Importance of the research question

The major contribution of this research to knowledge transfer theory is to uncover the attributes of templates that are associated with higher levels of early adoption of business practices. The findings also demonstrate the influence of different template variants and configurations on future replication. This research also highlights the detailed process of how firms can skillfully and deliberately create these template attributes at the start of an intended initiative. The findings demonstrate the diverse and critical roles played by managers located centrally and locally, and at different levels in the firm. Improving the understanding of knowledge transfer is valuable because the effectiveness of knowledge transfer is seen to be fundamental to realizing competitive advantage (Zander & Kogut, 1995).

These insights contribute to a greater understanding of a critical and commonly employed mechanism by which firms introduce new routines and replace existing routines. In this research I suggest that the capability to pilot can be regarded as a dynamic capability which operates as a higher level routine for adapting operational routines and capabilities to dynamic environments (Eisenhardt & Martin, 2000).

The major contribution of this research to institutional theory is to describe how piloting is used as a mechanism for the legitimization for new practices within the multiple and competing organizational fields found within an MNC. This provides empirical evidence of a different relationship between agency and embeddedness, one where embeddedness within a different, competing field can provide the basis for implementing change. The research also contributes to the structure versus agency debate. This research suggests that both agency and structure operates when pilots are employed within this organizational context. The degree to which agency appears to operate to either support or defy the intended initiative depends on the degree to which the new pilot frame resonates with subsidiary managers.

This research also contributes to international business theory by showing how the corporate center can use pilots to encourage subsidiaries to implement new global practices. The corporate center does this by using the capabilities in the pilots to create a status-driven halo effect for the initiatives. Within the context of MNCs the adoption of new practices and the transfer of associated knowledge is a critical topic in international business research. Knowledge transfer through an MNC network has been associated with multiple beneficial outcomes including attaining global competitive advantage (Gupta & Govindarajan, 2000) and increased MNC performance (Van Wijk, Jansen, & Lyles, 2008).

1.6 Summary and outline of the dissertation

This chapter has presented a brief introduction to the topic of the research. The goal of this research is to investigate the process of template creation and the attributes of templates that lead to the early adoption of new organizational

practices. The selected context is the piloting of strategic initiatives by the corporate center within MNCs. The central research question is, “How does (good) piloting influence the early adoption of new global practices resulting from intended strategic initiatives in MNCs?” Definitions and assumptions going into the research were outlined and the importance of the research was highlighted.

The rest of the dissertation is organized as follows.

Chapter 2 reviews the conceptual background in the literature drawing primarily from knowledge transfer theory and institutional theory. This literature review generates insights that are relevant to the research question under investigation and forms a basis for later discussions in Chapter 7.

Chapter 3 describes the mixed methods research methodology including the research paradigm, approach and strategy as well as the research setting and program. It also covers the steps taken to ensure the reliability and validity of the research.

Chapter 4 reports the cause-effect findings from the qualitative exploratory case study analysis and introduces a theory that describes the characteristics of piloting that leads to higher levels of strategic initiative adoption.

Chapter 5 describes the findings from the point of view of examining the micro-processes of piloting that lead to adoption. This chapter also describes the role of the global team, the local team, and the members of the global steering committee.

Chapter 6 reports the hypotheses that were tested in the second quantitative phase of the research and the findings from the data.

Chapter 7 provides a discussion and interpretation of the major findings from the qualitative and quantitative research and relates this study’s results to the prior relevant literature.

Chapter 8 draws the conclusion to the research, provides a discussion of the associated methodological limitations, and makes suggestions for future research directions.

Chapter 9 describes how this research can be used by practicing managers.

Chapter 2. Literature Review

This section of the dissertation covers literature that is relevant for developing a theory for how piloting influences the adoption of intended strategic initiatives. In keeping with a mixed methods study that uses an initial exploratory approach, the literature did not attempt to guide and direct this study but instead forms a backdrop against which the findings from the qualitative research are introduced and discussed (Cresswell, 2003). As such, this literature review should be regarded as a theoretical orientation for the later development and extension of theory (Chapters 7 & 8).

In this chapter I firstly review the knowledge transfer literature on templates and show how templates have been described for best practice transfer and business model replication within the context of intrafirm transfer of knowledge within MNCs. Secondly, I introduce institutional theory and review how it has been applied to MNCs and then describe the essential features of institutional change models. Finally, I outline the evolving thinking about MNC subsidiaries as a locus of capability creation and knowledge transfer. All of this background theory is relevant to the discussion section in Chapter 7.

2.1 Templates as a mechanism for intrafirm knowledge transfer

A template is defined as a complex set of interdependent routines that is discovered, adjusted and fine-tuned by “doing” (Winter & Szulanski, 2001). A template contains critical aspects of the successful routine(s), providing the details and nuances of how the work gets done, in what sequence, and how the various subroutines are interconnected (Jensen et al., 2003). The key characteristics of a template is that it (i) involves an organizational practice that is currently in existence, (ii) observable in the sense that it actually exists in a particular location, (iii) composed of a single or connected set of processes, and (iv) consciously used in the replication process (Jensen et al., 2003; Jensen &

Szulanski, 2007; Nelson & Winter, 1982). A template is an existing set of routines that serves as a working example and future reference point for the reuse of knowledge.

2.1.1 Templates as sets of routines that involve organizational practices From the above definition, templates are composed of routines. Routines are viewed in the economic and management literature as either group-level recurrent patterns of activity or as cognitive regularities (Salvato & Rerup, 2011).

The former view emphasizes the automatic behaviors of groups of individuals that are involved in regular information processing. Routines may range from simple discrete activities to more complex connected activities or meta-routines, such as an entire production process (Szulanski & Jensen, 2004). The later view emphasizes that routines involve standard operating rules that shape behavior (e.g. March & Simon, 1958).

Routines are seen as the building blocks of capabilities (Nelson & Winter, 1982) (see Figure 1). The capability view of the firm holds that competitive advantage

is built through the use of unique capabilities, built on unique knowledge (Collis, 1994). Hence the ability to build competitive advantage depends upon a firm being able to i) create innovative combinations of existing routines or entirely new routines, ii) imitate and replicate successful routines more rapidly than competitors. The priority placed on certain routines and capabilities constitutes the firm’s strategy and determines the idiosyncratic character of this strategy (Barney, 1997; Grant, 1991). Nelson & Winter (1982) argue that for a firm, their most critical knowledge assets are embedded in organizational routines.

Situated above capabilities in the hierarchy are dynamic capabilities. These are higher level routines for adapting operational routines and capabilities to evolving environments (Eisenhardt & Martin, 2000; Teece, Pisano & Shuen, 1997). They play a key role in enabling a firm to adapt to the dynamic environment.

Templates involve an organizational practice that is in existence. The distinction between routines and practices is subtle⁵. One way to view the difference is that routines are strongly associated with structure, stability and rigidity, while practices encompass the role of human agency (Feldman & Orlikowski, 2011).

Organizational practices often have a tacit component, embedded partly in individual skills and partly in collaborative arrangements (Kogut & Zander, 1992;

Nelson & Winter, 1982). Organizational practices may also have a social meaning that is shaped by prevailing institutional contexts (Meyer & Rowan, 1977).

Templates, as composed of complex sets of observable routines, play a critical role in the transfer of organizational practices. They enable successful routines to be encoded and replicated. In addition, dynamic capabilities, given that they are also routines, can also be observed in working templates and can be encoded and transferred. Hence we can see that templates play an important role in changing capabilities that provide competitive advantage and in building dynamic capabilities that allow firms to maintain competitive advantage in dynamic environments.

5The term routine is often used interchangeably with the term organizational practice (Jensen &

Szulanski, 2004; p519).

Figure 1: Multi-level collective entities (adapted from Salvato & Rerup, 2011)

Routines are guided by individual decision making and it has been shown that organizational routines may be stored as distributed procedural memories (Squire & Kandel, 1999). Procedural memory involves individual competencies and routines, such as behavioral routines, procedures, tools, and information system programming (Cohen & Bacdayan, 1994; Pentland & Rueter, 1994).

Research has shown that it may be hard to eliminate the procedural memories stored in routines and practices. For example, individuals have been shown to persist in using decisions routines, even when they are no longer optimal, and even when the individuals recognize that a different approach at the beginning of the task (Bröder & Schiffer, 2006). Practices remain stable not only because habit ingrains standard ways of doing things, but because the need to engage one another forces people to return to common structures (Swidler, 2001). The ability to breaking existing routines is critical if organizations are going to be able to change in response to a dynamic environment. Unlearning routines and practices allow organizations to avoid core rigidities which lead to an inevitable progressive loss of competitive advantage over time (Leonard-Barton, 1995).

A recent comprehensive review on existing research on routines suggests a number of fruitful areas of research (Salvato & Rerupp, 2011). For instance, little is known about how contextual elements affect the performance of routines and capabilities (Salvato & Rerupp, 2011); in particular the mechanisms for engaging the commitment of individuals in implementing routines and for unlearning existing routines and practices. In addition, research has not investigated how routines are performed and interpreted at different levels of the organizational hierarchy or how actors at different hierarchical levels impact a routine’s practice in existence (Jensen et al., 2003; Winter & Szulanski, 2001).

Research to date on the use of templates for intraorganizational knowledge transfer has focused on two main areas; best practice transfer and business model replication.

2.1.2 Best practice transfer and use of templates

Intrafirm knowledge transfer literature takes a dyadic point of view that focuses on the behaviour of source units and recipients. At the dyadic level there are essentially two roles that a subsidiary may play in knowledge flows, termed

“knowledge transfer” (Szulanski, 1996): i) Source – It is assumed that the source unit already possesses a “best practice” ready for transfer; ii) Recipient – The recipient unit is actively searching out “best practices” to transfer from source units into their own unit.

Intrafirm best practice transfer starts with the recognition of a need in the recipient. During the initiation stage this recognition triggers a search for potential solutions and which leads to the discovery of superior knowledge in another part of the organization such as another subsidiary (Szulanski, 1996).

The search can be viewed as either searching for a solution to a current problem or as an opportunity to discover superior knowledge. Once the need and a potential solution to that need are identified their fit is explored and this leads to the decision to transfer (Szulanski, 1996). The recognized best practice employed in the source subsidiary is encapsulated in the form of a “working template” (Nelson & Winter, 1982), which is then replicated in the recipient subsidiary (Jensen et al., 2003; Jensen & Szulanski, 2004).

Templates, have an element of explicit knowledge but also of tacit knowledge.

Tacit knowledge is embedded in individual experience and is difficult or impossible to communicate or transfer to others (Nonaka, 1991; 1994; Polanyi, 1966). Explicit knowledge is objective or codified or relatively easily transmissible. The general assumption is that tacit knowledge may be more valuable to transfer and hence more worthwhile to transfer (Hansen, 1999).

Szulanski (1996, 2000) elaborates the process of knowledge transfer during template implementation in the recipient unit. Template reproduction passes through several stages (Szulanski, 1996, 2000):-

 Initial implementation effort when the recipient receives knowledge from the source.

 Ramp-up to satisfactory performance when the recipient starts to use the knowledge.

 Integration which involves follow through and evaluation when the knowledge becomes routinized.

In this model the source plays a key role in the transfer process through providing resources and engaging in social ties through which tacit and explicit knowledge migrate. The advice of the source can enhance the effectiveness of the transfer by reducing or eliminating the need for costly efforts to rediscover the information and tacit knowledge that already exists (Szulanksi, Cappetta, &

Jensen, 2004). The source provides enabling mechanisms that aid in the actual transfer of knowledge and make the transfer possible (Jensen & Szulanski, 2009). Because the knowledge being transferred is frequently complex and causally ambiguous (Kogut & Zander, 1992), resolving problems that arise

during such a transfer may involve frequent comparisons of the original template in the source with the replica being created (Nelson & Winter, 1982). In other words the template in the source is used as a referent.

Because it is recognized that organizations often have difficulty getting recipient units to adopt best practices, it has been proposed that templates overcome resistance to change by demonstrating results and providing evidence that someone else in the organization has already implemented the practice (Armenakis & Harris, 2002; Jensen et al., 2003). Without a template recipients have to rely on faith rather than proof when making the decision to implement, which lowers the incentive to adopt a best practice (Jensen & Szulanski, 2007;

p1727). This suggests that templates may also act as a persuader for adoption and as a mechanism which influences the recipients to initiate transfer (Jensen

& Szulanksi, 2009).

It is important to note that in the knowledge transfer literature the template is assumed to exist and hence there is no description on how this initial template is generated or developed over time. There is also no mention about how long the template has been in existence before transfer was attempted.

In evaluating the success of knowledge transfer the literature takes a “recipient focused” point of view: “for knowledge transfer to occur, learning must transpire in the mind of the recipient” (Sussman & Siegla, 2003; 48) where the recipient proactively pulls knowledge from the source.

The assumption in best practice knowledge transfer literature is that the source unit has some proven value in resolving the recognized problem and that transfer will provide competitive advantage in the recipient unit. Learning takes place through social learning where useful information is shared (Bandura, 1986;

Kraatz, 1998; Rogers, 2003) and learning through the diffusion of information through networks of ongoing relationships is regarded as a central tenet (e.g.

Hansen, 1999; Szulanski, 2000; Tsai, 2002).

It is also assumed that the source understands how the strategic organizational practice provides competitive advantage (Szulanski & Jensen, 2004).

2.1.3 Replication and use of templates

Knowledge transfer of a complete business model, such as during the growth of franchise networks or other networks with a consistent business model, can be regarded as a special form of best practice transfer. Examples of successful franchises include MacDonalds, Subway, IKEA. This phenomenon is referred to in the literature as “replication”. Replication involves the creation and operation of a large number of similar outlets that deliver a product or perform a service (Winter & Szulanski, 2001).

Replication is distinguished from best practice transfer by two characteristics;

the broad scope of knowledge transfer and the attention to dynamic capabilities that accumulate at the organizational center (Winter & Szulanski, 2001). The scope of knowledge transfer is necessarily broader than in best practice transfer because the template comprises a whole business model rather than a partial set of routines (Winter & Szulanski, 2001). With each replication the capabilities of the corporate center to replicate evolve as a result of learning. The dynamic

capabilities of the center reflect the replicator’s knowledge of the business model traits that must be reproduced at each outlet, of actions that can be taken to reproduce those traits, and of environments in which such traits have business value (Winter & Szulanski, 2001).

Winter and Szulanski (2001) proposed that replication is composed of an exploration phase followed by an exploitation phase. Exploration takes place as the business model for a franchise is created and refined. Clarity of the key elements of the business model increases with each subsequent “roll-out” of the model. Baden-Fuller and Winter (2007) argue that this increasing clarity may come in the form of either a template that forms the detailed working example or as a set of principles that describes the underlying logic of the business model.

Following the exploration phase, exploitation takes over as the business model is stabilized and leveraged through large-scale replication. Researchers are now starting to investigate the transition to the second stage of exploitative learning and to describe the processes whereby some international firms are revisiting, modifying and adjusting the original template to account for local institutional idiosyncrasies and changing market conditions (e.g. Jonsson & Foss, 2009).

“Arrow core” is an important term in business model transfer (Winter &

Szulanski, 2001). The Arrow core refers to the knowledge of which attributes are replicable and worth replicating over time, together with the knowledge of how these attributes are create. It contains the answer to “what, how, and where should the replicator be trying to replicate?” (Winter & Szulanski, 2001:p733) At any point in time there is a successful outlet that can be regarded as the guiding example or template. The Arrow core is contained within this complex and causally ambiguous template and is acquired through learning from experience.

Knowledge of the Arrow core cannot be known at the outset. The first template is only encoded once it is established that the initial business model is successful, otherwise this can lead to repeated failure at the other locations.

Knowledge must be acquired by the corporate center through exploratory learning when the original template is created and then all of the subsequent templates.

In summary, in contrast to best practice transfer, research into replication acknowledges the exploratory phase of creating the initial business model template; however there are only limited descriptions about how this initial template is set up or the attributes of these initial templates. In addition, the template is only reused once it has been determined to be successful.

2.1.4 Antecedents of stickiness in intrafirm knowledge transfer

Research on the intrafirm transfer of best practices indicates that such transfers are often very difficult or sticky (Szulanski, 1996; Teece, 1997; von Hippel, 1994) with frequent incidents of transfer failure (Galbraith, 1990; Gupta &

Govindarajan, 2000; Jensen & Szulanski, 2004). For instance, Galbraith (1990)

Govindarajan, 2000; Jensen & Szulanski, 2004). For instance, Galbraith (1990)