The Difference Between Global And Local
Large corporations, especially those that are global, tend to grow via acquisitions. The result is a patchwork of different companies and sub-groups that have evolved over time and have their own unique ways of tackling similar things.
SMEs by their nature tend to be very local in where and how they operate although some of them have a global clientele. However they don’t suffer from the same problem of imposing a single view about how to proceed. For global businesses on the other hand this is probably the biggest challenge.
There’s also a difference in how they interact with their customers. Being local can attract a certain loyalty whereas global corporations tend to rely more on brand awareness and values. Just think of the motor industry – where the big manufacturers are producing components across the globe, assembling vehicles on a regional basis and selling into national markets but with international branding.
Manufacturing vs Services
Much of the transformation that is seen in manufacturing is aiming for efficiency goals. That has caused global players to build centres of production for key components rather than replicating that effort in multiple locations. In the motor industry gearboxes are produced in one plant, engines or exhausts in another and so on. Many other industries are merely transforming by playing catch-up with this model of thinking. Electrolux (Asia), for example, has concentrated the making of oven doors in Adelaide, South Australia, supplying them to assembly plants elsewhere in places like the Philippines or Indonesia.
This presents an issue for the global manufacturing sector. How to transform when multiple local replications are overall inefficient but there is resistance to moving production and jobs elsewhere? Both unions and local management are inevitably inclined to resist. By contrast the concentration of specialisms can cause headaches for Just-in-time assembly and managing the carbon footprint amongst other things. The KPIs of transformation are frequently measured by the reduction in headcount in operations (although other numbers may be hired into the design and marketing functions).
Services on the other hand don’t suffer the same restrictions. They are more amenable to developing creative new ways of working that might be more appropriate in certain geographies compared to others. There is also the option of moving service delivery online to a greater or lesser extent.
The differences in these outcomes are stark. Manufacturing is driven by efficiency savings, whereas services can be focused equally on effectiveness gain. Getting more from the same pool of resource is much easier to achieve in the service sector. On the other hand manufacturing is governed by the sheer physical amount of product that can be shifted. Producing more that doesn’t sell isn’t a recipe for success in anyone’s book.
Service providers have the alternate option to increment their delivery rather than adding more extras to a standard physical product. We see it often in areas that offer premier service (Amazon Prime is a good example). That can drive a new customer segment or revenue stream. Service responsiveness can and should be more adept at dealing with nuances in demand and other market factors. Changing an existing proposition to operate like this requires some genuine transformation of approach.
Where On The Planet?
That’s a really good question. Not only does globalisation present opportunities but also it comes with a disparate set of cultures and expectations. When talking this over with Paul Gelardi, the former Business Transformation Director of Electrolux, he was quite clear about this.
“Don’t think you can do business transformation in a democracy. You need to take input from everybody and then decide. It’s easier to do in the Far East – they are much happier with authoritarian management.”
That’s not usually a problem for the SME. Even if they are serving customers around the globe the location of their management team is unlikely to face the same challenge. However it might be a consideration when working out where you want to originate your transformation activity. Do you do it in areas that are more accepting and then build that incrementally to cover the rest of the world? How is that going to be perceived in those countries more used to getting their own way with things?
Beware also that global consultancies are not homogenous. The methods and tools differ regionally even though they are apparently all being presented by a single organisation. So you have to be sure that advice given in Australia is the same as in Norway – yet frequently it isn’t going to be quite the same. Consulting firms have just the same challenges of managing a global process as any other organisation. They are more akin to a flotilla of similar organisations all flying the same flag and sailing in close formation.
The Merger Transformation Challenge
Every merger or acquisition presents a business transformation challenge. The existing management of the target may be very good but leaving them in situ is going to lead to problems. They have a natural inclination to continue doing things the way they always have and getting the methods and ideas of the new parent accepted isn’t going to be easy. The usual solution is to move the people elsewhere. Not necessarily by making them redundant but by giving them new roles in different countries or locations.
This widely-used approach does have its advantages. There is personal challenge and opportunity for development for the people involved as they use their skills and knowledge in a different environment. It also allows for some promotion to board level in the subsidiary for a senior manager or two who can be inducted within the new way of doing things.
These options are somewhat restricted in an SME that has just acquired another business of similar size. The challenge here is to work out well in advance how you intend to handle the leaders of the acquired business. One solution is to give them a completely different role in the enlarged business, operating at senior level but with a different portfolio to direct.
The Not Invented Here Syndrome
The EU and North America present different challenges. End-2-end processes are going to cut across vertical silos (such as Marketing, Finance, Credit Control, Cash Collection, Sales, IT or Operations. Cross-functional teams need to be assembled to deal with each process that is part of the planned transformation. That’s where it runs into the politics.
Consider what happens if attempts are being made by a European global player to change things in their subsidiaries in the USA. The local management may want to hire US consultants to help and advise but often those consultants are then being asked to reinvent something that has already been designed in the EU. You get the idea. Somebody has to sit on that from above and stop the reinvention. It’s a clear waste of resource but the struggle is always going to be with the local management who think their ways of doing things have worked well for years and want to oversee any changes themselves.
This emphasises the need for there to be a sponsor at the very top who can bang heads together if necessary. De facto that’s going to be the Group Chief Exec, frequently backed up by the Chairman.
“The various subsidiaries have to be prevented from just hacking through the jungle and not making use of learning that has gone before.” (Paul Gelardi again.)
You have to stop people reinventing stuff just so they can say they did it.
There’s a really good metaphor that I prefer to use – which is Creative Swiping. That can take what exists elsewhere and implant it in a new situation. In turn it is building on previous learning (although not necessarily by your own people) and making something exceptional going forward. It’s one way of using external advice and insight to make a transformation work much better.
Get the teams to understand the difference and keep an eagle eye out for the reinvented wheels. They have no place in the transformation.
Convincing The Participants
Wherever the stimulus for effecting business transformation comes from, ultimately it is only ever going to work if there is adequate buy-in from all the players. For a global organisation that source or reason will come from the main board. However the local boards of management in differing countries are going to feel threatened as their power moves to a more administrative function.
There’s also the question as to whether what is being proposed is truly transformative or merely an attempt to stay level with the competition. To deliver requires that the participants fully understand what they are being asked to do and why.
In a local business or SME the convincing is a lot easier to achieve, provided that the communications are open and frequent. You can’t just issue an edict from the boardroom or have an initial presentation and then fail to follow it up. Regardless of the size of organisation the challenge is to make the communications believable. The language used and the methods of communicating also need to be pitched at the right level. Not everyone has the board’s insight into what is needed or why (they weren’t in the initial meetings when these things were discussed and decided).
Another common method of convincing is to have the name of a well-known consultancy on the PowerPoint presentations. This aims to show the recipients that what is being proposed has a stamp of authority from a third-party specialist. However this isn’t, in my view, the right way forward. Paying to have a McKinsey or Deloitte on the communications isn’t directly addressing what those communications should be saying. It’s like the old advert “nobody got fired for hiring IBM” – except that there is ample evidence to show that was frequently not the right thing to have done.
Instead you should build a culture that believes its own management. You don’t need to be paying premium rates just to convince people of what you are saying, provided it has been thought through. That’s why one of the best ways of convincing participants is to get them involved at every step of the development. Folks believe the things they have seen and done, rather than relying on what they are told. So use an Organisation Development model and incrementally build a core of people who are all pushing in the right direction. They become ambassadors for what is being proposed and are far more likely to gain acceptance from the rest of the workforce.
Where Does The Creativity Come From?
In a large corporate this is likely to emanate from one or more committees looking at the organisation design. They will redesign the processes, producing a target operating model along the way. However the extent to which any such group can be truly creative is somewhat limited. The key drivers for transformation referred to earlier are going to get in the way. Even when it is all complete there may be the requirement for that design to be transferred to more local groupings to deal with things like tooling for specific factories or markets.
Competitive advantage comes from Design, Innovation and Marketing. A manufacturer is going to want to make the back-end a level playing field with their competition. That’s why we see so much #MeToo in the approaches of businesses like airlines or car-makers. They all want to have an equal state of operating efficiency and are fairly quick to imitate. The same can be said in industries like financial services. One new way of handling mortgages or offering insurance products soon becomes the norm. One online retail operation is pretty much like another – the differences are in the design or products and levels of customer service.
So the creativity is a real challenge. The bigger the operation, the less nimble it can be. It’s akin to trying to stop or turn around a super tanker at sea – the braking distance is measured in miles and the turning circle is massive.
What Next?
We’ve worked in transformations at every level – from global corporations to micro business so we understand that the challenges they face are not all the same. What makes them different is the focus on what can be transformed and how innovative that transformation can be. So contact us to get the conversation started on how you can learn to deal with the challenges facing your organisation.
Rob Wherrett can be contacted at https://robwherrett.com/contact/
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