The globally effective enterprise
Today’s technology enables integrated
operations that can change the globalization penalty into a premium.
International
operations beget
complexity. As most multinational companies have come to understand—at times,
the hard way—going global often produces organizational clutter and reduces
agility. Scaling up can also create fundamental confusion about roles and
responsibilities, often contributing to the large number of e-mails, meetings,
and scorecards. Sometimes, multinationals mandate globally scaled solutions
that cater to a theoretical average but have little relevance for local
operations. Other times, multinationals tailor solutions too much to each local
subsidiary’s specific circumstances. Predictably, many of scaling’s benefits
and cost savings evaporate.
A 2011 McKinsey
Quarterly article called this problem the “globalization penalty”:
leadership’s attention wanders, the cost structures of regional subsidiaries
(including global head-office charges) soar, and local operations buckle under
internal bureaucracy. What’s more, McKinsey research shows that high-performing
global companies consistently score lower on several critical dimensions of
organizational health than more locally focused companies do.1 Customer service suffers too as multinationals struggle to
compete with leaner local or “new economy” competitors.
Over my long career, I’ve experienced various
flavors of the globalization penalty at major multinationals. From 2009 to
2013, at Unilever, I helped lead an initiative to remove organizational
complexity customers didn’t value while retaining essential elements of
organizational scale. In this article, I elaborate on the underlying challenges
that vex global organizations and suggest some new solutions that have been
emerging through advances in information technology. Then I present a case
study of Unilever’s experiences in trying to adapt its organization and to
create a new architecture for global services. That journey is far from
complete, but it has already delivered some of the speed and organizational
simplicity that motivated us to undertake it. Unilever’s experience also
suggests some useful lessons—for example, about the power and limits of
technology.
The perils of functional silos
Just about every multinational company was
once a local enterprise—and a very successful one at that. This is not ancient
history. As recently as the 1980s, many multinationals were managed largely on
a local-for-local basis: in nearly every country where they did business, there
was a site with a factory, a warehouse, sales, marketing, some R&D, and
support staff. Problems could often be solved within a radius of 200 meters.
The business was well understood because oversight was local. Most important, a
company was close to its customers and could act as quickly as circumstances
required.
More recently, however, multinationals have
moved away from the local-for-local model. Through a combination of organic
growth and acquisitions, the businesses of multinational companies began to
replicate in new markets. Consolidation was in order—often for compelling
reasons, such as cost synergies and lower duplication of effort. As a result,
the majority of processes have been scaled up. R&D, for example, came to
operate in a network of R&D centers; supply chains were managed regionally
or globally; and procurement often stretched around the world. But
consolidation also led to new sorts of complications, typically manifested by
matrix organizations, which combine profit-responsible business groups or
divisions, often by region or country, with vertical, functional pillars.
While there is nothing wrong with matrix
organizations per se, they do place particularly heavy demands on the
coordination of core functions such as R&D, marketing, and sales, as well
as support functions such as finance, IT, and HR. Each function generally has
four responsibilities: setting and executing a company’s strategy for that
function, managing its area of expertise, partnering with the rest of the
organization, and running its own functional operations to serve business
units.
In matrix organizations, this last
responsibility too often becomes the neglected stepchild. Ask HR directors
about their priorities, and they will probably respond by mentioning
organizational development, managing talent, or diversity. But push them on
operations, particularly at the local level, and they will probably refer any
day-to-day questions to a regional subordinate. Many of their colleagues in
other functions will do the same.
Operations are not only undermanaged but also
mismanaged because functional silos almost assure suboptimal outcomes. Most
business processes cross functional boundaries. One example is order to cash:
sales receives an order, logistics undertakes fulfillment, and finance handles invoicing
and cash. Managing a process through separate silos almost guarantees
complexity. It creates internal inconsistencies and punishes the customer with
foreseeable mistakes.
There are exceptions, of course. One is the
supply chain, which in many multinational companies is organized on a truly
end-to-end basis, from purchasing to production to delivery (“make to
deliver”). Most operations, however, are not managed on an end-to-end basis.
The telling results include late payments to creditors, high overdues resulting
from invoicing errors, cluttered information landscapes with a myriad of
intranets, imprecise headcount data, and unsorted master data, to name but a
few of the complications. When day-to-day operations are managed in functional
silos, the rationale for those operations—serving the customer—is obscured.
Technology-enabled solutions
Today, technology is
leading multinational companies to an inflection point. Global enterprises can
now imagine a radically different, and far more effective, way of managing
operations: by reorganizing functional ones to focus on key processes. This
approach allows the enterprise to maintain advantages of scale while enabling
its subsidiaries to become more nimble in each of their local markets.2
Technology is delivering several major
benefits. One is a growing level of automation, which serves to localize and
simplify transactions and service. Improved network capacity and reduced
response times mean that local operations, even in continents far removed from
the head office, can run on global enterprise-resource-planning (ERP) software
from remote data centers.
Furthermore, multinationals can now centralize
and analyze data far more efficiently. As the size and speed of databases have
grown exponentially, the goal of building a single global data warehouse is
coming within reach. Most significantly, global companies are now more able to act
“as one” through powerful, cost-effective devices and applications. High-end
videoconferencing systems enable robust global communication over a variety of
media in real time, connecting far-flung employees on the fly. Flexible and
adaptive solutions, often run from the cloud, help employees to work together
remotely and solve problems on a global basis. For instance, at Nestlé,
Chatter—a platform developed by Salesforce.com—is now the go-to collaboration
tool for over 200,000 people, who use it to crowdsource innovation.
Ironically, today’s advanced technology can
help multinationals recapture the simplicity of their founding days. As
user-friendly but powerful technological platforms sweep away complex systems,
companies can release functional operations from their constraining silos. This
development promotes more integrated global operations and allows companies to
become effective in every local market in which they compete.
Carving out functional operations at Unilever
Late in 2009, Unilever embarked on a journey
to implement global business services (GBS). I helped lead this initiative,
which came to be named Enterprise & Technology Solutions, or ETS. Paul
Polman, Unilever’s CEO, charged us “to take out the complexity that consumers
do not want to pay for.” Activities that ultimately fell within the scope of
ETS included finance, HR, IT, information management, real estate and
facilities management, and indirect procurement. In all, the initiative
addressed about 40 separate service lines, including purchase to pay, record to
report, recruitment, master data, and facilities services. We aimed to make
each of these service-line operations simpler, cheaper, and better.
A global, virtual
delivery organization
To achieve these goals, our team carved
service lines out of their respective functions to manage them end-to-end. We
created a global, virtual delivery organization and based team members around
the world (most meetings are conducted by video conference). Operating centers
running multiple service lines were set up primarily in locations in emerging
markets, such as Bangalore, India; Istanbul, Turkey; Katowice, Poland; Omsk,
Russia; and Shanghai, China. These centers, charged with coordinating the
global delivery of services, work in close conjunction with ETS personnel now
present in every market to ensure that things run smoothly.
Operational performance is measured on a
single global dashboard, which is visible to ETS operators, internal clients,
and top management. Under the mantra “what gets measured gets done,” the
dashboard’s quantitative and qualitative service metrics have consistently
improved, year over year. Since the initiative was launched, it has contributed
significantly to Unilever’s reduction in overhead of about 200 basis points.
A
new architecture for global services
When we designed the new architecture for
global business services, we started with a holistic process map
This process-oriented view guided us in
carving out existing functional operations and regrouping them under more rational,
end-to-end ETS service lines. Business-excellence process teams working
hand-in-hand with IT-development personnel played a key role in this
transformation. Together, they created and implemented service-line strategies
to combine global scale with local relevance—often achieving both through
radical simplification. Examples include the following:
Plan to report.
Financial reporting at
Unilever has been streamlined and centralized. As a result, the company has
gone from worst- to best-in-class in time to market. In 2015, it was the first
FTSE 100 company to report its annual results (that is, results covering the
2014 calendar year), saving top management weeks in extra time.
Communications to
change.
Unilever had
maintained more than 400 intranets, one for almost every country, product
group, brand, and function. Communications were not aligned, and employees
often felt unsure where to search for the right information. Maintaining those
sites also proved expensive. ETS instituted a single global intranet accessible
in more than 20 languages. A common setup—a one-stop shop in English and local
languages alike—now unites the company. This arrangement has also been
replicated for external partners, so that the end-to-end process now includes
the operations of Unilever’s suppliers and could eventually include customers,
as well.
Data to insight.
We required internal
management reports to be posted on the company’s single intranet (“two clicks
away”) rather than submitted by e-mail. For the first time ever, Unilever now
has a single repository for reports. We realized that the company had well over
12,000 of them, though by our calculus a typical subsidiary should need no more
than 120. We therefore initiated a program to simplify information—an effort that
has already reduced the number of reports by 40 percent, with further
reductions to come. Standardized reports are increasingly produced from the
center in Bangalore, which over time will transform from a reporting center
into an analytics powerhouse. In fact, the program’s real value lies not so
much in greater efficiency as in clearer management alignment and faster,
better decision making.
Market research to
consumer insight.
Historically, Unilever
had outsourced its marketing-mix modeling to specialized agencies. The
complexity and expense, however, often limited the exercise to larger
categories and countries. The ETS team recommended hiring a number of
specialists, including several with advanced degrees, at the Bangalore center,
which now provides low-cost, standardized, and high-quality marketing-mix
modeling across Unilever. Consumer insights have vastly improved.
Purchase to pay and
order to cash.
Prior to the ETS
initiative, Unilever had managed its requisitions and payment processes differently
across its local subsidiaries. Performance suffered, and costs were often too
high. After identifying inconsistencies and best practices, our team turned a
weakness into a strength. Unilever is also taking the same approach in order to
cash. Where the company ran about 200 separate systems more than a decade ago,
it now has just four ERP instances, which are managed as one. This
standardization has increased the efficiency of delivery and setup, which are
global in scale but served locally to keep customers happy.
Hire to retire.
Before undertaking the
ETS initiative, Unilever had different HR processes in different countries,
varied learning curricula, and inconsistent employee data. ETS provided
employees with easy-to-use self-serve interfaces on laptops and tablets. We
also standardized HR processes where possible, so that reliable personnel data
could be accessed throughout the company. As a result, Unilever now draws upon
high-quality analytics and manages its talent to far better effect.
Strategy to portfolio.
Like many
multinational companies, Unilever had managed its acquisitions on a
case-by-case basis, and the integration of newly acquired businesses could be
lengthy and uneven. ETS adopted a now-standard company protocol, so that
acquisitions are integrated quickly and well, even for complex
multibillion-dollar businesses, such as Sara Lee Personal Care and European
Laundry and Alberto Culver.
The way forward
The ETS initiative is an experiment in action,
but its twin central themes—enforcing radical simplification and combining
global scale with local relevance—are already proving themselves. Slowly but
perceptibly, Unilever is reclaiming its founding simplicity. Still,
simplification isn’t easy. Every process and service line has its own characteristics;
what’s good for one can be catastrophic for another. Integrating business
operations is also about more than just following the process manual; the
softer aspects of large-scale transformation are at least as significant. And
there are other important lessons about global business services, as well.
Technology isn’t a
cure-all.
Although absolutely
critical to a successful GBS program, technology is only a means to global
effectiveness, not an end in itself. Launching GBS is a business decision, and
business decision makers, not IT, should lead the execution. Nor should
functions surrender their influence. Their core responsibilities remain the
same—but in a new construct, which shifts day-to-day operational management to
a truly integrated, end-to-end process under uniform global leadership.
Functional bias must end, and technical expertise must support business
objectives.
Banish “back office”
from the corporate vocabulary.
The support operations
of a multinational company should never be considered back-office activities.
In many businesses, a significant portion of all administrative employees
typically support front-office functions, such as sales and marketing. Overstaffing
at the administrative level is often a symptom of deeper complexities. It also
holds the potential for radical simplification and significantly lower costs.
But cost cutting, however welcome, is merely a byproduct; GBS is not primarily
about reducing expenses. The point, instead, is to simplify a company and
better serve its customers. Implementing GBS should therefore be a strategic,
front-and-center effort, not a tactical, behind-the-scenes one.
A top-management
imperative.
Unilever is one global
company that’s rising to meet the challenge; many others have also succeeded in
making GBS a priority. In companies such as Alcoa, Novartis, and UPS, GBS has
become a C-suite responsibility. The experience of these companies suggests
that any drive toward integration must be supported in full by a company’s
senior leaders.
GBS requires a strong operational framework and an appropriate
governance structure. The service organization must be populated with top
talent, and a stint in operations should become a “must” for functional
leaders. Finally, the need for effective communications and change-management
policies cannot be underestimated. Shifting the behavior of employees, driving
the adoption of changes, and dealing with internal politics are typical challenges
on the road toward integrated business operations. Meeting these challenges
demands careful planning, as well as clear accountability for turning plans
into action.
byPascal Visée
http://www.mckinsey.com/insights/organization/The_globally_effective_enterprise?cid=other-eml-alt-mkq-mck-oth-1504
No comments:
Post a Comment