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Globalization - Adapt your company organization in order to face globalization challenges


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Translation of presentation made in french. Sorry for my poor english but you should be able to understand what it means

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Globalization - Adapt your company organization in order to face globalization challenges

  1. 1. Adapt your company organization in order to face globalization challenges. 21/10/2013 Globalisation 1
  2. 2. GLOBALIZATION FOR COMPANIES Enlargement of competition boundaries and its most direct consequence, the development of international trade, source of a wider competition is the most immediately visible and the most discussed. Still, actually for managers other elements are also important (even more important) and should constitute their priority concerns: • it influences consumer tastes and attitudes, • It challenges the mode of presence and the commercial and marketing practices, • it affects the design and the price of products and services, • it changes the producer/consumer relation, • it modify the economic relations born with colonization and decolonization, • it causes the rapid roll out of knowledge, technologies and usages as well as faster obsolescence, • It creates issues for organization whose geographic scope tends to constantly expand and thus the diversity of their cultures, • It tend to develop firms social responsibility 21/10/2013 Globalisation 2
  3. 3. STRENGTH BALANCES BETWEEN COUNTRIES • Natural strength balance change over time due to: • Demography • Economic cycles • Agreements for liberalization of international trade • Raw materials localization • Result is a natural and generalized shift: • From developed countries offering a potential consumption of tens to hundreds of millions of people (with high level of R & D as well as higher living standards and equipment ratio favoring development of new products), • to emerging countries, opening a potential consumption of several hundred million to one or two billion of demanding and poorly equipped people (and with living standards increasing more rapidly thanks to globalization), • then to under-developed countries which add a few billion potential consumers non-equipped (although their living standard tends to increase very slowly). 21/10/2013 Globalisation 3
  4. 4. Evolution stereotype: initially, the various markets are more or less isolated despite the fact that the level of comparative advantages is different from one country to another. Those market are structurally local. Competition involved only local companies with its leaders, followers and "losers". The first step of globalization sees the markets developing exchanges between countries and the competitive position of the different actors is then materially impacted. Countries by order of comparative advantages Purely local markets Markets start to globalise Country 1 Country 2 Country 3 Country 4 Country 5 Country 6 Country 7 Country 8 Country 9 Country 10 Low 21/10/2013 Medium Firm competiveness High Globalisation Low Medium Firm competiveness High 4
  5. 5. The next step in globalization sees the collapse of the less competitive firms from the countries with few comparative advantages, whereas the firm in good competitive position are accelerating their transformation from national actors to global competitors. At end, only few global players survive. This may happen directly from countries to global level or through an intermediate phase at the level of the major economic regions. . Countries by order of comparative advantages Markets globalisation progressing Markets globalisation mature Country 1 Country 2 Country 3 Country 4 Country 5 Country 6 Country 7 Country 8 Country 9 Country 10 Low 21/10/2013 Medium Firm competiveness High Globalisation Low Medium Firm competiveness High 5
  6. 6. These evolutions (location of consumers, prices and quantities sold) are associated with material changes in manufacturing costs and in the localization of the productions and finally an important evolution in competition. The products "creators" will progressively see new entrants from poorly covered areas i.e. typically from under developed or emerging countries. These new entrants will benefit from competitive advantages related to the volume of their markets but also of low labor costs, of potentially lower costs of raw materials without having to spend so much in R & D and marketing as the "creators“ did. Market actors can then develop more or less aggressive strategies but this will not fundamentally change the geographical shift. As such, markets could see the creators developing and then disappearing gradually in favor of emerging and under-developed countries entrants or some competitors developing very early globalization strategy and production relocation in order to limit the competition building and remain a significant player. The different actors strategy may use a panel of differentiation actions (depending on the nature of products) such as renewal of the product ranges, higher values of product ranges, creating fashion effects or customization of products and attached services,... which will usually slow the shift and increase the market complexity in order to limit the shift. 21/10/2013 Globalisation 6
  7. 7. WHERE ARE WE? WHAT TO DO? Are we in a local or multi-local market (phase 1)? International (phase 2 and 3)? or global (phase 4)? Keeping in mind that • If the Organization's characteristics correspond to the characteristics of its markets, the company is in phase. • When the degree of development of the organization is less than that of its markets, the company is clearly in danger at more or less long term. It is in a defensive strategic position where market forces will play against it (if not realigned rapidly). • When the degree of development of the organization is higher than that of its markets, the company is in an "offensive" strategic position. That does not mean of success but that it anticipates a globalization of the market and will be able to take benefits of it if this happens. However, in the contrary, it will also be endangered at term. On such basis, and to the extent where the company is operating in globalizing markets (phase 2/3/4), how can we practically adapt it through: • culture, • markets approach, • internal organization. 21/10/2013 Globalisation 7
  8. 8. GLOBAL CULTURE As in any human community, culture plays a vital role in an organization life. • So, what are the distinctive elements of a global culture? • How to develop the “globality" of a corporate culture? • Since ultimately and whatever our ideas on the subject are, it will happen sooner or later (or organization will disappear). The distinctive elements can be summarized as follows: • • • • an organized multiculturalism, an integrated approach, A conscious walk toward future based on market awareness , A strong pragmatism and principles. 21/10/2013 Globalisation 8
  9. 9. AN ORGANIZED MULTICULTURALISM Especially in countries with strong cultural diversity and in international companies , multiculturalism will be a tangible and visible reality. (I think it is premature to talk about emergence of a global culture. This notion would seem too reductive to date). The danger is that the company remains trapped either in a system of "cultural imperialism", or in a system of "cultural particularism". These two approaches constitutes a source of lack of openness to tomorrow world and rigidity in approaches. They hinder the international - global – development. Multiculturalism in contrast translates into a larger diversity and greater cultural richness of approaches. If multiculturalism offers undeniable advantages in the 21st century context, we must not underestimate the difficulty of its implementation and its development. Indeed, where the first two situations are generally resulting from an empirical development marked with seals of centralism (or its opposite) and of human nature, a truly multi-cultural environment require a conscious and structured action. 21/10/2013 Globalisation 9
  10. 10. The evolution towards a global reach will see arising an identity problem. What is the nationality of the company? Its capital will probably be evolving and being held by investors of several nationalities, its staff will be of increasingly diverse origins, its customers and suppliers will cover a very broad spectrum of horizon, its products and services will be largely globalized or about to be, its activities localization will be more and more optimized on the basis of purely economic criterions, the links with its original national culture will be increasingly thin, ... According to sectors and companies this transition may be more or less easy but the leaders will have to provide an answer. When does the company cease to be French, German, or even multinational to become global? This may sound like a rhetorical question, but in fact it is a fundamental one which can largely condition the progress towards globalization. As long as it will have 'national' label, it will be hampered in its approach both from inside and from outside. This lifting is not only to escape from features of the original culture but is to create a new one, more complex and much more open where the values will be more universal. 21/10/2013 Globalisation 10
  11. 11. AN INTEGRATED APPROACH An integrated approach abandoning the geography/function duality for a process oriented organization. Too many companies are still very marked by an excessive departmentalization. Regardless of their fields of action, the major disciplines have their prerogatives and authority areas. They are divided into various specialties that recreate the same pattern at their level. These structures overlay on the geography of the operational units leading to a very complex and costly to manage organization. Their general organization, their information systems, their recognition and reward systems,... are marked by this context and they rarely manage to get out of it, creating a plethora of specialists with fragmented responsibilities and a shortage of managers able to take and assume global responsibilities. It does not mean that economies of scale can be neglected nor the specificities of each disciplines. It would be detrimental to do so. However, this can be organized within the framework of processes with multi-disciplinary teams rather than in the context of functions (specialization). 21/10/2013 Globalisation 11
  12. 12. A CONSCIOUS WALK TOWARD FUTURE BASED ON MARKET AWARENESS Fighting against evolution is a dangerous strategy. Companies must face reality and be the actors of their change. To do this, they should imagine the scenarios of the future for their specific environment and continuously review models that would take advantage of this evolution see to influence it. Real change management is more and more necessary. The globalization of markets, the possibility to access to diversified resources, more and more open economies outside the traditional triad (Europe, North America and Japan), the European Union, faster and faster information traffic, the emergence of new economic centers,... factors are numerous and consistently moving towards an increased globalization of business organization. 21/10/2013 Globalisation 12
  13. 13. A GREAT PRAGMATISM AND PRINCIPLES The more a company is complex, the more its logical scope is wide. In such conditions realism can only result from a set of guiding principles defined in common under the aegis of a center associated with a strong delegation of the operational decisions given at the point of occurrence of issues. This point may be depending on circumstances central, regional or local. The realism of the actions and decisions must fit into a well defined set of principles and strategies which ensure consistency. The reality in the field must take precedence in decision making. She waits and must get answers fast and consistent. The global company will avoid to lose considerable energy when taking decisions or when controlling the decisions taken. It will define and communicate: • strategies and policies guiding the field decision-maker, • An ethics and a deontology organizing and managing the responsibilities of the different levels of decision-making. • a generic organization and integrated systems which discharge the operational manager of the “logistic” in order to let him focusing on its objectives. 21/10/2013 Globalisation 13
  14. 14. For higher chances of success, these vital elements will be discussed and developed taking into account realities, the diversity and the constraints of company, by men and women who have acquired an global understanding of their business and of its markets and not by specialists in their ivory tower nor by consultants led by their own imperatives of revenues and profits. This team will have to avoid falling into the traps from their own culture which may push them to take shortcuts which some will undoubtedly prove to be harmful. These shortcuts, result of an inductive reasoning (from few specific cases, general points are made) or more simply from stereotypes or from "wishful thinking" are real dangers for decision making. A comprehensive deductive approach must be used. It will draw on the game theory to transcribe a situation in a “game”: • who are the various players and prospects? • What are their strategies? What are their behaviors? • For each player what can he do? What are its options? • Finally, what are the different possible evolutions based on answers to the first two series of questions? What are the likely reactions from the different actors in case of changes in the game? (By actor I mean customers, competitors but also suppliers and other stakeholders). Each decision must be "rationalized" meaning that all of the elements taken into account must be properly quantified, objectified and tested against different scenarios. This exercise must be updated and challenged regularly (once a year). 21/10/2013 Globalisation 14
  15. 15. IMPLEMENTATION Define the characteristics of a global corporate culture and implement it in a proactive manner. To begin with, a diagnosis is essential. This analysis can follow the scheme of the classical strengths and weaknesses analysis insofar as there are intimate link between these two phenomena. A corporate culture explains and determines its strengths and weaknesses and on the other hand, the strengths and weaknesses of the company explain and influence its culture. This diagnosis shall respond to the following question How do we effectively react?“ For the following domains 21/10/2013 Globalisation 15
  16. 16. Main analysis areas • Strategic culture : • Competition knowledge • Type of growth • Partnership • Decision process • Planning • Innovation culture : • In terms of product/services • In terms of methods and technologies • In terms of market segment creation • Manufacturing and service culture : • In terms of costs • In terms of productivity • In terms of flexibility • Commercial culture • In terms of resources • In terms of distribution channel • In terms of global customer • Resources culture : • In terms of finance resources • In terms of human resources • In terms of physical resources • Organizational culture • Systems choices • Process change or definition • Responsibilities distribution • Sub-contracting or integration • Benchmarking • Managing information and management information • Relationship between central and field units • Relationship between field units 21/10/2013 Marketing culture : • Customer and customer needs approach • Product and service range approach • Price policies • Globalisation 16
  17. 17. At the end of this first phase, and before moving to action plans by entity, results will be presented in a global perspective. This step will establish a cultural map of the company and a set of objectives that will serve as core curriculum in local plans. It will also measure the gap between the company and the current mainstream of thought and practices. This common core must be sufficiently open to preserve the diversity of the company while offering a framework capable to create a strong enough link to make it a whole. At this stage, as also at the stage of local plans, the major difficulty will be the ability of the concerned manager group to challenge itself. It is therefore important that all stream or cultural component participate, feel involved, recognize themselves sufficiently in the objectives set in order to take it as an element of progress. It will be best not to stop at a culture change, but to create a culture of change or more accurately of permanent evolution and adaptation. 2 purely illustrative generic examples, 21/10/2013 Globalisation 17
  18. 18. • Competition knowledge : To day : We are only interested in European competition and only from the moment where its action bother us, We have a clear tendency to underestimate its initiatives. Each entity or even each department develops, in an empirical manner, its own knowledge of the competition and of its developments. This knowledge is not broadcast in the whole of the enterprise. Tomorrow : We want to understand competition evolution at the global level so as to better control our own evolution. Information collected by the field and after analysis should be raised in a systematic and consolidated manner. This synthesis should be disseminated in the company quickly and widely, plans of action developed if necessary. The products of the different competitors must be analyzed as soon as their launch and their innovations integrated in our development plans. Actions : Implement a server for collection and dissemination of information on competition including competing companies and their products. Managers and sales forces should regularly visit this server and keep their knowledge to up-to-date. Briefing meetings will be organized regularly on these topics. The plan for the introduction of new employees will go through the study of national and international competition. • Product and services range approach : To day : Our products are developed in France, tested and launched on the French market and then on foreign markets. We give little support in customizing the products to non-French entities. Those provide customization or even develop local products. Each entity has thus its own portfolio of products and services driven by their own immediate priorities. These portfolio do not have the same positioning in terms of customer and value added. After sale services are not a source of information which is taken into account in the development of new products, nor the study of competing products characteristics. Tomorrow : Our market been globalizing and primary needs been identical, we will develop a global range of products and services that will be sold by all of our country entities within the framework of a global strategy. The development of the range should take into account the desire to position the company as a global provider of standardized products. The range will be developed taking into account the recommendations of all the entities. It will cover a characteristic set of added values to differentiate the company on all the markets of the triad. After-sales service must analyze the reasons for their interventions and the development of products will have to integrate in a dynamic way the recommendations and feedback from this service. Similarly, the features of competing products should be taken into account. Actions : Creation of an international project team responsible to (i) merge the product ranges and (ii) to develop the concept of the future range. Implementation of a program for study of the main competing products. Implementation of an escalation process from after sales services. Redesign of development teams and redistribution of responsibilities among the different countries. 21/10/2013 Globalisation 18
  19. 19. MARKETS APPROACH Globalization Enlargement of competition boundaries and its most direct consequence, the development of international trade, source of a wider competition is the most immediately visible and the most discussed. Still, actually for managers other elements are also important (even more important) and should constitute their priority concerns: • it influences consumer tastes and attitudes, • It challenges the mode of presence and the commercial and marketing practices, • it affects the design and the price of products and services, • it changes the producer/consumer relation, • it modify the economic relations born with colonization and decolonization, • it causes the rapid roll out of knowledge, technologies and usages as well as faster obsolescence, • It creates issues for organization whose geographic scope tends to constantly expand and thus the diversity of their cultures, • It tend to develop firms social responsibility 21/10/2013 Globalisation 19
  20. 20. Production relocation Relocation covers several types of approach, each one having different priorities . • • • The most visible operations have been the creation of production facilities in countries with low labor costs or close to sources of raw materials. The aim is first and foremost a reduction of the costs (of manpower or of transport). Other type of operation have emerged along with the competition between large companies. The creation of local units corresponds to an offensive strategy for local market shares. Export to an emerging market may be more costly and less efficient than local production. The establishment of a local unit in support of the commercial organization is set within a logic of market share gain. The concentration of production units to achieve better economies of scale is another form. Declining transportation costs, products standardization, high cost of certain investments do push companies to concentrate and specialize their production facilities. Such approaches may be part of a globalization plan for companies operating in globalizing industries. However, it do not constitute by itself globalization practices. It is the way in which they will be carried out and integrated that will make the difference. Any relocation involves taking into account many factors linked both to the host country and to the departure country. A prerequisite however, this relocation must be made from a country with no (or little) comparative advantages toward a country having many (or more) comparative advantages. 21/10/2013 Globalisation 20
  21. 21. The globalization of a business must follow the evolution of its markets. The market characteristics and the competitive forces that operate in there will determine at any time the potential to globalize the company and forms of this globalization. In fact there is no pre-ordained, unique or uniform scheme. Companies must constantly reinterpret their environment and find the solutions that best correspond to the current situation and the strategy adopted. The globalization of a business may make evolving its markets. Innovative, a globalization approach can be a very successful offensive strategy. As in any offensive strategy, the current forces must be well analyzed in order to be in position to profit out of it and the preparation well done so that it can be implemented very quickly. Globalization, powerful competition factor. In relevant markets, a globalization initiative is a powerful factor of competitiveness. The search for economies of scale and the ability to prevent rise of foreign competition tends to be the first reason for globalization. Beyond these aspects, there are industries where the ability to serve globally is becoming a “must have”. This ability becomes an added value in itself. In fact, this type of offer is developing. 21/10/2013 Globalisation 21
  22. 22. STRATEGIC MANAGEMENT AND GLOBAL COMPANY The “globality” of the company take its source at the level of its strategic management. The global enterprise defines through its vision, its mission and its general objectives the foundations of its aspiration to “globality”. This strategy includes typical guidelines for such kind of company. These guidelines cover the management of the strategic activities scope, the bases of research for competitive advantages, the value chain to get it and the necessary coordination principles between the various vectors of the company. The “globality” lies in the coherence between the different levels of strategy. Vision, mission, objectives, organization supporting this set, operational policies developed must not only be perfectly integrated but must also clearly define the practical implications of a global company. A "geographical" statement is insufficient in this respect. 21/10/2013 Globalisation 22
  23. 23. The magnitude of the product/market scope: The extent of products and services range will aim to cover a coherent set of needs through an appropriate selection of characteristics and features around which the company can build comparative advantages and defend and develop its competitiveness and its position. Depending on the type of market, this range can be either single or regionalized or local. The features and functionality must cover: • Requirements indispensable for the considered markets (basic needs), • Requirements creating value for these markets, • Marginal requirements creating real differentiation. The first type of needs is the minimum to exist in a market but it never permit to actually position the company. The strategic positioning will be rather the result of the following two categories. It is the effectiveness of the strategic positioning that determines competitiveness and profitability. The geography presents a particular challenge in this area. Each types of needs may more or less vary depending on countries (or regions). The company developing a global strategy will therefore have to choose very carefully its positioning compare to the evolution of its markets and to competitors in place. Follow the evolution of consumer expectations? Create an aspiration towards a more and more standardized product possibly with differentiated related services? Relies on fashion effects or research for originality? Limits its approach to markets accepting its single product range or differentiates its product ranges to cover needs of countries having different maturity levels? 21/10/2013 Globalisation 23
  24. 24. The answers to these questions give a range of possible strategies. These choices are major for the company and must be carefully measured. On the one hand, it cannot only result from the individual or local initiative, on the other hand, It can not only result from a central authority distant from market concerns. An integrated approach taking into consideration these two levels within a prospective view of markets is essential to get an efficient globalization of the product/market approach. Matrix of choices can be summarized as below: approach to the range of products/services based on the comparison of needs from one market to another Needs Different needs Similar basic Same basic Same basic needs, Basic and other needs, others needs, others others similar needs are the same different different Range Single Adapted Differentiated Different 1A 2A 3A 4A 1C 1D 1E 2D 3B 2C 3C 4B 4C 2E 3E 4E 1B 2B 3D 4D Not all these logical options have the same consistency and the same efficiency, the most coherent choices are as follows: 21/10/2013 Globalisation 24
  25. 25. 1E - Single range to serve a set of identical needs. Volume strategy based on costs and prices that may be complemented by an innovation strategy. The extension of the geographical coverage is a way to develop economies of scale and global market share. The strategy most suited to this type of situation. 2 C - Adapted range for the same basic needs and where additional needs are different. Major strategy in this type of situation especially if competitors (or consumers) are trying to move the market towards greater standardization. On the other hand, if evolution is towards a sharp differentiation, it can only be a transitional stage. 2D - Adapted range for the same basic needs and where additional needs are similar but not identical. Another major strategy of this type of situation. Very suitable for a globalization and a conquest of global market share. 3B - Differentiated range to cover similar basic needs and where additional needs are different. One of the two winning strategies, enabling effective globalization even if it remains limited in its extent. 3 C - Differentiated range for identical basic needs and where additional needs are different. Major strategy in this type of situation. It creates a defensible competitive position both vis a vis of local competition that vis à vis of standardized global competition. 4A - Different ranges to cover different needs A priori the strategy most suited to this kind of situation. The globalization of this type of activity is not very developed. 21/10/2013 Globalisation 25
  26. 26. Magnitude of the geographic scope : The geographic scope development has often followed the routes of colonization or of alliances and consequences of the major conflicts in the recent past. Without be totally rid of this historic legacy, the modern global company apprehends the world according to current and projected economic weight. It is both from the point of view of the commercial presence and from the point of view of production factors. In this perspective, and depending on the nature of the markets that it decides to address (i.e. the magnitude of the product/market scope), it will define and will probably differentiate its approach in the following way: • Countries grouped under the name "triad" (North America, Western Europe and Japan to which must be added the Australia and New Zealand), • Emerging countries with strong potentials (such as Brazil, China, India, Mexico, Russia, Turkey...), • The emerging countries with limited potential (countries of Eastern Europe, SouthAmerica, South Africa, new industrialized countries,...), • other under developed countries. By differentiating the approach, I mean: • assessing the local market maturity(investment <> renewal, growth rate, type of competition) • set the mode of presence (local production or assembly or not, marketing, representation or subsidiary or joint venture,...) • to implement a penetration policy adapted to the modus operandi of the countries concerned. 21/10/2013 Globalisation 26
  27. 27. This brings us to another decision matrix where the dimensions are this time the degree of globalization achieved by the industry (or the potential of globalization) for a country or a geographical area and the future economic attractiveness of the market. Globalization maturity Economic attractiveness Very low Slowly developping Quickly developping Important None Emerging Growing Mature 1A 2A 3A 4A 1B 2B 3B 4B 1C 2C 3C 4C 1D 2D 3D 4D 1A, 2A - non-existent potential of globalization in low attractiveness or slow developing countries. Do not settle, withdraw from a direct establishment if iany. 1B, 1C, 1D: country with low economic attractiveness but to different levels of globalization potential. Do not settle if it isn't already done. In 1C and 1D see possibilities of indirect presence. In the event of direct implementation, disengage except in the case of high profitability. 2B, 2C - slow-developing but emerging globalization or growth potential. Surely a good time to settle but with a long-term strategy. Forms of indirect presence can be a start but settle directly if development accelerates. 2D - developing slowly and mature in terms of globalization. Probably too late if the implementation is not yet achieved. In this case, need to find an alternative strategy such as absorbing a local competitor. 21/10/2013 Globalisation 27
  28. 28. 3A - The economic attractiveness is in rapid development, but the degree of globalization is non-existent. Turn on monitoring, distribution or indirect presence. 3B - The economic attractiveness is in rapid development and globalization is emerging. It is time to go there if not already done and with a medium-term strategy. 3 C - The economic attractiveness is in rapid development and globalization is growing. Direct investment with strong market share strategy. Typically one of the cases where not to go can enable the emergence of a competitor. 3D - The economic attractiveness is in rapid development and globalization is mature. Maybe already too late if not in the place with a significant market share. Quickly develop an alternative strategy in this case (see absorption of local competitor joint-venture). If the implementation exists, a global strategy is a vital asset both for the penetration of the local market and to limit the emergence of global competitors. 4A - The economic attractiveness is important but the potential globalization does not exist. Schedule a representation with a long term strategy. 4B - The economic attractiveness is important and the potential of globalization emerging. Move with an aggressive strategy of medium-term market share. 4 C - The economic attractiveness is important and the potential of globalization is growing. Must be present with an aggressive strategy in the short term. The competition game for the future will be ruled in these markets. It is where the overall competition may change thanks to the potential weight of those countries. 4 D - the economic attractiveness is important and the potential of globalization is mature. Must be present in all these markets directly. They are determining the current competition game. The climate of peace and political stability is a major factor for the balance of this matrix. It can be changed at any time by a war or by a climate of insecurity. These elements must therefore be reviewed regularly and carefully. 21/10/2013 Globalisation 28
  29. 29. Degree of vertical integration How the company sees its businesses depending on the environment? What are the components that it must control and what are the elements that it may outsource? The more the company address global markets, the more it must focus on its “core competences”(Pralahad) and on its businesses. It lead to focus the management attention on key areas of its activities and to rely on suppliers or partners for areas where they can provide expertise, added values and scale effects. It brings us to a third matrix of decisions that will position the company in the value added chain. Degree of vertical integration Internal Partenership Outsourced or sub-contracted Activities R&D Production Assembly Logistic/distribution Commercial Different combinations result in different types of business. Comprehensive and fully integrated business are rare or extremely specialized. Partnership and outsourcing will generally be used to cover areas where the company brings less value and it will specialize to become an integrator, a designer/distributor, etc... 21/10/2013 Globalisation 29
  30. 30. Each combination corresponds to a different organization logic as well as a different type of resources management. A combination change require an important cultural and organizational change. Doing one without doing the other will conduct to failure. In any circumstances, a very strong consistency between the vertical scale choices and the organizational choices is essential. The strategy effectiveness will greatly depend on the consistency of such choices. Dependent on the market status, a combination change can be a simple effort to improve the efficiency or an innovation that changes the competition rules and positions. In some extreme cases, this leads to bursting of an industry into new industries. The global company must therefore be attentive to such developments, or even provoke them as part of an offensive strategy. Scope management and arbitration Along the globalization axis (i.e. whereas the magnitude of the scope mix extends) the organizational links, that underlie performance, weaken. It must therefore be looked at with attention and specific actions implemented. This is much more important than in a purely local business. This is the case of culture already seen in the previous paragraph. It is also the case of the strategic management. Managing the scopes magnitude and specifically the necessary arbitration between the three dimensions is a central element of the company globalization. The decisions in this area have heavy consequences. 21/10/2013 Globalisation 30
  31. 31. Very few companies can afford to fight on all fronts at the same time. Most companies moving towards global markets will have to make difficult trade-offs. These arbitrations should take into account the human and financial resources of the company, should integrate the dynamic analysis of risk and the nature of the competition. These elements are critical as constraints and can keep in check the best strategies. Each industry presents characteristics that are difficult to cover here. So I will only do few recommendations: • The company culture will play a conscious and unconscious role extremely important in these arbitrations. The company management must therefore ask himself if he takes the correct cultural approach and therefore check arbitration decisions in cultural perspectives. • Do not let the dimensions scope evolving in an empirical or historical manner. The scale must be managed in a comprehensive way (the three dimensions) and in a prospective way . These are real choices and difficult to make. • The combinations are not necessarily similar between large economic areas. Do not be behind evolution, potentially create it, but there is no point being too far in advance. • Do not try to reach a global status at any cost and everywhere at the same time. • Adapt your management structure to the strategic choices made. The management approach and the type of managers differ according to the choices made. 21/10/2013 Globalisation 31
  32. 32. • Communicate again and again the strategy and the reason for the decisions taken. Outside periods and instances of the strategy formulation, the important thing is that the strategy be known and transparent, not that each one be in agreement. Do not hesitate to make the strategy a propaganda. • Keep in mind that frontal strategies rarely give the best results. Strategies of specialization and/or fragmentation on one or more of the dimensions of the scope are generally more profitable in the short, medium and long term and easier to implement. Developing from a national basis to regional then to global basis will impose choices in terms of product range and in terms of vertical integration. On the other hand, the fact to keep a wide product range and vertical integration, will limit geographical extension possibilities. • A permanent monitoring is necessary to verify that the evolution of the environment remains consistent with the chosen path. New elements can appear at any time and they may require rapid and more or less important strategy adjustment decisions. 21/10/2013 Globalisation 32
  33. 33. The bases of the competitive positioning. The choice in terms of present and future scope will define the positioning on which the company will have to develop competitive advantages. It is the purpose of this strategic segmentation I.e. to define one or more customer targets for which the company has developed or will develop through its products, its way of operating, its brand,... a series of competitive advantages historical or sought in a proactive manner. These benefits are rarely limited to the scale effects generated by the magnitude of the scopes. On this strategic segmentation, the company must analyze the forces in presence, which might be different from one country or region to another, and develop comparative advantages that enable it to strengthen or maintain its position or even to conquer market share. The added value chain. The values brought to customers both through products and services and through the way to operate, is the “sinews of war” in all markets. These values can be real or perceived. This is not meant to cover the customer’s needs only in a sanitized manner (the definition of the scope). It is meant differentiators that the company offer and which are factors of difference, of identity, of attraction... and that turn a potential buyer in client (without changing the choices made in terms of scope). 21/10/2013 Globalisation 33
  34. 34. Coordination between company vectors. The definition of a global strategy, the fact to correctly go through all the previous steps of the strategy definition, are probably just prior and necessary conditions for success. Strategic and organic implementation may very well prove to be THE success factor, especially in sectors where competitors will closely monitored and where all strategic movement will generate counter-offensives as soon as competition will understand what happens. The organizational axes tend to weaken when the company grows on the different axes of the scope. Coordination is particularly important in this context. This is the logistic of an army on the move! The ability of the company to occupy and to defend its territory will be dependent on its speed, its flexibility and its effectiveness. How the globalization process helps in this perspective? Culture and organization are the two determining elements. 21/10/2013 Globalisation 34
  35. 35. GLOBAL ORGANISATION, PROCESS AND SYSTEMS To globalize the Organization for companies that are going global is a challenge to pick up quickly, as soon as possible. To define and to implement a global culture and a global scope may be the correct answer to a market situation but will not necessarily constitute a situation of optimum efficiency in terms of organization. In fact, several studies tend to prove that such firms may be less profitable than local businesses on local markets. Thus the global company is naturally penalized by the very fact that ensures its sustainability in the medium and long term. The organization globalization will be the way to reduce this penalty see to transform it into a comparative advantage in terms of profitability. 21/10/2013 Globalisation 35
  36. 36. GLOBALIZATION VERSUS CENTRALIZATION AND DECENTRALIZATION Pendulum phenomena between centralization and decentralization, come primarily from the combination of the following factors: • The rigidity of the information and communication systems, • The distance existing between the point of emergence of a problem or information, the point of reaction to this problem or to this information and the place of decision, • Ways demand from third parties in contact with the company are taken in consideration, • The struggle for power. It correspond to attempts to rebalance made necessary by the occurrence of a negative advantages/disadvantages balance . Globalization through its integrated approach will allow to give a practical response to the first three points and to reduce the impact of the last. The very spirit of globalization is to reduce the distances that may exist between the emergence point, the reaction point and the decision point which itself will trigger a chain of actions and control located in several points in the process. 21/10/2013 Globalisation 36
  37. 37. In the complex activities of a global company there are multiple points of emergence. • In the geographical dimension, they lie as well centrally, regionally or at the country level. • In the dimension function, they can appear in each function and concerned both the technical aspects related to the function that the organizational aspects related to the process. Whether the company is centralized or decentralized, it thus yields a large number of inputs that arrive at points where no decision or action may be taken. These inputs are then conveyed within the Organization through various forms of informal communication (lobbying, climbing, recommendations, technical committees,...) or automatic (orders) with as consequences • Some dilution, • Missed deadlines and delays, • a major internal management cost, • a "client" which expects and is potentially unsatisfied. A truly global approach will implement an organization that avoid the creation of such distances when possible or more generally that reduce significantly their importance. The same request coming from either a local point, or from a regional or central point will be treated at this level and at this level only. Of course, this is not just deciding who will respond. It means designing the flows of information and data in such a way that each of these points and company as a whole, are in position to do it and to manage it effectively. Globalization must be seen as an integrative evolution, as a higher maturity in the organization of companies and not as a breach. The traditional geography (State-nations) will tend to disappear as the basis of Organization for the benefit of a "geography" of the company processes. 21/10/2013 Globalisation 37
  38. 38. JUSTIFICATION FOR THE GLOBAL APPROACH The globalization leads to integration with the economic and social environment. The advantages of decentralization and of centralization adds together without having the disadvantages counterbalancing it. In particular, it develops the following aspects: • Reduction of duplicated efforts, • responsiveness and flexibility, • proximity to customers (distance and culture), • Creation, dissemination and access to know-how. The global organization focuses energies toward common goals bringing values for all stakeholders of the company. In this, it promotes a greater motivation and therefore greater efficiency. 21/10/2013 Globalisation 38
  39. 39. What are the factors that will permit to reduce the total cost of a particular organization? • The fixed cost of production and management tools and systems: • The variable cost of operations and transactions. • The resources utilization rate. The globalization effort will be to (re)define the combination of factors while minimizing the overall cost. The globalization effort tends to minimize the overall cost by taking into account all the factors (and not only some of them) and by refraining to consider geography as a constraint (it will only be a technical data). The importance of transfer cost (materials, goods, data...) and management cost of these transfers are decisive elements but at the same level as the economies of scale, the resources utilization rate or the productivity and unit costs of resources. Nor that it address organization through geography angle, globalization does not address the question of the organization in terms of the powers involved. It approach it in terms of reduction of the number of transaction and in terms of integration. Powers are built on the basis of the process and not the contrary. All other things being equal, a globalized organization will have a lower total cost than a classic centralized or decentralized organization. The gains will be mainly in the following areas: • The process integration and the systems supporting it (sales, production, delivery, purchasing, invoicing and accounting,...) optimize the transfer of goods, materials, data... and limit the reprocessing of information through standardization of data encoding, • the opportunities for economies of scale are optimized as well as utilization of fixed resources, • the resources unit costs are minimized (costs/productivity) • The treatment of the information at source and in a standardized manner reduces the number of transactions internally, so the time spent, • the openness of the systems ensures availability of information to all recognized users rather than a transfer at the request, • a greater proximity results in improved responsiveness and in a better understanding of the problems bringing a decrease in the cost of non-quality, 21/10/2013 Globalisation 39
  40. 40. THE GLOBAL ORGANIZATION CHART Where the classic organization will evolve around the following model: Headquarter Europe, Middle east, africa France UK Germany Netherlands Italy Spain ….. Egypte …. Senegal …. Américas Canada USA Brazil ….. Asia, pacific India China Australia New Zeland Japan …. …. …. …. …. Organization based on geographic and legal structure 21/10/2013 Globalisation 40
  41. 41. Where each level will tend to develop a functional and operational structure more or less complete such as: CEO office Regional VP office Marketing department Financial department R&D department Human resource department Legal department Manufacturing department IT department Human resource department Sales department Régions R&D department Financial department Sales department Headquarter Marketing department Legal department Manufacturing department IT department Logistic department Logistic department Country manager Marketing department Financial department Marketing department R&D department Human resource department Sales department Legal department Manufacturing department IT department Distribution countries Design and manufacturing countries Country manager Human resource department Sales department Legal department IT department Logistic department 21/10/2013 Financial department Logistic department Globalisation 41
  42. 42. Global company will evolve around the following model CEO office Marketing department R&D department Sales department Manufacturing department Logistic department Financial department Human resources department Legal department IT department Organization based global processes Where each department has an optimized topology in line with its own challenges and with a number of level that will be dependent on their size and external interfaces. CEO office Marketing department R&D department Sales department Manufacturing department Logistic department Financial department Human resources department Controling Controling Controling Controling Controling Controling Controling HR HR HR HR TRIADE regional management Emerging countries regional management R&D center #1 HR HR HR Legal Europ, Middle-east, Africa Legal Legal Europ, Middle-east, Africa R&D center #2 Americas R&D center #3 Asia pacific Factory a Spécialized or working in network 21/10/2013 Region subdivided in countries Accounting center 1 Europ, Middle-east, Africa Americas Accounting center 2 Controling HR Factory c Asia pacific Accounting center 3 Insurances Americas Asia pacific Specialized by product (or by components + assembly) Globalisation Each center managing a geographic area through a single ERP Data center 1 Data center 2 Call center Treasury Consolidation and reporting Region covering a geographic area (no country organization) IT department Legal Factory b Factory d (Or by product lines) Legal department Field support Region subdivided in countries (or not) Centralised centralized Call center et data centers plus field support for office automation 42
  43. 43. The direct hierarchy will be organized at the level of each process in a variable number of line. Some "small organizations" may only include one or two levels whereas larger organizations may include 3, 4 see 5 levels. Remote management will see its importance substantially increased, the direct hierarchical supervision is no longer link to the legal entity. Global centers will take over from a distributed conventional organization. For example: • • • Where each entity had its own accounting department, one or more accounting centers will take over, accountable for a large number of entities through single software and repositories, which in addition to synergies in terms of costs will bring a better consistency in the application of the accounting rules, a better quality and will facilitate greatly the consolidation of data. These centers will provide all accounting and tax services for each of the countries covered. Where each entity tends to have its own computer system, its own local network and the staff to manage it, one or more computer centers will take over, organized by type of application and in addition to synergies it will bring a better quality and coverage support. "LANs" will no longer be organized around the entity (local area network UK) but around the process and transnational (network local marketing). Similarly, communications tools will be reorganized around the process. Plants rather than to be sized and focused on providing local needs can be grouped in a production center more important (economies of scale) specialized by type of product or type of components. Etc... 21/10/2013 Globalisation 43
  44. 44. While the organization of other departments may remain geographical such as sales department in order to insure effective customer contact. This geography do not necessarily mean that the sale team of the country A processes all sales of country A. Certainly when clients are local by nature, it will be the case, still in the case of customers with global or transnational operations, this geography can mean that country A sales team handles all business done with clients whose decision center is located in country A (but where deliveries may cover a large number of countries). Finally, certain function can be usefully distributed and located directly in the process (in the generic organization above I chose to show this way controlling, legal and human resources). In this case, the representatives of these functions will be placed under the direct authority of the head of process. They will obviously follow the business recommendations issued by the 'central' function and use common systems but their main obedience will be process and not their original function. A halfway option, less radical is to "locate" the representatives of these functions in the process but maintain the hierarchical link with the central function management. In this case, they will act as function resources dedicated to the process. The question that generally arise in this type of organization is who is responsible for the local legal entity. Namely a legal entity in country A may very well have a number of locally represented department but each reporting outside the entity / country. If this present no particular problem in most situations, it remains that certain situations require a local representative. One of the manager in addition to its process responsibilities will ensure the responsibility of local representation provided that he does not become the manager of all the staff in this entity. 21/10/2013 Globalisation 44
  45. 45. THE GLOBALIZATION PROJECT The cultural approach of globalization can be carried out regardless of the proposed organization. In fact, the proposed organization will be developed with more chance of success if it was preceded by the establishment of a global culture which it will appear as a logical continuation. The project will follow the following canvas: a - determine the scope of the study: b - analyze in a systematic way each process c - calculate the total cost of reference d - optimization study by processes e - definition of the optimum organization and related costs. f - planning g - implementation and control. Nothing than the very classic in terms of project management. What will be different will be what we will allow us to imagine and the intention to get out of the constraints linked to an organization based on geography and legal structures. 21/10/2013 Globalisation 45
  46. 46. SPECIFIC PRATICES Globalization, this is not only the culture, the strategy and the general organization, it is also a set of very specific practices or at least a particular approach for certain practices. In addition, the global offer (case of the B to B or B to B to C), is becoming an essential element of competition. 21/10/2013 Globalisation 46
  47. 47. GLOBAL OFFER • The range of needs covered, the geographical presence, the added value chain, all of those properly coordinated allows of course to sell locally integrated offers within a global concept and approach (multi-local offers). However, an increasing number of customers want more. Indeed, why having to manage multiple local agreements between two partners? Why not implementing a global relationship, especially in the context of multi-country projects? • The global offer will suppose that the provider is able to manage the relationship at various levels I.e. at a central level for the negotiation, the contract and the project management and at a local level for the deliveries. In some cases, a regional dimension fits between the two. The orders and billing flows can take several path in this context. • The central point in this case does not necessarily correspond to the seat of the traditional power of companies linked to financial control (the “legal” headquarter). It is at the point of contact with the client. It brings truly global company to set up a hierarchy based on the customer relationship and this can deviate significantly from the classical hierarchy. 21/10/2013 Globalisation 47
  48. 48. Such cases usually brings a number of challenges which require a proper globalization on the supplier side as well as potentially a customer support in terms of globalization. The most important issues are generally concentrated around the following points: • Conflicts between responsibility areas within the supplier organization, • Conflicts between responsibility areas within the customer organization • Legal Structures and contractual responsibilities, • Legal Structures and tax responsibilities, • Price policies and billing, • Financing of the delocalized costs,, • Project management and centralization of management information, • Content and object of the sale. 21/10/2013 Globalisation 48
  49. 49. a) b) c) d) e) f) g) h) i) j) k) l) m) n) o) p) q) r) s) t) u) Financial engineering of the global offers. Centralized purchasing. Outsourcing. Globalized legal structure. Information systems structure. Reporting in the Global structures. Managing global projects. Reduction of costs through globalization. Specific characteristics of the global manager. Price and exchange rate policy. Distribution of the costs and financing of the central structures. Center of expertise. Internal transfer pricing. Globalization and human resource management. Business management and billing. Management of foreign exchange risks. Management of country risk. Property rights. Evolution of inputs and labor costs. Productivity measures. Customer committees. 21/10/2013 Globalisation 49
  50. 50. RECOMMENDATIONS Introduction • Develop and maintain a comprehensive understanding of your markets and their evolution, • Put and hold the organization of your company in line with the characteristics of your markets, in order to surf on the forces which develop in-there rather than to suffer from it, • Expand the cognitive capital and the culture of your company. Global culture • Act in a constructive and voluntaristic way on the culture of your company, it will condition your future success and your future failures more than other things. • Make sure that it is measured in the perspective of the challenges for the future and not in the complacency for past. • In a global market or under globalization, a global culture is a 'must have '. Market approach • Be very careful on the choices and trade-offs in terms of activity scope, these decisions are of heavy consequences, • Differentiate by your positioning and by a recognizable and distinctive value chain. • Do not consider them as mechanical effects, think of them as valuable assets to develop. • Be attuned to your markets, don't be overwhelmed by the power relations that develop inthere. 21/10/2013 Globalisation 50
  51. 51. Global organization, processes and systems • Escape legal, geographical and functional structures, do not let them lead your organization, • Reorganize your company based on your process and at the global level, • capitalize knowledge, • Expand your global offer and your ability to deliver it in a homogeneous way at a competitive cost (to the markets concerned by this type of offer). Globalization of the Organization project • Handle this project with a lot of care but in a proactive manner. It will seek in depth the culture and creativity of your company, • Unleash your business by eliminating redundancies, reducing distances, by making available information, empowering both in contact with the subject to be treated, • Measure, measure, measure (beware of ready-made ideas or lobbies, get objective data). Specific practices • Change in depth your way to operate, globalization it also in how to handle the processes on a day to day basis, • Raise the level of awareness of your business in terms of challenges and constraints of the “global village”. • Tackle these challenges and these constraints in a positive way and turn them onto your business benefits. Competition is an elimination race where the underperforming companies are seeing their market share reducing to the point where they disappear without having been able to resist. 21/10/2013 Globalisation 51
  52. 52. CONCLUSIONS Globalization is an inevitable result of the trend towards the globalization of the economy. In this, it is both a factor of risks and major opportunities for businesses and in particular multinational enterprises, for managers at all levels and employees in general. A proactive and structured approach away from the traps of centralization or decentralization, allows companies and their management to better manage these risks and to have substantial benefits. The earlier this process is launched while markets evolves, the more the company will have the time to act and to get organized. The later the process is engaged, the more the risk of failures and disturbances are great. 21/10/2013 Globalisation 52
  53. 53. The approach should focus on creativity and innovation rather than simply copying the experiences made by others. The experience of others must be analyzed and understood to serve as a reference but the company must customize its approach and adapt it well to the circumstances and to its own environment. Immobility or adventure can be the source of considerable difficulties. A responsible and conscious action is critical to success. A successful globalization is an essential factor of success thanks to: • improvement of the strategic implementation, • increased internal productivity, • more effective management tools, • quality and increased responsiveness, • motivation of personnel, and through that, the enterprise will find an improvement of its strategic position and therefore of its profitability and of its sustainability. 21/10/2013 Globalisation 53
  54. 54. 21/10/2013 Globalisation 54