Conventional international business strategy preaches the need for subsidiaries of multinationals to align themselves with the agenda set by headquarters. Early protagonists of this view posit that this alignment increases the probability of subsidiary survival and generates greater growth opportunities while avoiding the wanton waste of scarce resources. However, as both a researcher in this area and the country manager of a multinational subsidiary, I can tell you that believing HQ always knows best is a mistake.
For decades, academics have highlighted the phenomenon of subsidiary initiative. Birkinshaw et al. (1998) describe it as “the deliberate and conscious [economic/business] actions of subsidiary managers in their market place.” In most examined cases, these actions are preceded by a process of selling the idea to headquarters. In other words, subsidiaries tend to seek approval of initiatives via dialogue with HQ representatives. But there are also “maverick” subsidiaries that pursue independent initiatives covertly. And recent qualitative research on factors influencing independent subsidiary initiatives, which I conducted as a PhD candidate at Case Western Reserve University’s Weatherhead School of Management, found that maverick behaviour can deliver superior business results.
Keep in mind that whenever HQ has a different interpretation of local conditions, subsidiary managers tend to see their own assessment as superior (and often rightly so), especially when faced with initiatives regarding safety, security, or human resources. This situational awareness illustrates one of the pitfalls of the command-and-control approach adopted by a vast majority of headquarters. And this belief in superior knowledge of local conditions, along with a lack of meaningful consultation with headquarters, is a key driver of covert action. As one subsidiary manager remarked about being in a superior position to assess customer creditworthiness, “I might have to make decisions which are not always in keeping with policy because going back to headquarters for approval could be a lengthy process, at the end of which I may lose the business deal [to another supplier].”
Subsidiaries that fail to meet or exceed performance metrics established by headquarters tend to be subjected to comparatively more oversight than subsidiaries that beat expectations. As a result, rebel managers at these subsidiaries can be driven to covertly pursue independent subsidiary initiatives in a quest to empirically show that they can deliver superior business results through more autonomy. As noted by one subsidiary manager who was forced to ignore the short-term view of HQ accountants to construct a new facility, “I was willing to be fired because in the long term it was best for the company.”
Both sanctioned and unapproved subsidiary initiatives can deliver success. Nevertheless, the independent initiatives I studied clearly demonstrate that subsidiary managers tend to go rogue because they see maverick initiatives as a path to superior results. And in many cases, empirical evidence suggests that this is indeed often the case. In other words, the headquarters-knows-best syndrome is clearly flawed. The purpose of this article, of course, isn’t to argue that subsidiaries should be granted absolute freedom. After all, the trust handed to subsidiaries that beat expectations can transform into complacency. The purpose of this article is simply to highlight the need for a better mixture of central control and local autonomy so that subsidiaries can be agile as multinationals continue to expand into new markets and as monitoring becomes more difficult.