Challenges of a global economy

By Simon Potter

JAKARTA (JP): Going global. Like it or not, it's now the way of the world.

For Indonesian companies, going global is probably going to be something of a new experience. There are however, many lessons for us to learn from the experiences of the global pioneers of other countries:

* Ford announced that it would merge its manufacturing, sales and product development operations in North America and Europe, and eventually Latin American and Asia as well. And in a move towards a more horizontal organization, the company announced it would set up five program centers with world-wide responsibility to develop new cars and trucks.

* IBM reorganized its marketing and sales operations into 14 world-wide industry groups, such as banking, retail and insurance. In moving away from an organization based on geography, it hopes to eliminate turf wars and make itself more responsive to customers.

* Bristol-Meyers Squibb revamped its consumer business by installing a new chief responsible for its world-wide consumer medicines business. The company also formed a new unit with world-wide responsibility for its hair-care products.

The emerging model of an ideal global corporation is one that is strongly decentralized, to allow local units to develop products and services which are appropriate for local cultures, and yet strongly centralized at its core, to allow companies to coordinate activities across the globe and capitalize on synergies and economies of scale.

It is multi-cultural, fast-acting and has the perfect mix of outsourcing and internal production. It invests heavily in training, fostering local development efforts and market research in the quest for both local and global products. And most importantly of all, the successful global company knows where it is going, thanks to management steeped in the requirements of satisfying the world market.

On top of all this, the global company has an unyielding commitment to quality and is a solid corporate citizen in all the major markets of the world.

In 1990, General Electric's CEO Jack Welsh eloquently described such a corporation in GE's annual report: "Our dream for the 1990's is a boundary-less company... where we knock down the walls that separate us from each other on the inside and from our key constituencies on the outside."

Implementing global strategy with local empowerment is probably the most demanding single challenge for companies going global.

Few companies are able to achieve both cost and differentiation advantages simultaneously, even within the context of a single national market. With the added complexity of international operations, developing and maintaining a mosaic of advantages requires a unique organizational solution.

Companies have tended to respond in one of three ways: global, multi-domestic (global or local), or a marriage of the two.

A global strategy involves treating the world as one market in which a company pits its entire product line against the competition in a unified framework: a multi-domestic strategy involves competing on a market-by-market basis, some of which are global ones. A handful of companies are global in some markets, global or local in others.

Whether global, multi-domestic or a mixture, the very complexity and widespread disbursement of the operations of most large translational organizations makes change difficult to implement.

Unless a vision is linked to specific, measurable objectives and re-enforced by visible and pro-active management behavior, its force is likely to be weakened by interpretation through the filters of local cultural bias and experience.

To be most effective, senior management must find ways to resolve the conflicting pressures of centralization and decentralization. This is done best by finding ways to create an over-arching corporate culture that integrates decentralized subsidiaries while formulating policies for international executive development.

Companies that are able to develop a strong global culture have at least five competitive benefits:

* They are able to move flexibly between global and local strategies.

* They have developed clear methods of resolving the conflicting interests that are inherent in all global operations.

* They have clear methods of information processing and dissemination, which enable faster and better decision-making.

* They have seasoned, world-class executives who are accustomed to working effectively in different cultures.

* Their vision not only creates loyalty, but promotes understanding, which allows authority to be delegated in a network, rather than a hierarchical structure.

While no company appears as yet to have completely solved the basic global or local alignment dilemma, many have achieved notable results in their ability to continually adjust the global or local mix in the pursuit of world-wide advantage. Such enterprises have come to be known as Horizontal Organizations.

The most distinguishing feature of the horizontal organization is that it is conceived as a desegregated set of geographically dispersed, value-adding activities that can be formed and reformed in the pursuit of specific competitive opportunities. The glue that holds the enterprise together is a set of systems and shared institutional values that emphasize openness, responsiveness and contribution to the corporation -- not just the individual manager's unit.

The horizontal corporation largely eliminates both hierarchical and functional or departmental boundaries. In its purest state, the horizontal corporation has a small group of senior executives at the top in such traditional support functions as finance and human resources. Virtually everyone else in the organization works together in multi-disciplinary teams that perform core "processors" such as product development or marketing. As a result, the enterprise has only three or four layers of management between the chief executive and the lowest rung of workers.

The idea is not simply to 'flatten' the vertical structure, but to totally redesign a firm's basic work flows and processes. Then a new structure is designed to focus on the horizontal processes needed to accomplish the firm's three or four key performance objectives.

In the new structure, each of the horizontal core processes, such as 'order generation and fulfillment', will have 'process owners' overseeing cross-functional teams focused on accomplishing such goals as reducing cycle time.

The horizontal organization assigns responsibility for processes to teams and their leaders. Rewards focus on team achievements, rather than on individual performance alone. Performance objectives and evaluation are linked as closely as possible to internal as well as external customer satisfaction. The new organization is also focused on developing and rewarding skills, rather than outputs alone. Training, information, and development are provided on a `just-in-time' basis, as needed by people to perform duties. The emphasis is more on developing employees with multiple skills rather than on narrow specialities.

The complex challenge facing multinationals is how to develop a corporate-wide organization strategy for orchestrating the worldwide parts so that they have the capacity to work together in responding to the changing conditions shaping both the local and global sets of pressures. This requires a strong management team that has a good sense of the organizations `strategic intent', a vision of where resources must be deployed in order to develop competitive advantage, and the ability to communicate that vision to every level of the organization without losing relevance, clarity or excitement.

The choice of organizational design however, begins with some tough questions:

* Do we have a clear understanding of who our customers -- both internal and external -- are?

* What are the important needs of these customers?

* What are the critical processes needed to fulfill these needs?

* What is the most appropriate organizational design or staffing for meeting these needs at levels that exceed their requirements?

If answers can be found to these questions, then we are already on the road towards fulfilling the dream of all translational organizations -- the economies of scale of the global operation combined with the flexibility and market savvy of a local company. The trick is to think global and act local.

3M is one of the few American-based multinationals that has learnt to build and communicate a company culture across the globe. The company has subsidiaries in 56 countries and sells its products in more than 200. Nearly 50 percent of its revenues come from overseas sales -- about 15 percent from Asia alone.

The company's Asia strategy is instructive in how to adapt to local markets. 3M set up shop in Asia in the 1950s and 1960s, and carefully nurtured its local-hire staffs (Of the 7,500 employees in the region, fewer than a dozen are Americans). It has focused on employing local talent, coordinating operations across national boundaries, and -- perhaps most interestingly -- adapting its products to local needs.

For example, a few years ago, when sales of the company's Scotchbrite cleaning pads were lagging in the Philippines, 3M technicians interviewed maids and housewives to learn why.

The reason was that Filipinos traditionally scrub floors by pushing around the rough shell of a coconut with their feet. 3M responded by making brown Scotchbrites in the shape of a foot, and sales soared.

In Thailand, people buy 3M's double-sided foam tape for use as an all purpose wall-hanger because walls are concrete and nails are useless.

The corporate culture that was created back in Minnesota pervades all of 3M's Asian offices, and the basic procedures -- such as giving ID badges to visitors -- are the same. So is the terminology: throughout the world, the three-foot-diameter roles of tape that are a company mainstay, are known as 'jumbos'.

Communication is enhanced by a comprehensive electronic mail system, which allows employees to keep in constant touch with their counterparts in the United States or other parts of the world. Even company folklore, such as the story of Art Fry, the engineer who invented the Post-it notes, is recited and retold in all of 3M's offices.

Going global can be as nerve-wracking as it can be challenging. It is, however, the future and we need to get with it. Luckily for us, we can follow in the footsteps of the pioneers, like 3M. And if we can learn from the lessons they teach us, hopefully we can avoid making their mistakes.

The writer is a business analyst with IMPAC, the American productivity specialists.