Department of Management and International Business The global business environment is A P Capability Development increasingly complex and uncertain as it is alto-D aula being shaped by globalization forces, rapid D 1 K technological change, and intensified 3/2 ilp within the Multinational 01 in competition. This calls for strategic changes 3 e n and new capabilities from multinational Corporation corporations. This study puts forward in- C a depth case studies of Nokia, Kone, and p a b Iittala as they were undergoing strategic i l i t changes, in order to explain what drives y D capability development and how it is e v performed within multinational el Paula Kilpinen o corporations. The study identifies four p m different capability logics that the e n t companies may employ in order to perform w i changes in their capability base. At the same th i time, it calls attention to various n t h complexities that multinational companies e M encounter in performing these changes, and u l highlights the growing importance of t i n enterprise ‘ecosystems’ in the development a t i of new capabilities within the MNC context. on a l C o r p o r a t i o n ISBN 978-952-60-4981-6 BUSINESS + 9 ISBN 978-952-60-4982-3 (pdf) ECONOMY H ISSN-L 1799-4934 S ISSN 1799-4934 ART + T F ISSN 1799-4942 (pdf) DESIGN + M ARCHITECTURE G* Aalto University Aa aejibg SDwcewhpwoa.oartlam olteof n.Bftiu osfi nMeasns agement and International Business STCECRCIOEHSNNSCOOELV +OE GR Y lto Univ + er DOCTORAL DOCTORAL s DISSERTATIONS DISSERTATIONS ity Aalto University publication series DOCTORAL DISSERTATIONS 13/2013 Capability Development within the Multinational Corporation Paula Kilpinen Aalto University School of Business Department of Management and International Business Aalto University publication series DOCTORAL DISSERTATIONS 13/2013 © Paula Kilpinen ISBN 978-952-60-4981-6 (printed) ISBN 978-952-60-4982-3 (pdf) ISSN-L 1799-4934 ISSN 1799-4934 (printed) ISSN 1799-4942 (pdf) Images: Cover, ©Nokia (girl), ©Kone (buildings), ©Fiskars (shop) Unigrafia Oy Helsinki 2013 Finland Abstract Aalto University, P.O. Box 11000, FI-00076 Aalto www.aalto.fi Author Paula Kilpinen Name of the doctoral dissertation Capability Development within the Multinational Corporation Publisher School of Business Unit Department of Management and International Business Series Aalto University publication series DOCTORAL DISSERTATIONS 13/2013 Field of research International Business Abstract The operating environment is being shaped by globalization forces, rapid technological change and intensified competition, which call for strategic changes and new capabilities from multinational corporations. Even though the capability-based determinants to firm survival and growth have been recognized, research on capability development has been limited. This study investigates capability dynamics within MNCs and the interactions between strategy and the environments internal and external to the firm. It puts forward longitudinal case studies of three Finnish multinational firms, Nokia, Kone and Iittala, as they were undergoing strategic changes, in order to explain how capabilities are developed within MNCsand how the MNC context, including globalization, has an impact on capability development. The findings explain how MNC strategies and activities trigger various mechanisms and generate complex outcome patterns in capabilities. The findings indicate that the various patterns or ‘logics’ by which the MNCs build capabilities can be regrouped into four main logics: variation-based, (internal) selection-based, retention-based and access-based logics, which represent patterned links between intra-firm evolutionary processes, dynamic capabilities and capability development. This study demonstrates how the case firms employed different capability logics at different periods of time in order to adapt to external changes, but also to shape the external environment. The findings also elucidate the ‘liability of complexity’ that the multinational corporations encounter, as they possess complex internal and external selection environments and need to respond to divergent external and internal pressures. This may create various forms of inertia or counteracting mechanisms to capability development and may result in ‘indirect selection’ of certain capabilities with significant implications on firm performance. The study also demonstrates how the advantages of the multinational firm increasingly relate to and are augmented by its capacity to use not only the subsidiary network but also its global network of partner firms, ‘enterprise ecologies’, to complement its internal capability base with co- specialized assets. This study extends current research by explicitly integrating the dynamic capabilities view (DCV) and the evolutionary perspectives for a more holistic picture on capability development within the MNC context. It also provides empirical evidence of the dynamic process of capability development when subject to a global business environment of uncertainty and complexity. The managerial implications of the study involve the capability logics that managers may employ to cope with and to influence the external environment. They also relate to identifying the various complexities within the MNC context and promote aligning the internal selection criteria with strategy. Keywords capability development, multinational corporations, dynamic capabilities, evolutionary perspective, case studies ISBN (printed) 978-952-60-4981-6 ISBN (pdf) 978-952-60-4982-3 ISSN-L 1799-4934 ISSN (printed) 1799-4934 ISSN (pdf) 1799-4942 Location of publisher Espoo Location of printing Helsinki Year 2013 Pages 259 Tiivistelmä Aalto-yliopisto, PL 11000, 00076 Aalto www.aalto.fi Tekijä Paula Kilpinen Väitöskirjan nimi Kyvykkyyksien kehittäminen monikansallisissa yrityksissä Julkaisija Kauppakorkeakoulu Yksikkö Johtamisen ja kansainvälisen liiketoiminnan laitos Sarja Aalto University publication series DOCTORAL DISSERTATIONS 13/2013 Tutkimusala Kansainvälinen liiketoiminta Tiivistelmä Globalisaatio, nopea teknologinen kehitys ja intensiivinen kilpailu ovat muokanneet monikansallisten yritysten toimintaympäristöä, ja edellyttäneet niiltä strategiamuutoksia ja uusia kyvykkyyksiä. Vaikka kyvykkyyksien vaikutus yritysten selviytymiseen ja kasvuun on tunnistettu, niiden kehittymistä on tutkittu vain vähän. Tämä tutkimus selvittää kyvykkyyksien kehittymistä monikansallisissa yrityksissä, tarkastelemalla strategian ja sekä sisäisen että ulkoisen toimintaympäristön välistä vuorovaikutusta. Se esittelee pitkittäisaineistoon perustuvat tapaustutkimukset Nokiasta, Koneesta ja Iittalasta niiden toteuttaessa strategista muutosta. Tapausyritysten kautta selvitetään miten kyvykkyyksiä kehitetään monikansallisissa yrityksissä, ja miten niiden konteksti, mm. globalisaatio, vaikuttaa kyvykkyyksien kehittymiseen. Tutkimustulokset selittävät miten monikansallisten yritysten strategia ja toiminta laukaisevat eri mekanismeja ja synnyttävät monitahoisia kyvykkyysmalleja globaalissa toimintaympäristössä. Tulokset osoittavat, että nämä erilaiset mallit voidaan ryhmittää neljään päälogiikkaan, jotka sisältävät erilaisia kytköksiä yrityksen sisäisten kehitysprosessien, dynaamisten kyvykkyyksien ja kyvykkyyksien kehittymisen välillä. Tutkimus osoittaa miten tapausyritykset ovat käyttäneet eri kyvykkyysmalleja eri aikakausina sopeutuakseen ulkoisiin muutoksiin, mutta myös muokatakseen ulkoista toimintaympäristöä. Tutkimustulokset havainnollistavat myös sitä monimutkaisuuden rasitetta, joka seuraa monikansallisten yritysten kompleksisesta toimintaympäristöstä sekä tarpeesta vastata erilaisiin ulkoisiin ja sisäisiin paineisiin. Tämä aiheuttaa kyvykkyyksien kehittymistä hidastavia tai sitä ehkäiseviä mekanismeja, sekä johtaa tiettyjen kyvykkyyksien epäsuoraan valintaan, millä voi olla merkittävä vaikutus yrityksen tulokseen. Tämä tutkimus osoittaa myös miten monikansallisten yritysten etulyöntiasema liittyy yhä enenevissä määrin niiden kykyyn hyödyntää tytäryhtiöverkoston lisäksi yhteistyökumppaneiden verkostoaan, ’ekosysteemejä’, täydentääkseen omaa kyvykkyyspohjaansa. Tämä tutkimus laajentaa nykytutkimusta yhdistämällä dynaamisten kyvykkyyksien tutkimuksen (DCV) ja kehitysopillisen perspektiivin, ja antaa siten kokonaisvaltaisemman kuvan kyvykkyyksien kehittymisestä monikansallisten yritysten kontekstissa. Lisäksi se tarjoaa empiiristä aineistoa kyvykkyysprosesseista yritysten toimiessa epävarmassa ja kompleksisessa globaalissa ympäristössä. Tutkimus tarjoaa johtajille erilaisia kyvykkyysmalleja, joita he voivat käyttää sopeutuakseen tai vaikuttaakseen ulkoiseen toimintaympäristöön. Se myös auttaa identifioimaan monikansallisten yritysten kontekstiin liittyviä kompleksisuuksia ja edesauttaa sisäisten valintakriteereiden linjaamista strategiaan. Avainsanat kyvykkyyksien kehittäminen, monikansalliset yritykset, dynaamiset kyvykkyydet, kehitysopillinen perspektiivi, tapaustutkimukset ISBN (painettu) 978-952-60-4981-6 ISBN (pdf) 978-952-60-4982-3 ISSN-L 1799-4934 ISSN (painettu) 1799-4934 ISSN (pdf) 1799-4942 Julkaisupaikka Espoo Painopaikka Helsinki Vuosi 2013 Sivumäärä 259 Acknowledgements PhD research is like a journey that you start without knowing what lies ahead. Writing this thesis was truly a rich journey and I would like to thank all the individuals that have made this voyage so special and who helped me reach the final destination. First and foremost, I would like to express my warmest thank you to my supervisor and kustos, Professor Rebecca Piekkari. I admire you for your values, your dedication, and the quality of your work that that is only enhanced by your kind personality. Moreover, your expertise in qualitative research, case research in particular, has been extremely valuable. You both encouraged and challenged me in my methodological work, for which I feel extremely grateful. Thank you for all the kind support that you have given. Secondly, my great appreciation and gratitude go to the Scotiabank Professor of International Business and Professor of Organization Studies from Schulich School of Business at York University and Professor Emeritus from MIT Sloan School of Management, Eleanor Westney, and to the Chaired Professor of Strategic Management and Director at the Institute of Management of the University of St. Gallen, Tomi Laamanen. I appreciate your careful reading of my work as well as your encouraging and insightful comments that reflect your deep knowledge of the field. It has been a great honor to have you as my pre-examiners and I cannot thank you enough Professor Westney for serving as my opponent on this special day. I would also like to thank Professor Hannu Seristö, Professor Markku Salimäki, Professor Asta Salmi and Professor Elizabeth Rose and others from the International Business Faculty who have provided me with support during the course of my journey. A special thank you also goes to Professor Stuart MacDonald and Dr. Peter Zettinig for astute comments. Those individuals in the academic community who have given me valuable comments during seminars and conferences are far too numerous to mention but I would like to express my appreciative thanks to you all. The TEKES LIITO Response project was central in the data collection phase and I would like to thank Professor Mika Gabrielsson and Dr. Anna Salonen for all their important work in administrating the project as well as the project members for joint data collection work. A very special thank you goes to Markus Paukku. It was a great pleasure to work with you, I have really appreciated our inspiring discussions, joint research and the conference trips we made. The Great Wall of China at sunrise and the sunny mountain peaks at Steamboat Springs, Colorado, were definitely the highlights of this journey. You made this trip really fun! Another very special thank you goes to Kristiina Mäkelä. I am so glad our paths crossed again. Without you I would never have undertaken this project, so you are THE person to thank (or blame). Thank you for reading (and re-reading) my work and for giving such useful advice. You are truly a generous person and a dear friend. A warm thank you also goes to my doctoral peers, Terhi Vapola, Jody Wren, Arno Kourula, Irina Jormanainen, Tiina Ritvala, and others. It has been a real pleasure to get to know you. I truly appreciate all the time devoted by the individuals in the case companies, especially at Nokia, Kone and Iittala. The interviews were highly inspirational and insightful, and some of them set the study on a new course. I sincerely feel privileged and thankful. Moreover, this work would not have been possible without the support from the Finnish Funding Agency for Technology and Innovation (TEKES), the Helsinki School of Economics Foundation, the Foundation for Economic Education, the KAUTE Foundation, the Dr.h.c. Marcus Wallenberg for Promoting Research in Business Administration and the Jenny and Antti Wihuri Foundation. Finally, my dearest thanks go to those closest to me, family and friends. To my parents Terttu and Paavo, who have taken me and my sisters to live in the most curious places on the globe ever since I was a child and thereby planted the seeds for an interest in international business studies, but who have also always been there for me and who have encouraged me to take on new challenges. To you I devote this thesis and I wish, Dad, that you had lived to see this day. My parents-in-law Riitta and Pauli, you have never hesitated to offer your precious help at any occasion. Thank you Reidun and Taryn for going the extra mile when ever needed, especially in the later stages of the project. My deepest love goes to my husband Petteri, and my sons Okko, Topi, Tuukka, Osku and Kalle. You reminded me that it was not the destination that was the most important but the journey itself. Citing Robert Frost I have the feeling of having taken the road less traveled by, and although I do not know where it will lead I can certainly say that it has made all the difference. Espoo, December 2012 Paula Kilpinen 2