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Globalizing the Management Model
There are four components of the business model framework: value proposition, market
choices, value-chain infrastructure, and management model. This text examines
globalizing the fourth component—the company’s management model—which summarizes
its choices about a suitable global organizational structure and decision-making
framework.
The judicious globalization of a company’s management model is critical to unlocking the
potential for global competitive advantage. But globalizing a company’s management
model can be ruinous if conditions are not right or the process for doing so is flawed. Key
questions include, when, and to what extent, should a company globalize its decisionmaking processes and its organizational and control structure? What are some of the key
implementation challenges? How does a company get started?
The first part of this text discusses a key soft dimension of globalizing a company’s
management model—creating and embedding a global mind-set, a prerequisite for global
success. The second part deals with the hard dimensions of creating a global architecture:
choosing a suitable organizational structure and streamlining global decision-making
processes.
Pitfalls in Globalizing a Management Model
Globalizing a company’s management model is hard. As firms increase their revenue by
expanding into more countries and extending the lives of existing products by bringing
them into emerging markets, costs can often be reduced through global sourcing and
better asset utilization. But capitalizing on such profit opportunities is hard because every
opportunity for increased globalization has a cost and carries a danger of actually reducing
profit. For example, the company’s customer focus may blur as excessive standardization
makes products appeal to the lowest common denominator, alienating key customer
segments and causing market share to fall. Or a wrong globalization move makes
innovation slow down and causes price competition to sharpen.
Learning Topic
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The best executives in a worldwide firm are often country managers who are protective of
their markets and value-delivery networks. Globalization shrinks their power. Some rise to
new heights within the organization by taking extra global responsibilities, and some
leave. Many fight globalization, making it tough for the CEO. Sometimes they win, and the
CEO loses. Overcoming organizational resistance is therefore a key to success.
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When Global Strategy Goes Wrong
In April of 2002, Japan’s leading mobile operator, NTT DoCoMo, Inc., announced it
would write down the reduced value of its investment in AT&T Wireless Services,
Inc., a move expected to contribute to an extraordinary loss of about 1 trillion yen
($7.53 billion) for the fiscal year. And when the full extent of the write-downs of all
its recent European, U.S., and Asian investments was realized, the bill for the
ambitious globalization strategy pursued by Japan’s—and Asia’s—most valuable
company exceeded $10 billion.
NTT DoCoMo clearly had the cash flow from its domestic business to avoid, by a
long way, the high-profile fate of now bankrupt Swissair. However, the two
companies’ approaches to global strategy provide interesting parallels and lessons
for other international players in all industries. NTT DoCoMo and the former Swiss
flag carrier enjoyed strong economic success built around a former monopoly and
highly protected incumbent positions in their home markets. NTT DoCoMo was the
clear leader in the Japanese mobile market, with a 60% market share that drove an
annual operating cash flow of more than $10 billion. Swissair’s dominant carrier
position delivered financial performance that was similarly blue chip.
But a strong domestic market position and excess cash flow do not guarantee
success abroad. In fact, without a quite sophisticated understanding of the
uniqueness of its domestic situation, a strong domestic position could conceal some
of the risks of a global strategy. The first lesson is one of microeconomics:
understand what drives superior economic performance in a particular business and
do not take domestic success for granted. Both the airline and the
telecommunications businesses are highly regulated, technology-driven, and capitalintensive industries with high fixed and very low marginal costs (per airline seat or
per mobile-call minute). Rapid changes in regulation and technology are changing
some of the rules of the game but not the basic economics of either of these
businesses.
In the airline industry, cost advantages are driven by an airline’s dominance in
airport hubs and on specific routes. The airline with the most flights in and out of a
specific airport generates lower unit costs per flight and per passenger than
competitors. The airline with the highest market share and flight frequency on a
given route typically has lower costs per seat, higher utilization, and superior pricing
power. In the mobile industry, the significant fixed-cost components of the business
(networks, product development, and brand advertising and promotion) provide unit
cost advantages to the national market leader compared with its followers.
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The second lesson from NTT DoCoMo and Swissair’s experience is to have a clear
view of the real economic boundaries of your business—is it a global business or,
rather, a multilocal or regional one? Sitting on increasing cash balances, both
DoCoMo and Swissair saw a high volume of merger and acquisition activity. They
concluded a wave of “globalization” was underway in their industries and that they
could not afford to be left out. The result: they developed growth aspirations
beyond their national boundaries.
But while regulatory changes allowed increased foreign shareholdings in
telecommunications and airlines opened up new international investment
opportunities, they have not changed the laws of economics. Despite regulatory
changes, the economics of the mobile-phone industry remain primarily national or
regional in nature. This implies that it is better to be a market leader in one country
than a follower in two countries. Similarly, regulatory changes in traditional, bilateral
air-transport agreements have shifted barriers to entry and hence increased
competition and reduced pricing power in the airline industry, but they have not
changed its fundamental economics. All successful airline mergers have been driven
around building or expanding hub or route dominance, not around building sheer,
absolute scale in terms of either aircraft or destinations served.
When both NTT DoCoMo and Swissair convinced themselves they needed to
expand beyond domestic boundaries to survive, the race to fulfill their global
aspirations seems to have resulted in a set of investments more focused on the
number of flags on a boardroom map rather than on these basic economics driving
superior profitability in their industries. The risks of these two aggressive expansion
strategies were further compounded by not having control over most of their
international investments. This suggests a third lesson: move to management control
if you are serious about capturing acquisition synergies.
During the mid to late 1990s, Swissair kept its investment bankers busy with a
nonstop string of deals. The company adopted an explicit “hunter strategy,” which
led to acquisitions of noncontrolling minority stakes in a string of strategically
challenged nonincumbent carriers: German charter carrier LTU, the French airlines
AOM-Air Liberte and Air Littoral, and Italy’s Volare Airlines and Air Europe. In
addition, Swissair acquired stakes in Polish flag carrier LOT, Belgium’s Sabena, and
South African Airways.
Without majority control, there was very limited scope for Swissair management to
drive the economic benefits from these airline shareholdings through route
consolidation, aircraft fleet rationalization and purchasing benefits. In addition, there
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was no ability to take corrective action when operational or financial performance
deteriorated.
Similarly, in short order, DoCoMo accumulated direct or indirect stakes in nine
mobile operators—most for cash—at the peak of the telecom bubble. But this
acquisition spree resulted in equity stakes in only two market leaders, and these
were in relatively minor geographic markets: KPN Mobile domestically in the
Netherlands and Hutchison in Hong Kong. All the others were lesser players.
DoCoMo acquired stakes in the No. 3 U.S. player, AT&T Wireless; Taiwan’s No. 4
player, KG Telecom; the United Kingdom’s No. 5 player, Hutchison U.K., and distant
followers KPN Orange in Belgium and E-Plus in Germany. Worse still, all these
investments were minority stakes and so gave DoCoMo limited ability to exert
control over critical strategic and operational issues at these operators.
The Importance of a Global Mind-Set
A common challenge that many corporations encounter as they move to globalize their
operations can be summed up in one word: mind-set. Successful global expansion requires
corporate leaders who think proactively, sense and foresee emerging trends, and act upon
them in a deliberate, timely manner. To accomplish these objectives, they need a global
mind-set and an enthusiasm to embrace new challenges, diversity, and a measure of
ambiguity. Simply having the right product and technology is not sufficient; it is the
caliber of a company’s global leadership that that makes the difference.
Herbert Paul defines a mind-set as “a set of deeply held internal mental images and
assumptions, which individuals develop through a continuous process of learning from
experience” (Paul 2000). These images exist in the subconscious and determine how an
individual perceives a specific situation and his or her reaction to it. A global mind-set,
then, is “the ability to avoid the simplicity of assuming all cultures are the same, and at the
same time, not being paralyzed by the complexity of the differences” (Paul, 2000). Thus,
rather than being frustrated and intimidated by cultural differences, an individual with a
global mind-set enjoys them and seeks them out due to a fascination and understanding
of the unique business opportunities these differences present.
The concept of a mind-set does not just apply to individuals. It can be logically extended
to organizations as the aggregated mind-set of all of its members. Naturally, at the
organizational level, mind-set also reflects how its members interact and such issues as
the distribution of power within the organization. Certain individuals, depending on their
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position in the organizational hierarchy, will have a stronger impact on the company’s
mind-set than others. In fact, the personal mind-set of the CEO is sometimes the single
most important factor in shaping the organization’s mind-set.
A corporate mind-set shapes the perceptions of individual and corporate challenges,
opportunities, capabilities, and limitations. It also frames how goals and expectations are
set, and therefore has a significant impact on the strategies that are considered and
selected and the ways they are implemented. Recognizing the diversity of local markets
and seeing them as a source of opportunity and strength—while at the same time pushing
for strategic consistency across countries—lies at the heart of global strategy
development. To become truly global, therefore, requires a company to develop two key
capabilities. First, the company must have the ability to enter any market in the world it
wishes to compete in. This goal requires that the company constantly look for market
opportunities worldwide, processes information on a global basis, and is respected as a
real or potential threat by competitors, even in countries or markets it has not yet
entered. Second, the company must have the capability to leverage its worldwide
resources. Making a switch to a lower-cost position by globalizing the supply chain is a
good example. Leveraging a company’s global know-how is another.
To understand the importance of a corporate mind-set to the development of these
capabilities, consider two often quoted corporate mantras: “think global and act local” and
its opposite, “think local and act global.” The “think global and act local” mind-set is
indicative of a global approach in which management operates under the assumption that
a powerful brand name with a standard product, package, and advertising concept serves
as a platform to conquer global markets. The starting point is a globalization strategy
focused on standard products, optimal global sourcing, and the ability to react globally to
competitors’ moves. While sometimes effective, this approach can discourage diversity,
and it puts a lot of emphasis on uniformity. Contrast this concept with a “think local and
act global” mind-set, which is based on the assumption that global expansion is best
served by adaptation to local needs and preferences. In this mind-set, diversity is looked
upon as a source of opportunity, whereas strategic cohesion plays a secondary role. Such
a “bottom-up” approach can offer greater possibilities for revenue generation, particularly
for companies wanting to rapidly grow abroad. However, it may require greater
investment in infrastructure necessary to serve each market and can produce global
strategic inconsistency and inefficiencies.
C. K. Prahalad and Kenneth Lieberthal (1998) first exposed the Western (which they refer
to as “imperialist”) bias that many multinationals have brought to their global strategies,
particularly in developing countries. They note that they would perform better—and learn
more—if they more effectively tailored their operations to the unique conditions of
emerging markets. Arguing that literally hundreds of millions of people in China, India,
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Indonesia, and Brazil are ready to enter the marketplace, they observe that multinational
companies typically target only a tiny segment of affluent buyers in these emerging
markets: those who most resemble Westerners. This kind of myopia—thinking of
developing countries simply as new places to sell old products—is not only shortsighted
and the direct result of a Western “imperialist” mind-set, it also causes these companies to
miss out on much larger market opportunities further down the socioeconomic pyramid
that are often seized by local competitors (Prahalad and Lieberthal, 1998).
Companies with a genuine global mind-set do not assume that they can be successful by
simply exporting their current business models around the globe. Citicorp, for example,
knew it could not profitably serve a client in Beijing or Delhi whose net wealth is less than
$5,000 with its US business model and attendant cost structure. It therefore had to create
a new business model—which meant rethinking every element of its cost structure—to
serve average citizens in China and India.
As we have seen, the innovation required to serve the large second- and third-tier
segments in emerging markets has the potential to make them more competitive in their
traditional markets and therefore in all markets. The same business model that Citicorp
developed for emerging markets, for example, was found to have application to inner-city
markets in the United States and elsewhere in the developed world.
To become truly global, multinational companies will also increasingly have to look to
emerging markets for talent. India is already recognized as a source of technical talent in
engineering, sciences, and software, as well as in some aspects of management. High-tech
companies recruit in India not only for the Indian market but also for the global market.
China, Brazil, and Russia will surely be next. Philips, the Dutch electronics giant, is
downsizing in Europe and already employs more Chinese than Dutch workers. Nearly half
of the revenues for companies such as Coca-Cola, Procter & Gamble (P&G), Lucent,
Boeing, and GE come from Asia, or will in the near future.
As corporate globalization advances, the composition of senior management will also
begin to reflect the importance of the BRIC (Brazil, Russia, India, and China) countries and
other emerging markets. At present, with a few exceptions, such as Citicorp and Unilever,
executive suites are still filled with nationals from the company’s home country. As the
senior management teams for multinationals become more diverse, however, decisionmaking criteria and processes, attitudes toward ethics, and corporate responsibility, risk
taking, and team building all will likely change, reflecting the slow but persistent shift
toward Asia in many multinational companies. This shift will make the clear articulation of
a company’s core values and expected behaviors even more important than it is today. It
will also increase the need for a single company culture as more and more people from
different cultures have to work together.
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Determinants of a Corporate Global Mind-Set
What factors shape a corporation’s mind-set? Can they be managed? Given the
importance of mind-set to a company’s global outlook and prospects, these are important
questions. Paul (2000) cites four primary factors: (1) top management’s view of the world,
(2) the company’s strategic and administrative heritage, (3) the company’s dominant
organizational dimension, and (4) industry-specific forces driving or limiting globalization.
Top Management’s View of the World
The composition of a company’s top management and the way it exercises power both
have an important influence on the corporate mind-set. The emergence of a visionary
leader can be a major catalyst in breaking down existing geographic and competitive
boundaries. Good examples are Jack Welch at General Electric or Louis Gerstner at IBM,
who both played a dominant role in propelling their companies to positions of global
leadership. In contrast, leaders with a parochial, predominantly ethnocentric vision are
more likely to concentrate on the home market and not be very interested in international
growth.
Administrative Heritage
The second element of a corporate mind-set is a company’s administrative heritage—a
company’s strategic and organizational history, including the configuration of assets the
company has acquired over the years, the evolution of its organizational structure, the
strategies and management philosophies the company has pursued, its core
competencies, and its corporate culture. In most companies, these elements evolve over a
number of years and increasingly define the organization. As a consequence, changing
one or more of these key tangible and intangible elements of a company is an enormous
challenge and therefore a constraint on its global strategic options. For example, many
traditional multinationals, such as Philips and Unilever, created freestanding subsidiaries
with a high degree of autonomy and limited strategic coordination in many of the
countries and markets where they chose to compete. Companies with such a history may
encounter greater resistance in introducing a more global mind-set and related strategies
than companies such as Coca-Cola, which have predominantly operated with a more
centralized approach.
Organizational Structure
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The type of organizational structure a company has chosen—discussed more fully in the
next section—is also a key determinant of a corporate mind-set. In a strongly productoriented structure, management is more likely to think globally as the entire information
infrastructure is geared toward collecting and processing product data on a worldwide
basis. Compare this to an organization with a focus on countries, areas, or regions, where
the mind-set of managers tends to be more local. Here, the information infrastructure is
primarily oriented toward local and regional needs. It follows that in a matrix structure
based on product as well as geographic dimensions, the mind-set of management is
expected to reflect both global and local perspectives.
Industry Forces
Industry factors, such as opportunities for economies of scale and scope, global sourcing,
and lower transportation and communication costs, push companies toward a global
efficiency mind-set. Stronger global competition, the need to enter new markets, and the
globalization of important customers pull in the same direction. Similarly, the trend toward
a more homogeneous demand, particularly for products in fast-moving consumer goods
industries, and more uniform technical standards for many industrial products, encourage
a more global outlook. Another set of industry drivers, however, works in the opposite
direction and calls for strategies with a high degree of local responsiveness. Such drivers
include strong local competition in important markets and the existence of cultural
differences, making the transfer of globally standardized concepts less attractive. Issues
such as protectionism, trade barriers, and volatile exchange rates may also force a national
business approach. All these forces work together and help create the conditions that
shape the global mind-set of a company.
Creating the Right Global Mind-Set
Thus, to create the right global mind-set, management must understand the different,
often opposite, environmental forces that shape it. At the corporate level, managers
focusing on global competitive strategies tend to emphasize increased cross-country or
cross-region coordination and more centralized, standardized approaches to strategy.
Country managers, on the other hand, frequently favor greater autonomy for their local
units because they feel they have a better understanding of local market and customer
needs. Thus, different groups of managers can be expected to analyze data and facts in a
different way and favor different strategic concepts and solutions depending on their
individual mind-sets.
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In practice, two separate scenarios can develop. In the first scenario, one perspective
consistently wins at the expense of the other. Under this scenario, the company may be
successful for a certain period of time but will most likely run into trouble at a later time
because its ability to learn and innovate will be seriously impaired as it opts for “shortsighted” solutions within a given framework. In the second scenario, a deliberate effort is
made to maintain a “creative tension” between both perspectives. This scenario
recognizes the importance of such a tension to the company’s ability to break away from
established patterns of thinking and look for completely new solutions. This ability to
move beyond the existing paradigm and, in that sense, further develop the mind-set is
probably one of the most important success factors for many of the established successful
global players. Using creative tension in a constructive manner requires the development
of a corporate vision as well as a fair decision-making process. The corporate vision is
expected to provide general direction for all managers and employees in terms of where
the company wishes to be in the future. Equally important is setting up a generally
understood and accepted fair decision process, which must allow for sufficient
opportunities to analyze and discuss both global and local perspectives, and their merits,
in view of specific strategic situations.
P&G has been particularly innovative in designing its global operations around the tension
between local and global concerns. Four pillars—global business units, market
development organizations, global business services, and corporate functions—form the
heart of P&G’s organizational structure. Global business units build major global brands
with robust business strategies, market development organizations build local
understanding as a foundation for marketing campaigns, global business services provide
business technology and services that drive business success, and corporate functions
work to maintain our place as a leader of our industries.
Organization as Strategy
Organizational design should be about developing and implementing corporate strategy.
In a global context, the balance between local and central authority for key decisions is
one of the most important parameters in a company’s organizational design. Companies
that have partially or fully globalized their operations have typically migrated to one of
four organizational structures: (1) international, (2) multidomestic, (3) global, or (4)
transnational. Each occupies a well-defined position in the global aggregation or local
adaptation matrix first developed by Bartlett and Ghoshal and usefully describes the most
salient characteristics of each of these different organizational structures. This section
draws substantially on Aboy (2009). (See also, Bartlett & Ghoshal 1987a, 1987b, 1988,
1992, 2000).
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The international model characterizes companies that are strongly dependent on their
domestic sales and that export opportunistically. International companies typically have a
well-developed domestic infrastructure and additional capacity to sell internationally. As
their globalization develops further, they are destined to evolving into multidomestic,
global, or transnational companies. The international model is fairly unsophisticated,
unsustainable if the company further globalizes, and is therefore usually transitory in
nature. In the short term, this organizational form may be viable in certain situations
where the need for localization and local responsiveness is very low (i.e., the domestic
value proposition can be marketed internationally with very minor adaptations) and the
economies of aggregation (i.e., global standardization) are also low.
The multidomestic organizational model describes companies with a portfolio of
independent subsidiaries operating in different countries as a decentralized federation of
assets and responsibilities under a common corporate name (Bartlett and Ghoshal, 1987a,
1987b). Companies operating with a multidomestic model typically employ countryspecific strategies with little international coordination or knowledge transfer from the
center headquarters. Key decisions about strategy, resource allocation, decision making,
knowledge generation and transfer, and procurement reside with each country subsidiary,
with little value added from the central headquarters. The pure multidomestic
organizational structure is positioned as high on local adaptation and low on global
aggregation (integration). Like the international model, the traditional multidomestic
organizational structure is not well suited to a global competitive environment in which
standardization, global integration, and economies of scale and scope are critical.
However, this model is still viable in situations where local responsiveness, local
differentiation, and local adaptation are critical, while the opportunities for efficient
production, global knowledge transfer, economies of scale, and economies of scope are
minimal. As with the international model, the pure multidomestic company often
represents a transitory organizational structure. An example of this structure and its
limitations is provided by Philips during the last 25 years of the last century. In head-tohead competition with its principal rival, Matsushita, Philips’s multidomestic organizational
model became a competitive disadvantage against Matsushita’s centralized global
organizational structure.
The traditional global company is the antithesis of the traditional multidomestic company.
It describes companies with globally integrated operations designed to take maximum
advantage of economies of scale and scope by following a strategy of standardization and
efficient production (Yip & Madsen, 1996). By globalizing operations and competing in
global markets, these companies seek to reduce the cost of research and development
(R&D), manufacturing, production, procurement, and inventory; improve quality by
reducing variance; enhance customer preference through global products and brands; and
obtain competitive leverage. Most, if not all, key strategic decisions—about corporate
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strategy, resource allocation, and knowledge generation and transfer—are made at
corporate headquarters. In the global aggregation-local adaptation matrix, the pure global
company occupies the position of extreme global aggregation (integration) and low local
adaptation (localization). An example of a pure global structure is provided by the
aforementioned Japanese company Matsushita in the latter half of the last century. Since
a pure global structure also represents an extreme ideal, it frequently is also transitory.
The transnational model is used to characterize companies that attempt to simultaneously
achieve high global integration and high local responsiveness. It was conceived as a
theoretical construct to mitigate the limitations of the pure multidomestic and global
structures and occupies the fourth cell in the aggregation-adaptation matrix. This
organizational structure focuses on integration, combination, multiplication of resources
and capabilities, and managing assets and core competencies as a network of alliances as
opposed to relying on functional or geographical division. Its essence, therefore, is matrix
management. The ultimate objective is to have access and make effective and efficient
use of all the resources the company has at its disposal globally, including both global and
local knowledge. As a consequence, it requires management-intensive processes and is
extremely hard to implement in its pure form. It is as much a mind-set, idea, or ideal,
rather than an organization structure found in many global corporations (Ohmae, 2006).
Given the limitations of each of the above structures in terms of either their global
competitiveness or their implementability, many companies have settled on matrix-like
organizational structures that are more easily managed than the pure transnational model
but that still target the simultaneous pursuit of global integration and local
responsiveness. Two of these have been labeled the modern multidomestic and modern
global models of global organization (Aboy, 2009, p. 3).
The modern multidomestic model is an updated version of the traditional multidomestic
model that includes a more significant role for the corporate headquarters. Accordingly,
its essence no longer consists of a loose confederation of assets, but rather a matrix
structure with a strong culture of operational decentralization, local adaptation, product
differentiation, and local responsiveness. The resulting model, with national subsidiaries
with significant autonomy, a strong geographical dimension, and empowered country
managers allows companies to maintain their local responsiveness and their ability to
differentiate and adapt to local environments. At the same time, in the modern
multidomestic model, the center is critical to enhancing competitive strength. Whereas
the primary role of the subsidiary is to be locally responsive, the role of the center is
multidimensional; it must foster global integration by (1) developing global corporate and
competitive strategies, and (2) playing a significant role in resource allocation, selection of
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markets, developing strategic analysis, mergers and acquisitions, decisions regarding R&D
and technology matters, eliminating duplication of capital intensive assets, and knowledge
transfer. Nestlé is an example of a modern multidomestic company.
The modern global company is rooted in the tradition of the traditional global form but
gives a more significant role in decision making to the country subsidiaries. Headquarters
targets a high level of global integration by creating low-cost sourcing opportunities,
factor cost efficiencies, opportunities for global scale and scope, product standardization,
global technology sharing and information technology (IT) services, global branding, and
an overarching global corporate strategy. But unlike the traditional global model, the
modern global structure makes more effective use of the subsidiaries in order to
encourage local responsiveness. As traditional global firms evolve into modern global
enterprises, they tend to focus more on strategic coordination and integration of core
competencies worldwide, and protecting home country control becomes less important.
Modern global corporations may disperse R&D, manufacturing and production, and
marketing around the globe to ensure flexibility in the face of changing factor costs for
labor, raw materials, exchange rates, and talent acquisition worldwide. P&G is an example
of a modern global company.
Realigning and Restructuring for Global Competitive Advantage
Creating the right environment for a global mind-set to develop and realigning and
restructuring a company’s global operations, at a minimum, requires (1) a strong
commitment by the right top management, (2) a clear statement of vision and a
delineation of a well-defined set of global decision-making processes, (3) anticipating and
overcoming organizational resistance to change, (4) developing and coordinating
networks, and (5) a global perspective on employee selection and career planning.
A Strong Commitment by the Right Top Management
Shaping a global mind-set starts at the top. The composition of the senior management
team and the board of directors should reflect the diversity of markets in which the
company wants to compete. In terms of mind-set, a multicultural board can help operating
managers by providing a broader perspective and specific knowledge about new trends
and changes in the environment. A good example of a company with a truly global top
management team is the Adidas Group, the German-based sportswear company. Its
executive board consists of two Germans, including the CEO, an American, and a New
Zealander. The company’s supervisory board includes representatives from Germany,
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France, and Russia. Adidas is still an exception. Many other companies operating on a
global scale still have a long way to go to make the composition of their top management
and boards reflects the importance and diversity of their worldwide operations.
A Clear Statement of Vision and Delineation of a Global Decision-Making Processes
For decades, it has been general management’s primary role to determine corporate
strategy and the organization’s structure. In many global companies, however, top
management’s role has changed from its historical focus on strategy, structure, and
systems to one of developing a corporate purpose and vision, processes, and personnel.
This new philosophy reflects the growing importance of developing and nurturing a strong
corporate purpose and vision in a diverse, competitive global environment. Under this
new model, middle and upper-middle managers are expected to behave more like business
leaders and entrepreneurs rather than administrators and controllers. To facilitate this role
change, companies must spend more time and effort engaging middle management in
developing strategy. This process gives middle and upper-middle managers an opportunity
to make a contribution to the global corporate agenda and, at the same time, helps create
a shared understanding and commitment of how to approach global business issues.
Instead of traditional strategic planning in a separate corporate planning department,
Nestlé, for example, focuses on a combination of bottom-up and top-down planning
approaches involving markets, regions, and strategic product groups. That process ensures
that local managers play an important part in decisions to pursue a certain plan and the
related vision. In line with this approach, headquarters does not generally force local units
to do something they do not believe in. The new philosophy calls for development of the
organization less through formal structures and more through effective management
processes.
Anticipating and Overcoming Organizational Resistance to Change
The globalization of key business processes such as IT, purchasing, product design, and
R&D is critical to global competitiveness. Decentralized, siloed local business processes
simply are ineffective and unsustainable in today’s intense, competitive global
environment. When all of a company’s metrics are focused locally or regionally, locally or
regionally inspired behaviors can be expected. Until the adoption of a consistent set of
global metrics designed to encourage global behaviors, globalization is unlikely to take
hold, much less succeed. Resistance to such global process initiatives runs deep, however.
As many companies have learned, country managers will likely invoke everything from the
“not invented here” syndrome to respect for local culture and business heritage to defend
the status quo.
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Developing and Coordinating Networks
Globalization has also brought greater emphasis on collaboration, not only with units
inside the company but also with outside partners such as suppliers and customers. Global
managers must now develop and coordinate networks, which give them access to key
resources on a worldwide basis. Network building helps to replace nationally held views
with a collective global mind-set. Established global companies, such as Unilever or GE,
have developed a networking culture in which middle managers from various parts of the
organization are constantly put together in working, training, or social situations. They
staff multicultural project teams, develop sophisticated career path systems encouraging
international mobility, and provide training courses and internal conferences.
A Global Perspective on Employee Selection and Career Planning
Recruiting from diverse sources worldwide supports the development of a global mindset. A multicultural top management, as described previously, might improve the
company’s chances of recruiting and motivating high-potential candidates from various
countries. Many companies now hire local managers and put them through intensive
training programs. Microsoft, for example, routinely brings foreign talent to the United
States for intensive training. P&G runs local courses in a number of countries and then
sends trainees to its headquarters in Cincinnati or to large foreign subsidiaries for a
significant period of time. After completion of their training, they are expected to take
over local management positions.
Similarly, a career path in a global company must provide for recurring local and global
assignments. Typically, a high-potential candidate will start in a specific local function, for
example, marketing or finance. A successful track record in the chosen functional area
provides the candidate with sufficient credibility in the company and, equally important,
self-confidence to take on more complex and demanding global tasks, usually as a team
member where he or she gets hands-on knowledge of the workings of a global team. With
each new assignment, managers should broaden their perspectives and establish informal
networks of contact and relationships. Whereas international assignments in the past
were primarily demand-driven to transfer know-how and solve specific problems, they are
now much more learning-oriented and focus on giving the expatriate the opportunity to
understand and benefit from cultural differences as well as to develop long-lasting
networks and relationships. Exposure to all major functions, rotation through several
businesses, and different postings in various countries are critical in creating a global
mind-set, both for the individual manager and for the entire management group. In that
sense, global human resource management is probably one of the most powerful mediumand long-term tools for global success.
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Citi Announces New Corporate Organizational Structure
Vikram Pandit, Citi’s chief executive officer, announced a comprehensive
reorganization of Citi’s structure to achieve greater client focus and connectivity,
global product excellence, and clear accountability. The new organizational structure
was designed to let Citi focus its resources toward growth in emerging and
developed markets and improve efficiencies throughout the company.
Specifically, Citi established a regional structure to bring decision making closer to
clients. The new structure gave the leaders of the geographic regions authority to
make decisions on the ground. The geographic regions were each led by a single
chief executive officer who reported to Mr. Pandit.
In addition, Citi reorganized its consumer group into two global businesses:
Consumer Banking and Global Cards. This brought Citi’s number of global
businesses to four: Institutional Clients Group and Global Wealth Management are
already organized as global businesses. The four global businesses allowed Citi to
deliver on product excellence in close partnership with the regions. The product
leaders also reported to Mr. Pandit.
“Our new organizational model marks a further important step along the path we
are pursuing to make Citi a simpler, leaner and more efficient organization that
works collaboratively across the businesses and throughout the world to benefit
clients and shareholders,” said Mr. Pandit. “With this new structure, we reinforce our
focus on clients by moving the decision-making process as close to clients as
possible and assigning some of our strongest talent to lead the regional areas and
global product groups” (Morcroft, 2008).
As part of the reorganization, in order to drive efficiency and reduce costs, Citi
further centralized global functions, including finance, IT, legal, human resources,
and branding. By centralizing these global functions, particularly IT, Citi sought to
reduce unnecessary complexity, leverage its global scale, and accelerate innovation.
Risk was already centralized.
The business reorganization reflects priorities outlined by Mr. Pandit, who had been
conducting intensive business reviews since being named CEO, to drive greater
cross-business collaboration; eliminate bureaucracy and create a nimbler, more
client-focused organization; ensure strong risk management and capital resources;
and drive cost and operational efficiencies to generate additional shareholder value.
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Glossary
administrative heritage
A firm’s strategic and organizational history, management philosophies, core
competencies, and culture
corporate mind-set
The aggregated mind-set of all of the firm’s members
creative tension
A firm’s constructive efforts to break away from established patterns of thinking
by analyzing and discussing local and global perspectives to discover new strategic
opportunities
global company
A firm with globally integrated operations designed to take maximum advantage of
economies of scale and scope by following a strategy of standardization and
efficient production
global mind-set
The ability to avoid the simplicity of assuming all cultures are the same, and at the
same time, not being paralyzed by the complexity of the differences
industry factors
Those opportunities for economies of scale and scope, global sourcing, and lower
costs that push firms toward a global efficiency mind-set
international model
Characterizes firms that are strongly dependent on their domestic sales and that
export opportunistically
management model
A model that summarizes a firm’s choices about its global organizational structure
and decision-making framework
mind-set
The set of deeply held internal mental images and assumptions, which individuals
develop through a continuous process of learning from experience
multidomestic organizational model
Describes firms with a portfolio of independent subsidiaries operating in different
countries as a decentralized federation of assets and responsibilities under a
common corporate name
modern global company
Characterized by a high level of global integration due to low-cost sourcing
opportunities, factor cost efficiencies, global scale and scope, product
standardization, globalized technology sharing and information technology
services global branding and a global corporate strategy
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services, global branding, and a global corporate strategy
modern multidomestic model
A matrix structure with a strong culture of operational decentralization, local
adaptation, product differentiation, and local responsiveness
networking culture
Created through the extensive use of multicultural project teams, career path
systems that encourage international mobility, intensive training courses and
internal conferences
“think global and act local” mind-set
The assumption that a powerful brand name with a standard product, package, and
advertising concept serves as a dominating platform across global markets
“think local and act global” mind-set
The assumption that global expansion is best served by a firm adopting a bottomup approach in adapting its products, services, and practices to local needs and
preferences
transnational model
Characterizes firms that attempt to simultaneously achieve high global integration
and high local responsiveness
Western “imperialist” mind-set
The tendency of multinational firms to target only those affluent buyers in
emerging markets who most resemble Western consumers
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Developing a global mind-set requires companies to accomplish the
following:
Integrate the global aspects of strategy into their overall corporate
strategy and change thinking patterns from a single domestic focus
to a broad global focus.
Manage uncertainty while constantly adapting to change and
accepting it as part of a process.
Get the right people in place with the skills necessary to focus on
international expansion.
Combine the various cultures and values of the corporate
workforce into a unique global organizational culture.
Invest in people so they can help the company to succeed globally.
Embrace diversity and differences.
Learn how to cooperate with partners worldwide by successfully
managing global supply chains, teams, and alliances.
On the subject of creating a global organization, the following factors are
important:
Globalization is driving a wholesale reinvention of organizational
structure and management. The need for global scale and process
efficiency is challenging corporate leaders to replace old paradigms
of centralized control and decentralized autonomy with new
models.
Achieving the potential of global operations requires a mix of soft
and hard approaches. Optimizing global processes requires cultural
change management, proactive team- and relationship-building,
and more traditional budgetary and accountability mechanisms and
metrics.
Long-term vision, planning, and goal alignment can greatly increase
chances of success. Corporations should start with a clear vision of
their global objectives and values, and consciously develop shared
Key Points
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language and identity, with participation from all global regions, not
just headquarters.
Identifying and replicating successes quickly and continuously is
crucial to global competitiveness. Today’s complex global markets
require multifaceted, not monolithic, approaches and capabilities.
Global collaboration with face-to-face feedback loops, and a focus
on identifying local successes and building them into the global
process portfolio, can maximize the value of a corporation’s global
assets.
References
Aboy, M. (2009). The organization of modern MNEs is more complicated than the old
models of global, multidomestic, and transnational (Working Paper Series)
International Business Strategy–Social Science Research Network, 1–5.
Bartlett, C. A., & Ghoshal, S. (1987a). Managing across borders: New organizational
responses. International Executive, 29(3), 10–13.
Bartlett, C. A., & Ghoshal, S. (1987b). Managing across borders: New strategic
requirements. Sloan Management Review, 28(4), 7–17.
Bartlett, C. A., & Ghoshal, S. (1988). Organizing for worldwide effectiveness: The
transnational solution. California Management Review, 31(1), 54–72.
Bartlett, C. A., & Ghoshal, S. (1992). What is a global manager? Harvard Business Review,
70(5), 124–132.
Bartlett, C. A., & Ghoshal, S. (2000). Going global. Harvard Business Review, 78(2), 132–
142.
Garstka, M. (2002, April 4). When global strategies go wrong. The Wall Street Journal.
Retrieved from https://www.wsj.com/articles/SB1017883732728774080
Morcroft, G. (2008, March 31). Citigroup restructures, breaks out cards as new unit.
MarketWatch. Retrieved from https://www.marketwatch.com/story/citirestructures-breaks-out-cards-as-new-unit
Ohmae, K. (2006). Growing in a global garden. Leadership Excellence, 23(9), 14–15.
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Paul, H. (2000, March/April). Creating a mindset. Thunderbird International Business
Review, 42(2), 187–200.
Prahalad, C. K., & Lieberthal, K. (1998). The end of corporate imperialism. Harvard
Business Review, 109–117.
Yip, G. S., & Madsen, T. L. (1996). Global strategy as a factor in Japanese success.
International Executive, 38(1), 145–167.
Licenses and Attributions
Fundamentals of Global Strategy v. 1.0 (https://saylordotorg.github.io/text_fundamentalsof-global-strategy/) was adapted by Saylor Academy and is available under a Creative
Commons Attribution-NonCommercial-ShareAlike 3.0 Unported
(https://creativecommons.org/licenses/by-nc-sa/3.0/) license without attribution as
requested by the work’s original creator or licensor. UMGC has modified this work and it
is available under the original license.
© 2021 University of Maryland Global Campus
All links to external sites were verified at the time of publication. UMGC is not responsible for the validity or integrity
of information located at external sites.
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