Unleash innovation in foreign subsidiaries

In multinational corporations, growth-triggering innovation often emerges i n foreign subsidiaries from employees closest to customers and least attach ed to the procedures and politesse of the home office. But too often, heavy -handed responses from headquarters squelch local enthusiasm and drive out good ideas-and good people. The authors' research into more than 50 multinationals suggests that encour aging innovation in foreign subsidiaries requires a change in attitude. Com panies should start to think of foreign subsidiaries as peninsulas rather t han as islands - as extensions of the company's strategic domain rather tha n as isolated outposts. If they do, innovative ideas will flow more freely from the periphery to the corporate center. Basing their arguments on a ric h array of examples, the authors say that encouraging such "innovation at t he edges" also requires a new set of practices, with two aims: to improve t he formal and informal channels of communication between headquarters and s ubsidiaries and to give foreign subsidiaries more authority to see their id eas through. The challenge for executives of multinationals is to find ways to liberaliz e, not tighten, internal systems and to delegate more authority to local su bsidiaries. It isn't enough to ask subsidiary managers to be innovative; co rporate managers need to give them incentives and support systems to facili tate their efforts. The authors suggest four approaches: give seed money to subsidiaries; use f ormal requests for proposals as a way of increasing the demand for seed mon ey; encourage subsidiaries to be incubators for fledgling businesses; and b uild international networks. As part of the last approach, multinationals a lso need to create roles for idea brokers who can link entrepreneurs in for eign subsidiaries with other parts of the company.