BEST PR A CTICE

M ULTI N ATI O N ALS

I N TH E N EXT D ECA D E
BLUEPRINT, FLOW & SOUL
Thebuilders of modern multinationals drawnspir
i ation fromthearchitecture fobuildings:
Design a blueprint, managethe flow of resources and inject so
mesoul.

by Jorge H. For teza an d Ga ry L. Nei ls on

A DECADE OF GLOBALIZATION

— that was the forecast for

the 1990’s.
As the Cold War came to an
end, nations on both
sides of the
executives dreamed of con-
solidating their operations
to serve markets without
borders.
Not unlike some other
Iron Curtain reduced direct in- economic forecasts, this one
volvement in their respective fell a little short.
economies. Multinational compa- As the 1990’s progressed,
nies geared up for freer trade, it became clear that the inter-
fueled by deregulation and in- national marketplace was
creased disposable consumer in-
into exponential sales increases. In-
fraught with economic risks that af-
come. The companies banked onstead of the old concept of maintain-
fected sales, and even the most nim-
leveraging their brand names for
ing integrated operating units in the
ble companies found connecting with
everything fromtoothbrushes to cars countries where they did business,
customers more challenging than
...............................
Jorge H. Forteza is a senior vi ce pres ident w ith Booz -Allen &Hamilto n, presi dent of Bo oz-A llen &Ha milton Argentina a nd th e
partner responsible for operations in the Southern Cone (i.e., Argentina, Brazil, Chile and Uruguay). He holds a degree in political
economy from t he Univ ers idad d e Buenos A ir es and a master’s deg ree in manag ement f rom the Sloan Sc hool of Ma nag ement.
Gary L. Neilson is a senior vic e president w ith Booz -Allen based in Chicago . He focuses on a ssisting ma jor c omp an ies w ith strate -
gy- based o rganizat ional transformat ion and has w orked w ith companies i n the fi elds of consumer products , energy, airl ines , elec -
tron ics, glass, s tee l, medical produ cts, fi nan cial servi ces and a uto mob iles. Mr . Nei lson ho lds an M.B.A. from Columb ia Univers ity.

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 BEST PRACTICE

expected. Local competitors proved

tionality — the new structures failed
process and people separately, and
much tougher than anticipated and
to reward entrepreneurship. Employ-
to attend toall three simultane
ously.
local markets stubbornly resistedees found themselves absorbed with
standardization. “Even underwear l rituals instead of PROMISE VS. REALITY OF
politics and interna
has national characteristics,” lament- rs or clients. GLOBAL ASSETS
interacting with custome
ed John H. Bryan, chief ex
ecutive The job was no fun, and, in the long Modernmultinationals have ma
ny im-
officer of the Sara Lee Corporation,
run, this unattractive work environ- pressive assets: famous brands; for-
the parent ompany
c of Hanes. ment madethe multi
nationals unabl
e midable research and development
The products, though, were not to attract sufficient high-class localand new-
productcapabilities; global
the problem. The problem wa
s that in talent, furt
her undermining long-
term scale for sourcing and transferring
repositioning to serve global rkets,
ma competitiveness. knowledge; cost
and scale advantage
s
multinationals ignored the totality Looking forward to the next for manufacturing and logistics; at-
of what it takes to create a vital,
decade, we
believe that to
succeed in tractive career opport
unities, pay an
d
customer-responsive organization.
global ma
rkets, part
icularly eme
rging benefits; advanced management prac-
They restructured in ways that left markets, multinationals need to con-
tices; fina
ncialstaying power, andar-
m
them unable to
compete, inadequate-
centrate simultaneously on three key
ket and political clout. Se
( e Exhibit I.)
ly staffed nd
a without pro
ductive cus- disciplines: 1) the design of organiza- These assets should give them

tomer relationships. tional structure, 2) the management

enormous advantages in new mar-
Complicated by the challenge of
processes for allocating resourceskets. Moreover, many multinationals
operating across borders — with dif-
and formeasuring and rewarding per-
have had operations in countries
ferent cultures,regulatory schemes, formance, and 3) the company’s cul-
around the world for a long time.
tastes and resentments based on na-
ture, values and behavior. Their established names should have
The most success- given them even more strength.
.................... ful multinationals, such Why, then, are they having so
EXHIBIT I as the General Electric much trouble?
MULTINATIONALS POSSESS Company, withits“boun- We find that in attempting to
MANY COMPETITIVE ADVANTAGES daryless” organization, serve new markets more efficiently,
and A.B.B, a $30 billioncompanies have created new organi-
engineering and technol-
zational bottlenecks. They have com-
ogy company operatingplicated their decision-making by
in 100 countries that hasmoving responsibility from country
dubbed itself “multido- operations (in consultation with a
mestic,” havemanaged to corporate center) to regional head-
attend to allthree, often af
- quarters (with responsibility divided
ter a great deal of experi-in the name of consensus and inclu-
mentation. With companiession). In the process, they have built
like these, geography as anmanagement matrices that are even
organizing principle is less im-
more confusing than the ones they
e- r
portant than focus on cus- placed.
tomer needs. Most other com- Among the probl
ems are:
panies are still struggling. The
• Who is n No
? one can make
i charge
time has come to stop treating a decision without a clear chain of
Source: Booz-Allen &Hamilton the three elements of structure,command. This creates problems

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Third Q uarte r ’99
 BEST PR A CTICE

not only of poor business respon-

siveness butalso of poor morale.
• The buck stops where?
If country
managers, product managers and
managers of functions such as
strategic planning share responsi-
bility and accountability, they tend
to overana
lyze and miss out
on mar-
ket opportunities.
• I have to clear it with headquarters.
Multinationals lose out to local com
-
petitors because they have to call
Geneva or New Yor
k. Country man-
agers without authority lose credi-
bility in neg
otiations withocal
l cus-
tomers.
iblThis
• My job is imposse. is what we

hear from regional business man-

agers whose terri
tories are too wide.
They spend too muchtime traveling,
making them both professionally
in-
effective and personally unhappy. Source: Booz-Allen &Hamilton
• I cannot me
et tha Allocation
t price.
EXHIBIT II
of corporate overhead — finance,MULTINATIONALS NEED TO MOVE TOWARD A MORE OPEN
information systems and otherAND DYNAMIC BUSINESS MODEL
areas — adds costs to operations,
...............................
and leaves field managers at a com-
petitive disadvantag
e. a company’s advantages, no matter
brand will sell, and in these, a full-
• The best
and bri how formidabl
ghtest will not work e, cannot be ultimatelyscale marketing invasion may work. In
Why should they? The newsustained. However, they got them-
for us. others, the foreign label is a liability,
economy has create d new opportu- selves into this quagmire and they
demanding some thing onthe order of
nities for local talent. Yet, mostcan dig themselves out. a guerrilla insurgency. A true global
multinationals rely too heavily on corporation will have thecapabilities
expatriates for country manage- A NEW MULTINATIONAL MODEL to play it either way
. (See Ex
hibit II.)
ment and devalue the career op-
The old model is dead. For better or Yet, in most cases, restructuring
portunities for local talent. for worse, no corpor
ation can su
stain efforts have been counterproductive;
• Haven’t we inventeds thi
whee itself while operating as hundredsthey
l be- of have failed to achieve this kind
Multinationals should be ablesemi-autonomous loc
fore? al players, each of flexibility. They have concentrated
to learn from their failures and mis-
catering to a particular marketplace.
on config
uringthe corpor
ation and its
takes by sharing knowledge. Yet,
Neither can it impose a standard
product line in particular ways to re-
they are often so fragmented and
product line on all people in all mar-
duce internal costs while neglecting
complex that they cannot. kets. In some countri
es, anything thatother elements.
Under conditions such as these, has the aura of anstabli
e shed foreign For example, manufacturers of

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 BEST PRACTICE

ply chains, the regional sales people

The centerless corporation de-emphasizes the corporate headquarters ended up calling in the accustomed
fashion butspread over a much larg-
as the focal point of operations. It is replaced by a Global Core, which er territory. The result was delay,
confusion and burnout.
bears responsibility for reporting, regulatory and other corporate Meanwhile, local competitors
gained market share. Local compa-
functions and leaves the businesses nies with mited
li product lines
face re
latively si
mple chal-
alone to do their work. lenge
s. They areclose to
their customers and
know what they want,
automobiles, computers and in terms of price, qual-
household appliances have ity and functionality.
looked to the creation of When tastes change,
“world” products to stan- they change with them.
dardize production and achieve There is no point in

economies of scale. However, multinationa

ls merely repli
-
they have neglected national cating what the locals do
and cultural preferences, re- well, but this is not a zero-
sulting in a severe decline in sum game. Multinational
market share in countries in companies have innate
which the worl
d standard wa
s not strengths. They should con-
the local one. centrate on tur
ning them
in-
Theanswer has been to stan- to comparative advantages
dardize components to the great- by packag
ing products wi
th
est extent possi
ble and customize other values to create solu-
at the last possi
ble mom
ent. Thus, tions targeted to specific cus-
Italians, who m
ight want front-loading tomer needs. The more com-
washers, can have them, while the
taken for internal considerationsplex the mix of their products and
French, who may prefer top-loaders,
overlook the linkage between the cor- services, the more sophi
sticated must
can buy those instead. poration and s itcustomers, as wellas be their knowledge of customers, ac-
“Think global, act local” has be-
the interests ofsitown people. For ex-
count management, marketing and
come the motto of many companies.
ample, a num
ber of multi
nationals e-
r other capabili
ties so that they can add
We believe a better motto would be
organized theirocal
l sales forces intovalue.
“think global, sell
local” beca
use each regional ones with the intent of sim- Achieving this kind of sophisti-
business ultimately succeeds or fails
plifying their dealing
s with corporate cation is difficult enoug
h in a single
at the point where customers ex-
customers. This would have made
market. Doing it across borders and
change money for goods and ser-
sense if their customers were similar-
oceans — with a range of tastes, cus-
vices. The aim of any reorganization
ly consolidated. However, because
toms, regulations and infrastructure
should be to serve that fundamental
their customers remained in their ac-
— is that much harder
. What works in
transaction. customed configuration, with local
one market may not wor
k in another.
Restructurings that are under-
operationsmanaging theirown sup- This seems self-evident now, but it
continued on page 21

4
Third Q uarte r ’99
 BEST PR A CTICE

continued from page 16

was not obvious in the early yearsrewards
of for theght
ri kind of beha
vior. hibit III.)
globalization, when senior managers What ma
kes thismodel especial-
1. Blueprint
thought they could get their organi- ly appropriate to complex multina-
mers to accept “It is often thought hat
zations and their custo t heaviness is syn- tionals isa fundam
ental chang
e in the
change on their terms. organization of the business units. In-
onym
it ousthwith
is just strengt
e oppo site.”h. In my opinion stead of nes
li beingredrawn on the or-
BLUEPRINT, FLOW AND SOUL Mies van der Rohe ganization chart accordi
ng to internal
“Beautiful buildings are more than considerations, they are formed
scientific. They are true organisms... By working with hundreds of compa- around something wellcathe Natural
using the best technology by inspiration nies, and observing many more, we Business Unit
. These units arenatur-
“
rather than the idiosyncrasies of merehave see n a new organizational mod- al” because they are organized back
taste or averaging by the committee el forming tha t lends itself part
icular- from the customer — inside the cor-
mind.” Frank LloydWright ly wellto realizing the theoretical ad- poration and outside. The customer
vantages of the new multinational
interface is local. But the capa
bilities
We propose that multinationals re-
corporation. W
e call it the centerless to meet the nee
ds of those custo
mers
structure themselves across a range
corporation. The centerless corpora-
can be m
obilized from a m
uch broad-
of criteria that correspond roug
hly to tion de-emphasizes the corporate
er resource base than would be the

the criteria that make a competently

headquartersas the focal point ofop- case in a fr
eestan
ding local company
.
designed building. Good architecture
erations. It is replaced by a Global Natural business units are built
comprises more than just a hand-
Core, which bea
rs responsibility for around: 1) broad categories of cus-
some structure. A good building also
reporting, regulatory and other cor-
tomers, such as retailers, consumers
encompasses good heating, plumbing
porate functions and leaves the busi-
or industrial clients, or 2) global prod-
and ventilation, and itsia place whe
re nesses alone to dotheirwork. (See Ex- uct lines, such as personal care and
people enjoy living and working. ...............................
We refer to these criteria as:
EXHIBIT III
• Blueprint, the way the organiza-
EMERGING BUSINESS MODEL FOR MULTINATIONALS
tional structure is designe
d.
• Flow, key manag
ement process-
es for allocating resources,
and measuring and re-
warding perfor
mance.
• Soul, the culture, values
and behavior promoted in
the company that characterize
the experience of working there.
Most restructurings have been
based on the blueprint —attem
pting
to rationalize hundreds of opera-
tions wor
ldwide throug
h classic ma-
trices, often creatingore
m problems
than they sol
ved. Yet, even the best
structure cannot be successful
without he
t right kind of people and Source: Booz-Allen &Hamilton

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 BEST PR A CTICE

did not mean it. We recall a meetingout

in on the kind of people who can
mans for Europe, Brazilians for Latin
which a chief executive officer spent
build a lasting organization. Auto- America, the United States for the
hours explaining a new, more inclu-
crats find it hard to recruit their suc-
Americas. Somewhat paradoxically,
sive system of ma
nagement, and thencessors. the same qualities that make these
in a question-and-answer session Restructuring people successful in their own coun-
Make it happen.
reverted to his customary autocraticany corporation creates winners and
tries may m
ake the
m inappropr
iate in
manner. What message do you sup-
losers — among locales, among em-
the delicate process of multinational
pose he sent? ployees and usually among cus-
management. Since they have man-
If management behavior remains
tomers. When you close a plant, or
aged operations for large domestic
arrogant, political or ethnocentric,cut your work force, you disenfran-markets, they tend to excel at pro-
themessageis,“Nothinghaschanged; chise employees, or create resent-
duction and effi
ciency. But these skills
you still do not count.” In a corpora-
ments that can disr
upt operations or are not ideal for managing the com-
tion with “soul,” the impetus for
create pu
blic relations probl
ems that plexity of human issues. Such man-
change cascades from the top. Chief
will cost you custome
rs. agers tend tobe less accommodating
executive officers communicate their In the multinational realm theto the tapestry of cultures and sensi-
commitment to everyone, and those
problem is that much greater. Clos-
bilities that are tied to success in a- va
people spread the message by word
ing a plant might prejudi
ce a gove
rn- riety of coun
tries.

and by example. That message is ment un- against your remaining opera- Executives fro m somewhat small-
likely to take a turn for the better on
tions. Replacing local mana
gers with er countries — France in Europe or
the way down. regional executives can poison busi
- Mexico in Latin America — are often
Convincing the organization that
ness on a number of levels, not just
less arrogant, more cosmopoli
tan and
the mandate to change is genuinein
isthe perception that the local oper-
more skilled in the diplomatic arts.
not easy. Senior managers are cau-
ation is seen somehow as secondThose from small countries with a
tious with their bosses as we
ll as oth- class, but in the perception that one
heritageof living by their wit
s — Swe-
er colleagues. As ü
J rgen E. Schrem
pp, country’s personnel may have ep-
de den, the Netherlands and Uruguay
chief executive officer of Daimler-
seated cultural problems with those
come to mind —often have the grea
t-
Chrysler, has observed, “You never
of their neighbors. est success at mediating between dis-
really hear the truth from your sub- Balancing these considerationsparate factions selling the broad
ordinates until after 10:00 in the
is a delicate art, but
n iour experiencerange of cooperative behavior and
evening.” it can be managed. If a plant is to values
be nece
ssary. John F. W
elch, chief
The components of a new social closed in a valued market, it is imper-
executive officer o
f G.E., says Sweden
contract must not only be clear, but
ative to staff remaining operations has “pound for pound...more good
also be reinforced through training,
with first-class people who projectmanagers than any othercountry.”
rewards and penalties. competence and commitment. Your None of thi
s is easy
. But we think
Theconsequences for not chang- customers become your advocates.
the inherent advantages of the multi-
ing are se
vere. The shor
t-term conse-What you lose on the overall employ-
national are compelling. Implemented
quences can be measured in declining
ment side, you g
ain by conti
nuity and together, the three elements of the
market share against competitors
enhanced service to customers. new multinationalism — blueprint,
who are better attuned to local mar- Choosing your people is just as
flow and soul — will create potent
kets around the world. In the longer
critical. There is a widespread ten-competitive strength in the years to
term, a company that fails to make
dency to recruit key regional man-
come. &SB
provisions for coping with a diverse
agers from the dominant national
international marketplace will misseconomy in a given region — Ger- Repri nt No. 993 03

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