Achieving the internal transfer of best practices –

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Abstract

In this paper, it is hypothesized that the subsidiary´s absorptive capacity is influenced by their perceived relation to headquarters and that a strong tie or high social integration to headquarters, in turn, is an important antecedent for receiving a subsidiary's ability to acquire best practices transferred to them.

Much of today's research assign absorptive capacity as one of the most important capabilities of a multinational corporation for effective management of knowledge. To address the importance of the macro and micro perspective, this paper focuses on what extent individuals at the subsidiary level are capable of exploiting new knowledge in an environment shaped by the influence of their relationship with headquarters…. THIS PART WILL BE DEVELOPED

Keywords: Absorptive capacity, Exploitation, Middle manager, Headquarter, Ties Strength, Motivation, Opportunity, Ability

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We would like to take this opportunity to express our gratitude to the Department of Business Administration at Stockholm Business School and our supervisor Janet Johansson.

We are also grateful to the Academic English Reviser, Anette Campbell, from the Department of Academic Writing Service at Stockholm University. We are truly grateful for her valuable comments on this thesis.

Furthermore we would like to acknowledge our seminar group, each seminar session have provided valuable critique, which has contributed to our final version of the thesis.

Finally, we must express our very profound gratitude to our families for providing us with unfailing support and continuous encouragement throughout the years of study and through the process of researching and writing this thesis. This accomplishment would not have been possible without them. Thank you.

Achieving the internal

transfer of best practices –

A case study on how middle

managers´ absorptive capacity is

influenced by social integration

mechanisms with headquarters

Master’s Thesis 30 credits

Department of Business Studies

Uppsala University

Spring Semester of 2019

Date of Submission: 2020-06-03

Stella Ångström Pettersson

Supervisor: Henrik Dellestrand

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Acknowledgment

The conducting of this thesis has been invaluable and highly educational. Throughout this process, I have learned a lot about my capabilities, but also about my struggles. However, this process would not have been possible without any support. First of all, I would like to take this opportunity to express my gratitude to my supervisor Henrik Dellestrand at Uppsala University. I am truly grateful for his valuable comments and guidance during this process. Without his wise contributions, it would not have been possible to complete the goals for my thesis.

I would also like to express my deepest gratitude towards the respondents from the case company: Concha Y Toro. Without your great insights, the completion of this thesis would not have been possible. The fact that you all took time from your busy schedule to help me get clarity around the topic of middle managers´ absorptive capacity was more than appreciated and I am truly thankful. Furthermore, I would like to acknowledge my peer reviewers and the other students in my seminar group, each seminar session has provided valuable critique, which has contributed to my final version of the thesis.

Finally, I must express our very profound gratitude to my family for providing me with unfailing support and continuous encouragement throughout the years of study and through the process of researching and writing this thesis. This accomplishment would not have been possible without them. Thank you.

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Purpose: This study aims to investigate how middle managers within the subsidiaries of a multinational corporation perceive their social integration with headquarters. It is in the interest of this thesis to explore how best practices transferred from headquarters are exploited by middle managers and how social integration mechanisms influence the building blocks of their individual absorptive capacity: motivation, opportunity, and ability. This study further attempts to elucidate what absorptive capacity entails for the middle managers and how it can be improved by social integration between them and headquarters.

Method: A qualitative research method involving in-depth, semi-structured interviews with middle managers of one corporation was conducted to collect the data. The middle managers’ relevance depended on their responsibility and previous experience of receiving a best practice. A theoretical framework depicting motivation, opportunity, and ability was developed to carry out the subsequent analysis.

Conclusions: The finding suggests that middle managers´ absorptive capacity, meaning their motivation, opportunity, and ability, is influenced by the social integration mechanisms between them and headquarters. Also, middle managers’ arduous relationship with headquarters influences their exploitation of best practices, and consequently, the findings suggest certain solutions related to social integration mechanisms on how to avoid that. The thesis supplement current theory on individual absorptive capacity as the findings provide an in-depth understanding of what the building blocks entail and how social integration mechanisms influence the middle managers´ exploitation when transferring best practices.

Keywords: Absorptive capacity, Motivation, Opportunity, Ability, Exploitation, Best practices,

Middle Manager, Headquarter, Social Integration Mechanisms

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1.0 Introduction

One of the many advantages that a multinational corporation (MNC) possess is its access to a variety of markets through their subsidiaries. The access serves as an outlet to diversified knowledge which potentially could lead to the development of new capabilities serving as competitive advantages for parts of, or the entire MNC. Except for continuously updating their knowledge resources, the MNC can additionally benefit from its various subsidiaries by transferring distant, knowledge-based assets within the firm (Yildiz et al, 2019). Previous research partially shows that a subsidiary´s specific knowledge asset can be applied by other subsidiaries (Bartlett & Ghoshal, 1989) and eventually become a firm-specific advantage (Andersson et.al, 2014) if transferred successfully.

A best practice, also known as an excelling business procedure, represents a type of knowledge asset which can be transferred internally in the MNC (Szulanski, 1996; John Cantwell et al, 2010). The use of a best practice can vary within industries and business departments, but the advantage of it in an international business setting is definitely its applicability among the scattered subsidiaries. In addition, a firm increases its overall performance by diffusing the best available practice within its context and reduce the performance-gap between subsidiaries that perform similar tasks, e.g. two similar sales subsidiaries (Szulanski, 1993). However, the management of such knowledge flows requires some thoughtful consideration as transferring capabilities, such as a best practice, within a firm is far from easy (Szulanski, 1996).

Szulanski concludes that the issues for internal imitation and internal transfer of knowledge consist of three factors: causal ambiguity, recipient's lack of absorptive capacity, and an arduous relationship between the source and the recipient (Ibid). Also, he rejects motivational factors as major barriers to internal stickiness (Ibid). Subsequent research partially complies and assigns the complex relationship between the source and the recipient (Gupta & Govindarajan, 2002; George & Zarah, 2002; Todorova &Durisin, 2007; Easterby-Smith et al, 2008), as well as recipient's lack of absorptive capacity as issues for the internal knowledge transfer (Levinthal, 1990; George & Zarah, 2002; Todorova & Durisin, 2007). However, recent research reconnects to motivation as a critical factor to improve internal knowledge transfer, as motivation certainly is a factor to improve individuals’ absorptive capacity, thus internal stickiness (Yildiz et al, 2019). To summarize, previous research agrees that the relationship between source and recipient is of importance, as well as the absorptive capacity, to succeed with the internal transfer of best practices. Although though causal ambiguity also serves as a factor for the success of an internal knowledge transfer (Szulanski, 1996), I claim that it might be needless to consider. The reason for this is due to the focus of this thesis, as it is delimited to examine

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the internal transfer of best practices, and this type of knowledge is characterized by having a fairly unambiguous meaning for practitioners within an organization (Szulanski, 1996). The rationale for focusing on the transfer of best practices is foremost due to the terms´ general recognition within the business world and that it can be applied across a swath of industries and business functions to explain the most efficient process of a business procedure. Accordingly, the issues for an internal transfer of a best practice boils down to two factors; recipient's lack of absorptive capacity and an arduous relationship between the source and the recipient (Ibid). For this reason, I would like to devote further research to explore the meaning of the two factors and investigate how they affect the internal transfer of best practices.

To define the focus of the study even further, I have considered two delimitations. First of all, most recent research agrees that absorptive capacity consists of multilevel stages, which can be studied in isolation from each other, as each stage is distinctive and influenced by different forces (Zahra & George, 2002; Todorova & Durisin, 2007; Yildiz et al, 2018). Considering that the stages can be studied in isolation and that previous research has largely captured a holistic view or overrepresented the acquisition stage and the assimilation stage, this thesis project intends to thoroughly examine the last stage, exploitation, which represents the receiving unit's capability to exploit new knowledge and the success of an internal knowledge transfer (Cohen & Levinthal, 1990; Zahra & George, 2002; Todorova & Durisin, 2007; Yildiz et al, 2018). Secondly, this thesis undertakes an analytical focus on the micro-level, instead of the macro-level. This implies that the research´s subject is not the subsidiary as a whole, but rather the individuals working within it. The middle manager represents the unit of analysis and they are interesting as they fulfill the role as a bridge between top management and local unit when implementing necessary changes, such as best practices in their departments (Balogun, 2003). Additionally, Meyer, Li, and Schotter conclude that most studies view subsidiaries from the perspective of headquarter rather than from the perspective of the subsidiary itself (2019). For these reasons, I argue that the middle managers operating in the subsidiaries´ of the MNC are an appropriate unit of analysis to evaluate the receiving unit’s absorptive capacity. As a result, the study is set out to investigate the meaning of social integration mechanisms between headquarters and middle managers and how it affects their exploitation of best practices in the local subsidiary unit.

The research theme is compelling as it gives a more comprehensive understanding of how the headquarter-subsidiary relation affects the middle managers’ absorptive capacity. Surely, the thesis offers an enhanced understanding of the social integrations´ impact and a road map of how they could be improved to reach middle managers enhanced absorptive capacity as a receiving unit. I also claim

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that the research theme is compelling for any sort of MNC, however, it could be especially interesting for the MNCs where the subsidiary typology is clearly defined. Previous research has partially distinguished competence-creating subsidiaries and competence-exploiting subsidiaries (Cantwell & Mudambi 2005), where competence-creating subsidiaries are those that generate new knowledge and competence-exploiting subsidiaries are those that adapt and use the knowledge acquired (Ibid). Considering the thesis´ focus on the exploitation of best practices, the findings might be particularly interesting for competence-exploiting subsidiaries. Finally, although their central role, middle managers have received much less attention compared to the top management or entire units when exploring the absorptive capacity. Consequently, I argue that additional research on their perception is necessary. Additional research on the middle manager can assist to shift the focus from collective to individual-level perspective and enhance internal knowledge transfer. In addition, the focus on middle managers’ exploitation is interesting as individuals can exhibit a strong capability to acquire new knowledge, however, a weaker exploitation capability, which causes organizations to fail to translate new knowledge into their operations (Baker, Miner & Eesley, 2003).

With regard to the above, this thesis aims to explore how middle managers perceive their social integration with headquarters and how the social integration mechanisms impact their motivation, opportunity, and ability, hence their individual absorptive capacity. To expand an in-depth understanding of the theme I am set out to answer:

What influence does headquarters´ social integration with middle managers have on the receiving unit´s absorptive capacity?

By employing a combination of concepts, the thesis develops a theoretical framework that assists to investigate the research theme through a qualitative case study of the beverage company Concha y Toro (CyT). The research adopts a explorative approach and is conducted through semi-structured interviews with a selection of middle managers in CyT´s three subsidiaries in the Nordic region. I follow Birkinshaw, Hood, & Jonsson (1998: 224) and define an MNC subsidiary ‘‘as any operational unit controlled by the MNE and situated outside the home country.’’. This research´ case is represented by an MNC with a single subsidiary in each host country; but I acknowledge that in other cases, there could be several. Using the case of CyT, I show that middle managers´ absorptive capacity is highly influenced by their social integration with headquarters, as the social integration serves as a mechanism to improve the traits of the individual absorptive capacity: motivation, opportunity, and ability.

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The following section offers a presentation of the literature on knowledge development and transfer, internal stickiness, absorptive capacity and headquarter vis-à-vis middle managers’ role in the knowledge transfer process. To conclude the literature review, I demonstrate gaps in the previous research and presents a theoretical framework based on previous findings in order to guide her in her explorative research.

2.0 The theoretical foundation

As this thesis explores rather big topics, I offer a conceptualization of each below. These concepts are framed to assist the reader to understand the scope of the study, its limitations, and the foundation of the theoretical framework. Earlier research is quite extensive, and I Intend to cover crucial aspects that assist to explain the competitive advantage of encouraging subsidiaries’ knowledge development, internal knowledge transfers, absorptive capacity, and social integration. I acknowledge that the knowledge literature is concerned with various kinds of knowledge (best practice, competences, innovation, etc.) and processes (creation, sharing, transfer, integration, exploitation, etc.) in many different contexts (Intra/inter-firm, intra/inter-unit, inter-employee). However, to set a focus the theoretical background presented below is delimited to knowledge transfer of best practices (kinds of knowledge) between the headquarters and the middle manager (inter-employee) and the receiving unit´s absorptive capacity(exploitation).

2.1 The value of the internal knowledge transfer and issues of stickiness

To properly understand why new knowledge and the internal transfer of it are vital for organizations’ competitive survival, I believe it is necessary to grasp a holistic understanding of where the knowledge is developed, why organizations might benefit by transferring it internally and what issues are related to the internal knowledge transfer.

Before the 1980s, international business research mainly viewed the subsidiaries as recipients of the parent company’s technology transfers and not so much as the source of new knowledge (Birkinshaw et al., 1998). However, in the 1980s researchers like Bartlett and Ghoshal offered a richer conceptualization, in which subsidiaries were the source of knowledge development. In their publication from 1987, they show how subsidiaries are the main sources of knowledge and skill (Bartlett & Ghoshal, 1987). Research on knowledge development also taps into the importance of subsidiaries’ local embeddedness, the benefit of the dynamic and qualities in the local environment (Andersson et al, 2005; Andersson et al, 2014; Cantwell & Mudambi, 2005). Subsidiaries´ local

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network assists the organizations to get access to information of otherwise distant parts of their social context (Granovetter, 1983), thus organizations with geographically spread subsidiaries run a higher likelihood of exposing themselves to new ideas. The new ideas could then lead to the development of different kinds of knowledge assets, such as best practices. One of the knowledge assets´ perk is their replicability because if they are transferred to other parts of the organization successfully the organization can benefit a so-called firm-specific advantage (Andersson et al, 2014) and stay strong in a competitive market.

As the internal knowledge transfer typically is not hindered by legal obstacles and confidentiality, it should, in theory, be faster and initially less complicated than an external knowledge transfers, however, experience shows that transferring knowledge within a firm is far from easy, partially due to internal stickiness (Szulanski, 1996). Internal stickiness explains the difficulty of transferring knowledge within the organization and the concept originates from the adjective 'sticky' which has been used as a synonym for ‘difficult to imitate' (Szulanski, 1996; Foss et al, 1995). Conventional research has referred to motivational factors as an influence on internal stickiness (Szulanski, 1996) since the lack of motivation has been proved to result in “... passivity, feigned acceptance, or implementation (Jensen et.al, 2004), hidden sabotage, intentionally slow implementation, or outright rejection of a practice (Zaltman, Duncan, & Holbek, 1973)...”. Nonetheless, Szulanski disagrees that poor transferring is entirely due to organizations’ lack of motivation, but rather because they do not know how to (1996). He argues that issues of transferring and internal stickiness are mainly related to the lack of absorptive capacity, causal ambiguity and the arduous relationship between the source and the recipient, not only motivational factors as conventional wisdom suggests (Ibid). To improve the stickiness for the internal knowledge transfer, he recommends dedicating scarce resources and managerial attention to develop the learning capacities of organizational units, foster closer relationships between organizational units and systematically understand and communicate practices (Ibid).

The section above implies that the internal conditions need to be adjusted to improve internal stickiness. To do so, I would like to direct attention to the headquarters´ role and function within the MNC. Markides (2002) argues that headquarters must add value to the firm's business, or there will be no economic rationale for their existence. In addition, previous research emphasizes headquarters integrative and entrepreneurial roles. With regard to their integrative role, research establishes that headquarters shall encourage vertical integration (Foss, 1997; O’Donnell, 2000) and develop and implement tight coupling within the organization (Egelhoff, 2010). I argue that these are

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responsibilities that will improve headquarters relationship with the middle managers, and consequently permitting them to avoid an arduous relationship between them and the middle managers when a best practice is transferred. As for their entrepreneurial role, previous research states that headquarters are accountable of deploying appropriate resources and assets to subsidiaries in different locations, (Collis et al., 2007; Dellestrand & Kappen, 2011; Foss, 1997; Foss & Pedersen, 2002) as well as, recognize and give credit to subsidiaries for their contribution to the organization as a whole (Ambos & Birkinshaw, 2010). These are components that could improve individuals’ motivation, opportunity, and ability, which in turn are factors leading to an increased absorptive capacity for the middle manager (Yildiz et al, 2019). As for both of the integrative and entrepreneurial roles, it appears like social integration mechanisms are important to improve them, meaning that social integration is a necessary tool for headquarter to use to fulfill their integrative and entrepreneurial role. When they fulfill that role, they can also improve middle managers’ absorptive capacity, the relationship between the two units, and improve the internal transfer of best practices.

To conclude, the literature reveals that new valuable knowledge acquired and assimilated often fails to be exploited by the receiving subsidiary (Szulanski, 1969) and thereby fails to serve as, what could have been a firm-specific advantage. Due to that, linked with the responsibility of headquarters, I argue that these findings add curiosity to explore how middle managers perceive the social integration mechanisms with headquarters and what implications these might have on the middle managers´ absorptive capacity of transferred best practices.

2.2 Social integration mechanisms

Previous research has not only suggested that high social integration between headquarter and subsidiaries improves the knowledge transfer, but it has also specifically concluded that social integration mechanisms have a positive influence on knowledge inflows from the headquarters (Gupta & Govindarajan, 2000; Todorova & Durisin, 2007) and a positive influence on the conversion of acquired and assimilated into transformed and exploited knowledge (Easterby-Smith et al, 2008). Easterby-Smith, Graca, Antonacopoulou, and Ferdinand define social integration mechanisms as “structures that promote greater employee interaction and knowledge management processes, such as managerial visits, formal working parties, time working together on other functions, and team meetings” (2008) and I adopt this definition for this research project.

Additional theoretical support that emphasizes the importance of social integration mechanisms is found in the weak tie theory. The weak tie theory is viable to explain why an organizational network

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benefits from subsidiaries’ weak ties within the local network (local embeddedness) while maintaining strong ties with headquarter. Subsidiaries with a large local network, thus several weak ties, will serve as a powerful source for new knowledge for the organization. Nonetheless, subsidiaries need strong ties to headquarters to increase the potential for rapidly transfer knowledge and receive credibility between units (Granovetter, 1982). Accordingly, the organization benefits better when subsidiaries remain weak ties with the local network and strong ties headquarters. Mark Granovetter, the father of the weak-tie theory defined tie strength by three factors: (1) frequency of contact, (2) cooperation - of favor and obligations, for instance, and (3) friendship (1982). Hence, a strong tie between the subsidiary´s middle manager and headquarters would imply frequent contact that almost invariably has affective, often friendly, overtones and may include the cooperation of favors or obligations. Furthermore, Granovetter presents findings from Weimann, which in his turn argues that strong ties are relevant in information flows, due to the speed of flow, credibility and especially influence are all greater through strong ties (Granovetter, 1983).

The findings above indicate that if extensive social integration mechanisms, thus a strong tie is maintained between the subsidiary and headquarter, a best practice would efficiently be transferred, while an arduous relationship between the source and recipient might create hardship in the knowledge transfer. This further motivates my interest to explore how middle managers perceive the social integration mechanisms with headquarters and what significance they have on the middle managers´ absorptive capacity of transferred best practices.

2.3 Absorptive capacity

Although social integration mechanisms make up for a somewhat rational explanation of how the internal knowledge transfer might be improved, they are not entirely adequate to explain why the exploitation is enabled. One of the reasons to improve the social integration mechanisms between the headquarter and the middle managers within the subsidiaries is to improve the middle manager´s absorptive capacity. To better understand what absorptive capacity entails I offer a more holistic explanation of the concept.

As for the concept of absorptive capacity, the model and the conceptual framework are highly argued. However, the foundation of Cohen´s and Levinthal’s model from 1990 is generally accepted. In brief, their model on absorptive capacity explains an organization's ability to identify, assimilate, and use externally acquired knowledge (Cohen & Levinthal, 1990). They offer a model with three components: recognize the value, assimilate, and apply. Furthermore, they argue that the context of the cognitive

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structures affects an individual or an organization's absorptive capacity, because, without prior knowledge, organizations are not able to evaluate the new information and, thus, fail to absorb it (1990). According to Cohen and Levinthal, prior knowledge is anything from basic skills, shared language, or knowledge of more scientific or technological nature. The cognitive structures also affect the organization's ability to assimilate and apply. They justified their theoretical framework based on cognitive and behavioral sciences at the individual level, as “...research on memory development suggests that accumulated prior knowledge increases both the ability to put new knowledge into memory,...” what they would refer to as the acquisition of knowledge, and the ability to recall and use it. Additionally, I argue that this implies that if headquarters have an adequate knowledge situation about middle managers’ cognitive situation, they can make a better evaluation of whether the implementation of new best practices suits their ability.

Apart from recognizing that the cognitive structures disrupt the absorptive capacity in all its stages, descendant research recognizes additional factors that serve as a constant influence on the absorptive capacity. Zahra and George (2002) argue that the processes of absorptive capacity undergo a constant influence from the external and internal environment, which are the following contingency factors: activation triggers, social integration mechanisms, and appropriability regimes. The activation triggers affect the two first stages of the absorptive capacity, acquisition, and assimilation, while appropriability regimes affect the sustainable competitive advantage to protect the advantages of (and the benefits from) new products or processes(Antonelli, 1999; Buzzacchi et.al, 1995; Zahra & George, 2002). Considering this research´s theme these two contingency factors have little relevance. However, social integration mechanisms serve as an important influence on the internal knowledge transfer, and it will affect middle managers’ exploitation of acquired and assimilated knowledge. Depending on how well the social integration mechanisms facilitate the knowledge transfer between assimilation to transformation, the knowledge can ultimately be exploited by the receiving entity. Social integrations mechanism occurs either formal (e.g., use of coordination) or informal (social networks), but the higher density of social integration the higher contribution to the realized absorptive capacity (Zahra & George, 2002). Formal integration facilitates the distribution of information within the firm due to its advantage of being more systematic, while informal integration is more useful to exchange ideas (Ibid). By adopting these formal and informal integration mechanisms, a connectedness is built and that facilitates the free flow of information, allowing the firm to exploit new information such as best practice (Ibid).

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Todorova and Durisin agree regarding the nature of Zahra and George’s contingency factors, however, they complement their absorptive capacity framework by arguing that social integration mechanisms influence all stages of the process. Also, they argue that previous research needs to be supplemented with a clearer understanding of the influence of appropriability regimes and by incorporating a new contingent factor— power relationships. Regarding the social integration mechanisms, Todorova and Durisin argue that they not only influence the step from assimilation to transformation but all components of absorptive capacity (Ibid). For example, they emphasize that social relationships inside organizations influence knowledge-seeking behaviors to identify relevant external knowledge and adapt successfully (Todorova & Durisin, 2007). However, no example shows how social integration mechanisms affect the individual’s exploitation of new knowledge. Todorova and Durisin (2007) state that their reconceptualization of absorptive capacity provides a foundation for future research. More than that, I would argue that it sets the theoretical support for this study's aim to investigate how social integration mechanism affects middle managers exploitation, thus their absorptive capacity.

2.4 Motivation- Opportunity - Ability (MOA)

As the thesis´ objective is to explore a micro-level perspective, I would like to continue by providing clarity on what the absorptive capacity entail by the individual. Prior research has identified motivation, opportunity, and ability as distinct building blocks of absorptive capacity at both individual levels (Chang et al. 2012: Yildiz et al, 2019) and organizational level (Minbaeva et al. 2003). In this paper, I follow the same approach and specifically look into how the blocks affect individuals at the last stage of the absorptive capacity, exploitation. According to the Motivational - Opportunity - Ability (MOA) framework an individual's work performance is either curbed or improved by his or her capacity to perform (Ability), willingness to perform (Motivational), and opportunity to perform (Opportunity). As this is an interactive model and it is important to understand what each dimension implies and how they affect each other.

Just as Cohen and Levinthal´s original model, where they emphasize how the context of the cognitive structures affects an individual´s absorptive capacity, the MOA framework highlights a person’s ability. The ability dimension concerns an individual's capacity to perform in relation to his or her knowledge, skills, intelligence, age, state of health, level of education, endurance, energy level, and similar variables (Blumberg & Pringle, 1982). Depending on the breath of an individual's characteristics, the ability to explore new sources and the efficiency to perform a task increases (Sun and Andersson, 2010). Thus, the level of an individual's exploitation capacity would depend on their existing knowledge, represented by prior vocational experience, educational background, and on the

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job training. Individual´s existing knowledge is thereby partially dependent on their educational and professional prior current workplace, as well as the educational possibilities at the current workspace. To sum up, a person's ability sets the foundation for an individual to perform a task effectively. Therefore, I argue that headquarters must be properly informed about the middle manager’s ability so that the individual can exploit the best practices transferred in the best possible manner. In addition, I propose that the exploitation could improve if headquarters enhanced their knowledge situation about middle managers’ ability and adjusted how the best practice was transferred and offered middle managers educations possibilities to improve their overall ability.

The psychological and emotional variables which make up for a person's ability also influence the degree to which an individual is willing to perform a task which comprises the motivational dimension (Blumberg & Pringle, 1982). The motivational dimension is suggested to contain both intrinsic and extrinsic motivation (Yildiz et al, 2019). According to earlier research different form of motivation plays separate roles in developing individual-level absorptive capacity (Ibid). While intrinsically motivated employees work for the sheer joy of it, throwing themselves into a task only because they find it interesting, with little expectation of immediate rewards, extrinsically motivated employees are triggered by external mandates and incentives (Ibid), such as the obligation to implement a new process by headquarters. The reasoning above would suggest that extrinsic motivation would be conducive when the goal is clear and demanded by external sources. Furthermore, extrinsic motivation is notable when an activity produces material rewards or explicit recognition (Ibid). Thus, extrinsically motivated employees are more likely to respond to pressure coming from self-imposed pressure and/or external regulations (Ibid). Contrarily to an extrinsically motivated crowd, intrinsically motivated people would be less interested in the material consequences of their work efforts. In addition, they would be less willing to put effort into enhancing their skills for exploiting new knowledge, while extrinsically motivated people would have a positive influence on individuals’ exploitation (Ibid). Even though this seems logical, most recent research has concluded that there is no positive effect of extrinsic motivation on exploitation. Consequently, I argue that a strong tie between the middle manager and headquarter should enable the middle manager´s intrinsic motivation. For example, headquarters could allow middle managers to take part in developing the skills required for new processes implemented in their business area at the local unit.

Lastly, the opportunity dimension refers to the environmental and contextual elements that could enable certain actions (Blumberg & Pringle, 1982; Siemens et al, 2008). Blumberg and Pringles defined these opportunity variables as; tools, equipment, materials, and supplies; working conditions;

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actions of co-workers; leader behavior; mentorism; organizational policies, rules, and procedures; information; time (1982). These variables represent a field of forces surrounding a person and his or her task which enables or constraints that person's task performance (Ibid). Besides, the variables are considerably hard to influence as they are beyond the person's direct control (Ibid). Thus, even if two individuals have the capacity and willingness, one might have a more attractive and facilitative environment in which to perform, but the latter does not - and that difference makes all the difference. Linked to the social integration mechanisms, I argue that if frequent contact between the middle manager and headquarters endure, headquarters knowledge situation will improve, thus their capability to improve subsidiaries’ environmental and contextual elements.

Considering the nature of these dimensions, along with the desire to understand middle managers´ tie with headquarter, I argue that it is necessary to review how middle managers perceive headquarters understanding of their contextual and environmental context and personal abilities in their position, as well as subsidiaries willingness to perform in order to exploit new best practices. As these dimensions are vital to improving absorptive capacity, I believe it is rational to ask whether the social integration between headquarters and middle managers serves as a mechanism to improve their individual motivation, opportunity, and ability.

2.5 Analytical framework

What can be concluded from the literature outlined above is that social integration and an effortless relationship can assist to improve the internal knowledge transfer and the exploitation (Szulanski, 1996; Zahra & George, 2002). However, there is a lack of research on how middle management, at the receiving subsidiary, perceives their social integration with headquarter and how that influences their motivation, ability, and opportunity, thus their absorptive capacity. In addition, there is limited knowledge of the meaning of each building stone constructing the absorptive capacity.

Considering the observation above, I argue that the gap within the fields of internal knowledge transfer and absorptive capacity requires further exploration. Therefore, I want to explore if there is any link between middle managers’ social integration with headquarters and their perception of headquarters’ capacity to improve their motivation, opportunity, and ability. In addition, I am intrigued to investigate what motivation, opportunity and ability entail for the middle managers. I expect to find themes among the respondents´ answers and possibly offer a guideline on what headquarters could consider to further improving the individual’s absorptive capacity.

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The focus on a micro-level is argued for as the middle managers play a crucial role to bridge subsidiary and headquarter when a best practice is transferred (Balogun, 2003), thus their opinion is important to consider when measuring the strength of tie and their perception of headquarters capacity to improve their motivation, opportunity, and ability. It is important to emphasize that in this thesis I treat headquarter as the source of a best practice, even though the origin of the process may be external or from an internal subsidiary. The reason for doing this is due to their role and responsibility, as I argue that headquarter plays a crucial role to evaluate appropriate resources and assets, such as best practices, and deploy these to the subsidiaries within the organization (Collis et al., 2007; Dellestrand & Kappen, 2011; Foss & Pedersen, 2002).

This thesis also sets focus on the exploitation of best practices, and the reason for examining this type of knowledge asset is mostly because it has a fairly concrete and unambiguous meaning for practitioners within an organization (Szulanski, 1996). Best practice refers to an internal practice that is performed in a superior way in some parts of the organization or outside it and consequently appointed superior compared to other internal practices or other known alternatives (Ibid).

With the objective of generating a holistic view of how the concepts are related to one another, a conceptual model is developed. The model seeks to elucidate how social integration mechanisms between the headquarters and the middle manager at the subsidiary influence the dimensions of absorptive capacity (Motivational, Opportunity, and Ability), thus the middle managers´ absorptive capacity. The model could theoretically be applied to similar scenarios where headquarter have been responsible for transferring a best practice to a middle manager and wish to evaluate the strength of their tie and how that affects their absorptive capacity. To conclude, this research project is set out to answer the following research question:

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Figure 1: Social integration mechanisms influence on performance dimensions, Own Construction

3. Data and Methodology

3.1 Research design

Since previous research lacks understanding of the meaning of the individual absorptive capacity´s building blocks and how they are influenced by headquarters’ social integration, this thesis directs focus to the theme and adds thickness to it. On these grounds, I consider a qualitative research approach to be suitable to observe, collect, and expand theoretical explanations (Ghauri & Grønhaug, 2010). As motivation, opportunity, ability, and social integration mechanism already act as explanatory factors to an individual´s absorptive capacity, I do not aim to reinvent the wheel but rather search for new knowledge and tie the findings back into existing knowledge to improve theories. In order to do so, this study adopted abductive reasoning aligned with a qualitative research design (Dew, 2007). The implementation of abductive reasoning, where the constant interplay between theory and data lead to the emergence of developed and refined propositions offering the most plausible explanation for my observations, is a process that was deemed appropriate to strengthen academic rigor and authenticity (Dew, 2007; Bryman 2012, 401).

Given the qualitative and semi-exploratory approach, I have decided to carry out a case study. The case represents an `exemplifying´, or a `typical case´ (Bryman 2014, 70), which ambition is to capture circumstances and conditions of a commonplace situation (Yin 2009, 48). I appraise the selected case

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to be illustrating as the case allows me to examine an MNC environment where best practice transfers from headquarter to the middle management are occurring. Also, it can be argued that the criteria for the sample and units of analysis´ are applicable for MNCs in general, thus the case illustrates an exemplifying case.

To achieve empirical depth, I have conducted semi-structured interviews with middle managers located at three different subsidiaries of the MNC. The semi-structured interviews were considered appropriate due to the research´s qualitative approach, where I aim to capture the interviewees’ point of view and engage the middle manager to develop her/his responses as extensively as possible. The semi-structured interviews allow the thesis to give extraordinary voice to the informants, who are treated as knowledgeable agents (Gioia et al, 2013). All the interviews followed a clear interview guide in order to cover the established themes of the theoretical framework, however, the interviewee had a great deal of leeway in how to reply, and the interviewer was prepared with follow-up questions.

3.2 Empirical context and data collection

The thesis empirical setting is placed in the multinational beverage company Concho y Toro (CyT), which is Latin America´s leading producer among the world's largest (in terms of sales) wine companies, currently exporting to 140 countries worldwide (Conchaytoro.com, 2020). The company was founded in 1883 and the global headquarter is based in Santiago, Chile. Except for global headquarters, the company has 14 commercials offices allocated in Europe, Africa, Asia, North- and South America (Ibid). Due to their specific market conditions, I decided to focus my collection of empirical material from the offices allocated in Finland, Norway, and Sweden, hence the Nordic market of the company (Ibid). In all of these countries, liquor stores are state-owned, which affects their market conditions as the main purchaser is one retailer in each country: Alko, Vinmonopolet, and Systembolaget. Except for the state’s liquor stores, CyT´s client base consists of bars, restaurants, and event establishments. The information above sets the contextual setting and it is important to bear in mind as the contextual setting provides an understanding of the social behaviors of the middle managers (Bryman, 2012; 401).

The sample selection of middle managers was jointly settled by the author together with the Nordic general manager, located in the office in Stockholm. The middle manager´s relevance for the study depended on her or his responsibility and previous experience of receiving a best practice. The participants are middle managers who both lead and follow (Balogun, 2003; Anicich & Hirsh, 2017) and the concept lead is interpreted as individual’s responsibility to lead his or hers business department

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in the local unit, however, that does not necessarily mean that the middle manager has staff liability. Furthermore, the concept `follow´ is interpreted as taking command and carry out orders from headquarters. Hence, this thesis´ sample is represented by middle managers responsible for controlling and running their business department at the local level, while responding to demand from central headquarters. Participators´ area of responsibility differs between finance, control, marketing, and product.

I believe the selected sample for the case study represents a suitable empirical setting to explore how social integration, between headquarters and middle managers, influences on receiving unit’s absorptive capacity. Even though the focus on a single company might limit generalizability, this approach still yields significant benefits, such as control for extraneous sources of variation, such as culture, structure, and suchlike. In association with extraneous sources, I also emphasize the current global setting during the collection of empirical material. Due to the pandemic outbreak of COVID-19 in 2020, operation and employees were densely affected, which might have an impact on the respondent’s answers. COVID-19´s global effect on society´s health and economy forced the headquarter and local offices of CyT to cope with the crisis. Much of the crisis management was ongoing at the time of the interviews and due to that, I emphasize the importance of understanding the situation during the current pandemic outbreak. As a measure to comprehend how the ongoing situation affected CyT, I updated myself on how CyT´s industry was affected, and if the middle manager had to adjust their operations during this period. As the sales increased rapidly during the period of the interviews (Sveriges Radio, 2020), the largest difference was related to increased work due to stock issues and financial forecasts.

I claim that the thesis manages to meet the criteria for external reliability and internal validity. The external reliability is argued for as the sample criteria are quite general and the research procedure is straightforward, consequently, the study can be repeated in a different case setting, hence be replicated. Taking into account, that one cannot `freeze´ the social setting or copy-paste onto another case, I emphasize the importance of explicitly describe the social context of the case and follow the procedure of empirical collection thoroughly. Even though factors, such as, the geographical and cultural distance between headquarter and subsidiary, industry and middle manager's business department, are all important to consider in this study, the criteria for them are not specified in detail, which allows the study to be transferred to a similar setting where sample criteria are met. Also, this study is encouraged to produce thick descriptions that provide a database for making a judgment about the possible transferability of the findings to other settings (Geertz, 1973).

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Regarding internal validity, I can see a high level of compatibility between the theoretical concepts developed and the findings in our empirics. External validity, on the other hand, represents a problem for this thesis as I have employed a case study of a fairly small sample, thus the findings are not generalized across social settings (Lecompte & Goets, 1982).

3.3 Procedure

The data collection for answering the research question consisted of primary data and it was collected directly from middle managers operating at CyT´s subsidiaries. The evident advantage with primary data is that it can be collected with a specific research topic in mind, facilitate understanding of attitudes and intentions, and reach an in-depth understanding of the middle manager's perception. Due to the thesis´ interest to get an in-depth understanding of the middle manager's perception at the subsidiary level, I reached out directly to CyT´s Swedish subsidiary. The first contact was initiated with the Nordic general manager, and at the first stage, I explained the purpose of the research project and what I expected from the company's participation, which was; approximately one hour long interviews with middle managers operating at the Nordic subsidiaries in Sweden, Norway, and Finland, where the participant had previous experience of receiving one or more best practices directly from headquarter. In the mutual agreement, the process proceeded, and the Nordic general manager handpicked the middle managers suitable for study based on the sample conditions. The research adopted a purposive sampling as the goal is to sample participants strategically so that those sampled are relevant to the research question being posed (Bryman 2014, 418). Table 1 provides a summary of the sampling criteria and the case criteria.

Sampling criteria

● Middle manager

● Reports directly to headquarters

● Control a business department at the local level

● Has received a best practice previously

Case criteria

● A multinational corporation with more than two subsidiaries in different markets

● Headquarter is located in a different market from the subsidiary

Table 1, Summary: criteria for the sample and case

After receiving the contact information to the middle managers, I reached out to each one of them and scheduled video call interviews. As of the ongoing pandemic, COVID-19, the physical distance was recommended and due to that, the face-to-face meetings requested were friendly declined due to the

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company’s policy. Instead, the meetings took place over video-calls. I acknowledge the associated controversy with video calls. First of all, a poor line might cause a problem, such as interruption of the interview. Second, it is preferable to carry out face-to-face interviews for qualitative research, as these interviews are usually more time-consuming and it is easier to maintain the interviewee’s attention if you are in the same room (Ibid, 488). However, with the “Zoom” application, I could record every interview. The advantage with recorded video calls is that it allows the researcher to go back and see the expressions and body language of the participants, which mitigates any misinterpretation and enhances the interviewers’ ability to discern such things as discomfort, puzzlement, or confusion (Ibid).

Between the 13th to the 22nd of April, I conducted six semi-structured interviews. These interviews were then transcribed and coded. As I carried out the research on my own, e.i. built the theoretical framework, collected the data, and interpreted it, the internal reliability is questionable. To avoid potential bias and obtain consistency I repeated the coding scheme on two separate occasions and compared the coding result to see if there was any momentary influence that affected the interpretation of the results. Table 2 provides information about the respondent and a summary of the interview procedure.

Respondent Title/Role Location Interview

type Date

Interview lenght

Middle manager 1 General Manager

Nordic Sweden Video call 16/04/2020 1 h 10 min

Middle manager 2 Finance Manager & Business Partner

Sweden/

Finland Video call 13/04/2020 1 h 5 min

Middle manager 3 Accounting &

Finance Manager Sweden Video call 21/4/2020 50 min

Middle manager 4

Category and Commercial Planning Controller

Sweden/

Norway Video call 15/04/2020 50 min

Middle manager 5 Sr. Brand Manager Sweden Video call 22/4/2020 45 min

Middle manager 6 Marketing Manager Finland Video call 21/4/2020 1 h

Table 2, List of Respondents

3.4 Operationalization and interview design

The research question “What influence does headquarters´ social integration with middle manager have on receiving unit´s absorptive capacity?” is concerned to elicit how; middle managers perceive their relationship with headquarters and how the social integration mechanisms between headquarter

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and middle manager affect their absorptive capacity. To investigate the topic, I established an interview guide based on the theoretical framework presented earlier. The interview guide assists the interviewer to cover the important topics which in turn assist to answer the research question. Based on previous research I have established concepts that frame the factors enhancing individuals’ absorptive capacity (motivation, opportunity, and ability), social integration mechanism, and individual’s absorptive capacity as the receiving unit.

The interview guide starts with questions regarding the exploitation of best practices and how middle managers experience them. Exploitation in this context refers to the degree to which newly recognized and assimilated best practice is applied by the receiving unit. The questions are intended to examine an individual’s applicability of best practices in their business unit, how the best practices are practically transferred, and what the middle manager's approach is when headquarter share or have shared new best practices with their business unit.

Further on, the interview guide continues with questions regarding individuals’ absorptive capacity. These questions aim to capture middle managers´ perceptions of what abilities they consider important in their role, what motivates them, and what contextual and environmental opportunities facilitating her or his job. I argue that these questions allow the participants to capture the setting and extensively present middle managers’ opinions in what they believe to be important. Except for capturing middle managers’ evaluation of their ability, motivation, and opportunity, I wish to examine to what extent middle managers perceive headquarter as informed about their ability, motivation, and opportunity, and how the headquarters, if necessary, can succeed to improve middle managers absorptive capacity. Lastly, I intend to examine how middle managers perceive their relationship with headquarter. By evaluating their social integration with headquarters, the middle managers expand an understanding of which social integration mechanisms are necessary to maintain a strong tie and improve the transfer of knowledge. Based on the literature on the weak-tie theory, I have established questions to evaluate what middle managers perceive to characterize their relationship with headquarters, and if these they could be considered to have a strong tie.

The chronological structure of the interview guide is somewhat different to how the theoretical concepts are presented in the literature review above, however, due to a more natural and pleasant flow I decided to structure the interview guide in the order presented above. It is also worth mentioning that I, throughout the interview, had leeway to ask additional questions to get clarity on the middle managers´ response.

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3.5 Coding categories and analysis

To treat the collected empirical material, each interview was transcribed word by word; however, fillers were ignored as they mostly represented frequent pausing to search for expressions and to articulate less familiar words. Later on, it was time to organize the data. Due to the thesis semi-exploratory design, the final set of transcribed data was quite overwhelming, consequently the most suitable methodology for processing and displaying the data was done in line with Gioia's method of structuring data (Gioia et al., 2012). Therefore, the majority of the empirical material was colour coded with 1st order terms, then I depicted 2nd order (theory-centric) themes and finally matched them with their aggregated theoretical concepts (Gioia et al., 2013). While the rest of the data, concerning middle managers’ social integration with headquarters, served a more informative purpose and therefore I concluded that it was no need to create aggregated 2nd order themes for this set of data. Nevertheless, the questions regarding individual absorptive capacity and exploitation was treated through a more elaborated process.

To begin, a copy of the transcribed data was made and treated by categorising 1st order terms through a colour coding scheme. This process was repeated twice to see if there was any momentary influence that affected the interpretation of the results. Once enough interviews were conducted, commonalities and variations were identified to break the raw data into 2nd order theoretical themes, whereby the objective was to add more rich description to explain the investigated phenomena. The 2nd order themes are further distilled into aggregate dimensions of exploitation, ability, motivation and opportunity, aligned with the theoretical framework outlined in Section 2. This method exemplifies the constant interplay between theory and data, leading to the emergence of a developed and refined propositions of the concepts. The table below shows an example of that:

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With the intention to capture patterns between the respondents, I treated the transcribed data by coding each term with a specific colour. A colour, hence, a term, could be repeated inconsecutive throughout an answer and add thickness to the meaning of that term. By treating the data with a colour coding, it was easy for me to aggregate certain terms from different respondents and see clear patterns. Important to emphasize is that the 1st order terms is what make up for the meaning of the building blocks of absorptive capacity and middle managers ‘exploitation. These are of most interest for the thesis, as they serve to expand an understanding of how social integration between the middle managers and headquarters can serve as mechanisms to improve individual’s absorptive capacity.

4. Result

4.1 Exploitation of best practices

To begin, nearly all the middle managers pointed out the frequency of best practices shared with them by headquarters, and although there was a divided opinion on how often headquarters shared best practices everyone emphasized whether “many” or “few” best practices had been shared with them individually. A clear difference between the opinions was that those who indicated that many best practices were shared generally had a more positive attitude towards their use, while those who

Interview question for:

Motivation

Depicted 1st order terms (colour coded) 2nd-order themes Aggregate dimension

3.1 What motivates you to implement new processes in your business area/ department?

Most of all if I believe it would be a success, that number one. And I mean if it would bring some positive growth or some business benefit that is number one. Number two is if it makes our work

easier, timesaving, or makes the sharing of

communication faster. Those to probably.

Financial reasons for a commercial benefit that would be the first thing. These things are connected because if it is easier you can make things faster ofc and you are able to work more efficiently, and you will have a better result. Those

are the two things that come to my mind.

(The interviewer) How do you think HQ can shows

or proof a success?

I think a real-life case is really compelling, not just something that works on paper, excel, or a fancy chart. But actually, a pilot test is done already that

would give you that kind of confidence that this would actually work in a different market.

If it transmit efficiency→ A better way to of doing something you do(time-saving/ easier) Individual motivation

If they show some sort of validity for us

→ If it is

comprehensive and the future benefits are explicitly explained

If it adds extra business value →

Financial or commercial

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indicated that few best practices were shared also indicated that few were working, hence their assumption that few best practices actually were shared. Digging deeper, it is evident that most middle managers do not see a personal benefit or a benefit for their business unit, of the best practices previously shared with them by headquarters. The reason for that varies, but it is possible to see somewhat of a pattern related to the failure of the exploitation due to poor local adaptation:

“Then, when they find a really good idea they try to share, but not to adapt it to our reality, our office´s reality. So basically, they try to give you an idea of what would work in a different market, but they don't adopt it, or they don't try

to understand if it's going to work for us or not […], and when they do it usually launching the idea but not adaptation whatsoever… […]The problem is the implementation towards our own market, in a sense, because they don't really care

about that. They do it really general and then they try to apply it. There are no best practices that are imposed by headquarters that have stayed overtime.” - Middle manager 4

“The initiatives are really focused on the `Chilean-origin´ as a concept, which is good, but perhaps not as interesting from our local perspective. […]…. these initiatives (best practices) have not considered a global perspective, with the

European countries.”- Middle manager 6

“But the bottom line is that what they suggest as a best practice does not necessarily mean a best practice or being an improvement here. But in order to avoid any long discussion, we do it anyway, but it does not add anything to us.”-

Middle manager 1

In addition, the best practices are associated with a time-consuming activity that creates inefficiency for the middle manager. One middle manager describes a best practice that was implemented within her business unit across the different subsidiaries. The original idea was to create an efficient viral meeting (10-15 min) to share ideas and current struggles, however, “it usually took 40-45 minutes and many people sitting there had no effective exchange of information”. In this particular case, headquarters realized the inefficiency, but they never improved the process:

“Sometimes they implement new processes but prove to be ineffective… We were supposed to move on to something more effective, but we never did that, now it is just dead instead”- Middle manager 5

Other participants agree that inefficiency was a problem by emphasizing the time-consuming aspects for implementing the best practice and when exploiting the process:

“…the negative experience is when they push too much with short deadlines. We have already deadlines and they push more and more and more. Then it gets negative.” - Middle manager 3

“The times they have done it I think it’s negative. It regards more time to understand it and try to add to something that is maybe not super-efficient.”- Middle manager 4

“…it has affected us in non-productive way. We put a lot of time, in theory what for them is a best practice, like presenting results in a format, that according to them (HQ) is easy for them to process. And according to headquarters

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this way of processing information is an easy way to standardize the information and make it comparable throughout the whole company. But what they have done is that they have put up the process, before making sure that we have the

capability to do it- timewise, and the right tools to do it in an efficient way.” – Middle manager 2

Basically, the vast majority of the middle manager experience that a best practice shared by headquarters has affected them negatively due to the lack of local adaptation, and the inefficiency it entails either to implement or while exploiting it. However, all managers agree that headquarters have a good intention by implementing the best practice. Regardless of that, their intention does not transmit fully:

“Even though the intention is good, and it make sense, because from an HQ perspective you want to be as informed as you can what is going on at the subsidiary… […]…, that generates an inefficiency in work, not an efficiency in work.”-

Middle manager 2

“I believe that the reason behind the idea is good: he wants to see the company as premium company that does not only produces a high-quality budget wine but also best quality fines wines,... […] I think some of those best practices are from

a really Chilean perspective. We have a hard time implementing them”- Middle manager 6 “The intention is good, but we are already there. We are more advanced than HQ.”- Middle manager 1

The most common way to receive the information about a new best practice is through email. After receiving it, some sort of local assessment is initiated by each middle manager and that is usually the moment where they can question the best practice. However, most often the middle manager receives little or no consideration regarding their feedback:

“So, I think that sometimes in these types of project, when it comes from the top, there is maybe no room for a negotiation. You either do it, or you are not the right person.” – Middle manager 6

“We usually give feedback, because we want to get it as rewarding as possible for all parties, but it is usually not taken into account and headquarters handle it with silent, no response...”- Middle manager 5

The middle managers approach to receive new best practices varied but the once who agreed on the negative impact of previously shared best practices indicated that:

“I don’t believe it’s going to work because we have had bad experience in the past. I think when you have the feeling that it is something imposed you start doubting a bit…, […] I see why it would not be efficient here. The problem is not the

best practice itself is that it cannot be applied to our reality.”- Middle manager 4

“…if we see that this will not give us anything we see it as some kind of bureaucratic thing we have to do, but if we see potential and added value to our business then we would put way more focus probably.”- Middle manager 2 “I always question it. It is not that they share a best practice, they have an idea of what could be a best practice because

they want to implement […] But then they try to persuade us anyways and now a days I tend to do it anyway.”- Middle