble enough to enter new
markets quickly.
As one of Japan’s leading companies in its commitment to
innovation, Hitachi spends more than 6 percent of sales on R&D
annually. Hitachi pours money into basic science and exotic new
(Case 2) Hitachi Corporation of Japan

2
376 PART 4 Sustaining and Renewing Advantage
technologies, such as biotechnology, artificial intelligence, and
advanced materials. It is one of Japan’s leading earners of U.S.
patents for a range of technologies. Hitachi’s corporate vision
for the future can be summed up in two words: synergy and inte-
gration. Both words are found in all of Hitachi’s laboratories.
They show that the company intends to build on the shared capa-
bilities of its many subunits.
In its pursuit of synergy and integration, Hitachi executives
contend that size and flexibility are not incompatible. Many of
Hitachi’s business units are very large; some are comparable in
size to major U.S. corporations. Its computer and semiconduc-
tor division alone is equal in size to Motorola, a leading U.S.
semiconductor company. Its high-speed trains, robotics, power
generation systems, and heavy industrial equipment businesses
equal the size of European giant ABB. In its Japanese home
market, Hitachi is the number two computer maker. It is right
below rival Fujitsu and just a notch ahead of IBM Japan. The
$7 billion consumer electronics operation is a global giant in
its own right.
How does Hitachi balance its huge, broad-based diversifi-
cation with fast innovation of new products and ideas? While
stressing integration, Hitachi practices careful decentraliza-
tion. Hitachi is a paradox when examining the management
practices of diversified companies. It combines strong decen-
tralization with a corporate push for synergy and cross-unit
sharing among its many businesses. Some of the key manage-
ment practices that support this careful balance include the
following:

•
A long-standing corporate culture that fosters
decentralization and individual initiative, especially in
basic scientific research: This format is rare in a Japanese
society accustomed to hierarchy and conformity.
•
Encouragement of individual Hitachi companies to operate
on their own: Business units are free to pursue their own
agendas and markets as they see fit; their only constraint is
to exploit new opportunities for interrelationships and
synergy with other Hitachi business units when they arise.
•
Strong cooperation between labs and factories on applied
research or giant projects: Cooperation between
laboratories and factories helps accelerate time-to-market
for new products or technologies that no one lab or
business unit can develop on its own.
•
Frequent sharing of ideas among managers in highly
fraternal meetings: Despite the high level of autonomy
fostered among scientists, Hitachi managers and scientists
frequently meet in informal discussion sessions to talk
about their research and potential commercial applications
that may ensue. In this way, both scientists and managers
are better able to view their counterparts’ ideas and
agendas for channeling corporate resources and effort into
new technologies.
Hitachi encourages its scientists to invite their foreign coun-
terparts to work in the company’s labs. It also prides itself on
keeping every division, even when it sustains losses. Hitachi’s

senior management believes that all businesses, no matter how
mature they are, have intrinsic technological value. Even when
they lose money, these businesses are retained because of their
unique experiences and insights into a given set of products. Over
time, if new technologies are available to resuscitate an older,
declining product, those same Hitachi managers and resources
are available to exploit the opportunity. Hitachi believes, as many
Japanese companies do, that all technologies, no matter how old
they are, have a future life to them. Old and new technologies can
be blended to create new products, which may prove useful at a
future time to some part of the organization.
INTRODUCTION
In this chapter, we focus on the issue of how senior managers can balance the need for
interdivisional cooperation and strong divisional autonomy within the organization. Find-
ing the right balance between cooperation and autonomy is crucial. Firms compete as col-
lective entities of people, businesses, and bundles of resources. Autonomy and coordina-
tion are required to build, and more importantly, to sustain competitive advantage. Finding
and striking the right balance between cooperation and autonomy determines how well
firms manage the interrelationships of activities among their subunits. Interrelationships
refer to value-adding activities, skills, technologies, or resources which are shared among
the firm’s subunits.
3
Interrelationships result when the firm’s divisions or other subunits
work with one another to sustain competitive advantage for the entire firm. Building and
managing interrelationships that span a number of business units are especially pertinent
topics for large firms with many subunits.
Even when a firm has selected an organizational structure that seems to best fit its
overall strategy, managers need to carefully balance divisional cooperation and autonomy
interrelationships: the
sharing of activities,

technologies, skills, and
resources among a firm’s
subunits, particularly
divisions or strategic
business units.
CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 377
to foster interrelationships. Interrelationships are horizontal in nature, in that they involve
value-adding activities that cut across divisions and businesses. Successful management
of interrelationships that span divisions depends largely on how well senior management
can “tilt” or orient the firm toward the right balance of cooperation and autonomy. Man-
aging this balance effectively requires blending the right structure with specific organi-
zation design practices that facilitate the right blend of autonomy and coordination.
4
Strong interrelationships are key to sustaining corporatewide competitive advantage.
Careful management of value-adding activities across divisions is needed to enable the
firm to strengthen and reinforce its distinctive competences systemwide. The complex
and ongoing task for senior managers is to know when to shift the balance toward
increased cooperation or increased autonomy when the organization faces new develop-
ments. Successful management of interrelationships is key to building a coherent corpo-
rate advantage.
We begin by showing how a firm can use its organizational structure and supporting
design practices to promote cooperation or autonomy. We then consider how a firm’s strat-
egy should influence the balance it strikes between these opposing organizational orienta-
tions. Finally, we consider developments that can oblige a firm to shift its organizational
emphasis toward either greater cooperation or greater autonomy, and we examine likely
sources of resistance to shifts of this kind.
COOPERATION AND AUTONOMY WITHIN THE ORGANIZATION
A variety of organizational structures and design practices can affect the degree to which
cooperation or autonomy is promoted within the firm. Exhibit 11-1 portrays how a firm
can position itself along a continuum ranging from high levels of cooperation to high lev-

els of autonomy. Let us examine how each of these organizational practices influences the
tilt toward cooperation or autonomy.
Distinctive Competence
The nature of a firm’s distinctive competence plays an important role in influencing the
degree of cooperation or autonomy required to sustain competitive advantage. Clearly, a
distinctive competence that extends across multiple lines of businesses or subunits height-
ens the need for cooperation to sustain corporatewide competitive advantage. Distinctive
competences, skills, or technologies that are shared systemwide call for greater interunit
cooperation, particularly within firms that emphasize internal development of new tech-
nologies and skills. A high level of cooperation is necessary to manage interactions among
activities performed in different parts of the firm. This is especially important as the firm
seeks to gain scale economies of operations and learning.
Conversely, a distinctive competence that is internal to any one particular division and
not easily shared with other units heightens the need for autonomy. Fast response tends to
be more important than scale economies. Firms whose competitive advantage is derived
from fast response, creativity, and product customization are likely to give their divisional
managers greater decision-making power. Competences, skills, and technologies that are
not easily shared systemwide require increased divisional autonomy to sustain competitive
advantage at the divisional level.
Organizational Structure
As mentioned in Chapter 9, modifications of the basic product division structure can do
much to promote greater cooperation. For example, placement of strategic business units
378 PART 4 Sustaining and Renewing Advantage
(SBUs) into groups and sectors will generally enhance cooperation. Product divisions
facing similar markets or using similar technologies or joint production facilities are
likely to cooperate more when they are placed within the same SBU. Matrix structures,
despite their numerous disadvantages, also engender high levels of cooperation among
divisions or subunits.
On the other hand, the conglomerate or holding company structure enhances divisional
autonomy. Conglomerate structures emphasize a lean staff with few management layers

between divisions and corporate headquarters. They make no attempt to group or link busi-
ness units together under larger SBUs. The conglomerate structure facilitates a high level
of autonomy, enabling division managers to run their own operations. As noted in Chapter
6, firms such as Tyco International, Textron, and Tenneco give their divisions great leeway
in planning and implementing individual division strategies.
Geographic structures by their very nature promote a high degree of subunit autonomy.
Recall that geographic structures work best when one market is unlike the next and when local
conditions (requiring product customization and modifications) weigh heavily in strategy.
Within this context, the use of a geographic structure facilitates the high degree of autonomy
needed to build competitive advantage at local levels. Geographic structures thus promote the
fast response capabilities needed to adapt to local market requirements and changes.
exhibit(11-1) Spectrum of Cooperation versus Autonomy
Cooperation Autonomy
1. Distinctive
Competence
2. Structure
3. Staffing
4. Reward
and Performance
Measurement
Systems
5. Shared
Values and
Corporate
Culture
Shared and developed
among SBUs
Sizable corporate staff;
large divisions, SBUs,
sectors

Personnel rotated
periodically across
division lines
Performance measured
somewhat subjectively;
rewards based in part on
subjective measures and
on overall performance of
the enterprise
(hierarchy-based)
Subunits are members of
a team; strong values
emphasize belonging
and cooperation among
subunits
Competence specific to
each division or SBU
"Lean" corporate staffs;
small divisions,
holding company
format, or geographic
structures
Personnel remain in
same division
throughout career
Performance measured
objectively; rewards based
entirely on performance of
own division (performance-
based)

Subunits are rivals
competing for top
performance; strong
divisional identity and
emphasis on individual
performers
CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 379
Off-Line Coordinators
A firm can increase cooperation among divisions by assigning individuals or committees
outside of the formal hierarchy to coordinate activities among subunits. These individuals
and groups, often experienced managers and staff personnel, are referred to as off-line
coordinators. The job of an off-line coordinator is to ensure that the firm’s interrelation-
ships are coordinated across divisional boundaries. Off-line coordinators help oversee the
tasks of sharing resources, technologies, and skills between businesses. They are “off-line”
in the sense that they are responsible only to corporate headquarters and thus do not owe
an allegiance to any one business unit or division. These coordinators must work exten-
sively with personnel within subunits to achieve informal cooperation. Off-line coordinat-
ing committees typically include all managers of a firm whose products have some bear-
ing on the skill or resource that is being shared.
Another device for increasing cooperation is use of informal integrators. Informal
integrators serve a role similar to that of off-line coordinators. Informal integrators act as
internal “referees” to resolve disputes and conflicts between divisional managers. Conflict
may result from divisions pursuing different strategies and goals. For example, at Procter
and Gamble, corporate facilitators encourage autonomous brand management teams to
share their knowledge of competitors and retailers with other teams. P&G managers are
initially reluctant to share their ideas and insights, since many of them compete for the
same shelf space in grocery stores and other outlets. P&G facilitators persuade managers
to share their insights by providing strong internal incentives for working together, such as
opportunities to lead the development and marketing of new products. Facilitators also
emphasize that sharing does not necessarily result in cannibalization, loss of prestige, or

loss of market share for any concerned manager.
Yet another device for fostering cooperation among subunits is use of internal task
forces. Internal task forces serve as bridges that forge stronger interrelationships among
divisions. Companies such as Allied-Signal, Chaparral Steel, Citizen Watch, Kodak,
Motorola, Nissan, and Procter and Gamble use internal task forces to achieve smoother
coordination of design and manufacturing of products among divisions. For example,
Motorola encourages its division managers in R&D, manufacturing, and marketing to
serve on temporary task forces. These task forces then plan new strategies for sharing tech-
nologies and production resources for individual products. This joint effort helps acceler-
ate time-to-market for new products and facilitates sharing of insights that may be valu-
able in designing new products that no one manager may have thought of individually.
NEC of Japan uses many corporate-sponsored product planning committees and forums
to identify core technologies that could serve as the basis for building systemwide interre-
lationships. It also uses both off-line integrators and product forums to encourage cooper-
ation between businesses. Off-line integrators play an essential role in reconciling the dis-
parate needs of many businesses on a daily basis. From a corporate perspective, the
purpose of numerous NEC product and technology development committees is to identify
new sources of potential interrelationships. These NEC committees investigate, for exam-
ple, how new semiconductor-based technologies can be applied across computers, com-
munications, and consumer electronics. NEC’s committees show how the innovations of
one business unit can be used to fertilize new products and markets in other divisions. They
also try to convince divisional managers of the merits of sharing resources and ideas, and
of the benefit they can derive from innovations from other parts of the company.
While off-line coordinators and internal task forces are used in many types of compa-
nies, they can be particularly helpful whenever a high level of coordination among func-
tions, divisions, or business units is desired. They are particularly suitable when outright
off-line coordinator:
senior corporate staff
member whose job is to
manage and coordinate

interrelationships among
division or business units.
informal integrator:
people who work to resolve
potential sources of conflict
or to promote better
understanding of key issues
between managers, usually
at a divisional or SBU
level.
internal task force:
committees whose purpose
is to share knowledge and
to encourage joint
development of
technologies and products
across divisions or business
units.
380 PART 4 Sustaining and Renewing Advantage
consolidation of existing divisions and/or business units is unwarranted because opportu-
nities for cooperation are too few to warrant full-scale consolidation or when combined
entities would be too large for effective supervision. Off-line coordinators and internal task
forces offer ways to foster cooperation without drastically altering the firm’s divisional
structure. Extensive use of off-line coordinators will tilt a company’s organization toward
the left of the continuum shown in Exhibit 11-1; conversely, general avoidance of using
such coordinators will tilt it toward the right.
Staffing
The methods a firm uses to select and develop its managers and employees can do much
to influence the tilt between cooperation and autonomy over time. Firms can use manage-
ment development programs to make the idea of systemwide thinking and cooperation for

managers easier to accept. For example, development programs can emphasize the need to
share resources across business units. Development programs can be used to show how
parts of the company need to work together to build interrelationships to achieve goals that
no single business unit can manage alone.
The degree to which firms actively rotate their managers across divisions may also
influence the cooperation/autonomy balance.
5
Transfer of managers throughout the com-
pany can instill an appreciation for systemwide cooperation and thinking. Managers who
serve in different divisions throughout their careers are better able to understand and build
interrelationships. On the other hand, firms that keep their managers and personnel in the
same division for long periods foster personal commitment and loyalty to the division, as
opposed to the company. Managers then feel less obligation to share resources or ideas
with their counterparts in the company, especially if managers are competing against each
other for promotions and rewards.
Reward and Performance Measurement Systems
Hierarchy-based reward systems, with their emphasis on close superior–subordinate rela-
tionships, work well to promote cooperation and interrelationships among subunits.
6
Recall that hierarchy-based systems use informed subjective criteria and judgment to eval-
uate performance. Qualitative and quantitative performance metrics are used. Oftentimes,
division managers are evaluated according to both corporate, systemwide measures of per-
formance and the performance of their own subunits.
On the other hand, performance-based reward systems facilitate high divisional auton-
omy. Recall that performance-based systems focus predominantly on objective, narrowly
defined measures of output and results. Bonuses and promotions are based on achievement
of individual divisions, with little attention paid to subjective factors, such as cooperation
across subunits.
Shared Values and Corporate Culture
Shared values and corporate cultures that cherish a sense of corporatewide feeling and

belonging encourage systemwide cooperation and building of interrelationships. Compa-
nies such as Motorola, IBM, and Unilever teach and promote values that orient managers
to think of the company’s larger interests before those of their divisions. This emphasis on
the overall company makes identifying and building useful interrelationships an easier task.
On the other hand, values that cherish individual initiative and strong independence foster
divisional autonomy. At companies such as Johnson & Johnson (J&J) and PepsiCo, values
CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 381
based on risk taking and initiative spur competition between divisions, regions, and product
brands. Systemwide cooperation is not considered nearly as critical as local initiative to build
and sustain competitive advantage. J&J allows its 50-plus business units to cultivate distinctly
separate cultures. This autonomy fosters strong initiative and risk taking at the divisional level.
Thus, firms can use many different organization design practices to promote coopera-
tion or autonomy. The way a firm uses such practices will position it somewhere along the
continuum shown in Exhibit 11-1.
ACHIEVING STRATEGIC ALIGNMENT
The position a firm chooses along this continuum must be carefully aligned with the
strategies a firm pursues in two key areas: diversification and international expansion.
To explore the nature of this alignment, we consider here two broad approaches in each
of these areas. With respect to diversification, we consider strategies of related and unre-
lated diversification; with respect to international expansion, we focus on global and
multidomestic strategies. In general, related diversification and a global approach to
conducting worldwide business require a position toward the left of the continuum
shown in Exhibit 11-1, while unrelated diversification and a multidomestic approach to
conducting worldwide business require a position toward the right of the continuum. If
we now combine these four different strategies, the matrix shown in Exhibit 11-2 results.
As discussed in more detail below, each of the four quadrants, or cells, of this matrix
necessitates a somewhat different balance between cooperation and autonomy to man-
age interrelationships most effectively. (See Exhibit 11-3 for summary.)
The Nature of Interrelationships
Companies in Cell 1 of Exhibit 11-3 pursue a combination of related diversification and a

global strategy to sustain systemwide competitive advantage. Examples of companies in
Cooperation and Autonomy: Various Routes to Diversification
and Global Expansion
Cell 1
• IBM
• Motorola
• Honda
• Sony
• Caterpillar
• Komatsu
• Intel
Cell 2
• ITT Industries
• Thom-EMI
• Westinghouse
• Tenneco
Cell 3
• Procter & Gamble
• Kao
• Coca-Cola
• PepsiCo
• Unilever
Cell 4
• Hanson PLC
• Seagram
• Diageo
• Times Mirror
• Tyco International
Global
Global Expansion

Multidomestic
Diversification Strategy
UnrelatedRelated
exhibit(11-2)
382 PART 4 Sustaining and Renewing Advantage
Cell 1 include Sony, Honda, Motorola, Ericsson, IBM, Lucent Technologies, Intel,
Komatsu, Toshiba, NEC, and Sharp. These firms have developed a series of distinctive com-
petences and technologies that span their divisions and subsidiaries around the world. Many
of the interrelationships found among their divisions are based on tight sharing of R&D
capabilities and production facilities and on joint investment in cutting-edge technologies
that can only be commercialized and developed at the corporate level. Thus, these interre-
lationships extend across multiple divisions and business units. Moreover, they form the
basis of new core technologies and product components that are then incorporated in end
products.
Companies in Cell 2 pursue a combination of unrelated diversification and a global strat-
egy. Examples of companies in Cell 2 include the former Westinghouse Electric, Thorn-
EMI, ITT, and Tenneco. These companies are positioned in a broad range of unrelated, non-
linked businesses, many of which share little potential for building strong interrelationships
among them. Since unrelated diversification is not based on extending an underlying dis-
tinctive competence, few interrelationships can be built and used to sustain systemwide
competitive advantage. Several of the business units in these firms have attempted to pur-
sue a global strategy. For example, when it was owned by Tenneco, J.I. Case pursued a
global strategy to build a stronger market presence outside the United States against com-
petitors such as Caterpillar, Komatsu, Allis-Chalmers, and Hitachi. Likewise, during the
1970s and 1980s, several Westinghouse units (power transmission and distribution, robot-
ics, and motors) have pursued a global strategy to build market share abroad.
Companies in Cell 3 of Exhibit 11-3 pursue a combination of related diversification
and multidomestic strategies of expansion. These companies include Coca-Cola, Pep-
siCo, Black and Decker, Colgate-Palmolive, Hershey Foods, Procter and Gamble,
Henkel, Unilever, and Kao. Many of these consumer goods companies have built a wide

array of personal and health care products. However, building strong interrelationships
exhibit(11-3) Cooperation and Autonomy: Managing Interrelationships
Synergy based on technological,
production, and/or marketing
interrelationships. Competencies,
skills, and technologies are system
wide. Cross-subsidization tactics to
compete globally.
Marketing-based interrelationships
lay the groundwork for potential
cooperation. Shared image, product
quality, and multipoint competition in
U.S. Compete in individual markets
locally and separately.
Cell 1
Cell 2
Cell 3
Competencies and skills are
specific to each division or SBU.
No system-wide sharing or
interrelationships. Financial
orientation of divisions or SBUs
may deter sustained investment
needed for global strategy.
No underlying competence or skill
to define sharing or
interrelationships. Compete in
individual markets locally and
separately.
Cell 4

Global
Global Expansion
Multidomestic
Diversification Strategy
UnrelatedRelated
CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 383
based on extensive production or technology sharing is difficult since many of these
companies’ products are perishable, easily differentiated, and require extensive modifi-
cation or customization to specific market needs. Nevertheless, strong marketing-based
interrelationships exist in terms of distribution skills, product bundling issues, confor-
mance to product quality requirements, and use of similar channels. Moreover, these
companies tend to be avid practitioners of multiproduct competition within the United
States and large developed markets abroad. Outside the United States, these firms pur-
sue multidomestic strategies, largely because of the requirements of customization, per-
ishability, and local marketing mix.
Companies in Cell 4 employ a combination of unrelated diversification and multido-
mestic strategies to sustain competitive advantage at the business unit level. Firms that fit
Cell 4 of Exhibit 11-3 include the two British conglomerates Hanson PLC and Diageo
PLC, Canadian entertainment and beverage powerhouse Seagram, and several U.S.
broadly diversified companies such as Times Mirror, Tyco International, and Allegheny
Teledyne. Few interrelationships are found at any level within these companies, since com-
petitive advantage is based on competences and skills located within individual divisions.
Few, if any, systemwide interrelationships can be leveraged across divisions. Consider the
example of Diageo, the recently formed company that is the result of a merger between
Grand Metropolitan and Guinness PLC, two British companies that dominate various seg-
ments of the food, distillery, and beverage industries. In the United States, Diageo owns
Pillsbury, Burger King, Haagan-Dazs, and a wide variety of liquors and alcohol beverages.
Pillsbury has extensive operations, experience, and market presence in the packaged foods
and baking industries both in the United States and elsewhere. Burger King is attempting
to retake market share lost to McDonald’s and other new entrants (Chili’s, KFC, Wendy’s,

and local eateries) in the fast-food industry. Across these Diageo businesses, few opportu-
nities are present to develop interrelationships. Building and sustaining competitive advan-
tage for these three businesses occurs within each division. Distinctive competences are
located deep within each division and are not easily transferred across units. Many of these
competences are based on marketing skills for specific types of products and targeted
audiences. In the external environment, consumers recognize Pillsbury, Burger King, and
Haagan-Daz as separate brands; few consumers would care that they all belong to a larger
entity known as Diageo.
Varying Emphasis on Cooperation
For each of the four cells in Exhibit 11-3, a different degree of emphasis is placed on the
level of cooperation or autonomy accorded to business units. As interrelationships become
tighter or more interwoven between business units, the need for cooperation to sustain sys-
temwide competitive advantage grows. Conversely, the fewer the interrelationships that
exist between business units, the greater is the need for autonomy. Exhibit 11-4 shows the
different relative emphasis given to cooperation versus autonomy in these four situations.
Let us now examine these differences in more detail.
High Need for Cooperation. In Cell 1, a combination of related diversification and
global strategies requires tight coordination and extensive cooperation between business
units for several reasons. First, business units in related diversified firms draw upon a dis-
tinctive competence that cuts across the entire firm. Thus, greater cooperation is needed to
achieve and sustain corporatewide competitive advantage. Second, firms in Cell 1 also pur-
sue global strategies, which involve cross-subsidization and an interdependent linkage of
subsidiaries across various national markets. Thus, firms such as Lucent Technologies,
384 PART 4 Sustaining and Renewing Advantage
Motorola, Caterpillar, Komatsu, Sharp, Sony, Honda, and IBM will benefit from a high
level of cooperation among the overseas subunits of their divisions. Recall that cross-
subsidization means that global competitors attempt to build market positions by
lowering prices or introducing new products in different parts of the world at the same
time. Subsidiaries need to cooperate to realize the full potential benefits of global strate-
gies. Thus, Cell 1 firms exhibit the strongest need for fostering cooperation among

subunits. Consequently, these firms are most likely to use SBU and group/sector
structures, employ hierarchy-based reward systems, and emphasize management devel-
opment programs to reinforce a systemwide way of thinking. These organizational char-
acteristics place Cell 1 firms to the far left of the spectrum in Exhibit 11-1.
Difficult Combination. Cell 2 of Exhibit 11-4 depicts firms that attempt to combine
unrelated diversification with global strategies. Unfortunately, over time, firms in Cell 2
are likely to cede and lose competitive advantage, because of inherent conflicts involved
in this combination. On the one hand, to pursue unrelated diversification, senior man-
agement needs to provide considerable leeway to divisional managers to run their own
operations, especially within newly acquired units. On the other hand, divisional man-
agers cannot steadily build a strong global presence without investing large sums in pro-
prietary technologies, R&D, world-scale plants, and other fixed costs. To do so effi-
ciently, these costs are best shared with other divisions to achieve substantial critical
mass and economies of scale. If divisions attempt to make such investments on their
own, they become potential targets for early divestiture, since large cash outflows sub-
ject them to high levels of scrutiny and performance demands from senior management.
Consequently, division managers may seek to avoid the heavy investments required to
sustain competitive advantage and instead become highly risk-averse. Thus, conglomer-
ate firms, in particular, are likely to face considerable organizational impediments in
pursuing effective global strategies.
7
Consider, for example, the case of ITT Corporation over the past 20 years. ITT once led
the world in the telecommunications equipment industry. However, ITT became one of the
exhibit(11-4) Cooperation and Autonomy
Strongest need for
cooperation among divisions
and SBUs.
Cooperation on quality,
image, and multipoint
competition; high autonomy

for all other issues.
Cell 1 Cell 2
Cell 3
Unsustainable over the long
term; needs of global strategy
inconsistent with methods to
assess division performance.
Strongest need for autonomy
among divisions or SBUs.
Cell 4
Global
Global Expansion
Multidomestic
Diversification Strategy
UnrelatedRelated
CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 385
most acquisitive U.S. conglomerates under the leadership of CEO Harold Geneen during
the mid-1970s, acquiring more than 200 unrelated businesses. Over time, ITT’s telecom-
munications business was not able to sustain the high level of technology and capital
investment required to build new digital telephone switching equipment on its own. In
1986, ITT sold a majority share of its European telephone business to the combined
French–Dutch giant, Alcatel. Throughout the late 1980s and early 1990s, ITT periodically
restructured its portfolio of businesses, seeking to maximize its profitability. The effect of
these restructurings has been to steadily reduce ITT’s presence in many globally oriented,
high-technology businesses. For example, in December 1994, the company sold off many
of its financial services subsidiaries to buyers such as Norwest Corporation and Deutsche
Bank. During the mid-1990s, ITT has generally avoided businesses requiring a global
strategy. For example, it acquired Caesar’s World, a leading firm in the gaming industry
and attempted to combine it with other hotel and gaming properties. Many of ITT’s
businesses—hotels, gaming, broadcasting, publishing, trade schools, and defense

electronics—were situated in industries not subject to intense global competition. In fact,
a number of ITT’s businesses have been recently sold to other more focused and globally
oriented firms, including ITT’s worldwide hotel businesses to Starwood Properties, which
also own the Westin Hotel chain. ITT Industries, a spin-off of the original ITT Corpora-
tion, sold its automotive division to Valero of France in a broad restructuring of a business
unit that needed to attain greater scale economies in a globally consolidating automobile
and parts industry.
The British conglomerate EMI has also had difficulty combining unrelated diversifica-
tion and global strategies. EMI in the 1970s was a leading innovator of the CAT scanner,
a computerized X-ray machine. Yet, EMI’s dominant business at the time was music,
entertainment, and defense-oriented electronics. Although EMI’s CAT scanner was a prod-
uct leader for several years, eventually other companies such as General Electric, Toshiba,
and Philips were able to displace EMI from the business. These companies enjoyed tech-
nological, production, and distribution-based interrelationships among their businesses
that enabled them to overtake EMI in later generations of medical equipment. EMI was
unable to develop and implement the kind of global strategy needed to compete in the
medical equipment industry. By 1989, EMI had sold off most of its defense electronics,
medical equipment, and other technology-intensive businesses to General Electric and
other European and Japanese firms. EMI’s senior management has concluded that the
company cannot compete effectively in these global businesses. Currently, EMI’s core
businesses are situated in the music entertainment, lighting, and home appliance rental
industries. The transformation of EMI is continuing as the company considers strategic
options that may include divesting itself of other peripheral businesses.
8
Many analysts
believe that EMI would even sell the entire company to another entertainment or media
company for the right price.
J.I. Case faced similar difficulties when competing with global competitors during the
time it was a division of conglomerate Tenneco in the early 1990s. Case faced significant
problems competing with the more effective global strategies of construction and earth-

moving equipment makers Caterpillar, Komatsu, Kubota, and Hitachi. These four firms
use cross-subsidization tactics effectively and can spend large sums on new products and
process technologies to accelerate product development and market entry. Case, on the
other hand, remained largely concentrated in U.S. and other North American markets. It
did not have many operations outside the United States that would enable it to retaliate
against the cross-subsidization thrusts brought about by Caterpillar and Komatsu. Case
also received insufficient funds from Tenneco headquarters to build the platform needed
for an effective global strategy. Realizing that sustained high investment was needed to
386 PART 4 Sustaining and Renewing Advantage
enable Case to compete effectively with better-armed global competitors, Tenneco eventu-
ally sold off Case in a series of steps in the late 1990s.
Balanced Cooperation and Autonomy. Firms in Cell 3 of Exhibit 11-4 are both
related diversifiers and pursuers of multidomestic strategies. This combination remains a
potent one, especially for firms in the consumer packaged goods industries. Moreover,
this combination works well for those firms beginning to feel high levels of environmen-
tal change within their industries. On the one hand, the high level of relatedness among
consumer goods and personal care products enables companies like Procter and Gamble
and Colgate-Palmolive to pursue multiproduct competition aggressively within any one
market. Toothpastes, mouthwashes, diapers, soaps, and detergents are similar to one
another in terms of distribution skills, advertising, product rollouts, and marketing expert-
ise within a single market, particularly a large developed market. Thus, Cell 3 companies
are well situated to build marketing-oriented interrelationships that help sustain compet-
itive advantage across similar products within a given market. On the other hand, the very
nature of these firms’ products obliges them to pursue multidomestic strategies. Their
products require extensive customization or modification and are thus best produced and
managed in local end markets. Companies in Cell 3 thus emphasize cooperation on such
corporatewide matters as quality, image, and multipoint competition, while at the same
time giving divisional and local managers a great deal of autonomy on other issues, par-
ticularly those concerning marketing mix and pricing strategies in specific national mar-
kets. Thus, Cell 3 companies need to emphasize cooperation on some issues and to

encourage autonomy on other issues. This combination puts Cell 3 companies some-
where in the middle of the spectrum of Exhibit 11-1.
High Need for Autonomy. Companies in Cell 4 of Exhibit 11-4 pursue unrelated diver-
sification and multidomestic strategies. They therefore experience the least need for coop-
eration across subunits and the greatest need for autonomy at divisional levels. Consider
the illustration of Hanson PLC again. With extensive acquisitions and holdings of many
companies in the United States, Hanson needs to provide as much autonomy as possible
to its business and overseas subsidiary managers. First, divisional managers operating
under the Hanson umbrella of unrelated diversification need autonomy to respond to the
requirements of their own markets. Many of Hanson’s business units are situated in the
low-technology building materials industry (bricks, aggregates, gravel, cement, timber).
These products involve little R&D and cannot be exported readily to distant markets
because of their weight. Coordination to share resources and technologies across these
businesses does not produce much benefit, since few competences can be extended on a
systemwide, corporate-level basis. Also, each business is subject to its own particular
cycles and buying patterns. Second, Hanson’s pursuit of multidomestic strategies for
these businesses also favors autonomy. Since production and marketing activities are self-
contained within each market, greater autonomy allows managers to deal with local con-
ditions. Thus, companies in Cell 4 have the strongest need for autonomy. This character-
istic places them toward the right of the spectrum in Exhibit 11-1. It is therefore not
surprising that companies such as Hanson, Diageo, Times Mirror, and Seagram tend to
have small corporate staffs, to organize along a holding company structure, and to use
performance-based reward systems to measure divisional performance. Over time, one
should expect that companies located in Cell 4 to be aggressive buyers, restructurers, and
sellers of business units on an ongoing basis. Hanson PLC has already made a number of
moves in recent years to reposition its corporate disposition by selling off several less
profitable businesses.
CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 387
Shifting the Balance between Cooperation and Autonomy
Many companies find themselves migrating across the cells of Exhibit 11-5 as their strate-

gies change over time. Each time they move to a new cell, they must strike a new balance
between cooperation and autonomy. Consider the illustration of Asea-Brown-Boveri
(ABB) first discussed in Chapter 9. It was known as Brown-Boveri before it merged with
Asea in the mid-1980s. In the 1970s the firm competed in various lines of business in the
European electrical equipment, transportation, and motors industries. At the time, these
businesses were quite unrelated, since they shared few components, engaged in little joint
production, and had separate marketing activities. Furthermore, the standards for electri-
cal products were very fragmented in different European countries at the time. Conse-
quently, Brown-Boveri pursued multidomestic strategies for most of its businesses. Since
it was pursuing unrelated diversification at the corporate level, and its businesses were pur-
suing multidomestic strategies for serving the European region, it was located in Cell 4 of
Exhibit 11-5. As is appropriate for firms pursuing this combination of strategies, Brown-
Boveri allowed divisions considerable autonomy.
During the 1980s, the company acquired Combustion Engineering and Westinghouse
Electric’s power transmission and distribution businesses and entered a number of closely
related other businesses. These moves shifted ABB to Cell 3 of Exhibit 11-5. Its resulting
businesses (such as numerical controllers, machine tools, robotics, and transformers)
exhibited an increasing number of similarities in terms of competitive requirements for
economies of scale, R&D costs, technology investment, and marketing tasks. To take
advantage of the new potential for interrelationships among businesses, ABB developed
new mechanisms to facilitate cooperation among them, including formal product develop-
ment teams spanning various businesses.
Simultaneous with these developments, standards for electrical and transportation
equipment became increasingly uniform throughout Europe as the continent underwent
economic consolidation. This development presents ABB with an opportunity to pursue
and exploit advantages of a global strategy for many of its businesses. To leverage this
opportunity, ABB is shifting the strategy for many of its businesses to a more global
approach. Since ABB is now pursuing related diversification and global strategies in
many of its businesses, it is now located in Cell 1 of Exhibit 11-5. Not surprisingly, its
Shifting Emphasis on Cooperation over Time

ABB (1993–1996)
ABB (1988) ABB (1975)
Cell 1 Cell 2
Cell 3 Cell 4
Global
Global Expansion
Multidomestic
Diversification Strategy
UnrelatedRelated
exhibit(11-5)
388 PART 4 Sustaining and Renewing Advantage
organization has shifted toward the left of the continuum shown in Exhibit 11-1, increas-
ing the emphasis it places on cooperation. The company is currently using a matrix struc-
ture designed to facilitate yet higher levels of cooperation among its subunits. In fact, to
further strengthen its hand in the global power equipment business, ABB is now working
to pool its power units with Alstom in a newly combined company called ABB Alstom.
This new entity will be able to compete more effectively against General Electric and
Siemens.
A variety of other developments can oblige a firm to shift its position along the contin-
uum shown in Exhibit 11-1. In the next two sections we examine some of the most fre-
quently encountered developments of this kind. We begin by examining developments that
can oblige a firm to shift organizational emphasis toward greater cooperation; then we con-
sider those factors necessitating a shift toward greater autonomy.
FACTORS PROMOTING CLOSER COOPERATION
A high level of interdivisional cooperation is necessary to identify and to build sys-
temwide, corporate-level interrelationships. This cooperation is particularly important for
firms that have a distinctive competence, technology, or skill that spans multiple business
units. Numerous developments can increase the need for such cooperation. Among the
more important are: (1) changes in the way customers use products, (2) technological con-
vergence, (3) the rise of multipoint competition, (4) reduced emphasis on acquisitions, and

(5) increased global expansion activity (see Exhibit 11-6).
Change in Product Usage
Closer divisional coordination is desirable when customers begin to view a firm’s products
as parts of a larger, integrated system. As described in the opening case, Hewlett-Packard
experienced this kind of shift throughout its history. Customers in industrial, medical, and
scientific fields initially used Hewlett-Packard’s electronic test and measurement equip-
ment as free-standing units. In other words, electronic measuring instruments were not
linked or hooked up to any other product. Now, industrial and medical users incorporate
these devices into more complex systems linked by computers, microprocessors, and fully
integrated testing and analysis systems.
Hewlett-Packard’s engineering workstations also now serve as the “brains” or “nerve
center” for many design and testing activities that used to be performed independently. For
example, the design of new aircraft parts, semiconductor chips, and machine tools were
formerly performed by individual scientists, engineers, and development people who
exerted little effort to coordinate their activities. Now, scientists using H-P’s workstations
can design, test, and modify their new product ideas all at once. This all-in-one capability
exhibit(11-6) Developments Prompting Need for Greater Coordination among Businesses
•
Customers begin using formerly discrete products together in systems.
•
Technologies of different products converge.
•
Multipoint competition is on the rise.
•
Acquisitions play a less important role in diversification.
•
Global expansion increases.
CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 389
makes it easier for users of H-P’s equipment (aircraft and electronic firms) to cut down
their own product development time. This development has greatly expanded the need to

build interrelationships and increase cooperation among various Hewlett-Packard subunits.
H-P divisions now need to cooperate on product design (to ensure compatibility of H-P
products from separate divisions), component design (to manufacture compatible parts
more easily for various H-P subsystems), sales (to enable the company to sell systems
rather than individual products), marketing (to ensure proper pricing and advertising), and
customer service.
Other industries facing similar transformations in product usage include the machine
tool industry, which is becoming increasingly driven by computers and software. During
the 1970s, factories used lathes, machine centers, and other tools as stand-alone opera-
tions. Stand-alone operations meant that none of the individual work centers needed to
communicate or link up with other parts of the factory. Materials and components moved
from one end of the factory to the other with little coordination, other than that provided
by human scheduling. Now, the rise of bar-coding methods, machining cells, servome-
chanics and automated insertion equipment makes factories highly integrated operations.
These techniques make great use of advanced software to help control and streamline oper-
ations. For example, computerized tracking systems often control the movement of inven-
tory, work-in-process, and product changeover when goods move from one machining
center to another within the factory.
As a consequence, companies in the machine tool industry have been obliged to under-
take steps to ensure that their machinery and other tools work in tandem to give the cus-
tomer a clean, smoothly running “package” of equipment. In fact, many machine tool pro-
ducers are now taking steps to ensure that the software programs used to manage their
systems are capable of fully linking with those of other suppliers and customers through
advanced telecommunications and Internet-based networks.
Technological Convergence
Convergence of once-distinct technologies can also increase the need for subunit cooper-
ation. Consider the recent developments in integrated circuits and semiconductors, for
example. Many formerly distinct products (cameras, microwave ovens, printers, personal
computers, Internet-related appliances, telephones, calculators, and musical instruments)
now incorporate integrated circuits in their design. These products are thus becoming

technologically more similar, since they increasingly share a common core competence or
skill. Circuit boards and semiconductor designs used for one product can often be easily
modified for incorporation in another product. The growing reliance upon these modular
electronic components hastens the convergence of numerous products based upon a core
electronic or chip-based technology.
Recognizing this trend, Casio of Japan has focused on innovating new products
based on using microelectronics to develop new controller chips that power its watches,
calculators, and musical instruments. Casio watches and calculators often use the same
types of liquid-crystal displays and timing mechanisms found in other Casio products,
such as flat-screen television sets and video games. As these products embody a greater
degree of technological content, Casio has now taken this electronics-based expertise to
develop a series of new Internet-driven palm-sized network computer appliances that
use a streamlined version of Microsoft’s Windows CE program to provide paging and
e-mail capabilities to people on the move. This palm-sized personal digital assistant
(PDA), known as Cassiopeia, is designed to compete with similar offerings from 3Com,
IBM, Sharp, Sony, and other firms seeking to develop new forms of digital wireless
390 PART 4 Sustaining and Renewing Advantage
communications that are also compatible with personal computers and other network
appliances. The high-technology content in all of these products are compelling these
firms to innovate and develop new forms of advanced technologies and capabilities to
harness new sources of convergence. In another example, Japanese optical equipment
makers Canon and Nikon are using innovative lens and optical-based technologies
to design office equipment, color copiers, laser printers, and even ultrasophisticated
semiconductor-making equipment. Office copiers, cameras, printers, microscopes,
semiconductor capital equipment (steppers), and laboratory-based testing equipment all
draw upon these two companies’ extensive experience with precision engineering and
manufacturing of lenses, mirrors, small lasers, and other optics-based technologies.
The Otis, Sikorsky, Carrier, and Pratt and Whitney divisions of United Technologies are
also experiencing technological convergence. The elevators, helicopters, air-conditioning
units, and building systems produced by these units are making increasing use of new

closed-loop electrical designs, hydraulics, sensors, and microprocessor-based control sys-
tems. With the introduction and greater use of advanced electronics and control devices in
new designs, these products have become “smarter” over time. For example, in many
Sikorsky helicopter or Pratt and Whitney jet engines, centrally controlled microprocessors
and sensors closely monitor and manage these systems’ operations according to weather,
altitude, weight load, and other critical factors. In United Technologies’ Carrier division,
entire buildings are now designed to be “intelligent,” meaning that a central building con-
trol system handles numerous functions, such as security, heating, air conditioning, fire
detection, and sprinkler systems. Building control systems now possess avionics-like tech-
nologies, servo-mechanical control systems, artificial intelligence, and advanced displays
similar to those found in commercial and military aircraft. The skills required for Carrier
to design and construct an intelligent building control system for its customers come not
only from Carrier, but also from other divisions, such as Otis and Pratt and Whitney. Otis
has mastery of the controls needed to make elevators function smoothly, while Pratt and
Whitney and Sikorsky possess the electronics and systems integration/control expertise to
make the entire system “smarter” and more responsive.
Industry Convergence. In a broader sense, technological convergence has begun to per-
vade and even redefine the structure of entire industries. Consider, for example, the rapid
growth of the Internet that is cutting a wide swath across almost every industry in the United
States. The Internet has already begun to link up telecommunications, data networking, and
cable television with computers, consumer electronics, interactive television sets, and even
PDAs to provide a whole new range of services. These services include on-line retailing,
financial services, travel planning, and other new capabilities. As the Internet continues to
pervade and redefine more industries, companies such as IBM, Intel, Motorola, Yahoo!,
AtHome, AT&T, Lucent Technologies, Time Warner, Viacom, Comcast, Seagram, Hewlett-
Packard, Microsoft, General Electric, General Instrument, and Walt Disney envision a day
when customers can use their hybrid personal computer/television sets as multifunctional
devices that enable on-line shopping, communications, interactive television, and other fea-
tures. This future hybrid digital television and/or personal computer is expected to serve as
the heart of a series of network appliances that will combine the traditional features of tel-

evision sets and personal computers with those of telephones, pagers, fax machines, and
even home security systems. Thus, once separate and distinct industries, such as consumer
electronics, telecommunications, personal computers, semiconductors, and software, are
rapidly coming together.
The corporate strategies of AT&T and Lucent Technologies, discussed in Chapter 6,
are based on exploiting the convergence among computers, telecommunications, and
CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 391
consumer electronics to enter new markets with innovative products. AT&T hopes that
these new products will enable it to create a higher set of skills and capabilities to com-
pete with the continued growth of the Internet. Technological convergence offers AT&T
new opportunities to build interrelationships among its divisions in value-adding areas
such as product and service design, purchasing, operations, and marketing. For example,
the use of advanced software and memory and microcontroller chips in telephones,
switching equipment, data storage devices, routers, television sets, computers, network
appliances, and fax machines makes all of these products more similar and related.
Developments in software that allow for various operating systems to communicate with
one another at lower cost and with greater ease will certainly spur the pace of industry con-
vergence, particularly in those products and services that use advanced and flexible forms of
new software. For example, the advent of Sun Microsytems’ Java programming language
that can be readily adapted to any type of computer or consumer electronic operating system
ensures that many once discrete products and services from different industries will become
more similar over time. Cable television companies (e.g., TCI) are already deploying Java as
the preferred software to control future set-top boxes that will allow consumers to access the
Internet and a host of other telecommunications services through their television sets. Firms
engaging in Internet-based electronic commerce are using both Java and other forms of soft-
ware to link their operations closer to their suppliers and customers (e.g., IBM’s Lotus
Domino Intranet and Java software). The use of the Internet as a new form of communica-
tions medium in which personal computers can be readily networked to any number of dif-
ferent applications in the home, office, and even outdoors through advanced digital and wire-
less systems means that businesses and consumers will steadily increase their demand for

“bandwidth” and other means to link up their once separate products and needs. Consumers
can already send e-mail and faxes through their personal computers by use of telephone-
based modems and will soon be able to communicate and access the Internet through their
cable television systems by way of new two-way transmission technology (e.g., WebTV
Networks,ADSL, etc.). This convergence among different industries has motivated AT&T to
purchase TCI and MediaOne Group, two leading U.S. cable television firms. AT&T has also
begun to buy smaller equity stakes in a host of other local cable television companies in the
hope of using these firms’access to the home as a way to provide new forms of Internet and
local telecommunications services. Thus, the use of common technology drivers makes
increased cooperation between AT&T’s businesses vital to sustaining corporatewide com-
petitive advantage. Consequently, the need for strong cooperation among AT&T’s various
telecommunications-based offerings and new business investments is increasing.
9
Design and Engineering. Growing technological applicability of advanced materials,
precision engineering, lasers, and semiconductors, to name a few areas, are making it pos-
sible for design and development skills to cut across many products and businesses. Many
companies are realizing that emerging technologies and core competences can be used to
create a wide array of new, previously unforeseen products that utilize similar design
skills, creative insights, product development techniques, and process technologies to cre-
ate systemwide advantage. For example, Hitachi contends that investment in scientific
research for advanced materials, lasers, and ultra-miniaturized electronics will eventually
translate into new core technologies and become distinctive competences for the future.
These technologies will serve as the basis for many next-generation products, such as mag-
netic levitation trains, engineered plastics, exotic synthetic fibers, and new forms of com-
munications and computing gear. These new product design concepts and engineering
skills now form the basis for Hitachi’s vision of a broad series of distinctive competences
across many new technologies. In turn, these technologies are also beginning to shape how
392 PART 4 Sustaining and Renewing Advantage
products are designed and developed across Hitachi divisions. Thus, Hitachi’s emerging
distinctive competences are no longer confined to one division but instead are used across

many. Consequently, heightened cooperation between SBUs and divisions is important to
harness the potential of new technologies that cannot be developed in any one Hitachi SBU
or division alone.
Manufacturing Capability. The rise of computer-integrated manufacturing (CIM) and
flexible manufacturing systems (FMS) also hastens technological convergence and the
need for interdivisional cooperation.
10
CIM and FMS now make it possible to produce a
growing variety of products using the same factory equipment. In other words, factories
themselves are becoming “smarter” and more “flexible” by accommodating a higher
degree of product variety than they could in the past. The greater use of new information-
coding techniques, advanced software, and other computer technologies means that many
factories will become much more responsive and capable of faster change to serve new
market demands and niches. Over time, companies from a growing number of industries,
ranging from plastics to automobile parts and even to textile manufacturers, are using
advanced, flexible manufacturing equipment to accelerate product development and to
produce products that are sold by other divisions. Because of this development, companies
will find it easier to produce a group of related products using the same manufacturing
technology and equipment. This manufacturing-driven source of convergence makes shar-
ing and interdivisional cooperation essential to building corporatewide economies of scale
in key manufacturing-based, value-adding activities.
11
The Rise of Multipoint Competition
Many firms are competing not only with individual products but with entire lines of busi-
ness. This development is known as multipoint competition.
12
Multipoint competition
forces a company to attack and defend along its entire product line, rather than to fight for
individual market positions separately. In other words, multipoint competition occurs
when companies commit their entire product line to attack or defend against other com-

petitors with similar market positions. Multipoint competition is not product versus prod-
uct, but rather groups of products versus groups of products. A firm’s entire array of busi-
nesses is deployed to keep a competitor off balance.
An example of multipoint competition is the series of ongoing battles between Heinz and
Stouffer Foods in the frozen foods and microwave dinner entrees segments. Each company
attempts to periodically outflank and destabilize the other. Multipoint competition is best
described as punch and counterpunch along an entire front or market. For example, Heinz
will often lower the price on its Weight Watchers frozen foods products to gain additional
market share and penetration from Stouffer Foods’ microwave dinner entrees. In response,
Stouffer counters Heinz’s thrust with its own riposte in prepared foods, an attack focused
directly on Heinz’s well-entrenched position in such ready-to-use foods as ketchup, sauces,
and dry-food preparations. Thus, both Heinz and Stouffer Foods use multipoint competition
to engage in a series of “outflanking” attacks, where a thrust into a competitor’s product line
causes a competitor to deliver a counterpunch elsewhere. Multipoint competition is becom-
ing common in many consumer goods and financial services industries. It is especially
prevalent in foods and personal care products, where many companies have sizable market
shares across families of products. Procter and Gamble, Colgate-Palmolive, and J&J all
practice multipoint competition against each other along such products as disposable dia-
pers, toothpastes, mouthwashes, personal care items, and lotions. Firms engaged in such
competition need close cooperation among their business units.
multipoint competition:
a form of economic
competition in which a
firm commits its entire
product line against a
similarly endowed
competitor’s array of
products.
CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 393
Reduced Emphasis on Acquisitions

A firm that acquires new businesses to enlarge the scope of its operations will normally
need to give a high level of autonomy to its divisions. Because many conglomerate firms
(Textron, ITT, Litton, Allegheny Teledyne, Tyco International, Tenneco) use acquisitions to
periodically reshuffle their mix of businesses, they give managers of individual businesses
the leeway they need to run their own operations in the manner they see fit. Also, high lev-
els of autonomy are needed to retain acquired managers. On the other hand, if a firm later
shifts to internal development as the primary means of entry into new areas, the need for
high levels of divisional autonomy is reduced. As the corporate focus shifts to internal
development of new businesses, then cooperation becomes crucial in building the interrela-
tionships that sustain competitive advantage. During the 1980s, a growing amount of cor-
porate diversification activity occurred by way of internal development of new products and
technologies. This trend toward related diversification has obliged many firms to increase
cooperation among SBUs and divisions. Consider conglomerates that were prevalent dur-
ing the 1970s. Such firms began their existence as acquirers of unrelated businesses. Senior
management of these companies therefore initially offered divisions high levels of auton-
omy. Many of these firms eventually discovered that the benefits of unrelated diversifica-
tion were insufficient to offset the attendant costs. (See Chapter 6 for fuller discussion of
this trade-off.) With rising capital costs and the possible prevalence of a “conglomerate dis-
count” weighing on their stock prices, a number of these firms eventually sold off their
peripheral and poorly performing businesses and began pursuing a more related diversifi-
cation strategy. This shift strategy has compelled them to implement a corresponding shift
in management practices that foster higher levels of interdivisional cooperation.
The evolution of earlier conglomerate firm Gulf and Western into entertainment giant
Viacom is a case in point. In 1980 it owned a wide array of businesses, including apparel,
typewriters, gas stations, machinery, and chemical products. During the late 1980s, it sold
off many of these businesses to focus primarily on its publishing (Simon and Schuster) and
film-making operations (Paramount Productions). It even changed its name to Paramount
Communications to reflect this sharply redefined corporate focus, before it merged with
Viacom, a leading television syndication company. Viacom, the surviving entity, is cur-
rently refocusing the company’s efforts on its core publishing, film-making (Paramount

Pictures), and syndication/distribution businesses and is even investing in interactive,
Internet-based multimedia operations. Viacom is probably best known to consumers
through its various cable television offerings such as Nickelodeon, Showtime, MTV, and
the increasingly popular UPN television network. This new focus also gives Viacom a bet-
ter opportunity to exploit emerging technological convergences provided by new multi-
media, publishing, and Internet-driven technologies (interactive television, on-line retail
services, information retrieval services, electronic commerce, pay-per-view television).
These developments have obliged Viacom to shift the balance toward greater cooperation
as it strives to become an important player in creating and delivering “content” for the
evolving multimedia industry.
13
Even nonconglomerate firms continue to shed divisions or activities that no longer fit
well with their core businesses. For example, in December 1994, General Mills
announced that it would divest itself of its restaurant business to focus on its core break-
fast cereals and packaged foods businesses. Now known as the Darden Group, this ex-
General Mills’ restaurant unit includes such well-known outlets as Olive Garden and Red
Lobster. General Mills has refocused its efforts to strengthen its packaged foods business,
which includes such better-known brands as Betty Crocker cake mixes, Hamburger
Helper dinner mixes, Pop Secret popcorn, Gold Medal flour, Gorton’s frozen seafoods,
and of course, cereals such as Cheerios, Wheaties, Lucky Charms, Total, and Kix. At one
394 PART 4 Sustaining and Renewing Advantage
point in its history (the 1960s), General Mills owned a variety of businesses, including
some in the chemical, fashion, jewelry, toy, and retailing industries. During the 1980s,
General Mills spun off many of these assets to concentrate more on its food-related busi-
nesses. The company realized that competing in the restaurant business (with its high per-
sonal service orientation) required core competences unrelated to those used in making
breakfast cereals (with its focus on packaging, advertising, retail distribution, and new
product development). Enduring synergies between the two businesses were illusionary.
General Mills had struggled unsuccessfully to blend the packaged food culture with the
restaurant culture.

14
With its current emphasis on internal development rather than acqui-
sitions, General Mills is encouraging more cooperation among its subunits.
Increased Global Expansion Activity
Yet another development that has caused many large firms to seek greater divisional coop-
eration is increased global expansion activity. Whether the expansion occurs through
global or through multidomestic strategies, corporate pursuit of growth abroad will tend to
increase the need for communication and cooperation across business units. This need will
be particularly pressing for those firms pursuing global strategies involving high levels of
cross-subsidization. Recall that firms with global strategies use cross-subsidization to seek
fast market presence and to destabilize other global competitors in contested markets.
Effective pursuit of cross-subsidization tactics often requires close coordination and coop-
eration across divisional lines to attain scale economies and shared learning.
When compared with global strategies, multidomestic strategies generally need more
autonomy at divisional and subsidiary levels to develop competitive advantage in local end
markets. High levels of autonomy are needed to develop the fast response capabilities of
subsidiaries serving diverse markets. Nevertheless, firms pursuing multidomestic strate-
gies will find that some level of cooperation will be necessary across products and busi-
nesses, even those that share no tangible interrelationships, such as production or R&D.
For companies such as Coca-Cola, Procter and Gamble, Henkel, Kao, Anheuser-Busch,
and McDonald’s, a multidomestic strategy still depends upon cultivating and projecting a
well-defined corporate image. This image is an intangible asset, which becomes a vehicle
that eases entry into new markets. Thus, policies concerning product and service quality,
training procedures, and product development practices require some degree of coordina-
tion and cooperation across subsidiaries and businesses.
FACTORS PROMOTING GREATER AUTONOMY
Other developments can oblige a firm to move toward the right of the continuum shown in
Exhibit 11-1 to increase divisional autonomy rather than cooperation. Developments fre-
quently necessitating a shift in this direction are: (1) increased acquisition activity, (2) the need
to avert creeping bureaucratization, and (3) environmental turbulence (see Exhibit 11-7).

exhibit(11-7) Developments Prompting Need for Greater Subunit Autonomy
•
Acquisition activity increases.
•
Creeping bureaucratization endangers firm’s ability to respond to market and industry
changes.
•
Environmental turbulence requires faster response time.
CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 395
Increased Acquisition Activity
If a firm with a highly cooperative organization decides to increase acquisition activity, it
will generally need to shift its organization toward greater autonomy. This adjustment
helps create an internal environment that is more compatible with the needs of managers
of acquired businesses. Divisional autonomy is needed to ensure that creativity, knowl-
edge, management practices, and a distinctive culture are not suffocated from excessive
efforts to induce cooperation right after acquisition. Excessive emphasis on a cooperative
mode can also alienate acquired managers, resulting in demoralization and desertions.
For example, the British firm Hanson PLC engaged in a wide array of acquisitions in
the United States during the late 1980s. It acquired U.S. companies that produce industrial
materials, such as brick makers, chemical firms, lumber firms, and cement makers. To keep
its various acquired business units vibrant and competitive, Hanson gives high levels of
autonomy to its U.S. managers. Hanson believes that excessive corporate interference will
destroy the individual initiative of its acquired units to pursue opportunities in their own
respective markets. In addition, few technological or production-based interrelationships
exist between Hanson’s various businesses.
Sony’s purchase of Columbia Pictures and Matsushita Electric’s acquisition of MCA
Universal Film studios in California are well-publicized accounts of Japanese electronics
giants acquiring entertainment firms in the United States during the late 1980s. Both Sony
and Matsushita felt they needed to acquire film-making studios in the United States to bol-
ster their presence in the increasingly global entertainment industry. Yet, neither Sony nor

Matsushita Electric really possesses any knowledge or skills directly applicable to pro-
ducing popular and successful films. For both Japanese giants, few real opportunities to
build and manage interrelationships between the film and the electronics business were
available. Nevertheless, both Sony and Matsushita believe that films and television shows
would form the “software” that could be shown on Japanese-made televisions and VCRs
for global distribution and provide the basis for future content that would flow along new
telecommunications networks.
To ensure that both Columbia Pictures and MCA continue to produce blockbuster
movie hits, Sony and Matsushita gradually delegated all key decision-making processes
concerning film-making and entertainment to their U.S. affiliates. Film-making repre-
sents a completely unique set of operating procedures, cultures, and distinctive compe-
tences, which is unlike the set used in making consumer electronics. Film-making is
personality-driven and relationships-oriented, while consumer electronics depends on
engineering and manufacturing skills. Japanese executives believe they can benefit more
from their acquisitions by not interfering in the day-to-day and even month-to-month
decision making of their U.S. operations. By playing more of an investor role than an
active manager role, Sony and Matsushita feel they will be better able to retain the U.S.
creative talent necessary for future successful movies and development of entertainment
ideas. Attempting to force tangible interrelationships upon their U.S. film-making affili-
ates would ultimately destroy the value of their acquisitions.
15
Even with a high degree of
managerial distance/autonomy between the electronics side of each firm and the acquired
film-making units, both Sony and Matsushita lost considerable sums of money in
attempting to integrate (however carefully) the two parts of the company. In November
1994, Sony took a massive $3 billion write-off on its purchase of Columbia Pictures. In
April 1995, Matsushita decided that its ownership of MCA Universal was no longer eco-
nomically justified. The company sold 80 percent of MCA to Seagram, a leading distill-
ery and beverage producer that has big ambitions to enter the entertainment industry. Sea-
gram, in turn, moved in 1998 to acquire and consolidate the film-making operations of

PolyGram, a leading film and music giant based in the Netherlands. Seagram is looking
396 PART 4 Sustaining and Renewing Advantage
to bolster its Universal film studios with the capabilities, relationships, and additional dis-
tribution made possible thorough its PolyGram acquisition. Now Seagram (via Universal)
is working with Bertelsmann of Germany to sell music through the Internet to compete
with other digital media and Internet retailers. Seagram is now working with AT&T, Mat-
sushita, and Bertelsmann to sell music over the Internet. Seagram is hoping to further
challenge Time Warner and Sony in this marketspace.
Need to Avert Creeping Bureaucratization
As firms grow and hire more employees, many add intermediate managerial layers between
corporate and operating levels. They also increase the number of rules and reporting proce-
dures affecting budget requests for divisional and subunit activities. As a result of these
changes, proposals must pass through an increasing number of organizational levels before
being approved. They must also satisfy a greater number of constituents. In addition, approval
from a top management group that is further removed from the action is less certain. All too
often, these added requirements interfere with effective decision making, leading to decisions
that poorly reflect the competitive realities of market changes. Even when sound decisions are
produced, the time needed to reach them is often excessive, which, in turn, causes delays in
instituting new technology, introducing new products, and exploiting new markets.
One common solution to this problem is to increase subunit autonomy. Giving divisions
greater authority to make decisions affecting their businesses speeds up the decision-making
process. It avoids the necessity of approving decisions at many higher levels. Autonomy puts
decision making in the hands of individuals closest to the action. Increased autonomy thus
raises the likelihood that decisions will reflect the true realities of the environment that sur-
rounds the business. Conversely, excessively tight or interwoven interrelationships among
divisions may ultimately slow down their response time as cumbersome procedures, rules,
and practices burden divisional management.
All of the big U.S. automakers, General Motors, Ford, and DaimlerChrysler, have expe-
rienced the problem of cumbersome procedures. During the 1970s, strong domestic mar-
ket conditions facilitated the creation of new layers of management and corporate staffs.

These thick layers of management unfortunately insulated senior management from the
desires of consumers who wanted better and smaller cars during the latter part of that
decade. Not until the late 1980s did the Big Three automakers get serious about restruc-
turing their operations to give their product managers more autonomy and leeway in mak-
ing decisions about cars that better suited consumers’ tastes.
In the late 1980s, Alcoa also attempted to delegate more decisions to its operating man-
agers. This giant aluminum and metals processing company once had more than five lay-
ers of corporate management review every decision made by its divisions. However, gen-
eral managers of Alcoa’s 20-plus units now report directly to the CEO without having to
go through group and sector-level executives. Division managers now have direct spend-
ing authority up to $5 million, with all higher funding requests sent directly to the CEO.
The objective of Alcoa’s internal restructuring was to promote individual initiative and
faster response and decision making at all levels of the company.
In the late 1990s, Royal Dutch Shell Group engaged in a worldwide restructuring
designed to make itself more agile and nimble in the wake of the consolidating global petro-
leum industry. In the past, each of Shell’s five operating divisions—exploration and pro-
duction, oil products, natural gas, coal, and chemicals—operated under several senior man-
agers who in turn reported to a corporate committee that had ultimate decision-making
power. Managing each of these five businesses through a complicated, consensus-oriented
committee structure made it difficult for Shell to make decisions quickly and to isolate eas-
ily the performance of each business unit. With this restructuring, each business unit will be
CHAPTER 11 Cooperation and Autonomy: Managing Interrelationships 397
managed by its own CEO who in turn will be responsible for his/her own business per-
formance. Shell’s senior management wants to remove the committee structure so that
information and decisions can be more quickly felt within each organization.
16
Environmental Turbulence
Growing bureaucratization creates special challenges for firms operating in industries
experiencing rapid environmental change. Their businesses must make quick decisions or
lose out to more nimble competitors, particularly in industries that appear to be fragment-

ing or “disaggregating” into smaller segments or niches. The need for divisional autonomy
is then particularly strong, even when the firm has built close interrelationships across divi-
sions in an earlier period.
Texas Instruments experienced this need in recent years. More agile and leaner Japan-
ese competitors eroded large portions of TI’s market share and technological leadership in
memory chips. At an industry level, Japanese producers such as Toshiba, Sharp, NEC, and
Mitsubishi were able to outproduce TI and other U.S. firms in successive generations of
standardized memory chips that are the basis for many consumer electronics and office
equipment products. In addition, the broader semiconductor industry showed signs of
becoming more turbulent and fragmented, as large U.S. manufacturers shifted their pro-
duction emphasis away from making standardized memory chips to more profitable cus-
tomized microprocessors, controller chips, and application-specific (ASIC) circuits. Cus-
tomized microprocessors, in particular digital signal processors, were becoming more
profitable than standardized memory chips for many U.S. firms, since U.S. design and
product innovation skills were better than that of their Japanese counterparts. Each of these
separate lines of products, such as ASICs and digital signal processors (DSPs), demands
fast development time to respond to new market opportunities to use these chips. Fast
response and agility have become as important as production-based interrelationships to
compete in various semiconductor segments and niches that are becoming more customer
specific and targeted.
In response to the need for faster responsiveness, Texas Instruments sold off its mem-
ory chip division to Micron Technology, and TI is now concentrating its efforts on
developing and dominating the DSP chip market. DSP chips are becoming increasingly
important components for use in telecommunications, consumer electronics, automo-
tive, and other critical applications. Competitive advantage in the DSP chip market
requires a fast-innovation capability that can quickly shift according to specific customer
needs.
Many other developments can increase the rate of environmental change, thereby aug-
menting the need for division autonomy. For example, vigorous new rivals may enter a
market. Rivals may increase or concentrate their innovative effort to redefine the industry

(for example, new restaurant concepts or software designs). New technologies may emerge
to change products and processes (such as the way plastic syringes have replaced glass
syringes in the medical equipment business). Government regulations limiting competition
may be relaxed, thus accelerating entry and the creation of new market segments (such as
mutual funds and cash management accounts in the financial services industry or the cre-
ation of competitive local access providers in the newly deregulated telecommunications
industry). Developments such as these are now occurring in the United States in the finan-
cial services, electric utilities, health care, and telecommunications industries. They raise
competitive pressure and require faster decision making, thereby increasing the need for
subunit autonomy. Firms experiencing such developments must adapt by increasing
the autonomy they accord their subunits. In the restaurant and snack food industries, for
example, firms are increasingly jockeying for ever smaller market niches. The rise of