Why global companies need to rethink their operating models.
In high-growth emerging economies, first-mover advantage is crucial, and having a coherent and flexible global enterprise management model that can adapt to (and get ahead of) rapid evolutions in the market can make all the difference. (An exerpt from an article in Strategy+Business by Paolo Pigorini, Ashok Divakaran, and Ariel Fleichman).
The last decade has seen a disruption in the nature of consumer markets on an unprecedented scale. The shifts on the demand side are well known: Emerging nations have displaced mature economies as the engines of growth, attracting Western multinationals in search of millions of new consumers. What has been less appreciated is a quieter shift on the supply side. The iconic American and European companies that have dominated the economic world order for the past several decades are ceding ground to an increasingly influential set of emerging market “champions.” Adding to the complexity, these high-growth markets are often distinct from one another in terms of the speed of the market, the drivers of demand and consumer preferences, and the regulatory and investment climate.
These developments have created a multipolar world that moves at different speeds and presents a more diverse range of requirements for success than the global marketplace of years past; one with multiple centers of power and influence that are changing the way business is done. Yet many companies are reluctant to move away from their legacy hub-and-spoke model — which evolved to support the old, more homogeneous business environment — to a global enterprise management model that allows for greater nimbleness and adaptability.
How can companies balance local autonomy with the need to achieve global scale and standardization? Does it even make sense to have a headquarters anymore? And where should the talent that runs the company come from? Such questions are critical, because they ultimately determine a company’s long-term viability. The answers, of course, are not universal, but in our work with multinationals, three key themes consistently emerge as enablers of success: a rebalanced organizational structure and operating model, more dispersed decision-rights mechanisms, and an approach to leadership and people management that emphasizes diversity and local talent.
A New Balance of Power
Global companies understand that in a multipolar world, half or more of their revenues and profits are likely to be generated beyond their legacy markets; this is true for seasoned multinationals as well as emerging market companies. Yet they still think about growth markets in terms of their past or current business contribution, rather than their longer-term potential. Top management remains concentrated at headquarters, where executives lack a direct line of sight into and intuitive understanding of these new markets. In addition, many companies go too far in centralizing global functions in the interest of efficiency, resulting in excessive rigidity and standardization.
To overcome these hurdles, companies need to carefully consider where their areas of potential growth lie and recalibrate their organizational balance of power accordingly. Such structural adjustments, coupled with the changes to decision rights and governance mechanisms discussed below, increase a company’s capacity to be agile and channel the right levels of management attention to (and investment in) critical growth markets. Frequently, it is companies that have their roots in emerging economies that get it right, because they have less inertia and baggage from the past.
As important as the “hardware” of organizational structure is the “software” that runs on it — the set of decision rights, management processes, and control mechanisms that brings the structure to life and determines its overall effectiveness. For most multinationals, the matrix is a necessary way of life; the benefits of horizontal coordination across business units and functions compared with those of the vertical silos that they had in decades past are simply too significant to ignore. But as companies grow larger and more global, problems inevitably arise with the conventional matrix structure. The decision-making process drags on, the right judgment calls aren’t always made, and overhead costs sprout at every node in the organization to support cumbersome management processes.
The root cause is often the way information flows through the organization, and the determination of who is empowered to decide what. Because a more concentrated approach to decision making would be antithetical to a multipolar world, companies need to promote greater decentralization and autonomy, and differentiated levels of authority.
Decision rights should be pushed down into the organization, and the center should involve itself only in critical enterprise-level decisions such as portfolio strategy, capital allocation, and global brand management. Company leaders should establish a comprehensive decision-rights architecture that reflects the levels of importance of various stakeholders in complex decisions. Over time, this approach unshackles the organization, and a new management paradigm and set of behaviors take hold.
A Global Talent Pool
The talent issue for global enterprises starts at the top. The composition of boards and executive committees’ remains largely influenced by companies’ historic center of gravity and does not represent an ideal diversity of experiences. Senior management often finds it difficult to shed old modes of operating and open up opportunities to new talent based on merit and breadth of perspective rather than tenure or internal political affiliation.
Starting with the board and senior executives, global companies need to forge more diverse management teams able to understand the opportunities and the challenges the business faces in its current and future markets. Successful global companies develop comprehensive human capital strategies to acquire and retain talent in key markets around the world. Typically these plans are anchored in the company’s business strategy and focus on differentiating the company’s approach to markets by segmenting its talent pools; improving managers’ capabilities, behavior, effectiveness, and accountability; taking a holistic approach to human capital programs; and building employee engagement.
A pragmatic first step is to determine where your company stands on all three enablers: organization structure and footprint, decision rights and controls, and leadership and talent. You will be able to see where change is most urgently needed, and, ultimately, can begin to move toward a new model that better equips your company to navigate the dynamics of today’s multipolar world.
Original Article :
- The Myth of Multipolarity (nationalinterest.org)
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- Emerging Economies and New Applications to Drive Future Growth of the Global Plastic Pipes Market, According to New Report by Global Industry Analysts, Inc. (prweb.com)
- Aon Outlines Risk Management Approach for Emerging Economies (insurancejournal.com)