The Consequences of Currency Regime Shifts for Portfolio Diversification Strategies

Richard C. Green
Graduate School of Industrial Administration
Carnegie Mellon University and University of British Columbia
and
Bernt Oedegaard
Norwegian School of Management and University of British Columbia

September 5, 1995

Thanks to Raman Uppal, Per Atle Aronsen, and Marianne Nessén for helpful discussions. Financial support from the Carnegie Bosch Institute is gratefully acknowledged.

1. Introduction
2. History of the Krone
3. Conseqences for Diversification Strategies
4. Regime Shifts and Exchange Rate Behavior
5. Regime Shifts and the Relationships between Equity Returns
6. Conclusion
References
Figure 1: Changes in log of NOK to USD exchange rate.
Figure 2: Squared change in log of NOK to USD exchange rate.

1. Introduction

International portfolio diversification has long been recommended to investors as critically important to their efforts to reduce risk without sacrificing expected returns. This diversification is especially important to investors in smaller countries, with open economies, where the industrial base is not broad. In such economies equity values are likely to be closely tied to currency and interest rate fluctuations, and more generally to investors' human capital, labor incomes, and other sources of wealth.

The most important inputs in making portfolio diversification decisions are the variances of, and the correlations between, security returns. All but the most naive diversification strategies attempt to make some use of this information. The starting point for obtaining these inputs in an international context are historical estimates of the correlations between equity indices for different countries. Accordingly, an important concern in such applications is the degree to which these historical estimates are stable.

Because returns must be translated into some base currency, one obvious potential source of instability is regime shifts in currency management policy. An investor in a particular country is typically concerned about his or her returns in that country's own currency. If the government's currency management policies change, this can alter dramatically the correlations between currencies, and hence the correlations between an investor's domestic portfolio and securities of other countries. It could also dramatically increase or decrease the variance of their returns. These changes, in turn, could obviate the value of historical experience in assessing the diversification potential of particular international investments.

As an example, consider the recent experience of Swedish investors. Only within the last five years have Swedish investors been allowed to diversify internationally, and they have rushed to do so. In anticipation of membership in the European Monetary System, Sweden has recently switched from a policy which pegged the Swedish Kronor to a trade-weighted currency basket, in which the U.S. Dollar was of predominant importance, to a policy which attempts to peg the currency to the ECU, which is dominated by the German Mark. One would naturally suspect that this would encourage Swedish investors to put greater weight on U.S. stocks in their portfolios, and less weight on German stocks. The higher correlation between the Kronor and the Mark would also tend to increase the correlation between returns, measured in Kronor, on Swedish equities and German equities, thus diminishing the diversification achieved through investing in Germany.

Our purpose in this paper is to ask if such currency regime shifts have measurable effects on the correlations between equities in different countries. If this is the case, then we would expect these events to also alter international diversification strategies. We examine the question with reference to Norwegian equities, and their correlations with U.S. securities. The case of the Norwegian Krone is a particularly fortuitous one, because there have been several major regime changes in recent years, and these are spaced through time in a manner that provides a considerable amount of data under each regime.

We first ask what effects these changes have on the currencies themselves. We find that the volatility of the USD/NOK exchange rate shows no clear response to the policy regime shifts. The conditional volatility shows the sorts of persistence typical of exchange rates, but other sources of changing volatility appear to dominate the series. We do find, though, that the covariability between currencies shows the impact of the regime changes---and in the directions one might expect given the objectives by the policy makers. During the periods when the Krone floated freely against the dollar, more of the changes in the USD/NOK exchange rate are explained by the major European currencies' movements against the dollar than during periods when the Krone is partially pegged to the dollar.

We then ask whether the changes in the covariabilities between currencies have a measurable effect on the covariances between U.S. and Norwegian equities. We find that the correlations within subperiods do not change in the directions suggested by the nature of the regime shift. This appears to be due to the fact that while the comovement between the equity returns in their own currencies have risen over time, the correlation between the exchange rate and equity return, which has always been very low, has decreased over time, thus offsetting the changes in the underlying equity indices.

The effect of changes in currency management policies on the interrelations between equity markets is but one aspect of their impact, and we hope that our results will prove informative about a broader range of issues than just portfolio management practices. Writing of the Swedish experience, Marianne Nessén (1992) states:

While these changes may seem to be of a mainly technical nature, they have important macroeconomic and microeconomic consequences. Swedish firms and financial institutions are now subject to a pattern of exchange rate variation that differs from the one that would have prevailed if the old basket were still in use.

By evaluating whether exchange rate regimes are quantitatively and qualitatively important for the interrelations between national equity markets we can also gain a sense of their relative importance across a range of economic activities.

The remainder of the paper is structured as follows. In Section 2 we describe the recent history of the Norwegian Krone, and Section 3 discusses the predictions this history suggests for the diversification potential of foreign equities. Section 4 describes the behavior of the currencies themselves across regimes and documents the effects of the regime shifts on the comovements between currencies. In Section 5 we consider the relationship of the covariability between equity returns and the currency regimes. Section 6 summarizes our findings and concludes.

2. History of the Krone

The Norwegian Krone (NOK) has a recent history characterized by several dramatic regime changes. Each of these represents a natural place to look for evidence of changes in the interrelationship between the Norwegian equity markets and those of other countries. In each case, the target to which the currency is pegged changed in a manner that would appear to tie the currency more or less closely to the U.S. Dollar versus the European currencies. By examining the comovements between currencies and equity indices across these points in time, we can evaluate the extent to which this type of policy change might alter the diversification opportunities available to international investors.

Prior to 1978, Norway, like most Western European currencies, participated in "the snake.'' A predecessor to the ERM, this system provided for explicit bands within which each participating country's currency could fluctuate in relation to each of the others, while as a group they floated against the other major currencies such as the dollar. Under this regime, the Krone moved closely with the German Mark and the other major European currencies. Because it floated freely against them, we would expect that it was less highly correlated with the dollar and the yen.

With the formation of the ERM amongst the continental membership of the European Community, Norway followed Sweden in adopting a policy of pegging its currency to a trade-weighted basket of world currencies. The U.S. Dollar had a weight of some 25% in this basket, until 1982, when the USD share of the basket was decreased from 25% to 11%, with a corresponding increase in the shares of the ERM currencies from 33% to 44%. Although there were several subsequent devaluations, and minor changes to the band-width and the calculation of the basket, this regime continued through the 1980's.

In 1990 Norway announced that it would abandon the trade-weighted basket as a target for its currency, peg the Krone to the ECU, and join the European Monetary System. The ECU is dominated by the German Mark, and does not include either the Yen or the U.S. Dollar. While the commitment to the ERM fell victim to the currency crises of 1992, the Krone continues to be managed with the ECU as a target.

Thus, the recent history of the NOK provides three major events (four regimes) that could alter the relationships between currencies and hence the relative risks of different foreign equities to Norwegian investors. The movement to a trade-weighted basket as a target in 1979 would decrease the correlation between the Krone and the continental currencies, while decreasing the variability of the Krone against the U.S. Dollar. The realignment of the weights in 1982 might be expected to mitigate this to some extent, decreasing correlation with the Dollar and increasing correlation with the Mark. Finally, the return to the ERM and the ECU as a target basket, which allows the Krone to float completely freely against the Dollar, should decrease correlation with the Dollar and increase correlation with the Mark.

3. Consequences for Diversification Strategies

Our interest is in the implications changes in currency management policies have for the comovements between equity indices, and whether these implications are substantial enough to materially affect diversification strategies. Simple mean-variance mathematics offers a useful benchmark, against which to assess these issues.

For a Norwegian investor the marginal contribution to the variance of portfolio return, (Rp), associated with an increase in the weight on a given asset, (xi ), is proportional to the covariance between that investor's portfolio and the asset in question:

If the asset in question is U.S. stocks and the investor's home currency is NOK, then this covariance has two sources: the covariance of the U.S. market return measured in USD with the portfolio, and the covariance between the exchange rate and the portfolio:
where the returns above are continuously compounded, and e is the change in the log of the number of NOK required to purchase $1.

Note, first, that the effects of pegging the NOK more or less closely to the USD has consequences for the above quantity that are not simple and straightforward. They depend both on the composition of the Norwegian investor's portfolio and on how the exchange rate moves with the elements of that portfolio.

If the investor in question currently holds only Norwegian stocks in her portfolio, then our only concern is with the comovement between Norwegian equities and the US index and the exchange rate, respectively:

First, consider the case where the NOK is perfectly pegged to the USD. Then the change in the exchange rate, e, is always identically zero, so that the only risk the US equities contribute to the Norwegian investor's portfolio is through the comovements in the returns measured in the home country currencies. In this case a decoupling of the NOK and the USD can either increase or decrease the relative risk of US equities in the Norwegian investor's portfolio. This depends whether the exchange rate moves with or against the Norwegian equity market.

Note that the correlation coefficient can be misleading about the value of US equities as a diversification hedge. Assume that a reduction in the USD's weight in the target basket to which the NOK is pegged serves to increase the fluctuation in the NOK relative to the USD. Even if the extra movement in the exchange rate is neutral, in the sense that e is uncorrelated with the Norwegian portfolio in (1) above, the correlation coefficient may drop because of the increase in the variablility. The correlation scales the covariance by the standard deviations. Since the variance is given by

and the corelation is given by

regime shifts that only increase Var(e), even when this variability has zero covariance with other elements of the investor's portfolio, will still reduce the correlation.

Of course when we consider second-order effects, or alternatively when the Norwegian investor's portfolio already includes a substantial position in dollar denominated assets, the consequences of an increase in Var(e) are more complicated. Increases in exchange rate variability make US assets more risky simply by increasing their own variance. If the extra variability is uncorrelated with other returns, this serves to make the US investments less attractive from the perspective of a Norwegian investor. To increase their value as a diversification hedge, the increased variability in the exchange rate must have negative comovement with other assets in the Norwegian investor's portfolio.

Thus, our empirical attention will be focused on a few central questions:

Do the exchange rate regime shifts, which lower the weight on the USD in the target currency basket, induce extra variability in the exchange rate between USD and NOK?

Do the covariances between currencies respond to the regime changes?

Does the covariability between equity returns change across regimes? What are the sources of these changes?

Do changes in the relationships between currencies augment or mitigate secular trends in the relationships between the underlying equities markets themselves?

4. Regime Shifts and Exchange Rate Behavior

The consequences of changes in currency management regimes on diversification strategies involving financial or real assets is dependent on their effects on the comovements between currencies. Thus, a first step in our inquiry is to establish whether these changes do, in fact, alter the second moments of the currencies themselves. This, after all, is what the regime changes are intended to achieve. The link between intent and results is not automatic, however, and such policies may fail to achieve their objectives to a degree that would be statistically discernable. Other factors besides currency management policies, such as secular changes in the underlying economies or in the currency markets in general, may well overwhelm the changes brought about by policy implementation. If this proves to be the case, then it seems highly unlikely that the currency management regime would be an important determinant of the covariability between equities.

A first question to ask is whether targeting a basket which weights the US dollar reduces the volatility of the USD/NOK exchange rate itself. Table 1 shows no clear indication that this is the case. The data are based on mid-day London quotes, from January 1974 to February 1993. The table reports standard deviations for the weekly change in the log of the exchange rate for the entire sample period, and then for each subperiod associated with a different currency management regime. During the first and last subperiods the Krone floated freely against the dollar. In the middle two subperiods it was pegged to trade weighted baskets in which the dollar was an important component.

Time period	Standard Deviation
1/74-2/93	.0129
1/74-12/78 1/79-12/81 1/82-12/89 1/90-2/93	.0111 .0102 .0127 .0178

Table 1: Standard deviations of the weekly changes in the USD/NOK exchange rate.

If the volatility of the exchange rate can be said to be lower in the middle periods, this would only seem to be the case in a conditional sense. Other sources of volatility besides the currency policy appear to swamp its effects. This is visually quite apparent in Figures 1 and 2. The former plots changes in the log of the exchange rate over the sample period. Figure 2 plots squared changes. Heavy vertical lines separate the four currency management regimes. Both figures show occasional periods of persistently high volatility, separated by longer periods of relative stability. These high and low volatility regimes, however, bear no clear relation to the currency management regimes.

The comovements between currencies, however, may show the consequences of the currency management policies even while the volatility itself does not. Table 2 suggests this is indeed the case. It reports the results of Ordinary Least Squares regressions of the weekly change in the log of the USD/NOK exchange rate against contemporaneous changes in four major currencies. The left-hand columns, labeled "Free," report the results of such a regression over the period January 1979 to December 1989, when Norway had left the ERM and had pegged its currency to a trade-weighted basket in which the dollar had a large share. The right-hand columns, labeled "ERM" report results from the same regression for pooled data from the two subperiods when Norway was in the EMS, and its target basket was heavily weighted towards the German Mark. This grouping was based on similar regressions run for each of the four subperiods discussed in Section 2. These regressions produced very similar coefficients for each of the two middle periods, when the Krone was allowed to float more freely against the European currencies. Neither was there clear evidence of a difference between the coefficients obtained in the pre-1978 period and post-1989 period. Therefore, those periods are pooled here so that we consider only two regimes. The bottom of the table reports the results of a standard Chow test of whether the model with the coefficients restricted to be constant over the entire sample significantly underperforms the model with the coefficients estimated separately in each of the two regimes.

Notice, first, that these estimates behave across the subperiods in ways one would expect given the objectives of the currency management policies. During the ERM subperiods, a larger portion of the USD/NOK changes is explained by the other currencies, in particular the DEM. The R^2 in the regression is higher in this subperiod, as is the coefficient on the Mark. Finally, there is strong evidence of a structural change across the two regimes. The F-statistic associated with the test for a change in regimes is significant at any reasonable level.

Table 2: Regressions of changes in Dollar-Krone exchange rates against major currencies in each of two currency managment regimes.

Thus, the changes in currency management policy do appear to alter the relationships between the currencies themselves, to a degree that is statistically discernable and in directions that one would expect given the stated policy objectives. In the next section we turn out attention to the question of whether these effects also appear in the relationships between equity indices.

5. Regime Shifts and the Relationships between Equity Returns

We now turn out attention to the central concern of the paper---whether the value of international equities as a diversification hedge depends on the currency management regime. We confine our attention here to the relationship between the U.S. equity markets and the Norwegian equity markets, and view the problem from the standpoint of a Norwegian investor considering the purchase of U.S. stocks.

Table 3 reports estimated correlation coefficients between returns on U.S. equities, measured in NOK, and returns on the Norwegian equity market measured in the home currency.

Time Period	Correlation
1/75-12/92	.1996
1/75-12/78 1/79-12/81 1/82-12/89 1/90-12/92	.1322 .1271 .2305 .2559

ÝTable3: Correlations between U.S. and Norwegian equities, both measured in NOK.

Recall that the two subperiods covering 1979--1989 are the periods when the USD was heavily weighted in the currency basket to which the Krone was pegged. The hypothesis of interest here is whether these closer ties between the NOK and USD reduce the value of U.S. equities as a diversification hedge. This does not appear to be the case. The correlation between the equity indices is highest in the final time period, after the Norwegian currency was pegged to the ECU. Further, across the first two periods the correlation dropped, albeit slightly. Thus, other forces appear to be more important in determining the degree to which equity returns move together, such as general secular trends in the degree to which equities are correlated due to integration of financial markets or the underlying economies.

To evaluate further the source of the changes in the correlation between the equities, we first decompose the correlation coefficient into its numerator and denominator. The first-order effects on portfolio diversification are attributable to the covariance between the equity returns. The correlation normalizes this quantity by the standard deviation of the two indices. Table 4 separately reports estimates of each of these quantities over the various subperiods.

Table 4: Components of the correlations between U.S. and Norwegian equities, both measured in NOK.

From this table it is clear that there is a slight secular increase over time in the covariance between the two equity indices, measured in NOK, which is partially offset by fluctuations in the volatility of the Norwegian equity returns.

Evidence of general secular changes is rather more striking when we consider the components of the covariance between the equity returns as provided by the decomposition in equation (1). The comovements between the two equity indices are driven by, first, the covariance between the equity indices each denominated in their own currency, and second, by the covariance between the exchange rate changes and the Norwegian equity returns. Table 5 reports values for these covariances, normalized by the standard deviations of the two equity returns in NOK. These two quantities sum to the correlation.

This table suggests the contribution of the exchange rate to the correlation between the equities is steadily dropping through time, while the underlying equity market returns, measured in their own currencies, are showing closer association, perhaps because of underlying trends in financial and economic integration. These changes appear to swamp any effects associated with the currency management regime. The differences apparent as we proceed through time are more obvious than the differences we see across currency management regimes.

Table 5
Table 5: Currency vs. equity return components of the correlations between U.S. and Norwegian equities.

The low correlations between exchange rates and underlying fundamentals, have been documented extensively in the international finance literature. Adler and Dumas (1983), for example, document the low correlation between exchange rate movements and inflation. Meese (1990) provides a summary of this evidence, showing that there is little correlation between macroeconomic variables and exchange rates. In light of this type of evidence that the foreign exchange markets have ``a life of their own'' it is perhaps not surprising that shifts in currency management policy, while they show up in the correlation structure of the currencies themselves, do not significantly alter the correlations between returns on equities.

6. Conclusion

In this paper we have documented the effects of currency management policies on the diversification potential of foreign equities. Norway provides an interesting laboratory for such questions because of the number of regime changes it has experienced, the discreteness of the changes, and the public knowledge that these changes were to take place. We find empirically that while the regime shifts clearly alter the comovement between the currencies themselves, this does not appear to translate into significant changes in the covariability between equity returns. This can be explained through the very low correlation between currencies movements and economic fundamentals, including equity returns.

From the standpoint of an individual investor, this suggests that changes in currency management policies, such as altering the target currency basket to which the currency is pegged, are of secondary importance in managing equity portfolios and exploiting the diversification opportunities offered by international equity investments. Similarly, companies involved in direct investment need not view these policy events as important enough to require reallocating investments across currency jurisdictions in the interest of further diversification. The correlations between the currencies involved and the returns on the underlying assets are likely too low to make the currency risk significant in a portfolio that is reasonably well diversified to begin with. Indeed, even in a small open economy such as Norway, where one might expect currency movements to be associated with important real changes in the economy, the correlations between exchange rates and returns in the domestic equity market are so low as to make the currency risk close to irrelevant in evaluating the potential of U.S. equities as a diversification vehicle.

Figure 1

Figure 2

References

Adler, M. and B. Dumas, (1983) "International Portfolio Choice and Corporation Finance: A Synthesis," Journal of Finance, 38, 925--984.
Meese, R., (1990) "Currency Fluctuations in the Post-Bretton Woods Era," Journal of Economic Perspectives, 4, 117--134.
Nessén, M. (1992) "The New Swedish ECU Basket," Skandinaviska Enkilda Banken Quarterly Review, 1, 22--32.

Re-engineering of Business Processes in Multinational Corporations

Prof. Dr. Michael Kutschker

Katholische Universitat Eichstatt, Germany

Working Paper No. 95-4

The research for this paper was supported by a grant from the Carnegie Bosch Institute and was presented at the Institute's International Research Conference, November 2, 1994.

Re-engineering of Business Processes in Multinational Corporations

Prof. Dr. Michael Kutschker

Abstract

Business Process Re-engineering has rapidly developed towards a new management philosophy. The inherent business process orientation changes the perspective of international management from a structural to a process view of headquarter-subsidiary relations. However, the Re-engineering of business processes is only one aspect of the management of business processes. The article starts with the discussion of the management of ongoing business processes in multinational corporations and reports empirical findings about the role of coordination mechanisms and information technology as dependent on the character of business processes. The Re-engineering of international business processes needs special attention because the multi-faceted deeper structure of multinational corporations increases the complexity of business processes, thus influencing the options for redesign.

Introduction
International Business Processes
- Management of Ongoing Business Processes
- Improvement of Business Processes
- Re-engineering of Business Processes
Management of International Business Processes
- Coordination
- New Information Technologies
Re-engineering of International Business Processes
- Characteristics
- Information Technology -
Deeper Structure
- Internationality
- Complexity
Conclusion

Introduction

In 1993, the world market for consultancy in Business Process Re-engineering was about one billion dollars and is expected to double by 1997. Business Process Re-engineering has rapidly developed towards a new management philosophy, based upon predecessors like Total Quality Management, Overhead Value Analysis, Kanban or Just-In-Time-Management. Speakers at seminars and authors use the term Business Process Re-engineering (BPR) in different ways, presenting cases of minor process improvements as well as radical changes in management philosophy and organizational structure. Most publications on BPR reflect the authors' practical experience. The academic discussion is just about to start. However, both practitioners and academics have until now neglected the international dimension of business processes.

Both the characteristics of international management and the process orientation underlying the philosophy of BPR have been the reasons to present a paper at this conference. Fifty in- depth interviews in 30 large Multinational Corporations (MNCs) of Germany and Switzerland constitute the background for the authorÕs comments on Business Process Re-engineering in an international context.

International Business Processes

BPR is the result of a new process-orientation which is trying to overcome some of the problems raised by the Tayloristic view of structural specialization. BPR stresses the radical change of processes concerning different departments. However, the redesign of processes is only one aspect of the management of business processes. At least three different kinds of process management can be identified: the management of ongoing business processes, the improvement of business processes and the re-engineering of business processes. (Fig. 1)
Figure 1: Tasks of managing business processes

Management of Ongoing Business Processes

One of the central traditional research paradigms of the theory of international management attempts to elaborate those characteristics of MNCs which might be held responsible for the way managers coordinate the relationships between headquarters and subsidiaries. A process orientation changes the perspective from structural relationships between headquarters and subsidiaries to the interaction processes between them. Thus the management of ongoing flows of material, information and energy between different parts of the corporation becomes crucial. According to the proportion of material, information and energy several types of business processes can be identified. For this research project the business processes (1) strategic planning, (2) budgeting, (3) developing and launching new products, and (4) logistics have been chosen, because they represent a broad range of business activities. They vary in their political or operational content, and they vary from well- to ill-structured. It was expected that the management of ongoing business processes, particularly the coordination and use of information technology (IT) would vary along with the respective character of each process. If that were true, the general view of organization theory which claims that the coordination of headquarter-subsidiaries relationships depends on organizational characteristics would not be valid any more. Rather the traditional view has to be supplemented by a new perspective which focuses on the tasks to be performed and the processes to be controlled as determinants of the choice of coordination instruments.

Improvement of Business Processes

The management of business processes also includes their continuous improvement. However, the fact that managers are generally responsible for functions and departments and not for processes crossing functions or departments hinders their improvement. In most cases managers manage the isolated part of a business process which concerns their department only. This often results in sub optimal solutions, particularly when the preceding or following process steps fall under the responsibility of a foreign subsidiary. Even if managers consider interface problems and even if they use such sophisticated programs as Overhead Value Analysis (OVA), Total Quality Management (TQM), Just-In-Time Production (JIT) or Computer Integrated Manufacturing (CIM), improvements will be small compared to the third kind of process management, that is the management of radical change.

Re-engineering of Business Processes

TQM and OVA aim at reaching cost improvements of 30 to 40 percent; yet they often realize only ten to twenty percent. However, Hammer and Champy (1993) report cases about redesigns where processes have been shortened in time by a factor of 100. Process redesign takes a holistic view of the business process, focusing on customers and in some cases even attempting to integrate other actors such as suppliers or even competitors into the process. BPR breaks radically with existing process structures and looks for innovative solutions.

However, in most cases the holistic approach ends at national borders. There are two possible reasons for ignoring the international dimension of business processes. Either the redesign of international processes is deemed to be unimportant or the international dimension is perceived not to change the character of BPR substantially. In view of the increasing internationalization of many industries, the first reason is rather academic. Therefore only the second reason may be accepted, raising the question: What is special about international BPR? The answer to this question is one of the objectives of this paper.

Practitioners as well as academics and consultants have differing views about business processes. In the survey conducted for this research the interviews showed considerable variation in their understanding of business process issues. Some companies had improved or redesigned some isolated business processes, others had changed process systems, and only very few had introduced a comprehensive process re-organization, decomposing the ongoing activities of the company into a well defined set of business processes. Some authors stress organizational aspects of processes, others concentrate on aspects of improving processes or Business Process Re-engineering. Consultants often sell old concepts under the name of the new concept, BPR. Although perceptions and understanding of business processes are different, their common focus is to optimize the efficiency of an organization. Efficiency can be increased by a planned change of appropriate processes, thus shifting the attention of organization theory from structure to process.

Management of International Business Processes

Before redesigning a business process, it is helpful to understand how managers manage ongoing business processes, particularly how they coordinate business processes within MNCs.

Coordination

This research was started with the classic problem of investigating the factors influencing the coordination of headquarter-subsidiary relationships. Biased by a process view, it was asked: Do managers vary their coordination instruments according to the character of the business process? This question seems rather trivial. However, this question must be viewed in the context of the traditional paradigm of contingency theory which seeks to explain the efficient use of technocratic, structural, and personal coordination instruments. Traditional research assumes that the use of coordination instruments is contingent upon contextual variables of the firm, such as its size, age, technology, environmental dynamics, or its internationality. The efficiency of headquarter-subsidiary relationships depends on correspondence between contextual variables and the applied coordination instruments. Early work took an undifferentiated view, correlating the firm's efficiency (the dependent variable) with contextual factors (the independent variables) and features of the company (intervening variables).

Obviously, each subsidiary has its distinctive set of context factors, implying that a firm has to control different headquarter-subsidiary relationships in different ways. Empirical results confirm that firms are successful when they adapt the coordination instruments to the subsidiaries' specific situation. Moreover, it may be assumed that the coordination pattern of the headquarter-subsidiary relationship also varies with the character of strategic business units and of functional departments .
A process orientation assumes that managers adapt the application of coordination instruments to the specifics of the business process. Therefore, the above mentioned four business processes were analyzed with respect to their political and structural character. The interviews with managers in German and Swiss MNCs clearly supported the view that managers do vary their use of coordination instruments according to the character of business processes. Personal instruments such as face-to-face meetings, personal instructions, and visits are more often used in political and ill-structured processes like strategic planning. In contrast, managers often apply technocratic instruments of coordination such as rules, programs and written documents in operational and well-structured decisions, such as physical distribution and warehousing. The processes of product launch and budgeting have a mix of personal and operational elements. In these processes managers vary the use of coordination instruments over the course of time, preferring face-to-face meetings in value-intensive soft phases and exchanging formalized documents in the operational phases of budgeting or product introduction.

Managers construct the reality of their firms, subsidiaries, departments, and strategic business units. They design the structures of their units, develop organizational cultures, expand the internationality of their departments, and decide on "appropriate" coordination instruments in general. However, this self-created static frame of contingencies can only deliver a partial explanation of organizational behavior. Within the business processes, individuals constantly construct reality anew, accepting, ignoring or inventing new contingencies on the base of their perceived and assessed reality. So, it is not so much the absolute character of a business process that determines the selection of coordination instruments, but rather the perception of process complexity that dictates the use of coordination instruments. The interviews strongly support the view of "bringing mind back in .
New Information Technologies

New Information Technologies (IT) are said to have a major impact on the coordination of headquarter-subsidiary-relations. New IT such as electronic mail, corporate and public data bases, application systems, fax, video and computer-conferencing , are considered to be some of the driving forces of internationalisation.

However, very little academic research has focused on the interface between International Management, Organization Theory and Information Systems. Only a few authors have considered the fit between global business strategy and global IT strategy. Even though the strategic importance of IT is asserted, few studies closely investigate the relationship between state of the art applications of IT in MNCs and their impact and importance for coordinating dispersed activities and business processes. Research linking IT and coordination focuses either on domestic inter-unit coordination , or lacks empirical content. Some studies have the right research focus, but they are outdated because of the rapid change of IT.

Regarding the enabling role of IT for the internationalization process, the interviews conducted produced mixed results. On the one hand more companies than expected have developed worldwide communication networks. These networks include E-mail as well as internal fax networks. On the other hand, the stereotype that IT pushes globalization was not supported. Firms change IT to facilitate the management of international business processes and renew the communications hardware when higher levels of internationalization ask for it. IT follows internationalization, but not vice-versa.

New IT influences the interaction between headquarters and subsidiaries and may have an impact on the use of coordination instruments. In many interviews the influence of IT on coordination in MNCs was discussed. IT helps to solve problems which are intensified by the international scope of business processes: geographical distances that have to be overcome, scattered members in a decentralized organization who need to create and process information in many places, and different time zones between senders and recipients of information that pose additional problems.

Our hypothesis that the impact of IT varies among the four business processes has been confirmed. Operational, well-structured processes like logistics tend to be more supported by IT than political, ill-structured processes like strategic planning.

The perception of the surveyed respondents was that new IT does not lead to a substitution of coordination instruments. In those companies using global networks for the exchange of data and written information, the frequency and intensity of personal visits abroad have not decreased. The major reason for this lies in the fact that confidence and personal relationships can not at all be established by computer or video-conferencing.

The four business processes do not only vary concerning the use of IT and coordination mechanisms, but also have different international orientations. An initial assumption was that internationalization will be realized by a well designed and orchestrated strategic planning process. Surprisingly, operational business processes are much more mutually dependent and linked than political processes. Operational processes appear to be better designed for the purpose of international coordination than strategic planning processes. Applying Perlmutter's framework , strategic planning is more ethnocentric with a strong orientation towards centralized decision-making, whereas R&D or logistics processes resemble more a geocentric network of mutually coordinating partners. However, the greater bulk of the sample is far away from having realized the vision of a transnational network organization - at least at the strategic level.

The research was started with a traditional view on coordination instruments which can be considered as central subjects of the theory of international management. Throughout the interviews it was recognized that the question of international coordination is certainly interesting to managers. It was also evident that managers do not bother very much about traditional coordination instruments. Centralization, standardization, or formalization were found to be less important than questions of international team-building or the participation of foreign managers in strategic decisions.

Decision arenas provide opportunities to exchange values, opinions, data, and test theories and thereby form organizational identity. Thus corporate culture controls and coordinates activities. The interviews show that traditional coordination mechanisms are supplemented or even replaced by such "new" forms of coordination. Norms and organizational culture play an increasingly important role in managing business processes.

The internationalization of firms increases the dynamics and complexity of their relations with the environment. Rapid external change makes MNCs so vulnerable that they cannot fully rely on adaptive structural changes. They have to organize their business processes in ways that allow greater flexibility. Organizing for more flexibility means deliberately to design or re-design existing international business processes.

Re-engineering International Business Processes

Business processes can be re-engineered by redesigning the steps, by changing the logical and temporal sequence of the steps, or by changing other characteristics of the process. Publications on BPR have boomed in the last three years, but they do not pay much attention to the international dimension of business processes. Adding the international dimension creates some specific problems as is demonstrated in the following example. In a factory of a German conglomerate which was manufacturing high quality industrial goods, one production step was very labor-intensive. In an attempt to reduce costs, headquarter management transferred this step from Germany to a plant in Portugal, leaving the more mechanized production steps in Germany. Labor costs in Portugal were about a tenth of those in Germany. Indeed, the comparative cost advantage resulted in a reduction of overall manufacturing costs of about twenty per cent. Thus, another success story of international reconfiguration?
No story without an ending. After four or five months the first serious problems arose. The stocks of finished products were wrongly assorted. Customers complained about bad quality and delivery delays. Management reacted when the most important customer with a gross margin of about one million dollars switched to the Japanese competitor.

This case might be subsumed under the normal implementation problems of restructuring. However, in the remaining part of the paper it will be demonstrated that such international business changes have some unusual features which must be taken into account when re- engineering processes are started.

Characteristics

Despite the vagueness of the term Business Process Re-engineering, some characteristics are shared by writers on BPR:

1. Process orientation: From structure to process

Business process orientation is trying to overcome some of the problems raised by the Tayloristic view of structural specialization. In an international context, process orientation changes the perspective from structural relationships between headquarters and subsidiaries to the interaction processes between them.

2. Definition of business processes

A process is a specific arrangement of activities across time and place, with a beginning and an end, with inputs and outputs. Business processes aim at producing an output that supports a firm's targets and cuts across functions, departments, and in some cases across the boundaries of an organization. Business activities include informational, operational and managerial activities. Re-engineering covers all three activities, not only operational activities.

3. The contents and boundaries of business processes

The contents and boundaries of business processes vary from firm to firm. The experience of designers shows that a firm should differentiate its ongoing activities by a range of ten to twenty business processes. Each company has its own set of business processes. For instance, IBM uses eighteen business processes. Some examples of these processes are: production, customer fulfillment, customer feedback and development of hardware.

4. Business process owners and responsibility

Top management should take over the ownership and hence the responsibility for the business processes to ensure their optimal management as well as their continuous improvement. Line responsibility and process ownership form a matrix.

5. International business processes

Business processes are not international per se. The internationality of the firm determines how many business processes have an international scope. Some business processes are more likely to be international than others, for instance global sourcing, global key account management, R&D, new product launch, or manufacturing.

6. Customer orientation

BPR is radically customer-oriented. Process outputs should not only support the firm's objectives, but must also satisfy customers' requirements. Customers should be integrated into the redesign.

7. Re-engineering as a radical change of business processe

Re-engineering of business processes is a radical break of process structures which bears great risks. Hammer confessed that seventy per cent of all BPR projects in which he was involved failed. However, the opportunities are also great. Where as programs of TQM aim at reaching improvements of 30 to 40 percent, Hammer and Champy report cases of redesign where process times have been shortened by a factor of 100.

8. Holistic view of processes instead of piecemeal engineering

BPR takes a holistic view of the network of parallel and serial processes. A holistic view can overcome the piecemeal engineering of isolated parts of a business process which often results in sub optimal solutions, particularly when the preceding or following process steps fall under the responsibility of a foreign subsidiary. However, designers lose this holistic view if they distinguish between too many processes or too many process levels. IBM, which has the longest experience with process re-organization, reduced their 140 subprocesses to the above mentioned 18 business processes.

9. Top -down approach of Business Process Re-engineering

A holistic view harmonizes with a top down approach. Because of the broad, cross- functional scope of BPR and the risks of radical change, top management should initiate, control, and monitor the re-engineering. BPR follows a top-down approach in contrast to quality improvement programs which follow a bottom-up approach.

10. Benchmarking of Business Process Re-engineering

Business processes are benchmarked. Continuous improvement and radical innovation are designed to reduce cost and time, to increase customer satisfaction and organizational flexibility. However, only a deep understanding of cause-effect relationships will identify the true cost drivers and time wasters.

Compared to the ten characteristics of BPR, the interview partners had a different perception and understanding of business processes. Although top management in the German electronics and pharmaceutical industries had a basic understanding of processes and their inherent possibilities of improvement, the lower echelons of these firms have not been influenced by the process philosophy, with the exception of data processing departments. Most firms have improved efficiency of separate processes by applying TQM and JIT concepts. These improvements lacked the radical, systematic, and holistic approach of BPR. Only a very few, exceptional companies in the sample, like the often quoted IBM and DEC, reported a fully-developed process organization.

Almost all major consulting firms, as well as companies with BPR experience such as IBM, HP and DEC participate in the BPR market with Andersen Consulting, which is the market leader. The BPR philosophy is heavily promoted by writers who work as partners of or in connection with consulting firms and who have a strong commercial interest in the diffusion of BPR. A more critical observer might also take into account the complaints of numerous victims who have ventured into BPR unsuccessfully. He might critically ask: What is really new about BPR? A succinct answer might be that BPR changes the focus from a structural to a process view of an organization.

Information Technology

The role of IT is discussed in contradictory ways. Advocates of information systems favor the view that new IT is an enabler of process re-engineering. IT has to be monitored constantly to determine whether it can generate new process designs or how it can contribute to the performance of a business process. The breakthrough of BPR is tightly connected with IT, which opens new dimensions of process reorganization . Others are convinced that first the redesign of processes should be accomplished before IT is used to optimize the new process. And a third group of writers, surprisingly from IBM, has not even mentioned the role of IT .

After reviewing the interviews, it is not easy to decide who is right or wrong. Business processes differ with respect to their internal structure. The proportion of information, operations and management activities varies tremendously over time between and within business processes. Consider the processes of product launch and of production: at the beginning of the product launch process there are more information and management activities and later during the process there are more physical operations. In contrast, production processes have a continuous flow of physical operations producing and receiving a comparatively low amount of management information. The hardware and software of IT have a spectrum of abilities to support informational or operational, or even managerial activities with respect to the individual business processes. Therefore it is very difficult to generalize whether IT enables or just supports BPR.

Moreover, the role of IT is influenced by those who take the initiative in process improvement or redesign. If the data processing department initiates the process change, then IT has more of a generator function for new process redesigns. If top management sets off the change process, then the process is first restructured and afterwards optimized through IT. In two cases parallel change processes were reported; developing IT and process redesign simultaneously. It can not be taken for granted that IT is adapted.
In the case of one industrial goods factory the change agents of the production transfer to Portugal failed to establish information flows between the German plants and the Portuguese plant. Feedback and feedforward information on quality, production schedules, delivery times, stocks, and production stoppages were cut off and reached the coordinating plant in Germany only by coincidence. Nonetheless, even if the process designers had linked domestic and foreign plants by an on-line connection, the internationalization of this production process would still have resulted in a disaster.

A superficial explanation would explain the failure with the fact that in Portugal, with the exception of the German general manager, nobody spoke German or sufficient English to understand the messages. A more carefully conducted analysis would take into account that the manager of a fully mechanized mass production plant, such as that in Portugal, cannot be expected to be overly enthusiastic about the reintroduction of manual work places, which reduce the plant's productivity. Moreover, he could not comprehend the logic of integrated international manufacturing, which created nothing but problems and allocated the comparative cost advantage to headquarters.

This case was outlined in greater detail, because it highlights an aspect of international BPR, namely the role of corporate culture.

Deeper Structure

Corporate culture and corporate identity are rather vague terms. To circumvent misunderstanding, the concept of surface and deeper structure in organization will be introduced and used instead. It is assumed that deeper structures are more heterogeneous in MNCs than in national corporations and that the greater heterogeneity influences the alternatives of process redesign. But first the distinction between surface and deeper structure of business processes will be developed. Afterwards, the implications of deeper structures on international BPR will be elaborated.

The old and new structures of business processes are artificial problem solutions, designed by individuals to deal efficiently with the firm's task complexity. International business processes are the answers of organization designers to problems resulting from the configuration of international activities. Centralization, formalization, and standardization represent the visible surface structure of organizations. Organizational designers are those who develop, influence, and decide upon changes in the surface structure.

The designers produce designs of business processes based upon their perception, explanation, and understanding of organizational reality. Values, beliefs, attitudes, and facts are the bits of knowledge of organizational reality. Problem solutions, such as business process redesigns, are derived from contextual orientations such as lay theories and frameworks, providing synthesis to the bits of knowledge. Each member of an organization, either as designer or as participant of a business process, has an individual set of contexts. The sum of all members' values, beliefs, attitudes, facts and contextual orientations is called the deeper structure of an organization. The deeper structure produces, then, the surface structure in the form of re-engineered processes. More generally, the visible organizational behavior is the product of an organization's deeper structure.

The participants in a product development process, for example, have a specific set of experiences, theories, and beliefs about why and how a process is organized as it is. Restructuring the surface of the process without changing the contextual orientations of the process might result in an uncompleted change. The participants' old, unchanged deeper structure produces more or less similar copies of old behavior, thus conflicting with the new process design.

On the other hand, surface structures are never perfect, because design can only be a proxy model of reality. Thus, deeper structure helps organizations to work efficiently within outdated surface structures, to remedy mistakes, and to smooth design faults. Now, the redesign of the surface structure might be so radical that the participants' contexts no longer fit their old values, and experiences, and the new facts. Without knowing the deeper structure, designers of the new business process do not know the cause-effect relationships and can not judge how to modify the new business process.
Both cases of redesign indicate that it is not sufficient to develop and implement a new surface structure of business processes. It is also necessary to analyze and change the corresponding deeper structure. A similar discussion took place under the heading of "planned organizational change" in the seventies and "organizational learning" in the eighties. Obviously, process redesigners ignore this knowledge and repeat the mistakes designers of structural change have already made. The high failure rate of Business Process Re-engineering, as reported by Arthur D. Little , may have its roots in the poor understanding of the deeper structure of organizations. And many consultants seem to act in a strange way: in the eighties they focused on corporate culture, in the nineties they concentrate on BPR. But why are they not able or willing to combine both ideas?

Internationality

Members of an organization share to a certain degree bits of knowledge and contextual orientations. The more members are co-oriented, i.e. holding a high amount of shared values, beliefs, attitudes, and contexts, the more homogeneous is the deeper structure of an organization.

It cannot automatically be assumed that in a multinational corporation the degree of co- orientation is very strong. Subsidiaries develop a local identity, rooted in the national societal context. The probability of a weak co-orientation is high, when MNCs acquire many foreign companies, favour autonomous subsidiaries, and invest little international management development. Moreover, the less homogeneous deeper structures are, the greater is the probability that local deeper structures evolve and develop centrifugal forces.

The degree of homogeneity of corporate deeper structures favors the success of international BPR. The redesign of processes will fail when the deeper structure of designers and process participants in the headquarters differs from the deeper structure in subsidiaries. In this case headquarters and subsidiaries do not share a common logic underlying the new process. An example may help to explain the argument.
A middle-sized German company started to integrate globally the process of producing its sales literature, trying to realize economies of scale in printing and photography on a worldwide basis. Previously, each subsidiary was autonomous in the production of sales materials. However, they were committed to following the corporate design rules for formats, typography, colors and the use of the logo. In a long-lasting political process, the dominant coalition in headquarters agreed that white should be the basic colour for all printings, pamphlets, brochures, and packaging material. Shortly after this decision an American company was acquired. The management of the new US subsidiary immediately renewed all sales literature to demonstrate the new ownership to their customers. However, having grown up in the industry and influenced by their culture, the American general manager and his marketing manager had decided that the basic line for all literature should be black, because black was perceived to be far more elegant than white. Being rather proud of their quick response, the American managers were surprised about the CEO"s negative reaction during his first visit to the new subsidiary. Though they understood the economic reasons, they were reluctant to coordinate a decision with headquarters they were used to deciding on their own. They really could not accept that the Germans claimed to have a better understanding of the marketing game in the US market.

To make it clear: It is not only cultural diversity that makes process re-engineering more complex in MNCs. It is the corporations multi-faceted deeper structure which creates the differentiated and sometimes deviating behavior of subsidiaries.

Complexity

What consequences for BPR result from the heterogeneous deeper structure of MNCs? It was already stated before that the absolute amount of process activities as well as the structure of business processes, i.e. the proportion of information, operations and management activities, vary at different stages of the process. The business process is the more complex, the more activities are performed simultaneously, the more participants are simultaneously involved, and the less co-oriented the participants are. The complexity changes across the process.

The greater the process complexity, the higher is the required level of coordination. Co- orientation is a means of coordination. So, the process becomes less complex when the participants have a strong co-orientation, which means that their deeper structure is more homogeneous.

However, it has just been argued that the probability of a heterogeneous deeper structure is high within MNCs, particularly between subsidiaries and HQs. When integrating managers of foreign subsidiaries into business processes, process complexity is increased because of the greater number of managers and because of their different contextual orientations. So it is quite natural to integrate the members of foreign subsidiaries into the process as late as possible. In such cases a sequential process design seems more appropriate than a parallel process design. Ignoring differing contexts is one mode of handling process complexity. Acceptance of the heterogeneous deeper structure may be a second way to deal with international business processes, as the following case shows:
The case describes the product innovation process and its redesign within Mercedes-Benz. The new model of the S-class was introduced in 1991-92 with an old sequential process design: product design, body construction, prototyping, engineering and implementation of the production line, field-tests and market introduction followed one after the other. It was typical of the international co-orientation of Mercedes-Benz that the official international showing of the S-class to foreign subsidiaries and sales agents was opened by presenting the strategy for the German market introduction. The late involvement of foreign managers kept the development process simple. However, the new product had to be promoted and pushed heavily within the international organization. Headquarters" vice-presidents had the burden of selling the product internally and breaking mental barriers of acceptance. The sequential procedure only shifted the complexity from the early to the late stages of the process.
In the planning for the new "Baby-Benz", the process was changed radically. Already 36 months before launching the product on the market the European core subsidiaries, the US, and the Japanese subsidiaries were integrated into the product innovation process. Three hundred target customers from all over the world were invited to Stuttgart to assess the prototypes. Following this session several international task forces were established to position the product in the different country markets, developing market entry strategies for all countries, price and communication policies, training and service programs. Throughout the last three years of the technical product development the foreign sales force accompanied the birth of their "Baby- Benz".

In the case of the "Baby-Benz", Mercedes-Benz deliberately increased the process complexity in an early stage by integrating into the business process foreign customers and managers as "problem generators". Technical product development and market introduction worked in parallel for 36 months. Why was this process redesign possible and, as is known, successful?

1. Mercedes-Benz had undergone a substantial internationalization program between the introduction of the S-class and the product launch of the Baby-Benz. For instance, public trading of Daimler-Benz stock in the United States was one part of the internationalisation program. So Mercedes-Benz forced a new contextual orientation towards globalization and tried to create a stronger international co-orientation of sales agencies and subsidiaries.

2. The international task forces were composed of well selected managers, thus increasing the problem solving capacity not only in quantitative terms but also in qualitative terms. Problem complexity was handled by a variety of coordination systems.

3. Face-to-face meetings were used as the predominant coordination instrument. These meetings were costly and extremely time-consuming. However, the process itself stimulated and developed a stronger international deeper structure. People were confronted with other cultures, discussed their expectations, experiences, and lay theories, and exchanged values and beliefs - thus learning to manage the product launch by international experience.

Conclusion

Those who like large samples and multivariate techniques might mistrust the author's interpretative, case-by-case reasoning. Moreover, the conclusions result from melding and digesting the experience of numerous interview partners, without counting frequencies or calculating means, variances, and correlations. However, the method of narrative interpretation is becoming more and more accepted, at least for purposes of exploratory research on complex, unknown research fields. The price of exploratory research, however, is that the following conclusions can only be tentative:

1. It is agreed that applied research in international management should support managers to increase the efficiency of MNCs. Switching from a structural view to a process view of international organizations, MNCs can be interpreted as being composed of several business processes. MNCs are the more efficient , the better the members of an organization manage business processes. Continuous improvements and basic redesigns of business processes are important to change process structures and hence the overall efficiency of MNCs.

2. The predecessors of Business Process Re-engineering such as TQM have prepared the ground for a process orientation in industry. This view should be extended from the redesign of single business processes to a process organization, which very few corporations such as IBM, Xerox, DEC or British Telecom have already implemented. However, there exists only anecdotal knowledge about the correct definition and extension of business processes, about the right number of process levels and the role of process owners.

3. Re-engineering of business processes has to consider the great variance in their contents, structure of activities, internationality and complexity. One might expect that the importance of deeper structure depends on the type of the business process. It should be also kept in mind that little is known about the relative importance of individual contexts and organizational deeper structure compared to objective organizational factors, such as technology, apparent on the surface structure of business processes.

4. If the influence of deeper structures is accepted, it might also be expected that in MNCs deeper structure is heterogeneous and varies between HQs and from subsidiary to subsidiary. Weak co-orientation increases the complexity of international business processes, because process participants try to manage joint business processes with differing and incommensurate deeper structures. From comparative management literature it is known that managerial behavior is culture-bound. So it might be helpful to learn about the interdependence of organizational deeper structure and national cultures.

5. Management can deliberately try to manipulate the contextual orientation of organizational members and thereby the degree of co-orientation within the MNC through general programs of organizational learning, such as management development, international job rotation, and symbolic acts, thus creating more homogeneity. Business processes themselves can help in developing a process-specific co-orientation by creating numerous communication arenas, where participants learn in face-to-face situations about differing contextual orientations. Face-to-face meetings allow context-rich communication about values, beliefs, and theories. It seems appropriate for the process design, to put these trust-building face-to-face meetings at the beginning of the business process. The stronger the international co-orientation, the less necessary are trust-building activities and the greater is the probability that new IT can successfully support the management of international business processes.

6. New IT permits only context-poor communication. Therefore it seems inappropriate to use IT in processes where the deeper structure strongly interferes with the outcome of the process. As the interviews show, new IT is only used in well-structured business processes. Thus, for the near term no dramatic change in IT use is expected for more complex business processes, even if the development of group-ware makes greater progress than in the past.

Globalization of MNCs calls for a better understanding of those business processes which link subsidiaries with each other and with headquarters. MNCs are on the edge of learning how they can gain competitive advantage by integrating their geographically dispersed competencies, arbitrating comparative cost advantages, leveraging their strengths and avoiding dangers of economic exposure. Both processes and structure are aspects of international management and organisational theory. Some writers even consider structure as one side and processes as the other side of the same coin, each leading to a different perspective of organizational behavior. Comparing organizational research with this statement, the distribution of research findings seems to be unbalanced, with the greater bulk of research concentrating on questions of organizational structure. This encourages the writer to argue for more process-oriented research on organizations. References

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See Handelsblatt (1994), No. 117, June 21, 1994.
See for instance Davenport and Short (1990), Hammer (1990), Harrington (1991), Knorr (1991), Barton
(1993), Davenport (1993), Hammer and Champy (1993).

 These interviews have been carried out together with Professor Krcmar, Chair of Information Systems at the 
University of Stuttgart-Hohenheim,  and  two research assistants, Ulrich Hanfeld  and  Dr. Bettina Schwarzer, 
both being financed by the generosity of the Carnegie Bosch Institute.

  The terms business process re-engineering  and  business process redesign are used synonymously throughout 
the paper.

  See for instance Stopford and Wells (1972), Franko (1976), Doz (1980), Welge (1981). 
  The criteria for selection are taken from literature pertaining to individual  and  collective problem solving. See 
for instance March and Simon (1958). The selection was performed to obtain a large variance representing the 
spectrum of processes found in organizations.
  From an external point of view this situation leads to disjointed incrementalism; see Lindblom (1964).
  See on interface problems for instance Lim and Reid (1992) or Brockhoff and Hauschildt (1993).
  See Harrington (1991), Short and Venkatraman (1992), O`Sullivan and Geringer (1993).
  See Kane (1986), Belmonte and Murray (1993), Davenport (1993), Hammer and Champy (1993).
  The problem of coordination mechanisms originates in the bureaucratic model of Max Weber. Here we refer 
to Kenter's classification of coordination instruments. See Kenter (1985). 
  For exhaustive reviews of the literature see Khandwalla (1975), Welge (1981), Baliga and Jaeger (1984), 
Egelhoff (1988), Martinez and Jarillo (1989), Wolf (1994).
  See Prahalad and Doz (1987).
  See Brandt and Hulbert (1976), Prahalad and Doz (1981), Ghoshal and Nohria (1989), Roth and Nigh (1992).
  See Macharzina (1992), Sullivan (1992), Kutschker (1994).
  See Brandt and Hulbert (1977), Welge (1981), Kenter (1985).
  This was the title of an article stressing the role of the manager; see Pondy and Boje (1976).
  For a complete listing  and  interpretation see Conger (1988).
  See Manheim (1990), Jarvenpaa and Ives (1991).
  See for instance Jarvenpaa and Ives (1990), Jarvenpaa and Ives (1991), Ives and Jarvenpaa (1991).
  See for one of these studies Samiee (1984), Sethi and Olson (1991), Palvia and Saraswat (1992). 
  See Conger (1988), Moynihan (1985).
  See Malone (1988).
  See Mandell (1975), Brandt and Hulbert (1976), Mandell and Grub (1979).
  See Keen (1991), Manheim (1991).
  See Heenan and Perlmutter (1979).
  See Bartlett and Ghoshal (1989).
  See Etzioni (1968), Deal and Kennedy (1987), Bartlett and Ghoshal (1989), Nohria and Ghoshal (1994).
  See on flexibility Boudette (1989), Bleicher (1990), Maljers (1992), Amburgey, Kelly and Barnett (1993). 
  See Striening (1988), Hammer (1990), Gilbert and Siong (1993), Harrison and Pratz (1993), Girth (1994).
  See Gaitanides (1983), Peters (1988), Davenport and Short (1990), Holst (1991), Davenport (1993).
  See Kane (1986), Davenport (1993), Scheer (1993).
  See on process owners Striening (1988).
  See Pall (1987), Vantrappen (1992), Blattberg and Deighton (1993), Hammer and Champy (1993).
  See Handelsblatt-Karriere (1994), No. 29, July 29-30,1994, Fischer et. al. (1994).
  See Davenport (1993).
  See Gaitanides (1983), Bellmann (1991), Striening (1988).
  See Simon (1989), Fromm (1992).
  The sample consisted of an undifferentiated sub-sample of German MNCs  and  two Swiss  and  German sub-
samples in the electronics  and  the pharmaceutical industries.
  For instance Davenport, Ernst&Young or Hammer and CIC or Scott-Morgan and ADL.
  See for example Fischer et al. (1994) who give a disillusioning report.
  See Davenport (1993).
  See Kane (1986).
  See Brandes et al. (1989), Davenport and Short (1990), Hammer (1990), Venkatraman (1991), Scheer (1993), 
Benjamin and Levinson (1993), Hauser and Thurmann (1993).
  See for instance Schwarzer, Krcmar and Kutschker (1993), Schwarzer (1993), Schwarzer and Krcmar (1994).
  See Etzioni (1968). For the interplay of data, values,  and  theory in science see Galtung (1978), Kirsch 
(1991).
  The distinction between surface structures  and  deeper structures is based on ChomskyÕs concept on the 
syntax of a language; see Chomsky (1965), Kirsch (1991), Kirsch (1992).
  See for instance Kirsch, Esser and Gabele (1979), Kirsch (1991), Hedberg (1981), Meffert (1984), Stata 

(1989).

  See Handelsblatt Karriere (1994).
  See however Scott-Morgan (1994).
  See on co-orientation Kirsch (1992).
  See Etzioni (1968), Ouchi (1981), Nohria and  Ghoshal (1994).
  See Eisenhardt (1989), Yin (1990), Wollnik (1992), Schmid (1994).
  See for instance Adler (1991).
  See Porter (1985), Porter (1986), Bartlett and Ghoshal (1988), Bartlett and Ghoshal (1989).
  See Bellmann (1991), Wildemann (1993)

The Consequences of Currency Regime Shifts for Portfolio Diversification Strategies

Table of Contents

1. Introduction

2. History of the Krone

3. Consequences for Diversification Strategies

4. Regime Shifts and Exchange Rate Behavior

5. Regime Shifts and the Relationships between Equity Returns

6. Conclusion

Re-engineering of Business Processes in Multinational Corporations

Re-engineering of Business Processes in Multinational Corporations

Prof. Dr. Michael Kutschker

Abstract

Contents

Introduction

International Business Processes

Management of Ongoing Business Processes

Improvement of Business Processes

Re-engineering of Business Processes

Management of International Business Processes

Coordination

Re-engineering International Business Processes

Characteristics

Information Technology

Deeper Structure

Internationality

Complexity

Conclusion