Technology Strategy Formulation for Global Corporations

Abstract

Most global companies operate in multiple countries and locations all around the world. The focus on technology and economics is not enough as the global corporations have affiliates and subsidiaries that carry social and political undertones stemming from cultural and geographical diversity. The execution of digitalization/technology strategy is governed by the interplay of social structures and technology. Orlikowski, Sabatier and other researchers found that social aspects significantly contribute to strategy execution success. Lindbolm, Dunshire and others have brought into limelight the bipartisan politics, mutual adjustment etc. This chapter discusses major elements of technology strategy viz. Technological considerations, Operational considerations, Economic aspects, Social aspects and Political issues. Converging, the chapter presents aspects of technology strategy of national companies and multinational companies, specifically focusing on social and political angles of a multinational companies. Third part focuses on technology strategy formulation process, concluding that it is the strength of the process of strategy formulation that will help the companies in the changing dynamic environment business scenario. The model offered here is titled IPCRC model adapted from Vaidya that addresses meeting socio-political challenges of a multinational company. Conceptually this model may be used in any business or functional strategy formulation.

1. Introduction

Businesses have been making changes, transforming the way they work for several decades. Globalization set in bringing changes in the way businesses work. The labor, capital and goods started moving around the globe with much ease, along-with the work itself. The service industry came to fore. The pace of change has only been accelerating, much more so in the past decade. At the nucleus of these changes have been the technological progress. The internet, proliferation of mobile, cloud, social networks all had a huge impact on the relation of customers with businesses. New media became available for interaction. Wynn and Jones [1] elaborated the IT strategy in the digital world in a hotel industry. The researchers here focus on changed customer requirements and resulting functionality that needs to be incorporated. Mankins et al. [2] advocates that emerging from pandemic in the digital world the companies should get their employees to work with technologies in a coordinated way. The Covid-19 pandemic forced businesses and customers to adopt new ways of technology advances and internalization. The technology’s position in business and society became more visible. In the earlier years the technology was always being treated as a supporting function. Today almost no business or society can avoid use of technological implants, they have taken the center stage. Gerard et al. [3] have discussed the changes in technology and innovation on account of pandemic and how it has changed the society and businesses.

Technology strategy has been a topic of discussion in the practice. Many researchers and practitioners have written about ‘alignment with business’ and ‘adoption of technology’. While these concepts were right at the time of writing, over past few years there are considerable changes in the business practices. Past 2 years of pandemic demonstrated accelerated use of technology. Pereira et al. [4] study documents the business transformation brought by the internalization of digital technologies before and during pandemic. From that perspective businesses do not discuss alignment or adoption, accepting that the technology has been integral to running of businesses. Technology strategy is not considered as a support structure, instead it is now embedded in the business strategy. For instance, in the world of Finance and Logistics it has taken center stage occupying seats at the strategy councils of corporates. I will discuss here factors that influence Technology strategy. I have divided the discussion in three major parts viz. Technology Strategy of National companies, Technology Strategy of Multinational Companies and Strategy Formulation Process.

2. Part I: technology strategy of national companies

To make it clear I bring here concept of a National Company. It is the one that has all businesses concentrated within the national boundaries, geographical and judicial. Within these boundaries company has employees and customers who share similar culture, language, traditions etc. In the political world such countries are termed as Nation-States, in the contemporary world most countries fall in this category.

Here I present an overview of the elements that are addressed by the technology strategist.

1. Technical considerations

2. Operational considerations

3. Economic aspects

One needs to remember that although one can discuss these as individual elements they are highly interdependent. A change in one will have ripple effect on the second and will need to change and so on. Yeh et al. [5] studied importance of information system capability as a factor in the success of e-business information technology strategy. The capability refers to both technical and operational aspects of technology. The researchers concluded that such a capability has direct impact on the e-business. Saghaeiannejad-Isfahany et al. [6] researched feasibility of telemedicine in the Isfahan province. They found that medical professionals were in favor of such a system and considered it useful, expressing view that the technical and operational feasibility was required to make investments.

Figure 1 shows three elements that are considered while formulating technology strategy. It depicts the technical considerations, operational considerations and economic aspects that need to be taken into account for technology strategy. The technology strategy itself is an outcome of strategizing process. For the sake of understanding, we discuss all three here.

Figure 1.

Technology strategy of a national company.

2.1 Technical considerations

While technology developed at a rapid pace many solutions and applications became available to businesses. The ERP, CRM, MRP, Warehouse management etc. working on-premises have been implemented for a long time, the internal data centers and the support teams became part of organization structure. Then the cloud came into picture, enticing companies move to clod based applications. This was an opportunity for the people to rethink technology strategy moving entire or part infrastructure to cloud. Simultaneously internet based success based stories started emerging such as Amazon, Netflix and Spotify. The e-commerce offered a different route to customers.

Today one needs to account for multiple facets of technology:

1. On-premises vs. cloud based systems

2. Support team organization

3. Specific business requirements such as reach to customers, suppliers and employees

4. Business criticality of open vs. closed systems e.g. should some parts of system be opened to vendors and customers

5. Security aspects thinking about research & development and innovation departments digitization

6. Geographical reach of business such as operating in multiple states/regions/provinces of a country and the compliance requirements of each.

Points 3–6 above are important for the technology strategy, they relate to business direction and the requirements. As an instance, some forward looking businesses may want to have their customers and vendors on their own internal ERP systems. Some others may consider internal system to be strictly opened only to employees of the organization. Another case where the engineering and construction business may want to work with their contractors and subcontractors on same systems for design and project monitoring system, while keeping financial data strictly kept confidential to the company. Besides, considerations may be substantially different for a national organization from that of a local organization.

2.2 Operational considerations

The operational considerations are related to technological considerations. While having an in-house data center will need the support structure such as facilities, people and space. The support considerations involve employing own people. That would mean getting correct talent in the organization and retaining it. In the technology space generally opportunities galore resulting in higher turnover of the people. It becomes a major human resource exercise to manage such talent. The technology advances also affect the skills and competency requirement.

On the other side one may consider outsourcing some of these services. If the cloud based managed services are engaged then internal technology human resource requirement go down. Further the managed service vendor guarantees the uptime and quality of service under ‘Service Level Agreement (SLA)’. In such situations the technology department/division may require people that are experts in outsourcing monitoring and control.

Consolidating all technology resources in one central locations helps to lower costs, however operationally servicing customers, employees and vendors in other locations to their satisfaction may be challenging. A country such as China, USA and Russia are examples where they operate in different time clocks across regions. That results into providing service from central system to match necessary clocks. It is of course possible to do this and there are companies that operate such centralized systems. Besides, the large companies operate central services such as Human Resources, Finance and Technology. Their locations add the complexity of providing service from central technology system. Mahamed et al. [7] describe a technology based solution titled ‘home-based maternal record (HBMR)’ explored in Zimbabwe. The researchers have assessed operational feasibility of providing a simple solution in rural areas to improve health record.

There are always possibilities of acquisitions, mergers and divestures. When the businesses merge or make acquisitions there is certain planning that can be done in advance in the technology strategy to ensure smoother integration of businesses. In case of divesture of some business lines or sectors the technology strategy changes turn out to be much more challenging. This is more so as the divesture is announced only when all legal procedures are completed and the necessary approvals are acquired. All these require responding technology matching the timeline set by these events.

2.3 Economic aspects

A central expectation of the technology implementation is that it creates value for business. The ‘value creation’ is absolutely vital for investing in technology. The typical financial parameters such as Return on Inventor (ROI), Net Present Value (NPV), Discounted Cash flow and Payback period are the metrics used for evaluating projects in most of the organizations. Strassmann [8] advocates the use of ROI to make decisions on IT investments adding that economic criteria are important. The decision makers should way the best and worst case scenarios. The investment in technology projects is approved only if it means certain level of returns. Many businesses today would like to be asset light, that mean they may not want data center on their balance sheet. Such companies may prefer to host their software on the cloud or another data center. Even in such as meticulous calculations are done to understand impact of moving capital expenditure (capex) operational expenditure (opex) in the long run and short run. Today many other inputs need to be taken into account well beyond financial metrics, some such examples, amongst others, may be compliance requirements, nice to have technology and threat mitigation.

Smith et al. [9] bring out importance of business value creation through technology strategy, further specifying that the business and technology strategy need to complement each other to generate value. Figure 2 picturizes examples of value of technology as may be considered by different people in different context. The decision makers may have different considerations of value generated by technology. Efficiency and time saving are the most common values. One also needs to distinguish between ‘nice to have’ and ‘essential to have’. For instance, $200 smart phones for the sales people traveling in the field may fall in the category of ‘essential to have’ however, smartphones of $600 may be termed ‘nice to have’.

Figure 2.

Value of technology.

One may think of WhatsApp acquisition by Facebook in 2014 as the one beyond pure financial considerations, as more and more people started using WhatsApp. Skype acquisition by Microsoft in 2011 was not making much of money then. EMC by Dell and 2016, Autonomy by HP in 2011 all showcase high profile acquisitions. While one may argue that these were decisions at the enterprise level having significant business considerations, one cannot dispute the fact that all acquired companies had special technology that was valued by acquiring company. WhatsApp and Skype were clear examples of new ways a communicating, to the extent that Mark Addreessen in his famous paper “Software is Eating the World” in 2011 classified Skype as telecom company. Silvius [10] discusses value of technology, also questions mindless applicability of ROI in every technology investment. In a way he brings out salient, even intangible, outcomes of technology. Brynjolfsson and Hitt [11] found in their study that benefits of information technology investments are difficult to measure and are often intangible. However, there is strong link between information technology and productivity gains.

It is important to also consider the technology portfolio management of company where acceptance/rejection/postponement of technology projects is done. Besides other metrics the financial metric of vale generated by technology carries high weight. Let us consider here simple examples of Finished Goods Inventory management and Accounts Receivables by a fast moving consumer products company. The computation shown here is oversimplified to give first level of understanding.

Scenario 1: An FMCG company operating within a national boundary has revenue of $10 million, with COG (cost of Goods) at 60%. It generally maintains 30 days of finished goods (FG) inventory. An IT company offers to provide an IT solution that can reduce FG inventory by 15% at a cost of $20 thousand per annum. Given inventory carrying cost of 20% should the solution be accepted?

Table 1 shows computation of savings possible by reduction in finished goods inventory.

1	30-days FG inventory at revenue	= $10 m/12	≈ $833 thousand
2	30-days FG inventory at COG	= $833 K × 0.60	≈$500 thousand
3	Reduction of FG at 15%	= $500 K × 0.15	= $75 thousand
4	Inventory Carrying cost reduction in FG at 20%	= $75 K × 0.20	= $15 thousand
5	Cost of IT solution		= $20 thousand

Table 1.

Scenario 1: Computation of savings.

One needs to compute savings in cost on account of reduction in FG inventory. Carrying finished goods inventory entails costs such as bank interest, insurance, space, administration and obsolescence. The scenario given here indicates such inventory carrying cost to be 20%. The level of such cost varies based on the kind of products, the interest changes, location of warehouse etc. As an example obsolescence may be very high in perishable food items but low in metals.

In the above computation adopting the solution at $20 K gives no benefit to the company. Solution will not be accepted.

Scenario 2: Consider a company with a turnover of a $120 million selling products in a single country, with a 45 day accounts receivables. An IT solutions provider offers a service that would bring down the accounts receivables to 30 days. Given the cost of financing the receivables at 10% what is acceptable cost per year of IT service?

Table 2 shows computation of savings in this scenario.

1	45-days accounts receivables	= $(120 m/12) × 1.5	≈ $15 million
2	30-days accounts receivables	= $ 100 m/12	≈$ 12 million
3	Reduction of AR at 10%	= $ 15–12 m	= $3 million
4	Reducing cost of financing at 10%	= $3 m × 0.10	= $300 thousand

Table 2.

Scenario 2: Computation of savings.

Accounts receivables show outstanding amounts to be received from customers. Generally, the selling company extends credit to the customers. In this scenario the company’s AR is equivalent to 45-days sales. As the receivables are financed by bank loan it is in the interest of the selling company to minimize it as much as possible. Bringing down AR from 45 to 30 days saves $300 thousand for company, as seen in Table 2. In this case company will accept an IT service if it costs less than $300 thousand per year.

3. Part 2: technology strategy of multinational companies

The globalization set pace for expansion of those who could sell their products and services around the globe. Netflix, Amazon, Google, Mondelez, Vodafone, McDonald and may such companies in diverse sectors established their businesses in multiple countries. Challenges are different now which result from different cultures, traditions, languages from customer service perspective and the compliance requirement from local regulations perspective. Geppert and Mayers [12] bring out the socio-political dimension of such organizations. All these became part and parcel of the technology strategy as well.

Two other very relevant factors, that technology strategists unaware of, came to fore viz. Social and Political environment. Adding these two:

1. Technical considerations

2. Operational considerations

3. Economic considerations

4. Social factors

5. Political environment

Figure 3 shows the factors that need to be considered while formulating technology strategy of multinational company. Do notice, in addition to technical, operational and economic aspects, socio-political dimension has been added as an intervening factor. I will discuss here additional two factors added above and then move onto the changes in other factors.

Figure 3.

Technology strategy of a multinational company.

Operational considerations are influenced by social and political factors in a multinational company. They are crucial for a company having manufacturing and/or service centers in multiple countries and customers spread globally. The technology strategy of such a company is fundamentally different for a multinational organization from that of a national organization. I have discussed operational considerations further in Section 3.3.

3.1 Social factors

Societies in different countries have different level of adoption to technology. As an example World Bank published Digital Adoption Index for 180 countries based on data available up to 2016. The Statista gives Digital Competitiveness Ranking for 2021 representing countries ability to adopt digital technologies. Having such information handy is helpful in deciding depth of technology that may be planned in certain countries.

Orlikowski [13] concluded many decades ago that the use of technology is ultimately depended on the users of technology and not on the designers of technology. Same technology may be deployed in completely different manner by one set of people than others. An excellent example may the use of intra-company chat systems. There are companies who have used it as a tool for solving complex technical issues with the collaboration of experts spread around the world, while others have used it only for social chat. Orlikwoski and Gash [14] talk about ‘Technological Frames’ that users develop. Their understanding and use of technology is influenced by their technological frames.

In the contemporary world the technology strategy of multinational company is invariably formulated in the parent company, as most other business/functional strategies. It is expected that the affiliate companies and business unit spread around the world accept and follow the strategy as mandate. The conflict originates in the expectation that people working in different cultures in the affiliate company would simply accept what is conveyed to them. In the real world many times the perceived impact creates dissatisfaction, also resulting in low motivation and lower morale. The head of such a far-away unit understands and raises it at a higher level of the parent management, which now turns out to be a political issue as well shown in Figure 4.

Figure 4.

Socio-political environment of a multinational company.

Figure 4 shows the how a social factor can turn to be a political issue. It may be just the perception of people amongst the employees of affiliate company that may have to be overcome at political level. Orlikowski [15] brings out interpretive flexibility of technology. This allows people in affiliates to interpret social implications which the interest groups can shape into political issue quickly.

3.2 Political environment

Politically there are many facets that one has to consider while providing technology services to the stakeholders in that country. Some example here:

1. Many countries now specify that the data of residents of the country be stored on servers that are located within the boundaries of country.

2. United Nations publish list of fragile states that potentially do not have stable social, political and/or economic conditions.

3. FATF (Financial Analyst Task Force) a body set up by FinCEN (Financial Crimes Enforcement Network) of US Treasury publishes a list of countries that do not satisfactorily meet restrictive measures that prevent financing Terrorism and Money laundering.

4. There are many instances of the inter and intra state conflicts that have been seen largely in Asia and in South African countries. These countries also account for large pie of total population and the market potential.

Besides such external factors there are internal factors that influence technology strategy. A multinational organization operating in five continents generally has the manufacturing plants in low cost countries, the Research and Development in high talent rich locations and the back office work in most optimum cities. The resultant countries have a sort of unwritten hierarchy in the multinational organization. The heads of those countries have ears to the higher ups in the company and they have a say about every possible strategic and tactical plan of the company. Strategy formulation that happens in such a multi-country, multi-product, multi-division matrix organization can be best described in Lindblom’s [16] terminology as ‘Partisan Mutual Adjustment’. The strategist needs to manage certain give and take while making final plan. The various groups in a multinational company working in affiliates and parent company have own interests. The strategist needs to balance these interests, the process is referred as partisan mutual adjustment, typically found in the political circles.

One may also witness an intervention termed as collibration by Dunshire [17]. Collibration is the term used by Dunshire to indicate a higher level intervention such as a directive to award a contract to a certain vendor, or to appoint to particular person in a particular position. Philips deal with Dell on outsourcing of global desktop services that was canceled in 12 months in 2006, later on awarded to IBM. Dell was also supplier of components to Philips. One may wonder if the desktop deal with Dell was part of condition to maintain customer-supplier relationship.

Thirdly there has been a concept of coalition that is usually seen in political circles. A strategist in a multinational company needs to aware and work with coalition actors as described by Sabatier [18]. The coalition politics, also referred s ‘Realpolitik’ is a term that represents groups of people joining hands in a given context without any regard to their own ideology or own goals. It is also called as pragmatic politics. In a multinational company one may find such coalitions that exit only for a transient period to serve certain common goals.

3.3 Multinational company: operational considerations

1. A multinational company operating in multiple countries has people working in various locations. Invariably people work in different time zones and follow different clocks. The strategist needs to be conscious of the impact of decision about centralizing and decentralizing systems. The centralized system gives an advantage of uniformity and cost reduction, but also increases challenges of satisfying requirements of diverse set of people with diverse requirements.

2. Countries like Japan and China have further requirement of local language software. Certain amount of relief may be providing by using standard systems such as SAP and Oracle. However, they will still to be integrated with software for local needs.

3. One may do better by having a proper mix of centralized and decentralized systems.

4. It may be economical to have India, Pakistan and other subcontinent countries to work on same system. These countries have similar cultures and tradition, however locating the central system either in India or Pakistan may pose a problem as the political environment is never conducive to such a practice. As a result, the central systems needs to be in a third country increasing the costs.

4. Part III: strategizing technology is a process, not an event

It is quite a challenging tasks to develop technology strategy of a large multinational corporation. In recent years the changes on all fronts, the economic, political, social and environment, are extremely rapid. These changes impact businesses and their long-term and short-term strategies. Just most recent global catastrophic event, the pandemic, has affected and impacted entire population of the globe and consequently businesses around the globe. The painful ‘Brexit’ has created newer issues in Europe and countries dealing with UK. Add to this the Ukraine invasion of Russia. The resulting inflation and shortages of various necessities including energy has posed completely new perspective of the world to business leaders.

The Technology Strategist cannot isolate herself from this new rapidly changing world full of unanticipated events. The strategy formulated by her has to be:

1. Flexible, nimble, easy to be reformulated

2. Easy to execute

3. Minimum possible lock-ins

4. Balancing needs of organization and those of technology resources

It is critical to attend to the process of strategy formulation, rather than just the strategy itself. I propose to focus on the strategy formulation process instead of final product as technology strategy. Letza et al. [19] emphasize that no business process can be isolated from power, social relations and organizational context. I present here the Technology strategy formulation process in two blocks. First block to complete initial assessment of Technology and Economic aspects, followed by the second block adapted from Vaidya [20].

The two blocks shown in Figure 5 indicate important inputs that are required for Technology Formulation Process of a multinational company. The left block of Technical, Operational and Economic considerations was discussed in part I, here we will explore the second block of Socio-Political dimensions. In order to get clarity, I have exploded the second block in Figure 6.

Figure 5.

Two important input blocks to strategy formulation process.

Figure 6.

IPCRC model adapted from Vaidya [20].

IPCRC model in Figure 6 is an interesting model that takes into account social and political interests of a multinational company. It caters to the socio-political environment of a multinational company, proposing the activities that need to be completed while developing technology strategy. Here is a short description of each activity.

1. I—Identify the interest groups and their power bases: the interest groups carry their own norms and ways of work. It is important for strategist to understand the power bases behind such groups. As an example the largest business division in a multinational company may have higher power to influence decisions.

2. P—Acknowledge and recognize political aspects: the affiliate company heads and senior managers may have own ambitions. It is useful to know these persons and their thoughts.

3. C—Central coordination and mutual adjustment: it is useful to know the coalitions and their requirements beforehand. The give and take with necessary adjustments rather than mandate produces better result.

4. R—Remedial and serial strategy deployment: a step by step implementation proves better than the big bang approach. It allows any remedial measure to be incorporated as one progresses.

5. C—Collibratory intervention: it is always a possible that the higher level intervention has to be accommodated, such as a directive to place a data center in a particular region or having a preferred network provider in a country. The strategist needs to make room for such a possibility.

By following this IPCRC model a strategist will be able to develop an agreeable strategy which becomes easier to execute in various cultures and geography. Considering deployment challenges at an early stage of strategy formulation results in a executable strategy.

Since 2020 the world has faced pandemic, shortages of supplies, human tragedy, the oil shock, the war between Russia and Ukraine, the emerging tensions in Asia, many such worrisome issues. As a result, the world order, the relations amongst various sovereign states are being redrawn all the time. The globalization seems to be giving way to nationalization, there are people who believe that deglobalization is already in offing. In the dynamic and ever changing geopolitical and national and social interests it is extremely critical that the strategist focuses on strategy formulation process. The product, the strategy, is important however one has to build ability to quickly reform it using right kind of processes.

5. Part IV: conclusion

It is important to realize that the contemporary world faces rapidly changing, fast pace dynamic scenario on all fronts. Technology Strategy has to be nimble and flexible to match the dynamism of businesses, which by itself depends on the ever transforming environment. In the past the national companies could rely on three known aspects of technical, operational and economic considerations. However, the spread of global companies around the world in multiple countries brought in focus the socio-political aspects of such a company. Add to it the ever changing dynamic geopolitical situation riddled with supply issues, state conflicts, inflation and nationalization policies. The way forward here is to strengthen the strategy formulation process, rather than focusing on strategy alone. It needs to be seen as a continuous process instead of an event or an output. One needs to follow the robust technology formulation process suggested here.

Contribution to body of knowledge

This chapter identifies the challenges faced in a multinational company. The characteristics of a global company spread in multiple countries and cultures are very different from that of a national company. One needs a practical and pragmatic approach to ensure that technology strategy so developed is executed on the ground. Ashurst et al. [21] discusses practice orientation that relates to informal organization accentuated by knowledge and behaviors of individuals. Anticipating responses is key to a good strategy, ultimately a technology strategy needs to be agreeable not necessarily ideal in today’s multilateral world order. Whittington [22] advocates shift to practice perspective as key, elaborating that the manager has to develop competence of strategist. Similarly, Sminia [23] discusses the process of layered discussion. It is understanding of people interests and impact of technology strategy on lives of people around the globe that brings the strategy deployment possible. Therefore, key is to orient oneself to practice rather than ideal in the early stages of strategy development. This chapter highlights the practice of being attentive to the socio-political factors in multinational company.