Even before making their first $1 million of sales, most entrepreneurs dream of a time when the enterprise they founded becomes a global brand that generates more than half its annual sales from outside the home country. But challenges to growth don't end with becoming a successful player in the global economy, as the recent experience of companies like Nokia and Research in Motion have demonstrated. What should your company be doing to maintain its competitiveness as a global firm, and what are the pitfalls to avoid?
Analysts at the management consulting firm McKinsey & Co. posed these questions to executives at several hundred global companies in a recent survey. From their responses, the firm developed some suggestions for maintaining competitiveness at global enterprises. It also said companies that generate more than 50 percent of revenue outside their home country have their own Achilles heel, with the level of weakness varying based on the ratio of local to international sales.
The report, "Managing at global scale" (registration required), is fascinating in what it reveals about the type of executive most needed at large corporations (leaders who demonstrate cultural flexibility) and the areas of weakness at such firms. Global companies seem to have some defects in "high employee motivation," as well as "communicating a clear vision across the organization." The report expands further on what makes global companies different from local and regional enterprises :
Overall, respondents at all kinds and sizes of companies report fairly strong capabilities in processes and functions such as managing risk, creating networks across the company, and building effective relationships with governments. There are, however, areas where executives at many companies see room to improve -- notably, in allowing divisions or regions to contribute their own insights to the innovation process and in offering workers a compelling value proposition.
Executives at these organizations tend to say their companies are more effective at operating globally than others because they have processes that allow them to scale up and enter new markets more easily, the right risk management infrastructure is in place, and executives work well across cultures and split their time effectively. However global their organization is, respondents say that global companies are, on the whole, better able to create value than local competitors and that the extra value outweighs the extra complexity of expanding into new regions.
If I were an executive at a small or midsized company, I would be particularly interested in some of the factors that seem to separate global operations from smaller rivals. I believe these factors can be adopted as competitive practices by all businesses irrespective of size. Respondents to the McKinsey survey rated "high-performing global companies" high on the following metrics:
- Government and community relationships
- Helpful global processes
- Clear strategy
- Cross-cultural leaders
- Information and communication technologies
- Innovative product development
- Standardization and flexibility
- Risk management infrastructure and skills
Disappointingly, global companies are not seen having highly motivated employees, an inclusive innovation strategy, or "added value in corporate center." What could be behind this? My guess is that, the bigger a company is, the harder it is to push a uniform corporate message out to operating bases. McKinsey suggested the following 12 steps for global companies to improve their operations.
- Develop leaders who are culturally and functionally proficient across regions
- Improve formal and informal networks to maximize use of expertise across divisions and/or regions
- Drive innovation more effectively across regions and divisions
- Adapt organizational structure to improve balance between global standardization and local responsiveness
- Strengthen our performance culture [and] performance-management practices
- Build capabilities in a few key value-creating processes and roll them out globally
- Improve our use of information and communications technologies to overcome geographical barriers
- Ensure that senior leaders focus on the right issues globally
- Improve use of external relationships (e.g., with governments, local communities) to develop more effective partnerships in all divisions and regions
- Ensure that [the] corporate center adds value by providing direction and driving renewal
- Ensure we have an integrated global view of risk and can highlight risk concerns early
- Ensure that values are relevant across divisions and/or regions and are communicated to all employees