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Articles in our Leadership & Talent series address key issues companies face in creating effective talent management strategiesto identify, develop and retain successful leaders and leadership teams.

Leadership Talent

A Russell Reynolds Associates Series: Issue 1, 2008

Building the A Team in America: A European Perspective


The rapid pace of globalisation is straining the leadership resources of companies looking to establish operations in international markets. In this issue, Kai Hammerich, Managing Director at Russell Reynolds Associates, and Bill Hoover, former Senior Director at McKinsey & Company, look at the challenges faced by European firms seeking to build or maintain a top-level presence in the United States.

eepening globalisation may have wrought a

Caught in the Grips of a Vicious Cycle


The case study is a depressingly common one: Company Xa market leader in Europecomes to America to open new markets and compete on the larger stage. European executives, unableor unwilling to rationalise the high salaries top U.S. talent expects, hire less expensive, and often less skilled, candidates to run the U.S. outpost. That team, made up of B and C players, underperforms relative to their A team competition. The home country executives start to lose confidence in their American colleagues. When those colleagues then begin asking for product or service modifications to suit American customersoften costly but almost always necessarythe Europeans refuse them due to a lack of confidence in the team, a lack of understanding of the customer or a combination of both. The company underperforms further as customers choose the products more tailored to their needs. A trusted European is sent over to clean things up. That executive usually does not understand the local market in detail, and performance deteriorates even further. Headquarters makes a clean sweep of U.S. employees and tries to start all over again, repeating the same pattern of hiring on the cheap and then compounding the talent issues with cultural missteps.

borderless business environment, but that does not mean that expanding internationally has become any less of a cultural minefield. The challenge of adapting established business practices to the unique requirements of a specific market is particularly pronounced for European companies establishing U.S. operations. According to two veteran observers of European-U.S. market dynamics, European executives, put off by some of the more irrational rules of the American marketplace and unaware of the more parochial ones, tend to apply their usual business models to the unusual demands of a U.S. expansionwith predictably lacklustre results.

Having the right plan in placeand more significantly the right team to execute itcan increase the chances of stateside success.
In this article, we share our observations of European companies most common missteps, as well as our advice for getting the expansion equation right. We have witnessed every strategy imaginablefrom Freddy Heinekens freewheeling, marketing-driven lets just do it approach in the 1950s to the massive, armada-like invasion staged by L.M. Ericsson in the 1980s. The vast majority, in our estimation, adopt the same, doomedfrom-the-start approach to establishing U.S. operations.

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Sometimes, European challengers will try to buy their market positioning by acquiring a U.S. firm but, inevitably, get derailed by the same issues: They acquire on the cheap, and the firm underperforms relative to competitors with higher market caps. Home country executives lose confidence in the company and reject its strategic counsel. The company further underperforms, and the vicious cycle of deteriorating performance gains intensity until the European company pulls the plug on what it sees as an ill-fated venture or simply accepts a lower share. It does not have to happen this way. By giving more credence and a higher priority to conducting due diligence upfront, establishing robust people processes and Americanising their initiatives, European companies can position themselves for success in the U.S. market.

the American competition. But others require a different lineup or a broader bench of talent. Businesses that will be subject to federal regulation (defense, media, renewables, food and beverage, etc.) will need A type regulatory people: lawyers, lobbyists, insiders, etc. Those industries that compete on innovationpharmaceuticals, biotechnology or software, for instance, will need A research and development teams in order to have any shot at all at the big league stakes. Likewise, in media and investment banking, you probably need at least one American rainmaker on the team just to gain entry to the U.S. game.

A highly connected and effective rainmaker will be expensiveoutrageously so in many Europeans eyes but the returns such an individual will produce in new business opportunities are likely to greatly outpace the initial investment.
Leading the A Team Once companies have identified the business-critical functions and assigned A players to those roles, they should give those teams room to manoeuvre and exert influence at the strategic level. European companies often will analyse U.S. market dynamics through a home-country lens and disregard the counsel of their American colleagues. Few European executives, for example, would buy in to a product specification recommending the launch of a plus-size SUV during an oil crisis or an 100-inch television screen. Americans, however, who know their consumers penchant for bigat-any-cost, would rubber stamp the recommendations without a moments hesitation.

Due Diligence Is Critical


As any coach will affirm, you do not need star players in every position to build a winning team, but you do need them in key roles. By performing a thorough market assessment in advance of setting up shop overseasin other words, by doing some homework firstEuropean companies can identify the roles most critical to the success of the business and invest in top players for only those positions. Building the A Team Many companies, for example, need little more than an A sales force management team to keep pace with

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To ensure the American team can wield its influence, Europeans must carefully consider the strategic position of the U.S. outpost and align reporting hierarchies in support of business objectives. In many corporations, the United States is organisationally positioned as a sales operation two or more levels removed from the CEO. This reporting structure frequently is at odds with the U.S.s status as the largest single market in many industries. If the United States is a key business driver, then the reporting structure should support that importance.

Miami, oil and gas in Houston, and surgical implants in Minneapolis. Being in the cluster provides a company with reach to more key people, information and market knowledge. Even recruiting becomes easier as the young job hunters know where to focus their searches. Simply put, the chance of getting the right A team is higher if you are in the cluster. As a secondary consideration, companies should consider locations where there is a strong cultural alignment with their core values. This will increase employee stickiness, which many European companies struggle with in the United States. As an example, many Northern European/Nordic companies have successfully located in the Midwest, while others find a better fit in the South.

Having strong U.S. players can make a firm more competitive globally; however, hiring the best without giving them the authority and resources to execute is a waste of resources and will only result in high rates of executive turnover.
Remember the Board European challengers should start at the top and establish a good local board that can help guide them through critical channel and product issues as well as help build up their local network. For mid-size companies in particular, having a local board can add significant value. And board formation should be a top priority. In our experience, European companies focus on sales-people first (to get to breakeven faster) and assign Europeans to the board, almost as an afterthought. Nothing could be worse! Even larger corporations can benefit from having either U.S. main board members or a local advisory board.

Invest in Your People


Another major bucket concerns people processes.

For European companies to prosper in the United States, they must institute employee processes that nurture the long-term professional development of employees and earn their loyalty.
By doing this, companies can be assured that they are building a pipeline of skilled, knowledgeable employees who will be able to step into A roles when needed. These processes can include everything from training, development and mentoring to rotational opportunities. Talent Development

Locating the A Team Another homework imperative concerns location. We have seen far too many Europeans dismissing the importance of location and choosing U.S. headquarters because of a chance visit, because it is well known or because an important customer resides there. None of these really has any strategic value for the business prospects and can thoroughly thwart recruitment effortsand competitive positioningfor years to come. Why is location important? Because in the United States (and elsewhere), industries tend to cluster: automotive around Detroit and Auburn (Alabama), pharmaceuticals around Princeton (New Jersey), cut flowers around

Building a strong pipeline also means helping employees to view their positions as long-term career paths rather than just as jobs. This typically involves creating career maps for employees and supporting them with international transfers and rotations over, say, a 10-year period. Maersk Line (the container shipper) has been pursuing this approach and has built a loyal and fully schooled cadre of overseas managers. Few if any European corporations can match the talent development programs of Procter & Gamble, Johnson & Johnson and General Electric. They hire talent directly from universities and fast-track the best across business

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Figure 1: Example Employee Value Proposition


Large Foreign Company >$2B Pay Development Opportunities Work Content
Salary to match big U.S. firms Well-defined international career path led by global human resources function Equivalent to U.S. competitors but less hierarchical Meet more cultures (than in U.S. company)

Small Foreign Company <$2B


Lower starting salary but faster progression Much faster career path

Broader areas of responsibility, sooner

Leadership

Run your own show much sooner (by the time you are 30) We are going to own our niche globally.

Compelling Story We are going to lead the world in renewables.

units and geographies. As the gold standard, these companies talent development programs serve as excellent models for Europeans eager to establish successful operations on U.S. soil. Thinking long term ensures that one is networked with the right universities and departments, thus screening a steady pool of likely applicants. The best companies attach key executives to key universities, much as they assign them to key customers. It also is useful to have an Employee Value Proposition (EVP) that crisply articulates why someone would join your firm (see Figure 1). Such an EVP usually will have aspects covering: pay, development opportunities, work content, leadership and a compelling story. For example, Our wind turbines will help prevent climate change or Our inverter drives are the most energy efficient. Many European companies are accustomed to attracting the very best in their home countries Siemens in Germany, Nokia in Finlandbut they have a much weaker EVP in the United States. As a result, a clearly defined and articulated U.S. EVP is critical to recruiting the highest calibre individuals at the outset and earning their long-term loyalty. Beyond the

classic career ladders, the leading companies offer additional programs aimed at building expertise, community ties and company loyalty. Exchange programs, for example, in which the teenage children of peer executives switch homes for a summer or a year help build tremendous collegial ties among executives, increasing their commitment and loyalty to the company. Similarly, mentoring programs, such as BPs turtles approach in which young executives shadow more experienced ones for a year or more, not only help the younger executives learn from the best but also ensure that the senior leaders have trusted aides spread throughout the company. Young tigers events, such as Nokias Panorama Program, bring two dozen or more rising stars together to work under the tutelage of key top executives and gain great networking and professional development opportunities that ultimately benefit the company. The other important element relating to processes is to manage human resources globallyto use the same criteria (even forms), processes and schedules across the globe. Thus, for example, all of the top 400 will know that in November and May they will get a formal assessment and face-to-face review, and all executives will feel they are being fairly and appropriately managed.

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Americanise the U.S. Headquarters


The third imperativeto Americanise the U.S. headquartersshould go without saying, yet many companies continue to export their homeland cultures and organisational structures to their stateside operations, often with disastrous results.

further to local sports clubs, alma maters, religious institutions and other societies (e.g., Lions, Masons, etc.). Memberships in these types of organisations are facets of typical American senior executives lives and impinge on their business world. And, if this is not actively encouraged, they may start looking elsewhere. A related consideration is to understand the importance of the water cooler network and design offices to support those casual conversations that encourage employee collegiality and help build a tight-knit workplace community. In most places, there will be a lot of sports talk in season (how did the Red Sox do?), but beyond this, it may well depend on geography. In any case, being part of the conversation is important.

For European companies establishing U.S. operations, Americanising operations is essentially all about paying up and networking in.
Compensation and Benefits The pay issue is a difficult one, but getting it right is essential for success in the market. Concerning pay, European firms typically are at 75 percent or less of the U.S. cash levels and only at 50 percent (though the recent dollar weakness has helped this a little) or less when it comes to bonus and long-term incentives. The Europeans just cannot justify paying their overseas juniors more than themselves. The reality is that for A players, the financial opportunities are vastly superior in the United States. For situations in which one needs to recruit a senior-level executive, the solution is simple: Pay up or your firm will not get the necessary talent, and your business will enter a vicious cycle. Occasionally, European companies find outstanding American executives with a strong cultural fit who are affordable; however, the chances of this are low so counting on an affordable A player is a risky strategy. Community Involvement Another area Europeans often neglectas it does not matter nearly as much in Europeis making the U.S. headquarters a full part of the many communities in which the firm and its executives participate. The U.S. old boys network largely has disappeared, but the community network has emerged in its place, and Europeans must give community initiatives the same importance that Americans do in order to stay viable in the United States. This starts with the obvious targets such as the industry associations, the local charities and other not-for-profit organisations (e.g., United Way, The Nature Conservancy, etc.). It also can extend much

Conclusion
The challenge of establishing successful operations in foreign countries is hardly unique to Europeans, of course. Any expansion into a new market requires a bridging of cultural and operational gulfs, and many businesses have difficulty doing it well.
In summary, if one is to really build the A team in the United States, a complete rollout program is required that encompasses everything from basic due diligence and fundamental human resources processes to more subtle and sophisticated ways of Americanising operations in the interest of preventing cultural missteps that thwart successfully going global. Those firms that have figured this out are not only doing well in the American marketplace but also are benefiting from having the A teams leverage across the world.

Authors
Kai Hammerich is a Managing Director at Russell Reynolds Associates. He has more than 10 years experience recruiting senior-level executives for international companies. Bill Hoover is a former Senior Director at McKinsey & Company. He has more than 20 years experience advising businesses on their approach to new markets.

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About Russell Reynolds Associates


Russell Reynolds Associates is the most trusted name in global executive search and assessment. Through our 39 wholly owned offices, the firms more than 275 professionals conduct senior-level search and assessment assignments in a range of industries for public and private organisations of all sizes. With its one-firm culture, deep knowledge of major industries and unwavering commitment to client service, Russell Reynolds Associates is uniquely qualified to help clients find the best leaders and to advise them on optimising their talent. The firms Web site is www.russellreynolds.com.

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Stockholm

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