globalization and organizational restructuring: a strategic perspective

“G325

Globalization and OrganizationalRestructuring: A StrategicPerspective

Marc T. Jones

Executive Summary

The new market opportunities, competitive threats, and diffusion of business mod-els associated with globalization have been key drivers of organizational restruc-turing over the past decade. Companies have responded to these developments in avariety of ways with the objective of improving their cost and/or revenue structuresthrough reorganizing their vertical, horizontal, and spatial boundaries and gov-ernance mechanisms. Major forms of restructuring at the business level haveincluded labor intensification, investment in new technologies, downsizing andreengineering, the formation of strategic alliances and networks, spatial reconfig-uration, and a shift from international and multinational to global and transna-tional strategies. To be most effective, any type of restructuring must be clearly andexplicitly aligned with a firm’s business-level strategy in order to maximize the effi-cient and effective allocation of resources in pursuit of competitive advantage. Astrategic use of restructuring which links such efforts to broader competitive strat-egy, and where possible to a “high-road” approach to overall competitiveness, shouldresult in more sustainable benefits which generate increased value-added to share-holders as well as greater well being in the broader stakeholder community. © 2002Wiley Periodicals, Inc.

INTRODUCTION

lobalization” and “restructuring” are undoubtedly two of the major catchwordsof the past decade. While the specific meaning of these terms varies widely, thereare some commonalties that cut across most uses. With respect to globalization,these include the appearance of global markets in finances, goods and services, andlabor; the convergence of consumer demand across different societies; the lower-ing of traditional barriers to trade and investment (along with a related conver-gence of government macroeconomic policies); and key technological

Thunderbird International Business Review, Vol. 44(3) 325–351 • May–June 2002

© 2002 Wiley Periodicals, Inc. • Published online in Wiley InterScience (www. interscience.wiley.com).

DOI: 10.1002/tie.10024

Marc T. Jones is Senior Lecturer at Macquarie University, Sydney, Australia.

developments in the areas of information processing, communica-tions, transportation, and organization that lower the transaction costsof doing business across national borders. For restructuring, mostcommon usages refer to changing vertical, horizontal, and spatialboundaries of the firm; the adoption of new governance structuresoriented to flatten hierarchies, promote communication, maximizelearning, and enhance productivity, flexibility, and response time; andcloser linkages between resource allocation/competitive positioningdecisions and shareholder value considerations.

This article attempts to link the subjects of globalization and organiza-tional restructuring by focusing on the changing strategies and struc-tures employed by many transnational corporations (TNCs) since thelater 1980s. We concentrate here on the actions taken by TNCs sincethese firms are the dominant players in the international economy,accounting for the bulk of technological investment, high value-addedemployment, and market share in most key industries (Harrison, 1997;Vernon, 1998). Their actions largely set the “rules of the game” whichsmaller, more localized firms, states, and other stakeholders must adhereto. The major business-level responses TNCs have taken in the face ofthe globalization process have included labor intensification, investmentin new technologies, downsizing and reengineering, the formation ofstrategic alliances and networks, spatial reconfiguration, and a shift frominternational and multinational to global and transnational strategies.

This article proceeds in five major sections. The first examines theglobalization process in terms of its defining characteristics, drivingforces, and key implications for international business (readersfamiliar with this topic may want to give it a light reading or skip italtogether). The second develops a conceptualization of the firm asa configuration of boundaries and outlines the logic of a bound-aries-based analysis. The third presents several major restructuringmodes and examines their relevance to organizational boundaries,cost and revenue structures, and “high-” and “low-road” approach-es to competitiveness. The fourth addresses the relationshipbetween organizational restructuring and competitive strategy atthe business level. The article concludes by identifying key implica-tions of the overall analysis for international business managers.

GLOBALIZATION

We define “globalization” as the progressive integration of financial,product, and labor markets across national boundaries. By “progres-

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326 Thunderbird International Business Review • May–June 2002

We concentratehere on theactions taken byTNCs sincethese firms arethe dominantplayers in theinternationaleconomy . . .

sive” we mean that these markets are increasingly integrated overtime in comparison to previous historical periods (for an alternativeperspective, see Hirst & Thompson, 1996). However, this does notimply that financial, product, and labor markets are integrating in asynchronized manner, as this is clearly not the case. Financial marketsare already largely integrated and beyond the control of national gov-ernments. Consumer demand in product markets, although morehomogenous than ever before, continues to exhibit visible differenceswhich require a degree of customization. Labor markets, in particu-lar, remain largely national due to the extreme political sensitivity ofmigration-related issues. Neither do we imply that the integrationprocess is linear and unstoppable. In fact, it is much more of a three-steps-forward, two-steps-back process punctuated by certain majorevents which amount to substantial leaps forward or backward (e.g.,European Monetary Union and the rise of religious fundamen-talisms). But we do maintain that the historical trajectory is towardgreater integration over time in terms of financial linkages, consumerpreferences, and labor mobility; that events in one national economyincreasingly effect events in other economies; and that, correspond-ingly, a firm’s activities in one national market increasingly impacts itscompetitive position in other markets. Relatedly, even the activities ofsmall, domestically oriented firms are effected by global develop-ments as never before.

Two dynamic processes drive the globalization of financial, product,and labor markets: capital accumulation and institutional rationaliza-tion. Capital accumulation refers to the range of behaviors at variouslevels that are associated with profit-seeking. At its root, the reasonswhy firms engage in business across national borders are simple: toproduce goods cheaper at a given quality level in order to improvetheir cost structures and/or to penetrate new markets and thus,improve their revenue structures. This profit-seeking behavior is themotor that powers all international business activity (Palloix, 1977).Of course, at the firm-level, the term “capital accumulation” isunlikely to appear in organizational discourse, as it is essentially ananalytical concept. It manifests in the “real world” as firms makestrategic choices to attain and sustain competitive advantage in spe-cific product-markets, usually through some form of cost leadershipor differentiation-based strategy (Porter, 1985), combined with anappropriate supporting approach in the non-market environment(Baron, 1996).

Capital, as an actor on the global stage comes in two primary forms,financial and industrial. Both are driven by the same ultimate imper-

Globalization and Organizational Restructuring

327Thunderbird International Business Review • May–June 2002

Of course, at thefirm-level, theterm “capital

accumulation” isunlikely to appear

in organizationaldiscourse, as it is

essentially an analytical concept.

ative of economic performance, but these manifest differently due todiffering temporal logics. Financial capital drives equity, bond, andcurrency markets around the world and is the big winner in the glob-alization sweepstakes as political and technological barriers to itsmobility have fallen away over the past two decades (Eichengreen,1996). With increased opportunities to maximize short-run return-on-investment, however, come heightened risks of instability infinancial markets and the prospect of a cascading crash which flowsaround the world and extends its effects to industrial and labor mar-kets in the “real” economy (Grieder, 1997), as happened in October1987 with the Wall Street crash, and again in July 1997 when theThai baht devaluation triggered the Asian economic crisis.

By industrial capital, we refer to firms that create wealth from theproduction of tangible goods and services, rather than from financialinvestments; this definition thus spans the primary, secondary, andnon-financial tertiary sectors. Industrial capital requires longer timespans to recoup its fixed investment in plant, equipment, and the likein comparison to financial capital, which is untied to specific assetsand thus essentially fluid in nature. Industrial capital benefits fromglobalization to the extent that market opportunities are increasedand additional locations for cost-effective production are made avail-able. Large TNCs, in particular, are more than ever able to organizetheir value-chains in a manner which maximizes ownership, internal-ization, and location advantages (Dunning, 1993; Buckley & Casson,1998) and exploits continuing structural discrepancies across coun-tries or regions. These firms therefore, are collectively able to achieveabsolute advantage in the generation of goods and services versusother forms of economic organization (Jones, 1999).

On the other hand, globalization has fostered much higher levels ofcompetition in many industries (Oxley & Yeung, 1998). D’Aveni(1994) uses the term “hypercompetition” to describe these new con-ditions and develops a framework to assist firms in mapping environ-mental opportunities and threats. Additional uncertainty andinstability are generated by the instantaneous machinations of finan-cial capital-manifested under tremendous pressure for short-termperformance-that can severely undermine the ability of industrialfirms to implement strategic plans, undertake technological invest-ments, etc. (Friedman, 1989).

The second process driving globalization is institutional rationaliza-tion. By this we refer to the increasing tendency for modes of oper-

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D’Aveni (1994)uses the term“hypercompeti-tion” to describethese new con-ditions anddevelops aframework toassist firms inmapping envi-ronmentalopportunities andthreats.

ating to converge on a mean which is essentially along Western linesin terms of government macroeconomic policy; general businesspractices; organizational strategies, structures and processes; and cul-tural orientation, particularly with respect to work and consumption(Jones & Venkatesh, 1996). Things are becoming more similar, notless, as isomorphic pressures flow from firm to firm, industry toindustry, and country to country. This is often accomplished throughthe operations of TNCs, which further the diffusion of business mod-els throughout host country economies, as well as into governmentand other non-market areas (Sklair, 1995). These models incorporateorganizational practices such as “lean production”, strategic humanresource management (HRM), quality control systems such as theISO series, and business process re-engineering. For example, inorder to do business with Macdonald’s Corporation, suppliers mustmeet specific standards in the areas of hygienic production, productquality, and timely delivery, as well as agree to periodic site audits byMacdonald’s personnel. Such behavior can serve to change localindustry standards and bring them closer to international bench-marks. While the institutional rationalization process is neither uni-form nor irreversible in particular localities, it does make the playingfield more level and standardizes the rules of the game for transact-ing business across borders, i.e., it contributes heavily to lowering thetransaction costs of international business.

These two dynamic processes—Ecapital accumulation and institu-tional rationalization—interact and complement each other in impor-tant ways that reinforce the internal logic of each. Capitalaccumulation across borders benefits greatly from increasing institu-tional rationalization, which directly lowers transaction costs andthus, facilitates foreign trade (including intra-firm trade) and invest-ment. Meanwhile, an increasing volume of international businessactivity is itself an agent in fostering institutional rationalization, asbusiness practices become relatively standardized and even codifiedon a widening international basis.

Global market integration is achieved through the compression ofspace, time, culture, and government policy as barriers to businessactivity across national borders. Innovations in information, commu-nications, and transportation technologies have had the combinedeffect of compressing the dimensions of space and time (Castells,1996). The former, by lessening the importance of physical distanceas a source of added cost or delayed service; the latter, by enablingthe integration and coordination-in real-time-of value-adding activi-ties widely dispersed in spatial terms and beyond the administrative



Global marketintegration is

achieved throughthe compression

of space, time,culture, and government

policy as barriersto business

activity acrossnational borders.

boundaries of individual firms (as in network systems). Such devel-opments have had major supply-side effects in terms of how firmsdraw their vertical and spatial boundaries.

Meanwhile, cultural diversity as expressed in terms of widely diver-gent consumer demand preferences is also a receding barrier to inter-national business (Jones & Venkatesh, 1996; Appadurai, 1997). Thisis due to convergence enacted through mechanisms such as the glob-al media (and its associated demonstration effects - first to local elites,then downwards to the middle classes and below); the work of vari-ous development institutions over the past several decades, which hasresulted in many newly industrializing countries (NICs) cultivatinginstitutional and material infrastructures which are well articulatedwith those of the advanced countries; and the efforts of TNCs them-selves, which have exported their business models into host countries,often reorienting local business communities towards internationalbenchmarks. These developments have had major demand-sideimplications for firms involved in international business. This is evi-dent in the framework Jain (1989) advances for determining theappropriateness of cross-country marketing program standardization,as well as in Bartlett’s (1990) observation that companies could linkparticular market segments internationally, thus, allowing focus-based strategies to achieve scale economies by internationalizing tar-geted segments.

However, global-local tensions persist in many areas. A timely exam-ple of such tensions relates to the backlash against rampant global-ization and cultural imperialism in the guise of “Americanization.”Some observers suggest that the shock of inundation by global mediacauses some groups to revert to primary identity structures tied tovery local affiliations with place, ethnicity, and religion as substitutesfor undermined national identity (Barber, 1996). While this develop-ment can be viewed as a reaction against globalization, it can also cre-ate market opportunities for firms sufficiently culturally sensitive andcreative to provide goods and services tailored to local preferences(Jones, 1998).

Government policies, as relates to trade, investment, and overallmacroeconomic management are also increasingly homogeneous(Strange, 1996). The typical policy mix consists of a systematic low-ering of tariff and non-tariff barriers to trade; an openness to foreigninvestment that acknowledges its key role in providing capital, tech-nology, and employment; and a general approach to overall econom-ic development that stresses the importance of participating in the

Marc T. Jones


However, global-local tensionspersist in manyareas.

international economy on an advantageous basis, aided by govern-ment efforts to create and maintain a stable business environment,generate an adequate supply of skilled human resources, and foster aquality infrastructure which minimizes the transaction costs of busi-ness activity (Reich, 1991). The driving forces behind this compres-sion of national polices include the failure of Keynesianmacroeconomic approaches in the 1970s; the end of the Cold War(which drastically reduced the bargaining power of developing coun-tries versus TNCs); the substantial loss of sovereignty over nationaleconomic policy due to the integration of major financial marketsover the past two decades; and (more recently) events such as theAsian economic crisis which have increased pressures for “trans-parency” in financial transactions and the adoption of uniformaccounting methodologies.

The combination of the preceding developments serves to lower theoverall transaction costs associated with doing business across nation-al boundaries. As more countries (most importantly China) sign onto the World Trade Organization (WTO) in the coming years, andinternational business practices become ever more standardized,these transaction costs should continue to decrease and ultimatelyminimize the distinction between domestic and international com-merce (particularly in areas like the European Union [EU] operatingunder a common currency). We can thus, also expect a vast increasein the number of small- and medium-sized enterprises (SMEs)engaged in international business, as the lower transaction costs willallow them to expand their involvement beyond simple exporting tomore complex and higher value-adding activities. Importantly,though, the nature and extent of SME participation in cross-bordercommerce will continue to be significantly conditioned (or delimit-ed) by TNCs. Before we proceed to examine how globalization hasstimulated TNCs to reconfigure their boundaries and governancestructures, we will first outline the logic of a boundaries-based con-ceptualization of the business firm.

THE VERTICAL, HORIZONTAL, AND SPATIAL BOUNDARIESOF THE FIRM

It is useful to conceptualize the business firm (or an individual SBUof a diversified company) as a configuration of boundaries linkedtogether and administered within a particular governance structure.These boundaries are vertical, horizontal, and spatial in nature, andrelate to the firm’s overall cost and revenue structures in terms of



The driving forcesbehind this

compression ofnational polices

include the failureof Keynesian

macroeconomicapproaches in the

1970s . . .

their effects on demand and/or supply-side performance.Governance structure refers to characteristics such as the density ofthe organizational hierarchy; the level of centralization or decentral-ization of decision-making; communication patterns between variousoperating units and headquarters, as well as between the units them-selves; and the mechanisms in place to promote shareholder value andminimize suboptimization with respect to resource allocation deci-sions. The combination of boundary configuration, governancestructure, and competitive strategy would constitute a given firm’sbusiness model.

Vertical boundaries refer to the relationship between a firm’s value-chain and the relevant industry value-chain (Porter, 1985). Howmany segments of the overall industry value-chain does the firm par-ticipate in directly? Which segments does it refrain from, and howdoes it relate to those segments-through external markets, relationalcontracting, or vertical networks? The drawing of horizontal bound-aries is a function of a firm’s “administrative heritage” (Bartlett &Ghoshal, 1996), industry factors, and current strategic choice(Stuckey & White, 1993). For a multi-business (diversified) firm, ver-tical boundaries would need to be assessed for each of its businesses.

Horizontal boundaries refer to the breadth (or scope) within a par-ticular industry value-chain segment of a firm’s activities. This con-cept is most clearly relevant to a firm’s product-market choices. Hownarrow or broad a range of products are designed, manufactured,marketed and/or distributed? Firms, which follow focus-based strate-gies, will have narrower horizontal boundaries than those that partic-ipate in multiple product-markets within segmented industries. Theexpansion of horizontal boundaries results in related diversification assoon as another industry value-chain is crossed.

Spatial boundaries refer to the specific geographic location of a firm’sassets and activities. Where does it conduct its research and develop-ment? Its manufacturing? As a firm enters international businessthrough export, its spatial boundaries expand as it reaches out to for-eign customers. As it relocates manufacturing facilities to countrieswith lower labor costs, its spatial boundaries shift from old to newproduction sites. The spatial location of a particular value-chain func-tion will be determined by the relevant economics associated withthat function, which is itself an outcome of both country-locationalfactors and firm-specific resources and capabilities, including the abil-ity to manage spatially dispersed, multi-country operations. Theseelements are effectively integrated by Dunning’s “eclectic theory”

Marc T. Jones


Firms, which follow focus-based strategies,will have narrow-er horizontalboundaries thanthose that participate inmultiple product-markets withinsegmentedindustries.

(Dunning, 1993), which conceptualizes foreign direct investment asa function of locational, ownership, and internalization considera-tions.

The procedural logic of a boundaries-based analysis would be as fol-lows: (1) examine a firm’s current boundary configuration and gov-ernance structure; (2) gain a historical understanding of how thecurrent arrangements were arrived at, generally by studying a firm’sadministrative history and trying to determine what problems/chal-lenges the current configuration was designed to solve or meet; (3)establish what the optimum arrangements should be, given currentconditions which impact demand and/or supply-side factors; (4)estimate the transaction costs of shifting to the optimum arrange-ments identified in (3); and (5) make the strategic choice as towhether—and to what extent—to adjust boundaries and/or gover-nance structure in accordance with the preceding analysis.

Importantly, the costs of reconfiguring organizational boundaries willsometimes be prohibitive due to internal barriers to change whichreveal the current boundary alignment to be the best available. Thispoint is consistent with the “punctuated equilibrium” theory of orga-nizational change (Nelson & Winter, 1982), which posits that orga-nizations strive primarily to maintain internal equilibrium. They willthus necessarily fall out of fit with their environments at some point,giving rise to the periodic need for radical realignments which requirea sense of crisis to enable existing organizational arrangements to be“unfrozen.” The remainder of this article is concerned with thosecases in which some adjustment of firm boundaries is both strategi-cally appropriate and organizationally viable.

RESTRUCTURING MODES: HIGH- AND LOW-ROADAPPROACHES

Restructuring can occur at various organizational levels. At the cor-porate-level, restructuring is concerned with creating value by pro-moting new vertical and/or horizontal linkages in the multibusinessfirm (Campbell et al., 1995). Vertical linkages involve corporateheadquarters and business units wherein the latter draw upon the for-mer as a source of value-adding services (e.g., brand managementskills, legal expertise, and tax advice). Horizontal linkages are createdwhen knowledge transfers and/or the sharing of functional activities(e.g., distribution) are fostered between business units in order torealize synergies. Corporate headquarters can also deploy new bud-



Importantly, thecosts of

reconfiguringorganizational

boundaries willsometimes be

prohibitive due tointernal barriers

to change whichreveal the cur-rent boundary

alignment to bethe best

available.

getary controls and incentive schemes to restructure the behavior ofbusiness unit managers, a strategy followed, for instance, successfullyfor many years at Hanson PLC (Hill, 1998).

Restructuring can also originate and materialize at the operationallevel. Efforts here are oriented to realizing improvements in areassuch as innovation, quality, input efficiency, and customer respon-siveness. Enhancements in these value-chain activities can support thechosen generic competitive strategy (Porter, 1985) more effectively,thus contributing to competitive advantage.

The focus of this section, however, is on the several major business-level restructuring modes which have been prominent in recent years.By this we mean approaches which are generally conceived by man-agers whose concern is running a business (or business unit) as awholistic entity competing in a particular industry environment,rather than with managing a corporate portfolio on one hand or aparticular value-chain function or activity on the other. Of course, allbusiness-level restructuring modes have operational implications.Some are oriented to improving a firm’s cost structure, while othersfocus on revenue structure issues. Some are short-term, othersrequire longer time horizons in order to produce tangible benefits.Most importantly, some are associated with what we will term a“high-road” approach, others with a “low-road” approach.

There are two general orientations any firm can take when formulat-ing its business model. The first focuses on cost reduction and typi-cally incorporates measures such as underinvestment in research anddevelopment (R&D), delays in technology procurement, foreclosedmarket development, and (most frequently) squeezing the work-force, which is viewed as an expense rather than as a strategic resource(Harrison & Bluestone, 1988; Milkman, 1998). We refer to theseand related measures as “low-road” approaches, as they share anessentially negative orientation which is based on improving compet-itiveness through transitory cost-cutting rather than through invest-ments in firm infrastructure or upgrading of organizational resourcesdesigned to increase value-added.

The second approach to competitiveness is based on adding as muchvalue as possible to organizational functions, activities, and processes.This strategy involves investing in organizational resources of allkinds, which can then transfer their increased value in terms of moreefficient production, better performing products, etc. This is referredto as the “high-road” as it involves investing in the organization—

Marc T. Jones


Restructuring canalso originate andmaterialize at theoperational level.

and in particular its employees—over the longer-term to promotesustainable competitiveness through enhanced wealth creation. Here,we find multi-skilling (expanding the skills and value-generatingcapabilities of the workforce), enhanced communication betweenworkers and managers, and organizational cultures based on symbio-sis and reciprocity (Limerick et al., 1998).

Although they generally correspond to Porter’s (1985) genericstrategies, the high- and low-road approaches are not reducible tothem. That is, though a high-road approach could be expected tohave much in common with a differentiation strategy, differentiationstrategies do not require high-road approaches. Likewise, whereas alow-road approach may share many commonalties with a cost-leader-ship strategy, the latter are not necessarily linked to the former. Forexample, a cost leadership strategy could be based on a significantinvestment in flexible production systems which requires a firm tomulti-skill its equipment operators and devolve decision making toteams operating on the shop-floor level (Limerick et al., 1998).Essentially, a generic strategy represents what a firm is trying toachieve in its industry environment, whereas a high- or low-roadapproach relates to how the firm operates-its culture, time horizon,stakeholder priorities, etc.

In this article, we distinguish between high- and low-road approach-es and generic competitive strategies in order to stress the linkages ofthe former to broader stakeholder implications in the business sys-tem(s) in which a given firm operates. To date, the literature ongeneric strategies has not been extended to examine the distribution-al or stakeholder impact of particular strategies, especially withrespect to secondary (non-vested) stakeholders (Jones, 1999). Yet, asdisplayed convincingly by events in Seattle in December 1999 at theWTO meetings (and again in Melbourne, Australia, at the September2000 WTO event), secondary stakeholder groups can materiallyimpact competitive strategy at the business-level. The reference tohigh- and low-road approaches thus serves to raise the profile ofgroups who might otherwise be excluded from the environmentalscanning function when formulating organizational restructuringstrategies, yet, whose actions could potentially negatively impactthose strategies.

Clearly, a high-road approach would be preferable to most managersas well as to the broader stakeholder community (including longer-term investors). Yet, the ability to pursue a high-road strategy is con-tingent on (1) management valuing such an approach and having



Clearly, a high-road approach

would bepreferable to

most managersas well as tothe broaderstakeholdercommunity

(includinglonger-term

investors).

experience in successfully implementing it, which includes the abilityto effectively communicate its benefits to key stakeholder groups; (2)the firm being in a market position which will allow it the “breathingspace” to pursue such a strategy, the benefits of which will usually notbe visible for some time; (3) the firm possessing the organizationalresources and capabilities necessary to achieve the desired results; and(4) the ownership structure and major investor profile being suchthat a longer-term approach is not penalized by decreases in thefirm’s share price/market capitalization. Where the above conditionsare not met, a low-road approach will likely be taken.

In many ways, the attractiveness of the low-road approach is under-standable. Most firms only initiate substantial change in reaction to acrisis of some kind. By the time a crisis hits, it is unlikely that man-agement will have ample “breathing space” to solely concentrate onhigh-road reforms. Most publicly held firms will also be underextreme pressure from financial markets for immediate action toreduce costs and improve internal efficiency. Under such circum-stances, even the most enlightened managements will implement“belt-tightening” measures while (hopefully) laying the groundworkfor a more positive and value-creating high-road strategy over abroader time frame. It is certainly true that a firm’s costs are betterknown and generally more controllable than its revenues (whichdepend on competitive dynamics). Also, the symbolic benefits ofannouncing layoffs, wage cuts, reductions in capital spending, etc.should not be underestimated. Such actions signal that managementis “in command” and “doing something” to deal with real and imme-diate problems.

Low-road strategies have been particularly popular in Anglo-Saxoncountries (the U.S., UK, New Zealand, Australia, and Canada), buttraditionally much less salient in Western Europe, Scandinavia, andJapan (Gray, 1999). However, in recent years there have been signsthat these regions are moving in an Anglo-Saxon direction as wit-nessed by the breakup and rationalization of South Korean chaebols(family-owned conglomerates), the importation of American businessmodels into mainland China, the increasing adoption of merit-basedHR policies in Japanese firms, the rising prominence of shareholdervalue as a normative force in the German corporate establishment,and the increasing incidence of American-style hostile takeovers inthe EU. These events are the result of increasing competition fromAnglo-Saxon firms; relatively high levels of unemployment and highcost structures in Europe and Japan; and the transnationalization ofownership structures, which increases pressure to manage for share-

Marc T. Jones


Most firmsonly initiatesubstantialchange inreaction to acrisis of somekind.

holder rather than stakeholder value (Grieder, 1997). These develop-ments are significant in that they suggest a degree of convergence onan Anglo-Saxon business model (at the levels of both the nationalbusiness system as well as the firm) that would not have been fore-seen even a decade ago, when there was much talk of European“stakeholder capitalism,” “Asian values,” and the like.

Before we proceed to examine some of the most prominent forms ofbusiness-level restructuring, it is important to point out that in realorganizational settings the various restructuring approaches tend tointersect at key points (e.g., intensification is often achieved throughthe application of new deskilling technologies). Our logic in address-ing them separately is to promote conceptual clarity and identify theessential rationale of each approach and how it specifically relates tofirm boundaries, cost and revenue structures, and high- and low-roadstrategies.

Intensification and Investment in New TechnologiesAt its core, intensification is oriented to improving the productivityof labor as measured by the input/output ratio. This basicallyamounts to getting people to work harder/and or smarter at a givenlevel of compensation. Some of the most commonly employed formsof intensification include negotiating (or imposing) temporary orpermanent wage reductions, increasing output targets while holdingcompensation steady (e.g., by increasing the speed of an assemblyline, raising sales quotas), reducing staffing while maintaining thesame overall workload and output expectations, and/or multi-taskingemployees in order to eliminate downtime.

Intensification programs have been very popular since the early1980s, particularly in the U.S. and the UK (Enderwick, 1989).Importantly, though, intensification has clear limits, is not a positiveapproach to creating value, and can easily damage relations betweenmanagement and the workforce. In physically demanding work, theelimination of downtime and unofficial breaks will ultimately lead toemployee exhaustion, increased turnover, and higher levels of on-the-job accidents as well as reduced levels of quality. In “knowledgework,” intensification can quickly generate negative returns asemployees’ stress levels increase, attention to detail suffers, andresentment builds. In fact, important recent research shows thatintensification is not an effective approach to building long-termcompetitive advantage (Collins & Porras, 1997). This should serve tocaution management to avoid looking at intensification as more thana short-term solution to immediate cost structure problems.



In “knowledgework,”

intensificationcan quickly

generate negative returns

as employees’stress levels

increase,attention to

detail suffers,and resentment

builds.

Investments in new technology are related to but distinct from inten-sification. Such investments are generally of two types: productivityincreasing and labor replacing. Productivity-increasing technologiesinclude flexible specialization systems to reap economies of scope,advanced information and communications systems to improve con-trol and coordination of throughput, and organizational innovationsto flatten hierarchies, empower employees, and create high-perfor-mance cultures. These high-road approaches add value by increasingthe quality and/or range of outputs a given firm can produce (Piore& Sable, 1984). Significantly, they require skilled human resources tooperate these advanced systems, thus fostering higher quality jobswhich transform workers into “symbolic analysts” (Reich, 1991).

The second type of technological investment firms have pursued hasinvolved replacing workers with fully automated systems or, morecommonly, deploying deskilling technologies to enable firms toemploy less skilled (and therefore cheaper) workers to undertake cer-tain types of activities (Zuboff, 1989). Such low-road approaches,often used in conjunction with labor intensification (e.g., multi-task-ing), can improve efficiency and thus productivity in the short- tomedium-term, but lack the value-adding potential of high-roadstrategies. In particular, low-road approaches make it very difficultfor management to harness the creative abilities of workers andseverely undermine the possibilities for establishing positive organi-zational cultures.

Downsizing and ReengineeringWe will address downsizing and reengineering together since they aremost often implemented in tandem (and even confused terminolog-ically with each other), even though their internal logics are quite dif-ferent. Firstly, we note that downsizing has been a more frequentlypracticed organizational intervention than has reengineering, both inthe U.S. and elsewhere (DuBrin, 1996; Littler et al., 1997). It pri-marily involves a reduction in the size of a firm’s workforce, whichcan be accomplished through various means such as layoffs by attri-tion, voluntary redundancies, early retirements, hiring freezes, andthe like. Downsizing can also refer to organizational redesign orient-ed to flattening hierarchies, consolidating business units, eliminatingproduct lines, etc., all of which also generally occur in conjunctionwith workforce reduction.

As the volume of research in this area increases and has the benefits ofextended hindsight, the generally positive evaluations of downsizingfrom the early 1990s have been thrown into question. Many recent

Marc T. Jones


In particular,low-roadapproachesmake it verydifficult formanagementto harness thecreative abilities ofworkers . . .

studies have been very dubious about the medium- to longer-termbenefits of downsizing for all stakeholders, including non-speculativeshareholders (Ryan & Macky, 1998). There has been increasing con-cern that too many companies tend to (1) “throw the baby out withthe bathwater,” and (2) become addicted to downsizing.

Regarding the first point, research indicates that the success rate indownsizing efforts is not high, even according to firms’ self-report-ing of such efforts (Cascio, 1993). Key problems include the diffi-culty of effectively targeting both those employees shed from theorganization as well as those who are vital to retain. Typically, the firstto “head for the lifeboats” are the best performers whose labor mar-ket prospects are the brightest. Relatedly, “survivors” commonlyexhibit severe morale problems which are compounded by increasesin their workloads as they are forced to cover for their departed col-leagues (O’Neill & Lenn, 1995).

Another problem that has recently entered the critical debate relates tothe loss of “tacit knowledge” that is associated with downsizing, partic-ularly with respect to eliminating entire layers of middle management(Collins & Porras, 1997). These people often constitute key repositoriesof organizational knowledge that are highly valuable but are outside offormal databases or job descriptions. They also embody a firm’s historyand culture. Finally, they act as the key medium through which topmanagement communicates with the general workforce. The elimina-tion of such personnel can rip the heart, soul, and memory out of acompany, leaving behind top management and the workforce which,although no longer separated by several administrative layers, lack a fun-damental basis upon which to communicate with each other.

Firms which become addicted to downsizing and “continuouschange” run still other risks. These include the permanent demoral-ization of the workforce; the undermining of any cohesive or effec-tive organizational culture and the consequent reliance on the “newemployee”—a rational utility maximizer without any sense of loyaltyto the firm (Limerick et al., 1998); the alienation of key customers asa firm remains inwardly focused for an extended period; and the dan-ger that an organizational obsession with cost structure will preventmanagement from being properly sensitized to new environmentalopportunities which allow the expansion of the revenue structure.

However, as long as financial markets reward announcements ofdownsizings (or of intra-industry megamergers where there is obvi-ously a significant downsizing component), top management will



Typically, the firstto “head for the

lifeboats” are thebest performers

whose labor market prospectsare the brightest.

have difficulty resisting these pressures, even where they are notappropriate to the market position and potentiality of a given firm orbusiness unit. This is a form of market failure that can lead to sys-temic underinvestment in R&D and related activities that fail to gen-erate near-term benefits. Moreover, to the extent that this marketselection behavior migrates from industry to industry, it generatesstrong isomorphic pressures that can distort the structure of anentire economy. This seemed to be the case during the 1980s, whenAmerican firms had to deal with widespread shareholder revolts andvolatile ownership structures while their Japanese and Europeancounterparts had no such problems and were able to do more effec-tive strategic planning and investment (Reich, 1984). The irony isthat the American model has become the norm towards which theseother business systems seem to be converging. The long-run effectsof these developments on technological innovation, economic sta-bility, and in particular stakeholder welfare, remain problematic(Luttwak, 1999).

Reengineering is analytically distinct from downsizing, as its formu-lators explicitly associated it with such high-road approaches asemployee empowerment, multi-skilling, investing in new technology,and focusing on customer satisfaction (Hammer & Champy, 1993).Nonetheless, in practice reengineering efforts have more often failedthan succeeded (Michlethwait & Wooldridge, 1997). Even when suc-cessful, they have generally incorporated significant elements ofdownsizing as the multi-skilled, technologically enhanced workforcewould typically need considerably fewer actual workers to do the joband satisfy the customers. At its best, reengineering seems to havegenerated some very impressive results for particular companies, if atthe cost of jobs and job security. At its worst, though, “reengineer-ing” has become synonymous with “downsizing,” “rightsizing,” andsimilar terms, all of which essentially focus on eliminating jobs andincreasing the workload of survivors.

Alliances and NetworksCross-border strategic alliances have been a focus of research forinternational strategy scholars since the late 1980s (Hamel et al,1989; Ohmae, 1989). The globalization process has contributed tothe formation of numerous such alliances between major firms, par-ticularly in scale-sensitive and high technology sectors (Beamish,1998). As formally stable domestic oligopolies have fragmented andindustry structures have internationalized, product lifecycles haveshortened, technology races have broken out, and competitive uncer-tainty has skyrocketed. As historical evidence clearly shows, while

Marc T. Jones


At its best,reengineeringseems to havegenerated somevery impressiveresults for particular companies, if atthe cost of jobsand job security.

extreme competition is good for consumers, it is very bad for prof-itability. Firms have employed strategic alliances to reduce uncertain-ty, share risk, establish technical standards, attain functionalcomplementarities, and reduce competition to manageable levels.

Tallman and Shenkar (1997) present a useful decision model forinternational alliance formation. They note that alliances can furnishfirms with ways of increasing the scope of their operations by lever-aging the resources of other companies. An effective alliance allows afirm to enjoy the benefits of expanded boundaries (horizontal, verti-cal, and/or spatial) without having to absorb the direct costs (e.g.,plant and equipment, human resources) associated with internalexpansion. In the international aviation industry, for example,alliances are a vital mechanism which help firms to reach critical massthresholds in the areas of market scope and scale economies in aircraftand fuel purchasing, maintenance, and ticketing and reservation sys-tems (Vayle, 1994).

However, alliances by their very nature are unstable. They are, afterall, cooperations between direct or at least potential competitors.Research shows that horizontal alliances tend to be less stable thanvertical alliances (Gomes-Casseres, 1996), and vertical networkswhere there is a dominant firm at the core (Harrison, 1997). Assuggested by some scholars, alliances may prove to be a historicallytransitory strategy adopted by firms in the absence of more pre-ferred alternatives such as horizontal integration or (de facto or dejure) collusion (Brahm & Salbu, 1994). The contemporary mergersand acquisitions (M&As) wave in industries such as petroleum,automobiles, banking and financial services would seem to bear thispoint out.

Turning to networks, we begin by noting that establishing the com-petitively optimum vertical boundaries remains a key strategic issuefor any business, of any size, in any industry. The importance of the“make or buy” decision persist—its strategic significance second onlyto the firm’s choice of the product-markets in which it will compete.Yet, while the strategic importance of the vertical integration decisionhas persisted over time, the degree of vertical integration necessary toachieve the benefits associated with “making it” rather than “buyingit” has changed considerably (Jones, 1997). This is due to techno-logical and competitive developments in many industries which havebroadened the choices available to firms as they strive to configuretheir vertical boundaries and organize their value-chains for maxi-mum competitiveness.



However,alliances by their

very nature areunstable.

In this regard, network solutions have increased in importance formany manufacturing-oriented TNCs in the past decade as an out-growth of their strategic outsourcing activities (Quinn & Hilmer,1994). Many of these firms have replaced hierarchically governed,vertically integrated production systems with network systems-groups of interdependent, vertically linked suppliers and/or distribu-tors coordinated by a core TNC to produce goods or services in amanner which maximizes flexibility and minimizes risk for the corefirm. This form of organization allows TNCs to reduce their transac-tion costs and increase their flexibility by delegating non-essentialactivities to subcontractors, who bear most of the risks associatedwith uncertain market conditions (Harrison, 1997; Jones, 1999).These subcontractors are embedded in TNC-centered value-chains inwhich they have little power and in which the intermediate goodsthey produce usually have limited trading value outside of the chainin which they are located. TNCs can then focus on high value-addedactivities based upon proprietary knowledge, technological intensity,and scalar economies. These core firms are thus able to have theircake and eat it too by enjoying the benefits of control without the lia-bilities of ownership. Cavusgil et al. (1997) provide an integrativedecision-making framework for TNC sourcing which is consistentwith the logic outlined above.

Importantly, network systems can also generate significant benefitsfor non-core firms. As TNCs have sought to develop internationalsupplier/distributor arrangements in concert with strategicapproaches which recognize the continuing differences in consumertastes across national markets, many opportunities have been createdfor SMEs from smaller countries. These firms can now join TNC net-works as local suppliers or distributors, adding value through theirfamiliarity with their business environments and increasing the bene-fits of foreign direct investment to host economies by promotinglinkage effects (Kanter, 1995).

Spatial ReconfigurationObviously, the international realignment of a firm’s spatial boundaries,whether the location of manufacturing facilities from high- to low-costcountries or the siting of sales and aftermarket service offices in newmarkets, does not occur in a vacuum. It is rather, an element of a high-er-order international competitive strategy and should be understoodas such. For instance, Flaherty (1998) discusses the synergy benefitsthat can be obtained through effective geographic restructuring andoperational integration of manufacturing activities in technology-intensive business units as part of a coordinated competitive strategy.

Marc T. Jones


These firms cannow join TNCnetworks as localsuppliers or distributors,adding valuethrough theirfamiliarity . . .

The primary development in this area has been the spatial reorgani-zation (and deconcentration) of TNC (vertical) value-chains. Thishas involved firms dispersing their vertically-linked activities interna-tionally, usually on a regional basis (Dicken, 1998; Jones, 1999).These reconfigurations have been made possible by developments inthe technological and political spheres discussed earlier: firms cannow coordinate in real-time, activities separated in space and acrossorganizational boundaries; and political barriers to the productionand transshipment of intermediate goods have dropped considerably,lowering associated logistical costs.

Importantly, the combination of vertical disintegration and spatialdeconcentration has served to maximize the bargaining power ofTNCs versus states, labor, local competitors, and even network affil-iates, thereby increasing the portion of the wealth generated by eco-nomic activity that ends up as profits for TNCs (Jones, 1999). Thisincrease in bargaining power is achieved most simply by placing mul-tiple groups of workers located in different nations in competitionwith each other for the jobs which TNCs provide, and similarlyputting states in competition with each other for the (again) jobs,capital, technology, tax revenue, etc. that TNC investment is associ-ated with (Cowling & Sugden, 1994; Moody, 1997). TNCs are alsobetter able to protect their core assets (e.g., proprietary technologies,organizational systems) from both local competitors and networkaffiliates by limiting these parties’ ability to access more than a subsetof total TNC functions, activities, and processes.

RESTRUCTURING AND STRATEGY

The primary normative theme of this article is the importance ofproperly relating organizational restructuring to a firm’s overall com-petitive approach at the business-level. Restructuring is not by itself aform of competitive strategy and should not be confused as such. The var-ious forms of restructuring are rather more tactically-orientedapproaches directed at improving a firm’s cost and/or revenue struc-ture, rather than establishing the fundamental basis upon which itwill compete.

Cost-driven restructuring efforts, in particular, are much narrowerthan competitive strategy in that they are inwardly focused and oper-ationally oriented, often at the expense of key stakeholders such asemployees and customers. A management emphasis on internalrestructuring necessarily means that external considerations will be



. . . political bar-riers to the

production andtransshipment of

intermediategoods have

dropped considerably,

lowering associated

logistical costs.

given secondary attention. If the firm’s environment is dynamic anduncertain—i.e., the type of situation which generally makes internalreorganization necessary in the first place—the danger increases thata firm’s degree of fit with that environment may actually worsen ifmanagement’s time and energy are devoted for an extended time tointernal issues.

Revenue-oriented restructuring is less hazardous for the firm in that itis necessarily externally focused and will thus keep abreast of key devel-opments in the industry and macro-environments. This approach torestructuring also seems to generate superior long-term performanceas it concerns itself with better serving customers, cultivating relation-ships with key stakeholder groups, increasing market share, expandingthe scope of operations, taking on new employees, etc.

Regardless of the particular approach to restructuring—whether cost-or revenue-focused, high- or low-road—it is essential that a firm’smanagement has a clear understanding of how that approach is asso-ciated with the business-level competitive strategy the firm is pursu-ing. This competitive strategy will usually be conceptualized in termsof Porter’s (1985) generic strategies: cost leadership, differentiation,focus-cost leadership, or focus-differentiation. Once all is well under-stood, each of these strategies is associated with particular combina-tions of internal resource configuration and external product-marketpositioning (Hitt et al., 1999).

Appropriately, restructuring will support a firm’s competitive strate-gy by helping it develop key resources and/or organizational capa-bilities in areas linked to attaining and sustaining competitiveadvantage. For example, if a firm were pursuing a cost leadershipstrategy at the business-level, internal restructuring oriented toimproving its cost structure would be appropriate and shouldenhance its competitive advantage. However, if the firm is differenti-ating itself in part on the quality of its customer service in the salesand post-sales areas, real care must be paid that efforts to improveinternal operating efficiency does not come at the expense of cus-tomers (e.g., automating a switchboard function may lower costs, yetthis may irritate key customers and end up eroding an element of afirm’s competitive advantage).

Of course, in any complex organization there will typically be mul-tiple forms of restructuring taking place simultaneously, some ori-ented towards cost structure issues, others towards revenuestructure considerations. Nonetheless, management must retain a

Marc T. Jones


This competitivestrategy willusually be conceptualizedin terms ofPorter’s genericstrategies: cost leadership,differentiation,focus-cost leadership, orfocus-differentiation.

clear vision of how the overall restructuring program is designed tosupport the chosen competitive strategy, and delineate the distinc-tions between tactically-oriented measures and more strategicallyoriented adjustments of firm boundaries to both internal and exter-nal stakeholders. The leadership capabilities of top management arethus of vital importance in successfully implementing any majorrestructuring effort.

Turning to international aspects of the relationship between restruc-turing and competitive strategy, since the late 1980s, we find that keydevelopments associated with globalization have resulted in TNCsshifting their spatial boundaries and governance structures frominternational and multinational to global and transnational configu-rations (Bartlett & Ghoshal, 1996). Prior to that, the essential insti-tutional and infrastructural prerequisites to the latter approacheswere not in place.

Multinational strategies are market-oriented approaches that involvefirms reproducing their entire value-chains in each national market inwhich they participate. This strategy is extremely locally responsive,yet also the most risky for TNCs as well as the most expensive due tothe lack of scale economies, massive duplication of activities, poor lat-eral communication, lack of learning mechanisms, etc. The multina-tional strategy also holds the greatest danger of local subsidiarymanagement “going native” and making decisions under the influ-ence of local loyalties rather than with reference to the interests of theoverall TNC.

International strategies are product-oriented, innovation-basedapproaches in which a firm enters international markets based on thenovelty or superiority of the goods or services it provides in its homemarket. Typically, key value-adding activities are concentrated in thehome country, while more standardized functions can be dispersedaccording to locational factors. The competitive advantage here isbased on superior knowledge as manifested in leading-edge productswhich generate utility for affluent consumers in foreign markets.Firms following international strategies will not generally generatehigh value-added in their overseas operations, which are typicallyconfined to activities such as component production, assembly, anddistribution.

Global strategies are production-driven approaches based on achiev-ing maximum economies of scale and taking advantage of convergingconsumer demand across countries. Simple global strategies involve



The competitiveadvantage here isbased on superior

knowledge asmanifested inleading-edge

products whichgenerate utility for

affluent consumers in

foreign markets.

the spatial concentration of value-chain activities in key regions,sometimes almost entirely within a single nation (as with the Japaneseautomobile industry through the mid-1980s). Complex globalstrategies relate to a spatially more expansive dispersal of value-chainactivities across countries and regions according to locational com-parative advantage factors (Dicken, 1998). TNC operations wouldthus constitute “global webs” (Reich, 1991) of vertically linked andcentralized-although spatially separated-processes.

Globalization has impacted the viability of the above strategies insubstantial ways. Multinational strategies are no longer practicalgiven their severe cost disadvantages emanating from redundancy andlack of scale. International strategies based on first-mover advantagesfrom product innovation lacked both scale and sensitivity to customerneeds. Global strategies, though viable in particular product-markets,have proved to be too concerned with scale-based efficiencies andinsensitive to continuing differences in customer preferences across-and even within-national markets.

Transnational strategies developed in the 1990s to address the weak-nesses of earlier strategic approaches. These strategies involve a com-bination of aspects of the three previous approaches in that productinnovation, market sensitivity, and efficient production are all held asnecessary to obtain competitive advantage in certain industries. Thedistinguishing characteristic of this approach is that the variousnational operations are tightly linked through information technolo-gy in order to promote lateral communication and organizationallearning (Bartlett & Ghoshal, 1996). Transnational strategy repre-sents a realization that, in many industries, globalization in terms ofa total convergence and homogenization of consumer demand hasnot occurred and is not likely to manifest for the foreseeable future.Therefore, learning about local needs and operating conditionsremains a key success factor in such industries. A term which capturesthe essence of transnational strategy is “mass customization,” provid-ing consumers with products tailored to their particular needs, but inthe most efficient manner possible through common platforms whichcan be customized at low cost. In terms of spatial boundary implica-tions, a transnational strategy would be similar to a complex globalstrategy, although there would more duplication of downstreamactivities (e.g., marketing, and distribution) on a national or at leastregional basis to promote local responsiveness.

By articulating the international competitive strategies discussedabove with the range of generic competitive strategies reviewed ear-

Marc T. Jones


Internationalstrategies basedon first-moveradvantages fromproduct innovationlacked bothscale and sensitivity tocustomer needs.

lier, we find that cost-oriented strategies require significantly higherlevels of international coordination and integration because theydepend on scale economies. On the other hand, differentiationstrategies founded upon sensitivity to customer needs and after-mar-ket service can be realized in a much more decentralized configura-tion. However, technology-based differentiation strategies canbenefit substantially from international integration that promotes lat-eral communication and organizational learning (Bartlett & Ghoshal,1996). In any case, the organizational resources and capabilities uponwhich a successful generic strategy is based constitute the foundationfor a firm’s choice of international competitive strategy, includinghow its various national subsidiary operations will relate to head-quarters as well as to each other (Doz & Prahalad, 1996).

IMPLICATIONS AND CONCLUSION

This article has attempted to contextualize the subject of organiza-tional restructuring by relating it to globalization on the one hand,and to the competitive strategies of transnational corporations on theother. The new market opportunities, competitive threats, and diffu-sion of business models associated with globalization have been keydrivers of business-level restructuring since the late 1980s.Companies (or SBUs of multibusiness firms) have responded to thesedevelopments in a variety of ways with the objective of improvingtheir cost and/or revenue structures through reorganizing their ver-tical, horizontal, and spatial boundaries and governance structures.

The restructuring process should begin with the diagnostic exerciseelaborated earlier in this article. Once this is completed—and if it isconcluded that some form of restructuring should take place—thenext key issue is how to lead that process. Therefore, it is not onlyvital that top management possesses the analytical skills necessary forunderstanding the forces necessitating restructuring and identifyingthe type(s) of restructuring that are required, but it must also becapable of effective leadership, which is fundamental to the imple-mentation of any organizational realignment. Such leadership is nec-essary in order to “unfreeze” existing organizational arrangements(including political equilibria) as well as establishing and “refreezing”what is to be the new status-quo, all the while maintaining the con-fidence of employees, customers, suppliers, etc. In many circum-stances, it may be that a combination of “low-road” and “high-road”approaches is required that combines short-term cost-cutting withlonger-term and more visionary revenue-building measures. The key



. . . it must alsobe capable of

effective leader-ship, which is

fundamental tothe implementa-

tion of any organizational

realignment.

in such cases is to explicitly link short-term pain with long-term gainthrough effective leadership and open communication channels toboth internal and external stakeholders. The proceeding points areconsistent with Reynierse’s (1994) organizational change framework,which incorporate ten key points to success when managing thechange process.

Implementation is particularly challenging when a TNC restructures,as such events by definition, involve multiple sets of stakeholders andmay distribute the costs and benefits of restructuring unequally acrossdifferent countries. An enhanced executive sensitivity to the broadersocietal effects of organizational restructuring is especially warrantedin the post-Seattle environment, where the actions of TNCs areunder the media spotlight as never before and increasingly exposedto effective countermoves by internationally coordinated stakeholdercoalitions (Chronicle of Higher Education, 2000).

Management must also carefully consider the transaction costs ofadjusting organizational boundaries and/or governance structures.Employing multiple “frames” (Bolman & Deal, 1994) such as thebureaucratic, political, and cultural to understanding the essentialnature of organizational reality should be useful for fully specifyingthe transaction costs of realignment. The fundamentally dialecticalnature of any restructuring process must also be grasped by top man-agement. This refers to the extent to which any solution to a givenorganizational problem incorporates—within itself—the seeds offuture problems for which new solutions will have to be devised (e.g.,decentralization addresses the problems associated with centraliza-tion, but is sure to foster new problems which only increased cen-tralization can solve). This dialectic arises from both competitivedynamics and changes in technology, as well as the fact that organi-zations are inescapably complex social systems in their own right.

For international business managers, the key point is that in order tobe effective over something beyond the short-term, restructuringmust be clearly and explicitly aligned with a firm’s business-level strat-egy in order to support the latter and maximize the efficient andeffective allocation of resources in pursuit of competitive advantage.Restructuring understood as a competitive strategy in its own righttends to result in short-term, internally focused efforts to improvecost structure at the expense of sustainable competitiveness and theinterests of such major stakeholders as employees and customers. Astrategic use of restructuring that links such efforts to broader com-petitive strategy, and where possible to high-road approaches to over-

Marc T. Jones


This dialecticarises from bothcompetitivedynamics andchanges in technology, aswell as the factthat organiza-tions areinescapablycomplex socialsystems in theirown right.

all competitiveness, should result in more sustainable benefits whichgenerate increased value-added to shareholders as well as greater wellbeing in the broader stakeholder community.

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