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November 30, 2010

By Michael Effron

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What’s Global? Aligning process with where things really happen

It’s a fairly common situation for a company to create an initiative to put in a global process (such as S&OP / Integrated Business Planning), only to abandon the effort after a brief attempt.  Why?  I believe that it has nothing to do with the process, it has to do with how the company is organized and how it really operates.

This is a common enough occurrence that I think it’s safe to generalize the underlying issue; companies confuse where they do business with how they do business.  Let me provide an example of how this works.  For background consider a consumer goods company, specifically a company that sells a product through various distributors and retailers but with a brand that is sold around the world and recognized by the end consumers.  Even though it’s the same brand globally there are local variations, be they package size, product dimensions, or labeling. When we look at the sales and marketing organizations for these type of businesses, they are invariably local or regional.  They need to be, because the local people best understand the culture and how that affects consumer behavior.  A review of the company organizational chart shows that we have local or regional General Managers driving the sales in their geographic territories.  Budgeting, business planning, and the quarterly business results are organized by these territories, and “rolled up” to the total (global) level.  Is this a global business?  Sure, they sell their products on six continents (possibly seven, although I’ve never heard of an Antarctica General Manager); but sales, marketing, and finance all operate locally first, manage issues which are primarily local in nature, and have limited global interaction.  Most importantly, the General Manager has a high degree of autonomy, at least within the confines of the budget.

Here an example of how the company confuses where they do business with how they conduct business: They create a new selling process in the U.S., which is highly successful.  They launch a global initiative to roll out this process globally, only to find that the Vietnamese G.M. is less than enthusiastic.  Why?  Because this new process does not fit with how selling is conducted in Vietnam, it doesn’t fit his sales organizational structure, and it doesn’t address the sales issues in Vietnam.  And if the company tries to force fit the new process into Vietnam, they’re likely to lose sales as people try to make the new process work.

We cannot generalize this example to mean that this company should not have any global standards or processes. For example, this same company may benefit from having a global Enterprise Resource Planning (ERP) system, but with the understanding of why selected processes are being standardized.  For example, a global ERP can support faster financial closings and financial reporting, global visibility of inventory to allow improved inventory management, and visibility of total purchases to support vendor negotiations.

Companies that best manage globalization make a conscious choice of what gets managed globally and what gets managed locally.  The key to success is aligning the process, the organizational structure, and the decision making points within the structure.  When these are aligned, a company reaps the benefits of scale and visibility that come from global processes, with the cultural and market understanding and responsiveness that comes from local processes.  If they are not aligned, the result is conflict and chaos.

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