Some Thoughts on Global Companies in the 21st Century

Given my long association with IBM, the close relationships I have enjoyed with a number of our clients, and my recent involvement with Citigroup, it is not surprising that I am very interested in exploring what it takes for an organization to thrive in our increasingly global and highly diverse world.  Perhaps my personal multi-cultural background is also part of the reason I am so attracted to the subject.

Managing a large, global organization is indeed very difficult, especially in our unpredictable, emergent, fast changing and intensely competitive market environment.  While some might thus conclude that the answer is for a company to resist doing business around the world, the reality is that managing a business, any business, is a very tough job fraught with perils, as evidenced by the high mortality rates of companies from start-ups to those in the Fortune 500.

Are there any basic principles that might serve as guidelines in the management of globally integrated companies?  Based on my personal experiences, I think there are a few, that if carefully applied might prove useful.  Let me share my thoughts on the subject.

First, there is a huge difference between back-office tasks, which form the basic infrastructure of the business, and front-office activities, which are the company's interfaces to their clients and markets.  Very different management disciplines should apply to each.

In general, the most important principle for managing the infrastructure of the enterprise is constant simplification, through consolidation, standards and integration.  This applies as much to a company's IT infrastructure as it does to its information and business process infrastructure.

After a few years, every company will have built up a legacy infrastructure.  Such legacies come to be in a variety of ways, - through the normal growth of the original company, through the creation of new divisions and departments, and through mergers and acquisitions.  One would expect that as the company's infrastructures grows, economies of scale being to apply, with higher volume processes resulting in lower costs, and larger amount of information leading to considerable new insights and market intelligence.

But in fact, this is often not the case.  If not carefully managed, the complexities and costs of a legacy infrastructure will likely become a serious obstacle to the continuing evolution of the business.  Instead of being a competitive advantage and providing economies of scale, it will hinder the business from effectively competing with faster moving, often younger companies, which are able to get new offerings to market significantly faster and at lower costs.

Why does this happen?  The answer, in a nutshell, is a lack of management discipline.  Departments are allowed to purchase and operate their own IT equipment, which they then often run at low utilizations, incurring high system management and energy costs.  Different divisions around the world are allowed to have their own separate processes for essentially the same functions.  Information becomes very difficult to integrate due to a lack of standards.  Merged companies are allowed to continue to operate as separate entities. 

In my experience, every group will try to argue that it is unique, and that the consolidations that top management is trying to impose across the company should not apply to them.  I guess it is just a matter of human nature to want to run your own show and be independent from, - what appears to you as - faraway, arbitrary decisions. 

But with few exceptions, allowing such differences and independence when it comes to back office infrastructure makes no sense at all.  By definition - the back office is all internal to the company and invisible to its customers, who could care less how the company operates as long as they get excellent, highly personalized, competitively priced products and services.  Companies that allow their IT, information and process infrastructures to grow every which way will pay a very dear price for their lack of management discipline.

But while the back office assets of a company - its technology, machines, information and processes should be managed for maximum simplicity and efficiency, its front office tasks - those dealing with clients and markets - should be managed to achieve the maximum personalization and differentiation at the most reasonable costs.  Products and services might be commodities, but you never, ever want your customers to feel like they too are just commodities to the company.  A successful business will make each of its clients – institutions as well as individuals - feel special by understanding and addressing their unique requirements. 

How do you do this?  How can a global company provide such a high quality of experience to both individuals and institutions around the world at affordable costs?  To do this well, you need a top notch back-office infrastructure.  You need the ability to integrate and analyze lots of information, so you can gain insights into the various markets in which the company conducts business, as well as to understand how to best serve each client in each of those markets.  You need a common set of well managed processes to be able to provide services to clients around the world in as productive a way as possible.  You need to embrace industry standards to facilitate access to information and applications across the enterprise and beyond.  And you need a highly reliable, scalable, efficient, open IT infrastructure to support all the information, processes and applications.

This is all very, very difficult.  Which is why, above all, you need highly talented people in the organization.  I wonder if access to the diverse talent and innovative ideas now available around the world might be the biggest potential advantage of truly global companies over their more local or regional competitors.  Given my strong belief that innovation in the knowledge economy is all about connecting dots out there in the real world, the more wide-spread and diverse the dots, the bigger the opportunities for breakthrough innovations.

Finally, it all comes down to not only strong management, but top leadership.  To be successful in our complex, unpredictable markets, a company needs the kind of leadership that recognizes, attracts and retains the best possible talent from all over the world, and creates a culture of innovation that encourages them to address and solve these highly exciting but seemingly impossible challenges we face in the 21st century.

Comments

[Chris Ward]

In my dealings with Citibank, I noticed that their globalisation could be improved. Try transferring $1000 from Citibank US to a dollar account in the same name with Citibank UK; you'd think it would be automated, simple, and no charge to the client.

Banks could usefully figure that 'retail depositors' provide a chunk of the funding which enables the bankers to pursue hopefully-profitable business ventures. The commercial relationship between a bank and a retail depositor should be "I pay you interest in order that you will leave your funds on deposit with me".

And a global bank should respect that, globally.

If you get large organisations reversing that, charging fees where they should be paying interest, it discourages the clients.

[Henry Engler]

Irving

Your observation that entities within a large enterprise often believe they are different and therefore have special IT or process needs is quite true. Moreover, I've found that large, global institutions often develop large-scale, infrastructure sytems based on the requirements of the "center," versus a thorough vetting of regional offices, whose requirements often differ.

Within financial services, I find this type of approach most common with regard to U.S. institutions whose development plans are NY or London centric, often neglecting the nuances and legitimate differences that their offices in Asia have.

The challenges of achieving a fully-integrated back-office may often be as much cultural as the "I am unique" mindset.

Regards

Henry Engler

[Srinagesh Eranki]

By extension, would the type of innovation you apply be different for front-office and back-office tasks?

That is, within a large global company, sustaining innovation for back-office and disruptive innovation for front-office tasks.