Challenges of a global economy
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.