||By Johanna Mair|
Professor of General Management at IESE
Research Assistant of the Anselmo Rubiralta Center for Globalization and Strategy
Due to the expansion of the European Union and the gradual end of restrictions on foreign trade, an increasing number of small and medium-sized firms (SMEs) face the need and the opportunity to “go international.” Middle managers’ important role and the benefits of their involvement in the strategy process of larger firms are widely known. Yet, little is known about their role in SMEs and their participation in the internationalization process.
With the study presented here, IESE’s Anselmo Rubiralta Center for Globalization and Strategy intends to shed light on the extent and effect of middle managers’ involvement in formulating an international strategy in a medium-sized firm.
Medium-sized and Family-owned
The firm chosen for the study was a family-owned Italian company that is active in four business areas: the environment (installation of garbage incinerators); energy (the development of district heating systems); water (swimming pool installations); and building automation (including traditional installation tasks such as local heating systems for large buildings). In 2004, the firm decided to enter new markets in Eastern Europe and Russia. At that time, it already had international activities, but they were oriented mainly toward areas that have a culture similar to that of Italy, such as Southern Germany and Austria. The company’s managers, for example, did not need to learn a new language. Moving into Eastern Europe and Russia was a radical change for the middle managers because of great cultural differences, geographical distance, product adaptation and personal challenge. The expansion called for new strategies and new behavior, beyond what had been required in previous foreign ventures.
When Perception Matters
Since how middle managers perceive their environment directly influences their attitude and actions, the researchers posed two questions. First, they asked the middle managers whether they perceive themselves to be involved in the formulation of an international strategy and what has determined their perception. The second research question was designed to reveal the impact of middle managers’ involvement or non-involvement in the formulation of the company’s internationalization strategy.
Although top management stated that all 15 middle managers were involved, the survey revealed that only six reported some kind of involvement. This finding confirms the extended view that middle managers are involved mainly in strategy implementation, and not in its formulation. For those who reported no involvement, strategic decision making seemed to belong to the realm of top management. And they did not challenge this division of tasks. Personal contact with top management appeared to boost trust in the top executives’ decisions.
Findings from the study corroborate that managers normally do not attempt to change their environment but, rather, to accept it. Many said that they lacked the skills to formulate strategy and preferred not to engage in the activity. They view strategy as an additional task beyond their functional realm.
As for the middle managers who are involved, there was one distinctive feature: Their involvement depends on ownership of the outcome of internationalization. In general, middle managers who were responsible for revenue generation reported involvement in strategy formulation – both in strategic decision making and in idea generation. Those without revenue accountability did not report any kind of involvement.
Among the positive outcomes of middle managers’ involvement in the strategy process are enhanced organizational performance, enhanced middle manager satisfaction, stronger attachment to the organization and to their job, and a more favorable perception of the quality of strategy.
The study finds another positive outcome: The involved middle managers look at internationalization as an opportunity, while their non-involved colleagues look at it as a threat. Interestingly, at the company in question, the older middle managers had a more favorable attitude toward internationalization than the younger ones. Middle managers with a longer average tenure also favored it.
Given that internationalization, as a type of strategic change, requires middle managers to act as change agents, it is in the firm’s interest that they have a positive attitude towards the process, so as to ensure successful strategy implementation. If middle managers are excluded from the strategy formulation phase, they may cause severe problems for the firm. In fact, they could hamper the correct implementation of the strategy if they do not recognize and support it.
As a result, the study emphasizes the importance of perceived exclusion and involvement. Managing perceptions might be critical to ensure middle managers’ positive attitude toward internationalization and their involvement in the strategy process. How can medium sized firms achieve it? The answer is clear: by promoting middle managers’ involvement in the strategy formulation phase. However, there are two difficulties. To begin, getting them involved makes the decision-making process more complicated. Second, managing people is a social and interactive undertaking, and organizational change comes slowly, especially in smaller firms focused on the owner-manager. In any case, the study concludes that the advantages of middle managers’ involvement in formulating an international strategy are definitely worth the effort.