In an article just published Understanding Your Globalization Penalty, a McKinsey team set out to provide some answers.
The findings from McKinsey’s organizational health survey data (from 600k people in 500 corporations) was ‘troubling’. The weaknesses shown by even multinational leaders ‘touch on all three major areas of organizational health—alignment, execution, and renewal’. The McKinsey team was clearly surprised:
“The global leaders we studied represented the cream of the crop—they not only enjoyed strong financial performance but also had significant global scale and scope, which is why we included them in the sample. If organizations like these can’t stay healthy as they grow globally, can any company?”
To make sense of the data, they went on to interview executives at 50 global corporations. The answers highlighted the familiar challenge: how to balance the benefits of local ownership and focus against the potential benefits of global scale and coordination.
The McKinsey team noted that many multinationals just don’t have the collaborative framework in place to make the right choices, and be able to continuously re-optimize as circumstances change:
“Complicating matters further, our interviews suggested that, for most companies, about 30 to 40 percent of existing internal networks and linkages are ineffective for managing global–local trade-offs and instead just add costs and complexity.”
This is very much at the centre of our radar at Nimbus. Our clients are looking for a collaborative framework that enables them to manage the trade-off between standard global processes and necessary local variants.
It’s easy to love global processes. To some extent, they can be imposed – in supplier payment terms, for instance. But, most often, some local variants will be essential for legal reasons, or just plain efficient in overall business terms. And it’s always fluid: what is justifiable as a local variant today may not be next year; and sound new reasons may emerge for new variants.
So every enterprise needs a collaborative framework that, on the one hand, enables a relentless convergence towards global processes, and higher levels of automation, but, on the other hand, recognises that standardization is ultimately unattainable, and is able to manage intelligently the local variants and the continual re-optimization of the balance between global and local.
It’s a capability that looks set to become ever more crucial. The McKinsey team note that many firms ‘are wrestling with the corporate center’s role in their increasingly globalized institutions’. They suggest that ‘it may be time for some companies to reimagine what the corporate center does… And since even leading multinationals appear to suffer this globalization penalty, the importance of addressing it will only grow larger in the years ahead’.