Empirical Analysis of Interactive Control’s Effectiveness: A Parent-Subsidiary Company’s Interdependence Perspective
Affiliation(s)
School of Management, University of Science & Technology of China, Hefei, China. School of Business, Anhui University, Hefei, China.
School of Management, University of Science & Technology of China, Hefei, China. School of Business, Anhui University, Hefei, China.
ABSTRACT
Due to the increasingly complex business environment and the principal-agent relationship, the enterprise group should establish a control system to prevent agency risk. Besides traditional system control, the parent company tends to adopt an interactive control including decentralized decision making, process communication and target incentive to guide and govern the subsidiaries. As an elastic control mechanism, the interactive control’s effectiveness could be influenced by the resources dependence relationship which is objective existence between the parent and subsidiary company. Based on the classical literature review, this study analyzes the effects of interaction control to the performance (“interactive control → performance”) and the interdependence’s regulating role by a total sample and a multiple-group structural equation analysis based on Chinese groups’ data, the results show that the interactive control could improve the subsidiaries’ performance, but different control process has its particular applicable interdependence situation. In the conclusions, we proposed some suggestions to promote the interactive control’s effectiveness in the enterprise group’s management practices.
Due to the increasingly complex business environment and the principal-agent relationship, the enterprise group should establish a control system to prevent agency risk. Besides traditional system control, the parent company tends to adopt an interactive control including decentralized decision making, process communication and target incentive to guide and govern the subsidiaries. As an elastic control mechanism, the interactive control’s effectiveness could be influenced by the resources dependence relationship which is objective existence between the parent and subsidiary company. Based on the classical literature review, this study analyzes the effects of interaction control to the performance (“interactive control → performance”) and the interdependence’s regulating role by a total sample and a multiple-group structural equation analysis based on Chinese groups’ data, the results show that the interactive control could improve the subsidiaries’ performance, but different control process has its particular applicable interdependence situation. In the conclusions, we proposed some suggestions to promote the interactive control’s effectiveness in the enterprise group’s management practices.
Cite this paper
B. Luo, J. Yu and H. Ji, "Empirical Analysis of Interactive Control’s Effectiveness: A Parent-Subsidiary Company’s Interdependence Perspective," iBusiness, Vol. 4 No. 3, 2012, pp. 198-207. doi: 10.4236/ib.2012.43025.
B. Luo, J. Yu and H. Ji, "Empirical Analysis of Interactive Control’s Effectiveness: A Parent-Subsidiary Company’s Interdependence Perspective," iBusiness, Vol. 4 No. 3, 2012, pp. 198-207. doi: 10.4236/ib.2012.43025.
References
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[1] N. Nohria and S. Ghoshal, “Differentiated Fit and Shared Values: Alternatives for Managing Headquarters-Subsidiary Relations,” Strategic Management Journal, Vol. 15, No. 6, 1994, pp. 491-502. doi:10.1002/smj.4250150606 [2] S. W. Bradley, H. Aldrich, D. A. Shepherd and J. Wiklund, “Resources, Environmental Change, and Survival: Asymmetric Paths of Young Independent and Subsidiary Organizations,” Strategic Management Journal, Vol. 32, No. 5, 2011, pp. 486-509. doi:10.1002/smj.887 [3] J. Galbraith, and D. Nathanson, “Strategy Implementation: The Role of Structure and Process,” West Publishing Company, Saint Paul, 1978. [4] W. P. Tsai, “Social Structure of ‘Coopetition’ with in a Multiunit Organization,” Organization Science, Vol. 13, No. 2, 2002, pp. 179-190. doi:10.1287/orsc.13.2.179.536 [5] T. Yamagishi, “Trust in Social,” Russell Sage Foudation, New York, 2001. [6] M. Subramaniam and S. Watson, “How Interdependence Affects Subsidiary Performance,” Journal of Business Research, Vol. 59, No. 8, 2006, pp. 916-924. doi:10.1016/j.jbusres.2005.12.005 [7] J. E. Mc Cann and D. L. Ferry, “An Approach for Assessing and Managing Inter-Unit Interdependence,” The Academy of Management Review, Vol. 4, No. 1, 1979, pp. 113-119. http://www.jstor.org/stable/257411 [8] B. Keats and H. M. O’Neil, “Organizational Structure: Looking through a Strategy Lens,” In: M. A. Hitt, R. E. Freeman and J. S. Harrison, The Blackwell Handbook of Strategic Management, Blackwell Publishing Inc., Malden, 2005. [9] H. D. J?rgensen, “Interactive Process Modes,” Ph.D. Thesis, Norwegian University of Science and Technology, Trondheim, 2004. [10] K. Hallahan, D. Holtzhausen and B. van Ruler, “Defining Strategic Communication,” International Journal of Strategic Communication, Vol. 1, No. 1, 2007, pp. 3-35. doi:10.1080/15531180701285244 [11] R. N. Anthony and W. Govindarajan, “Management Control Systems,” 4th Edition, R.D. Irwin, Chicago, 1980. [12] H. A. Simon, “Administrative Behavior, a Study of Decision-Making Processes in Administrative Organization,” Macmillan, Oxford, 1947. [13] M. J. Gibbs, K. A. Merchant, W. A. Van Der Stede and Mark E. Vargus, “Performance Measure Properties and Incentive System Design,” Industrial Relations, Vol. 48, No. 2, 2009, pp. 237-264. doi:10.1111/j.1468-232X.2009.00556.x [14] A. M. Grant, S. Nurmohamed, S. J. Ashford and K. Dekas, “The Performance Implications of Ambivalent Initiative," Organizational Behavior and Human Decision Processes, Vol. 116, No. 2, 2011, pp. 241-251. [15] S. J. Porth, “Strategic Management: A Cross-functional Approach,” Prentice Hall, London, 2003. [16] J. P. Kotter, “What Leaders Really Do?” Harvard Business Rebiew, 2001. http://hbr.org/2001/12/what-leaders-really-do/ar/1 [17] C. Inkpen, “Creating Knowledge through Collaboration,” California Management Review, Vol. 39, No. 1, 1996, pp. 123-140. [18] S. W. O’Donnell, “Managing Foreign Subsidiaries: Agents of Headquarters, or an Interdependent Network?" Strategic Management Journal, Vol. 21, No. 5, 2000, pp. 525-548. doi:10.1002/(SICI)1097-0266(200005)21:5 [19] Pedersen, T. B. Petersen and D. Sharma, “Knowledge Transfer Performance of Multinational Companies,” Management International Review, Vol. 43, No. 3, 2003, pp. 69-90. http://www.jstor.org/stable/40835968 [20] D. B. Minbaeva, “HRM Practices and MNC Knowledge Transfer,” Personnel Review, Vol. 34, No. 1, 2005, pp. 125-144. doi:10.1108/00483480510571914 [21] R. S. Allen and R. H. Kilmann, “The Role of the Reward System for a Total Quality Management Based Strategy,” Journal of Organizational Change Management, Vol. 14, No. 2, 2001, pp. 110-132. doi:10.1108/09534810110388036 [22] G. Van der Vegt and E. Van der Vliert, “Intragroup Interdependence and Effectiveness: Review and Proposed Directions for Theory and Practice,” Journal of Managerial Psychology, Vol. 17, No. 1, 2002, pp. 50-67. doi:10.1108/02683940210415924 [23] G. Cadotte, “Exchange Interdependence and Inter-Firm Interaction: Research in a Simulated Channel Setting,” Journal of Marketing Research, Vol. 31, No. 4, 1994, pp. 516-532. doi:10.2307/3151880 [24] T. Kostova and K. Roth, “Adoption of an Organizational Practice by Subsidiaries of Multinational Corporations,” The Academy of Management Journal, Vol. 45, No. 1, 2002, pp. 215-233. doi:10.2307/3069293 [25] P. Ghemawat and D. Levinthal, “Choice Interactions and Business Strategy,” Management Science, Vol. 54, No. 9, 2008, pp. 1638-1651. doi:10.1287/mnsc.1080.0883 [26] J. Birkinshaw and N. Hood, “Multinational Corporate Evolution and Subsidiary Development,” Macmillan Press, New York, 1998. [27] K. Roth and D. Nigh, “The Effectiveness of Headquarters-Subsidiary Relationships: The Role of Coordination, Control and Conflict,” Business Research, Vol. 25, No. 4, 1992, pp.277-301. doi:10.1016/0148-2963(92)90025-7 [28] B. Ambos and V. Mahnke, “How Do MNC Headquarters Add Value?” Management International Review, Vol. 50, No. 4, 2010, pp. 403-412. doi:10.1007/s11575-010-0040-5 [29] F. R. David, “Strategy Management,” 2nd Edition, Prentice Hall, Inc., Upper Saddle River, 1997. [30] R. Wageman, “Interdependence and Group Effectiveness,” Administrative Science Quarterly, Vol. 40, No. 1, 1995, pp. 145-180. doi:10.2307/2393703 [31] A. M. Rugman and A. Verbeke, “Extending the Theory of the Multinational Enterprise: Internalization and Strategic Management Perspectives,” Journal of International Business Studies, Vol. 34, No. 10, 2003, pp. 125-137. doi:10.1057/palgrave.jibs.8400012 [32] Y. Luo, “Market-Seeking MNEs in an Emerging Market: How Parent-Subsidiary Links Shape Overseas Success,” Journal of International Business Studies, Vol. 34, No. 10, 2003, pp. 290-309. [33] S. Tallman and M. P. Koza, “Keeping the Global in Mind: The Evolution of the Headquarters Role in Global Multi-Business Firms,” Management International Review, Vol. 50, No. 4, 2010, pp. 433-448. doi:10.1007/s11575-010-0045-0 [34] Y. Doz and C. K Prahalad, “Headquarters Influence and Strategic Control in MNCs,” Sloan Management Review, Vol. 23, No. 1, 1981, pp. 15-29. http://search.epnet.com/login.aspx?direct=true&db=buh&an=4014035 [35] L. W. Sargeant, “Strategic Planning in a Subsidiary,” Long Range Planning, Vol. 23, No. 2, 1990. pp. 43-54. doi:10.1016/0024-6301(90)90198-D [36] A.-W. Harzing and N. Noorderhaven, “Knowledge Flows in MNCs: An Empirical Test and Extension of Gupta and Govindarajan’s Typology of Subsidiary Roles,” International Business Review, Vol. 15, No. 3, 2006, pp. 195-214. [37] F. T. Chiang and T. A. Birth, “The Performance Implications of Financial and Non-Financial Rewards: An Asian Nordic Comparison,” Journal of Management Studies, Vol. 10, No. 10, 2011, pp. 1-33. [38] A. Persaud, “Enhancing Synergistic Innovative Capability in Multinational Corporations,” Product Innovation Management, Vol. 22, No. 5, 2005, pp. 412-629. [39] M. Armstrong and H. Murlis, “Reward Management: A Handbook of Remuneration Strategy and Practice,” Kogan Page, London, 2005 [40] H. A. Ndofor, D. G. Simon and X. M. He, “Firm Resources, Competitive Actions and Performance,” Strategic Management Journal, Vol. 32, No. 2011, pp. 640-657. [41] F. Ciabuschi, M. Forsgren and O. M. Martín, “Rationality vs Ignorance: The Role of MNC Headquarters in Subsidiaries’ Innovation Processes,” Journal of International Business Studies, Vol. 42, No. 9, 2011, pp. 958-997. doi:10.1057/jibs.2011.24