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Competitive Strategies for the Internationalization of Companies Based on Knowledge Management.

Case Study of a Latin-American Company Leader in R&D&I

Prof. Dr. GERALDO LUCIANO TOLEDO Professor of Management and Marketing at the Faculty of Economy, Administration and Accounting of the University of So Paulo, FEA/USP Brazil - gltoledo@usp.br

PhD. ELIANA MARROQUIN QUELOPANA Attending the Doctor in Management of the Innovation and Technological Politics by University of Polytechnics of Madrid Spain eliana_marroquin@yahoo.es

PhD. LVARO CASTROMAN POLLERO Attending the Doctor by Faculty of Philosophy, Letters and Social Sciences, University of So Paulo, Brazil alvarocp@usp.br

Abstract: In a global economy, where technology and human resources define the levels
of economic development, knowledge has turned into the most important resource of competitiveness. Highly competitive environments demand more intelligent, integrated and flexible companies, in order to face the continuous changes of the world. The reaction of Latin American firms to this challenge should be based on the design of internationalization strategies that emphasize an organizational structure built on knowledge and innovation. The main objective of this paper is to investigate how Odebrecht Engineering & Construction (OIC), a Latin-American company, leader in research, development, and innovation (R&D&I), implements a successful internationalization strategy based on knowledge management. This paper has been developed using the Case Study methodology (YIN, 2001). The analysis of the strategy has been conducted with the Delta Model (HAX & WILDE 2001). The results show that OIC builds its strategy, termed system lock-in focusing on an organizational structure for innovation.

Keywords: knowledge management, competitive strategy, structure organizational, innovation, internationalization.

The strategy to use in the internationalization for a company is a complex phenomenon that, from very diverse perspectives, has provoked the interest of a great number of investigators. With the passage of time there have arisen numerous theories that try to explain this phenomenon, although given their multiple interrelationships between country headquarters and international market have not been possible to configure an only valid model, but concrete answers to particular questions (BARBER & SUREZ, 2001). Nowadays, this phase of the globalization affects both the economic organization of the countries and their political macroeconomic ones, and the own organization of the production and other economic functions inside the company. The forms of adjustment and of insertion of the companies in the global economy are related, in turn, to historical processes and their salient characteristics as for size, sector, technology, etc. (KOSACOFF, 2003). 1.1. The Globalization and the Latin American companies. The strategy of the internationalization of Latin-American companies is a topic little explored in the academic environment. Several explanations have tried to describe small expression of the international trade of South America that does not come to 4 % (OMC, 2002). There is a new world economy, where the technology and the human capital define levels of economic prosperity, in a world increasing integrated starting from the commercial flows and of investments. Also in Latin America there exists a new national, more opened economy and deregulation. Opposite to the new economic environment, KOSACOFF, (2003) analyzes that to beginning of the new millenium there exists a word that defines perfectly the perception of the Latin-American managers: challenge. This word and what she represents, they explain the attitudes of the managers and the answers different from every company to this new scenario. The economy of the companies is every time more integrated and flexible to the relentless changes of the world environment (HAX & WILDE, 2001). Their reactions are of strong mutations and adjustments to the new game rules. The type of response of the LatinAmerican companies to this challenge separates them, finally, in two principal groups: In the first group there are those that took a proactive attitude and face with a clear strategy this process, and in the second group there are those that try to survive and to answer defensively to an environment that appears them hostile. The Odebrecht Engineering & Construction (OIC), company leader in investigation, development and innovation (R&D&I) and the major exporter of services of Latin America., presents a proactive and challenging characteristic in the globalization. This article has been constructed in two parts. In the first part, there is realized a review of the literature in which the most relevant contributions are outlined. We initiate this review detailing the methodological tool used in this study, the model Delta. This model, developed by HAX and WILDE (2001), was constructed by means of an investigation directed by the authors in the business school Sloan, and it had the participation, in several Workshops, of more than 30 CEO`s of corporations and information of more than 100 internationalized companies. The methodological frame that there develops the model Delta: 1-it defines the strategic positions that reflect new sources of benefits in the international performance, 2-it aligns the strategic options with the activities of a company and provides congruity between the

direction and the strategic execution, and 3-it characterizes processes capable of answering to uncertain environments. Later one presents a review of the principal organizational structures designed for the innovation since the results of the study point at direct relations with the strategic international performance of the company in study. In the second part of the article, and immediately after the conclusions extracted from the review of the literature, there is applied the methodology of Study of Case (YIN. 2001). There were realized 13 interviews with top executive and a questionnaire was applied to more than 120 civil servants in 5 different countries. On having analyzed OIC's strategy across the theoretical frame of the model Delta there is perceived that OIC manages to develop the strategy system lock-in in his business cycle. To realize this strategy, OIC bases on the process of strategic configuration of a organizational structure designed for the innovation. This type of structure allows developing a strategy that increases the integration, flexibility and adaptability to the new competitive international environment constantly and inexorable change.


2.1. Evolution of the implementation of the concept of strategy ANSOFF (1977) treats the term "strategy" as that one that means everything what refers to the relations between the companies and their "environment". Being the trajectory of the company in terms of products and markets, in their external atmosphere, defined by the elements: group of product-markets, vector of growth and the competitive advantage. Thus, is formed the global strategy for the components: objectives (economic, no-economic, financial) and for the strategy (product-market, vectorial growth, competitive advantage, synergy). PORTER (1986) made their conceptual contribution spreading the competitive advantage as that characteristic that must be worked strategically by the company to create value for their clients and that ultrapasses the cost of productions. The strategy definition approached by MINTZBERG & QUINN (1998) adopts 5 dimensions, well-known as 5Ps, which are considered in the model Delta: 1-Strategy as plan, 2-Strategy as pretext, 3-Strategy as poll, 4-Strategy as position, 5-Strategy as perspective. OLIVEIRA (1992) conceptualizes the strategy as a set of forecasts to being adopted as the centers of decision supposing an environmental situation in which the future tends to be different from the past. The company must find conditions and means of acting on the variables that intervene, so that it could exercise some influence on these. This supposes the need of a constant process of decisions inside an environmental interdependent context and mutable. PORTER (1992) conceives the strategy in the context of the competitiveness. This author defines the competitive strategy with a basic objective of facilitating that the company has a vision of as being structured to survive and to grow in a competitive atmosphere. Porter argues that the degree of attractiveness of a given industry is determined by five players which have a claim on the economy value created by the industry activity. The knowledge of this players, well-know as Five Competitive Forces, make to possible to decide their strategic direction, having as objective the conquest from a superior acting to that of the competitors. The identification and analysis of the competitive forces of pressure, they

allow revealing the strong points and the vulnerability of the company, to orientate their positioning and to show the areas in which the strategic changes can provide the maximum of return. It allows putting; besides, in emphasize the areas where the impact of the external forces is more intense down the form of favorable or unfavorable situations. PRAHALAD (1997) argue critically to the concepts that sublie in the model of Porter, that they seek to understand the structure of a certain sector of activity, taking in consideration the reality of the 80s, in which the domineering question was: "How should I position the company in the structure of the activity sector that she acts?" For this author Porter's offer sends to an epoch that the environmental variables were not changing drastically, today one life in a situation of important changes, of discontinuities and of globalize environment. Thus the question to be responded at the end of the 90, according to PRAHALAD (1997), it is very different: "how there can be formulated strategies that allow the company to be able to model the future and that they don't represent only a mere positioning exercise? Departing from this perspective, the strategy does not shape an exercise of analysis ex-post fact, and yes as a process of discovery and creation. Thus the strategy is raised innovative and creative being interpreted as the search of new opportunities of business and of interactions with the clients, companies, technologies and markets. PORTER (1998) reconsiders the concept of strategy for the changes in the current phase of the globalization suggesting the following directives: The strategy is not an intellectual exercise; it is a form of corporate life. The author considers, strategy, in the globalization context, as a process of differing of the competitors with the purpose of obtaining competitive advantage; In the environment of a business, two different dimensions should be considered: the grade of attractiveness of the business and situation / positioning of the company; The strategy implies to choose different forms of competing that they are not equally applicable to all the companies of a sector. In other terms, from the point of view of a particular company, the strategic selection is unique, having in consideration a certain target market and considering a group of clients in particular; The strategy is manifested in specific activities in all the areas of the business; 2.2. Strategy in the new millennium: model Delta
This model arises from the analysis of companies internationalized in the context of the new millennium. The Delta model was developed by HAX and WILDE (2001), specifically for strategic analysis of global corporations from the second half of the 1990s. It shortened its functionality in response to the market challenges and extended the spectrum of available strategic positions that are in practice. According to HAX and WILDE (2001), conventional strategic

theories and business practices are not commensurate with the required direction of executives and essentially do not support decision-making in the new millennium. Strategic concepts have been changing in response to the business environment. Accordingly HAX and WILDE have made revisions to the strategic practices utilized in order to then be considered or refuted by the model. According to them, the only common denominator in global business performance is continuous and inevitable change. When HAX and WILDE analyzed the most influential strategic contemporary standards, explained by Porter (1990), they noted that it is based exclusively on two methods of competition: low cost or differentiation. A company can achieve low cost by aggressively

reducing costs or distinguishing itself by creating a perceived unique value. They argue that even though low cost and differentiation call for distinctive strategies, they are both centered on cost savings or on best product delivery. The product characteristics attract clients through price or value. Although the best product strategy continues to be relevant, their research into global organizations shows that it doesnt describe all the methods that companies employ in the actual business world. Two companies that illustrate this are Microsoft and Worldcom. Neither Microsoft nor Worldcom is the least expensive nor the most differentiated in its sector, however, they are both market leaders. The research was done on the CEOs and information of more than 100 companies and their strategy and implementation process lead to the development of this model. The model has three strategic options that better reflect the many ways companies actually compete (see figure 1). It fills a significant void in strategic thought development, offering three potential options: Best Product. Classic competitive methods with low cost and differentiation grouped together. Best product options allow companies to group and maintain clients with intrinsically superior products. In order to obtain this proposition they are introducing products rapidly and attempting to be the first to market in order to establish design dominance. Customer Solutions. Based on offering an expanded line of products/services that satisfy the majority, if not all, of the clients requirements. The focus is overall client cost-savings more than product savings. The proximity with the client allows a company to anticipate needs and work together to develop new products. The intense knowledge of client requirements and the adaptation of products to these needs has a dual effect: the investment that the client makes to learn how to use a new product-service can establish a significant barrier to change and the learning process identifies clients requirements increasing the companys ability to satisfy such needs. Both have a positive impact on the relationship. System Lock-in. This strategic option is developed in an expanded environment, sometimes centered on the clients, other times the product. The company considers all the elements of the system, elements that contribute significantly to the creation of economic value. With this option, the relationship plays a fundamental role. The companys interest should reside in nourishing attracting and retaining complements, together with other smaller industry contributors. The complements are suppliers with products/services that complement the companys offerings. HAX and WILDE (2001) made reference to Microsoft and Intel, because both companies do not win based on product costs nor differentiation nor client focus. Instead, they maintain a system lock-in. According to the authors, these strategic options arent mutually exclusive, a business can decide on a strategy that jointly utilizes some activities within the three options, but there is always one dominant strategic orientation for critical activities and process adopted by the business.

Figure 1: Delta Model. Three distinct strategic options

System Lock-in

Competition Based on System Economics: Compementors lock-in Competitor lock-out proprietary standards

Customer Solutions
Competition based on Customer Economics: Reducing customer costs or increasing pofits

Best Product
Competition based on Product Economics: Low cost or differentiation position

Source: HAX and WILDE (2001)

2.3. Analyses Strategic with the model DELTA For the methodological analysis HAX and WILDE (2001) advise to use the structure and functionality of the model Delta jointly with three fundamental processes that are always present in the strategic domineering tasks: Operational effectiveness - the delivery of products and services to the customer. Conceived in its broadest sense, this process includes all the supply chain elements. Its primary focus is to produce the most effective cost and asset infrastructure to support the business's desired strategic position. It is the heart of the productive engine and the source of capacity and efficiency. Although it is relevant for all businesses, it becomes most important when a company chooses a strategic position of best product. Customer targeting - the activities that attract, satisfy, and retain the customer. This process ensures that the customer relationships are managed most effectively. It identifies and selects attractive customers and enhances customer performance, either by reducing the customer's cost base or by increasing its revenue stream. At its heart, this process establishes the best revenue infrastructure for the business. While customer targeting is critical to all businesses, it is most important when the strategic position is that of total customer solutions. Innovation - a continuous stream of new products and services to maintain the business's future viability. This process mobilizes all the firm's creative resources including technical, production, and marketing capabilities to develop an innovative infrastructure. The center of this process is the renewal of the business in order to sustain its competitive advantage and its superior financial performance. While preserving the innovative capabilities is critical to all businesses, it becomes central when the strategic position is that of system lock-in. In order to visualize this, the companys strategic activities should be placed on the option that best represents the majority of its activities, as shown in Chart 1. Chart 1: Characteristics of Three Options for the Strategic Positioning Delta Models



Best Product Customer Solutions Defeatured Fully featured Broad Product Range: Low cost Bundling Differentiated Joint development Outsourcing Product: Customer: Market share Customer share Link to Product: First to market Dominant design Link to customer : Customer lock-in Learning Customization

System Lock-in Nurturing complementors: Variety and number Open architecture System: Complementor share Link to System: Competitor lock-out Proprietary standards


Source: HAX and WILDE (2001)

2.4. Organizational Structures for the Innovation The high dynamic and turbulence of the environment forces to the organizations the incorporation of new durable and own advantages. The way in that a company can intern a competitive advantage will depend on their structure, functionality and environment. Theoretical organizational as HANDY (2001), MINTZBERG (2003) and NONAKA & TAKEUCHI (2003) indicate that at present time, the organizations orientated to the innovation are those that obtain more lasting advantages. Thus, the innovation strategy has to have fertile field inside the own company, is more, the company should be configured (organized) in such a way that is pro-active to the creation of these competitive advantages. The support of an organizational structure that facilitates and, simultaneously, promotes the election, formulation and introduction of innovation strategies in the company, today, is indispensable. The most recent theories of the new organizational approaches appear as a result of the necessity that the companies have of improving their flexibility and efficiency and of winning in dynamic and capacity of adaptation to the requirements of an environment increasingly changeably as the current one. For this reason it is that in the last years the design of the organizations has evolved toward more flexible positions, with a clear tendency toward the decentralization. According to MORCILLO (2003), in the current context, the companies should demand certain capacities to their organizational structure, demands these that can be summarized in 4 points. Flexibility. ITTNER and KOGUT (1995) define the flexibility of an organization as the ability to answer to the changes and uncertainty of the environment. A structure flexible taking in consideration the nature and the effects of the internal and external factors (MORCILLO, 2003). Simplicity. With this term MORCILLO (2003) wants to make reference to the strategic tendency to unload the organizations structurally. Integration. The creation and performance with own branches in the exterior are a chancy and complex option that commits bigger volumes of resources and organizational capacity to be integrated under the same values and corporate philosophy (WILSKA, 2002). Knowledge. DRUCKER (2001) in the search of competitive sustainable advantages in the long term, and immersed in the theory of resources and capacities, the management of the knowledge has been, undoubtedly, the current of strategic thought that has entered in the last years with more force On the other hand, these new organization forms carry a cultural revolution because people should learn to live with the change and to lose their aversion for the risk. The flexibility of

a structure will be reflected in his capacity of adaptation, in a permanent way, to the changes. Most of the new organizational models that we find in the literature converge when referring to the "flexible company" that, definitively, is divided in two clearly differentiated parts: the nucleus that contains the activities and generating processes of value and the periphery assembles the related activities mercantile for contracts of presentation des services. Next is presented, shortly, the models of flexible company proposed by HANDY, MINZTBERG and NONAKA & TAKEUCHI, which integrate more directly the technological change and that will help us to identify the organization type in OIC. 2.4.1. The Clover Organization. In situations of dynamism, complexity and uncertainty, the Clover organization of HANDY tries to reconcile the flexibility with the integration. Departing from the rupture of their Chain of Value, the company looks for the maximum concentration of activities, efficiency and flexibility through contractual relationships and of autonomy in the development of the basic activities. The clover organization is composed by 3 big areas (HANDY, 2001): the first of them is the professional nucleus that is where are all the activities that are own and unique for the company; the second area is the subcontracting, since the whole work non essential for the organization will be hired outside of the same one with a smaller cost; the third area corresponds to the force of flexible work composed by workers part-time and / or temporary workers, who will be included in the organization in function of the necessities of the production. There would also be a fourth area that corresponds to the work that is passed over to the clients (as the self-service of a gas station). The work in the Clover organization, nevertheless, difficult to order since every areas of the clover can present a certain structure with different design parameters and needs of a different management. The nucleus of permanent workers is the critical area of the clover. The essence of the model is the existence of mechanisms of link and systems of coordination that facilitate the constant adjustment before the changes. 2.4.2. The Intelligent Organization The Intelligent Organization or Triple I organization (Intelligence + Information + Ideas = Added Value), outlined by HANDY (2001), emphasizes the technical thing and the human thing. The organizations must reach the efficiency being based on intelligent Resource Humans occupied in catching information and generating ideas. The new company will reinforce the technical part using people and machines intelligent and the human part will consolidate looking for the consent since the organizations stopping being organizations of control transforming in organizations of consensus, of agreement. The Triple I Organization is in fact, the base of anyone of the new organizational models for the innovation. This type of organization puts of manifest the importance of developing the organizational learning together with the individual, obtaining an organization where the people expand constant their aptitude for creating the results that wishes, where new thought patterns are cultivated, the collective aspiration is in freedom and people continually learn to learn (SENGE et to., 2003).

2.4.3. The Federal Organization. BUENO (1996) defines the Federal organization as a variant evolved of the company divisional, since it is based on the coalition of sub companies. In turn, each of the decentralized units could be structured in clover form. The model developed by HANDY (2001), is appropriate for big diversified managerial groups and of multinational environment. The divisions or companies diversified and internationalized follow the instructions of the central unit that it is the one that has the responsibility of the strategic plan. The federalism supposes a variety of groups that work together under a common objective, with some shared identity, therefore the integrative principles of this organization will be the objectives, the mission and the culture. 2.4.4. The Adhocracy. MINTZBERG (2003) outlines that the adhocracy is the form of suitable organization to adapt rapidly to complex and dynamic environments. The author integrates five parts that compose an organization: the strategic apex or the high direction; the intermediate line or intermediate level; the nucleus of operations or basic work realized by the workman; the "tech-structures" or analysts that participate in the planning and control; the support staff that provides indirect services to the rest of the organization. Figure 2: Adhocracy Structure

Multi-functional teams

Limits of the Organizational Structure

External services

Source: Adapted from MINTZBERG (2003)

The shaded areas that appear in the figure 2 are the group ad-hoc, multifunctional teams dedicated to the development of concrete projects. It is possible observe that some of these groups are in the border of the organizational structure showing that, sometimes, the company needs to appeal external experts. The continuous lines of the figure represent the limits of the organizational structure whereas the discontinuous lines reflect the external benefits hired by the company. The adhocracy is a simple organizational model with some flowing communication systems and where experts' teams are constituted to develop innovation projects (MORCILLO, 2003). These teams enjoy great autonomy and constitute real centers of power. The mutual adaptation among the different experts who work together is achieved through connection mechanisms (systems of information, circles of quality and creativity, etc.). According to MINTZBERG (2003) the adhocracy is a vastly

flexible structure that demands a complete adjustment from their members to the conditions of the environment in which they act. These people will have to be adjusted to the necessities of their clients - operative adhocracy -, or to his own - administrative adhocracy -, without granting the most minimum space to the rigidities. 2.4.5. The Organization Hypertext. The approach of NONAKA & TAKEUCHI (2003) departs from a model of creation of knowledge that is disseminated in the organization by means of the dynamical interaction among the individuals which allows the transformation of tacit knowledge in explicit knowledge and vice versa, emerging of this constant cycle a spiral of knowledge. The authors outline four possible modalities of conversion of the knowledge: the socialization (of tacit knowledge to tacit knowledge); the externalization (when the tacit knowledge becomes explicit knowledge); the combination (of explicit to explicit) and the internalization (when the knowledge is transformed into tacit knowledge). Thus, a company needs from a suitable structure that facilitates the generation of knowledge inside the organization. The authors present an organization design that provides a structural base for the creation of organizational knowledge. The fundamental requirement for this design is that it provides to the creative company of knowledge an aptitude to acquire, to create, to exploit and to accumulate new knowledge continues and repeatedly in a process in spiral and dynamically. The structural creative form of knowledge consists of organizational environments (see figure 3): Figure 3: Structure Organization Hypertext

Equipo de proyecto

Project Team

Estrato burocrtico Bureaucratic


Conocimiento base

Knowledge Base

Source: Adapted from NONAKA & TAKEUCHI (2003)

Bureaucratic stratum in which the organization administers their market commitments, of operative and economic character, in the short and half term; Work teams or task forces, it establishes the priorities in the half and long term, especially when they deal with projects of innovation in processes or products; and The reception, storage and transformation of the knowledge (NONAKA & TAKEUCHI, 2003). "The bureaucracy is effective generating combination and internalization, whereas the teams of temporary work are desirable for the socialization and the externalization"


(NONAKA & TAKEUCHI, 2003). A new organizational form, which includes other two, will appear as an auto organized not hierarchic complementary structure to the formal structure. The most appropriate metaphor comes from the hypertext initially spirit in the computer science, as the document hypertext, the organization hypertext is formed by several levels or interconnected contexts. Generally, three caps are established: the system company or bureaucratic stratum; the teams of projects and; the base of knowledge.

The adopted methodology was of case study that, according to YIN (2001), allows realize an empirical investigation that analyzes a contemporary phenomenon inside the real life, especially useful methodology in a company where the limits between phenomenon and the context are not clearly defined. To contemplate the study objective was elaborated the Protocol of the case study (YIN, 2001), that contains the procedures, tactics and the general reservations that serve as guide to contemplate the general vision of the project (objectives, questions, bibliography, etc.), field procedures, schedules (questionnaires, points to deepen, specificities) and methodological guide of the study. Initially, was used as technique of gathering of data the processing in secondary sources such as the bibliographical references, documentary and academic investigations realized. Later on, a processing of information was made in primary sources, using as boarding technique the interview semi-structured, through a questionnaire with direct questions, following a list of pre-established topics. The semi-structured character implies the combination of certain standardization of open questions, with enough freedom in order that the interviewer exploits the specific aspects in a deep way and does opportune questions that prove to be necessary in the course of the interview. Thus, a questionnaire designed with the objective of knowing the processes of strategic positioning of OIC was used. Other questions not directly related to the topic were approached also, with the purpose of forming a characterization of the company. There were realized 13 interviews with top executive and were applied 120 questionnaires to employees in 5 different countries. The processing of the information realized with statistical techniques and the interpretive analysis was carried out following the limits of the pattern Delta. Fulfilling the methodological requirements of YIN (2001) demanded: To use multiple sources of evidences Logical linkage of evidences and in formations To analyze temporary series and theoretical explanation To use a protocol of case study To develop a database for the case study This made possible to determine the different strategic activities of OIC's value to collaborate with the object study and generalize analytical a particular set of results inside a more general theory developed in the review of the bibliography. This review articulates a theory well formulated starting from the objectives of the study to find a logical foundation for the unique case of OIC.


3.1. Application in 5 different countries. The questionnaires and interviews structured semi applied in the several teams of projects that were being executed by OIC in different countries - Brazil, Argentina, Uruguay, Peru and USA - followed the limits previously treaties. The functionality and structure of these work teams was measured separately in each organizational stratum (Big Company, Small Company and Center of Communications). The Lickert Scale was used (from 1 to 7), and the questions were developed and analyzed according to the revision bibliographical and model Delta presented in this study. The strategic categories of analysis that interested to identify in the company were: operational effectiveness, Orientation to the client and Innovation. They were detailed in the following methodological guidelines through all the projects of OIC analyzed in the 5 countries: 1. Principal mechanism of adjustment / coordination, 2. Structures, 3. Fundamental part of the Organization, 4. Context, 5. Features, 6. Disadvantages. Once collected the information, began the process of analysis and interpretation of the information, in the light of the theoretical developed frame, where there was looked the corporate convergence of the information expressed in the questionnaires and interview with the methodology of the model Delta. The analysis of the data took into account different scales of the adopted strategy and according to the picture 1: Scope, Scale and Limit. With the following variable categories:
1-Flexibility (power, making decisions, speed reaction, etc.), 2-Simplicity (hierarchy, decentralization, etc.), 3-Integration (managerial philosophy, scale of values, cooperative strategy, etc.), 4-Knowledge (knowledge management, innovation)

The object of this work is the successful strategies in the internationalization. The objective is to analyze the strategy used, during the last 20 years of internationalization in a Latin American company of Brazilian and to determine the structure that allows to sustained success. 4.1. The Odebrecht Engineering & Construction (OIC) Company Founded in 1944, the OIC Organization is active in Engineering & Construction, Chemicals & Petrochemicals and Infrastructure & Public Services and participates in Oil & Gas, Tourism and Pulp Manufacturing ventures. OIC has over 28,000 members working in South America, North America, Africa and Europe. Brazil is its home base. His founder, Norberto OIC, revolutionized construction methods, shortening the production time for nine apartment buildings from three years to nine months. Combining Lutheran rigor with Brazilian flexibility, the company fostered great transformations in traditional planning and construction methods. Along this line, Delegated Planning was created, a key concept in Odebrecht Entrepreneurial Technology (TEO). TEO consists of combined principles and practices in which each employee is like a partner, sharing


responsibility for the project success. In 2002, Odebrecht Holding held the 25th position among the largest exporters, first among exporters of services, and was the largest private investor in Latin American technology. In that same year, OIC had 29 thousand employees worldwide. The OIC Groups Vision for 2010 consists of: be one of the top five privatesector corporations in the Southern Hemisphere, with commanding market share in the segments where we compete, and a significant international presence. The economic description of OIC can you see in the next table: Table 1: Exportation Percentage of gross earnings for OIC by geographic region
Country /Region 1998 Brazil 1,330 A. Latina 514 frica 223 USA 209 Europe 343 Other countries 1,289 TOTAL 2,619 Source: Financial report, 2003 1999 550 421 143 180 353 1,097 1,647 2000 587 418 222 124 176 940 1,527 2001 484 375 279 74 115 843 1,327 2002 337 397 302 80 108 887 1,224

4.2. Analysis of the model Delta in Odebrecht - Engineering & Construction (OIC) The first technical - methodological analysis realized from the logical sequence of the model Delta is detailed in the next chart. Chart 2: Historical characteristics of OIC strategies
1- Best Product (1940 - 1970) 2- Client Oriented Solution (1980s & 1990s) 3- (System Lock-in) (trend begun at the end of the 1990s)


Cost (bidding) Differentiated (closed contract according to client specifications)

Executed jointly with other firms on multidisciplinary projects. Various contributors designated by client (OIC is not leader or coordinator). Outsourcing Client: requirements for E&C projects execution (South Hemisphere) Transition from public to private. Private client lays out requirements and OIC didnt have to assume responsibility. Client adoption by project and loyalty. Sectors with new technology.



Product: Public Bidding. (Domestic) Govt responsible. Product Cycle (domestic market leader). Endorsements from public, banks, and multi-laterals.

Proactive search and promotion of the business and all interested. (Construction Management, new contracts type, EPC, BOT). Coordinate contributors, interfaces and relationships among all those involved. Joint-venture, alliances. System Integration of international security riles, sales, and business management Clients: all the integrants of the business (North & South Hemisphere) Created negotiation power with clients by: 1addressing requirements, 2-providing financing and insurance. 3- legal platform, technology and patents, 4- ability to influence project outcome, 5- assumption of risk and assurance of business. Investment in innovation and patents

Source: Adapted HAX & WILDE, 2001

The results of the interviews with the top executive as well as the analysis of their historical process of performance in the internationalization reflected that the success of the internationalization owed principally to the OIC Entrepreneurial Technology - TEO. The TEO is the common business culture that guides the performance of all elements of the OIC Group. It is composed of a combined system of Principles, Concepts, and Standards1 that

See book: ODEBRECHT, N.(2003). Survive, Grow & Perpetuate. TEO. Salvador Odebrecht Foundation


were born through business practices cultivated over many years and perfected in the daily relationship with clients. OIC is a flexible, simple structure and is integrated by TEO. The system is centered on the development by the Business Leader of the Business Creation activity, which is based on the Annual & 5-Year strategy plans determined by the Holding Company and the Big Business. The leader then develops a Small Business (project) in order to ensure the clients satisfaction. The Business Leader, besides being an expert within that specialty, should coordinate the political, legal, and economic landscape based on the project players. In order to accomplish this, TEO has three concepts that guide its performance: Business Leader: Is the individual who is educated in TEO and who is dedicated to growing the E&C business. This leader has substantial business knowledge and uses it in order to find and create where the company can successfully perform. He/she is under the direction of the Big Business, which can be a country subsidiary or a department that specializes in certain types of business. Decentralization. When the Business Leader structures a Small Business for each project he/she assumes full responsibility for client service, team motivation and over results, in consensus with the Big Business. That is the basis for the growth strategy which puts them in constant contact with the client and the needs of the client. Planned Delegation. Allow construction of a dynamic modular structure centered around client requirements. It allows simple methods for productivity, business creation that keeps the projects flexible, specialized, and integrated in TEO. Figure 4: Functional Organization for the Client Satisfaction Cycle
5-Year & Annual Strategy Plan


Political, Legal, Economic Environment Teams, Subcontractors, Suppliers, etc Small Business


OIC (Big Business)

Business Leader (Planned Delegation) Client

Profit Center

Business Creation

Source: OIC (2003)

The TEO acts, mainly, in the ethical organizational plane that the company should develop to arrive to its mission, it contains the philosophical principles of the company through the time, it is what makes it an alive company and in growth. OIC considers that the organization should be agile and efficient in its desires and communications, for this, in


its structure, the decisions and the results instead of "rising" or "to "go down", they should simply flow and re-flow. Who facilitates this natural flow it is the TEO. The culture of the TEO is based on the process of Identification, Creation, Conquest and Satisfaction of the client, conceived from a structure organizational intelligent by aptitudes to acquire, to create, to exploit, to accumulate and transmit new know ledges in a constant and dynamical process, there being generated so that NONAKA and TAKEUCHI (2003) called of spiral of the knowledge". Big Companies. They are the Units of Business like the Petrochemical department, E&C, Tourism, Units these that offer support and infrastructures to the Small Companies (ex: subsidiary in a State in USA). Small Companies. They are formed for each new project or activity and are under the direction of a Managerial Leader. Their organization is decentralized and with Planned Delegation, guided under a planning of common agreement that flows of the shareholders (Annual Plane). The TEO possesses an incentive device that allows to the members of the projects (Small Company) to obtain earnings for its innovative activities. These innovative activities are carried out once won the bid, starting from innovations of processes and of the technological system to arrive at smaller costs. That difference among that bid and innovated would be distributed among the participants of the project. (ex: project of a platform off shore in Spain). Center of Communications. It is a flexible and integrated system among the Small and Big Company. The derived challenges of the decentralized performance of OIC have been overcome due to this center. People that possess knowledge have conditions of to evaluate the projects and to identify the flaws, also, they suggest actions to optimize methods and to adopt technical solutions very achieved in other contracts. In this center is identified: 1 the client and the business, 2 - the managerial purposes with this client; 3 - the services, technologies and goods that should be given to satisfy that client specifically; 4 - how to take place every better time those services and goods, 5 - how to negotiate results, terms, prices and this way to be able to fidelizarlo, 6 - Planned Delegation (activities, results, terms and responsible), 7 - different physical and organizational means to make the flow of communications among all those involved. Current functionality of the TEO. It can adapt to the more and more common unforeseeable explosions in the market and to conserve a strategic perspective inside a mark unified in the whole countries that the OIC acts. The Planned Delegation allows that the teams have clear definitions of the objectives and qualitative and quantitative results waited in each stage and for each member. Thus, this Planned Delegation is entitled duties and with strategic autonomy determined by the annual planes of the performance areas and of strategies of business created by leaders and the shareholders through the TEO and in turn they are rewarded materially by the innovations made for each project. The inventory includes both the successes and the failures, which are documented and analyzed (Recompensacin for the Results). In the Center of Communications you recategorized and re- contextualize the new knowledge acquired in that project, the members of the team return to the level or stratum of the system of business (Big Company) and they are devoted to the routine operations until they are called again for another project (Small Company). Therefore, the content of knowledge accumulated in the bureaucratic stratum is different from the one generated in the project team. If the first is more inclined to the combination and the internalization, the team of project generates understandable


knowledge (route socialization) and conceptual knowledge (route externalization). Of this form is observed that the structure organizational of OIC is alike the structure organizational proposed by NONAKA and TAKEUCHI (2003), the organization Hypertext. Chart 3: Likeness of the Hypertext organization and OIC organization
Hypertext Organization
Bureaucratic stratum Work teams or task forces

OIC Organization
The organization management it commitments of market, of operative and economic character, in the short and half term (Great Company); It establishes the priorities in the half and long term, especially when they deal with projects of innovation in processes or products (Small enterprise with a Managerial Leader and his project team; The receipt, storage and transformation of the existing knowledge in common values and knowledge with the participation of all the members of the organization in an intention or common intention (Center of Communications and the delegation planned across the TEO previously chronogram and agreed for every project).

The reception, storage and transformation of the knowledge

Source: Authors

This way, what allows to OIC, among other several circumstances, to control strategically the one lock-in it is their organizational structure for the innovation. The organizational structure used by OIC, identified starting from the analysis statistic multivariate, of the data picked up in 5 countries and of the interpretive analysis with the different organizational structures for the innovation, it allowed to establish some differences and existent likeness among them and to compare them with the reality of the company study focus. Chart 4: Analysis of the organizational structure for OIC
Principal mechanism of adjustment / coordination
Clover Federal Triple I Adhocracy Hypertext Odebrecht Normalization of the results with the skills Shared identity Development of the intelligence and organizational learning Mutual adjustment Identity and shared values Odebrecht Entrepreneurial Technology - TEO

Clover Federal Triple I Adhocracy Hypertext Odebrecht Decentralization and specialization. Organizational design depends on each part. Several mechanisms of link and coordination Federalism and not decentralization; few levels; alliances; evolution of the model divisional; Flex Decentralized, flex and highly specializing Decentralized; habitual divisions not defined; experts grouped in project teams; numerous mechanisms of link. Several levels or interconnected contexts: structures bureaucratic nested; projects teams. Structures organized hierarchical complementary to the formal structure. Holding; Great Company; Small enterprise, Center of Communications.

Fundamental part of the Organization

Clover Federal Triple I Adhocracy Hypertext Odebrecht The nucleus of permanent workers The center The management of the nucleus Staff of support and the nucleus of operations The Base of the knowledge The Managerial Leader. Strategy of identification of the client by means of the TEO and technical platform.


Clover Federal Adhocracy Hypertext Dynamical, complex and competitive environments Diversification and internationalization Complex and dynamical environments Diversified, dynamical, complex and competitive environments Projects teams formed with the best technical personnel in the areas. Better salary and environment of works of the sector produces high selectivity of the professionals. Easy adjustment to joint-venture in projects in the exterior. Division of the earnings among the members of the team to leave of the innovation.


Clover Federal Triple I Adhocracy Hypertext Odebrecht Technical sophisticated system. Multiple powers. Professionalization and collaboration. Flex The power of the center is granted on the parts. The center advises, coordinates, influences and suggests. The initiative, the orientation and the energy come from the parts. The power of the nucleus must be gained across the respect, leadership and knowledge. Sophisticated. Democracy without bureaucracy. Highly innovative organization Highly innovative organization. Coexistence of three different levels in the same organization. Capacity of the members in changing rapidly context. The innovation is part of its structure, designed to satisfy the client. The Center of Communications also must be an innovator in the planning to conceive the distribution of the earnings of this innovation. Development and technological improvement. Performance in 3 levels.

Clover Federal Triple I Adhocracy Hypertext Difficult to coordinate. Problems of control. Problems of identification with the organization Difficulty at the moment of exercising control. Strong instability Difficulty at the moment of directing. Delicate process of recruitment Problems of ambiguity. Conflicts between experts. Not formalized processes. Difficulty on having transferred tacit knowledge in companies with many units in different countries with and different cultures. Problems with regard to the political ones of human resources (systems of evaluation, promotion, etc.) Since every project is different not in all the same event is had producing sometimes antagonisms


Source: Authors


The first methodological analysis realized with the model Delta allowed to characterize the different strategies of OIC in its historical process. In the decade of the 40 up to the 70s, used the strategy of the best product, in the decades of 80 and 90 was served the strategy of Solution Orientated to the Client. At the moment the company uses the strategy system lock-in that, by means of the creation of a technician-commercial platform, allows to group to all those involved in a project. OIC to create and to make work this technician-commercial platform applies the strategy system lock-in and it works like an organizational structure for the innovation. This platform allows acting successfully in an international competitive system marked by the multiplicity of interrelations among: employees, clients, suppliers, teams, procedures and processes. Inclusive for each project in any country of the world, the binomial TEO and system lock-in allows to coordinate and to harmonize a platform that of synergy to all the involved elements. According to the 5 Competitive Forces Porters theory, the structure and operation of the current strategy of OIC resembles each other to that exposed in the figure 5. The synergy of the platform allows leaving out the competitors, whereas the suppliers and complementors continue subject to the internal rivalry.


Figure 5: Actual OIC system lock-in strategy

New Entrants (Entry Barriers) Lock-in Strategy
Business Development Platform Coordinated by Odebrecht SA, as the Business Manager in order to give clients integrated solutions. Organize the process, procedures, responsabilities, interfaces, alliances and rules for suppliers, partners, Complements new prouducts, technology, R&D and technical standards

TEO Client Suppliers

Internal Mkt. Rivalry

Complements Odebrecht SA
Process Innovation, Business Development solutions integrated for the client

Internal Mkt. Rivalry

Product Substitutes

Internal Mkt. Rivalry

Source: modified from HAX & WILDE (2001)

Thus, the analysis of the historical evolution of the OIC revealed that the strategies used by the company have had and has as pillar the TEO. Undoubtedly, this philosophy made of the OIC one of the few companies in Latin America that was able to act successfully during its 55 years of performance in the national market and 23 years in the international market. At the moment the most distinctive characteristics in the TEO allow to the company converge with the different organizational structures guided to the innovation. The organizational structures guided to the innovation are the mechanisms of adaptation that incorporate in the processes to assure the flexibility and to be able to change strategically in an uncertain and competitive market as the current.This organizational functionality is characterized by the quick evolution in compatibility with the resources of the present and the trajectory of the strategic future of the company (HAX and WILDE, 2001). This way for example, the functionality of the Big Companies, of the Small Companies and of the Centers of Communications allows generating the "hairspring of the knowledge". The structure and functionality of the hairspring of the knowledge is extended to the different branches, facilitated by the strategy system lock in order to maintain the success for the particularities and demands of the different markets in that the company acts. This way, the TEO responds successfully to the current challenges of the internationalization, enlarging the spectrum of strategic positions for each specific market by means of organizational structures guided to the innovation and the strategy system lock-in.


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