Opening the Black Box of International Strategy Formation: How Harvard Business School Became a Multinational Enterprise

Abstract

This article addresses the question of why some business schools internationalize by establishing units abroad. We study their internationalization by examining the process that led to Harvard Business School’s first international strategy and its first foreign direct investment. The study elaborates how internationalization theories are applicable to research on the internationalization of business schools by exploring the role of environment and agency. The analysis shows that in an academic organization characterized as a loosely coupled system, individuals may influence the collective cognition in a strategy process by using new theoretical insights to conceptualize experiences and legitimize decisions. This demonstrates that agency is a multifaceted concept, and its function depends on who has agency and how it is used. By exploring how a new academic discipline, international business, contributed to both the conceptualization and the legitimization of a new strategy, the study provides new insight into the process that leads to the formation of an international strategy.\n\nAs business schools have become more international, scholars have sought to describe and explain the phenomenon. Predictably, this has led to discussions of how the internationalization of business schools can be understood and appropriately analyzed. One stream of research about the new breed of internationalized business schools has drawn upon macro-level theoretical perspectives that relate to the past, such as postcolonial theory (Abreu-Pederzini & Suárez-Barraza, 2020; Kumar, 2019; Siltaoja, Juusola, & Kivijärvi, 2019), and historical and institutional views (Cooke & Alcadipani, 2015; Wanderley & Barros, 2020). Another stream of research on business schools’ internationalization has adopted the more micro-oriented theories and frameworks from the international business discipline (Engwall & Kipping, 2013; Guillotin & Mangematin, 2015; Rogmans, 2019), which has led to critical comments on the use of international business theories to study business school internationalization and a call for exploring other theoretical approaches when studying this phenomenon (Juusola & Alajoutsijärvi, 2019).\n\nWe respond to this call by studying the internationalization process as a long-term process of international strategy formation including both emergent strategies as responses to external forces and deliberate internal decisions made by agents (Mintzberg & Waters, 1985). As noted by Foss and Møllgaard (2020), little is known about the formation of business school strategy in general, and this also applies to their approach to internationalization. Based on Melin’s (1992) discussion of internationalization as a strategy process, our approach includes the model developed by Johanson and Vahlne (1977)—often referred to as the Uppsala internationalization process model—which was used by Engwall and Kipping (2013) to show how the internationalization of business schools has evolved gradually, as a learning process. It also includes other dynamic models for understanding internationalization, such as Vernon’s (1966) product cycle model that sees internationalization as a result of how new products expand out of their home markets. Further, we draw upon literature on how agency interacts with the external environment in formulating strategies (de Rond & Thietart, 2007; Mackay & Chia, 2013), and on strategy cognition research focusing on how new strategies emerge as a cognitive process where decision-makers make sense of experiences (Narayanan, Zane, & Kemmerer, 2011).\n\nOur study is motivated by three observations about research on the internationalization of business schools. First, the noted general lack of research on opening the black box of strategy formation in business schools (Foss & Møllgaard, 2020) merits examining how these organizations, with their distinctive characteristics, make use of their experiences as they develop international strategies. The notion of strategy formation has long been recognized in the strategic management field (Mintzberg, 1978), but a process-oriented approach has seldom been used in studies of international strategy formation (Melin, 1992; Santangelo & Meyer, 2011). Second, the uniqueness of business schools, compared to other organizations that have internationalized, invites research with the purpose of exploring the nature of strategy-forming agency in business schools. Third, history-informed strategy research, characterized by drawing on historical methods, provides a useful lens for studying strategy-related phenomena and decisions over time (Argyres, De Massis, Foss, Frattini, Jones, & Silverman, 2020), especially those regarding complex and potentially risky engagements such as internationalization (Vaara & Lamberg, 2016).\n\nWe address the above points by studying the background to Harvard Business School’s (HBS) decision in 1971 to explicitly formulate and execute its first full-fledged international strategy. The decision was based on the definition of HBS as a multinational enterprise (MNE), and led to the establishment of HBS’s first foreign wholly owned unit in Vevey, close to Lausanne in Switzerland. In an historical context when several U.S. business schools were very active in cooperating with other business schools abroad (Amdam, 2020; Engwall, Kipping, & Üsdiken, 2016), and Stanford Graduate School of Business (Stanford) and HBS even operated, but without owning business schools in Peru (Escula en Administración de Negocos para Graduados [ESAN]) and Central America (the Instituto Centroamericano de Administración de Empresas [INCAE]) (Colburn & Montiel, 2001; Coleman, 2005), HBS decided to take a totally new step and established its own unit in a foreign country. As far as we know, HBS was the first university organization to perceive itself as an MNE. Its international strategy-formation process led to the decision to make a foreign direct investment (FDI), and the event came as a surprise when it was announced (New York Times, 1972). Our empirical research reveals that Raymond Vernon, professor of international business at HBS from 1958, was active in this process from 1965, which makes it highly relevant to draw on his pioneering work on the product life cycle model—an example of internationalization process theory (Melin, 1992)—as a possible contribution into the process.\n\nThe historical starting point for this study is the early 1950s, when U.S. business schools experienced increasing demand to become more international. The end point of the study is 1972, when HBS executed its decision to establish a wholly owned unit in Switzerland. Strategies are not always planned or formulated (Mintzberg & Waters, 1985), and by using this time span we cover the process from a very early pre-formative stage, when formulating an international strategy was not addressed explicitly, to a formative period when a strategy became a planned aim, and then to the execution. Because of the richness of the historical sources, this case is well-suited to examination in relation to the formation of international strategy, using the definition of strategy as “a pattern in a stream of decisions” (Mintzberg, 1978: 934), and internationalization as an ongoing process rather than a single decision (Aharoni & Brock, 2010). Based on this, we address a general research question: What are the roles of environment and agency in the internationalization of a business school?\n\nThe article specifically contributes to literature on why business schools internationalize by showing how theories derived from studies of commercial enterprises are also applicable for studying the formation of international strategies by educational institutions. Following Fisher and Aguinis’s (2017) guidelines for theory elaboration, we extend our theoretical knowledge about internationalization processes by exploring the role of agency in the formation of international strategies for an academic institution with a relatively low degree of organizational hierarchies (Weick, 1976). Based on observations that strategy formation involves cognitive processes where individuals make sense of experiences and knowledge resulting in heterogeneous mental maps, which may lead to variations within a team on the outcome of decisions (Maitland & Sammartino, 2015; Narayanan et al., 2011), we also elaborate theoretically how individuals may influence collective team cognitions by using academic theory to legitimize one specific decision. By exploring how the emergence of a new discipline—international business—acted as a catalyst as well as legitimized the new strategy, we show that agency is a multifaceted concept and its function depends on who has the agency and how it is used.\n\nOur article is structured as follows. In the next section, we present theoretical perspectives, and develop a framework for the formation of international strategy as a process. After presenting our methodological approach, we provide a detailed chronological historical study of the development of the idea of the internationalization of HBS from the early 1950s to the formation and execution of an international strategy in the early 1970s. Finally, we discuss this case as a process of international strategy formation, followed by presenting our conclusions.

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