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Table of contents INTRODUCTION... 3 GLOBAL SOURCING IS CURRENTLY THE MOST POPULAR STRATEGY IN CORPORATE BOARD ROOMS... 3 Organization of this paper... 3 DEFINITION OF GLOBAL ORGANIZATIONS... 3 ESSENTIAL ORGANIZATIONAL COMPONENTS OF GLOBALIZATION... 4 DEFINITION OF THE GLOBAL SOURCING STRATEGY... 5 Leadership Team... 5 The Global Sourcing Message... 5 Defining/Changing Organization Structure:... 6 Defining the Change Management Process... 6 BUILDING THE RIGHT CORPORATE CULTURE... 7 Definition of Global Culture... 7 Steps to Build Global Corporate Culture... 8 MANAGING GLOBAL TEAMS... 8 CONCLUSION... 10 REFERENCES... 10 @Zinnov LLC 2
Introduction Global sourcing is evolving as one of the major strategies that enables organizations to offer quality products, services at the lowest cost possible. Organizations are taking a 360 look at all the functions of their organization to see what functions can be executed in other countries. Countries like India, China, and Philippines have been in the spot light to an extent never seen before in the last decade. Robert Reich, a former Harvard Professor, notes in his book The Work of Nations that We are living through a transformation that will rearrange the politics and economics of the coming century 1. In this book, the author explains how corporations will transform and there will no national economies; how only Global Economics will dictate the direction of the organizations. Global Sourcing is currently the most popular strategy in corporate board rooms This book was written almost a decade back and today we realize the great foresight with which the author wrote years back on the impact of Global Economics. When organizations adapt the Global Sourcing strategy, transformation of the company s organization to be an effective Global Organization is very critical. This paper focuses on the attributes and challenges facing the Global Organization. The scope of this paper is limited to Global Sourcing so when the authors of this paper refer to Global Organizations, they are referring to the Organizations that have adapted Global Sourcing as a strategy to transform themselves to Global Organizations. Organization of this paper This paper is organized in the following sections to enable the readers to navigate easily through the components of globalization. Definition of Global Organizations Key organizational components of an effective Global Organization Definition of Global Organizations Global Organizations share and source resources on a global basis In his book A Manager s Guide to Globalization Dr. Steven Rhinesmith says, Going Global does not mean just doing business abroad 2. It is easy to see that this misconception is widely prevalent in many of today s organizations. In a true Global Company there is harmony between different cultures. Resources and materials are moved seamlessly across different countries so that the company enjoys maximum competitive advantage. @Zinnov LLC 3
Organizations can be classified into several types on the basis of they operate. The following table describes the three major types: Domestic Organizations These organizations operate within the boundaries of the country in which they are formed. Multinational Organizations Multinational organizations are those that have established identical units of their domestic business in different countries and markets. Global Organizations Global organizations are one step ahead of the multinational organizations. Instead of establishing identical units, the Global Organization share and source resources on a Global basis to provide superior quality product/service at the lowest cost possible. Global Organizations have several unique attributes. Among other things, these organizations have: Faced an organizational dilemma of whether it is acceptable to source from lower-cost countries, as it may affect some of their existing workforce. Most of them have successfully incorporated a value system/culture in their organizations to focus on the competitive advantage gained by going global Worked very hard to make sure there is no concentration of authority in one country, and ensured a global distribution of power Taken care to understand the sensitivity of different cultures. Domestic organizations that have traditionally worked hard to appreciate diversity have transformed into great global organizations A company like Coca- Cola varies the taste of its syrup to suit local preferences Handled the change associated with going global with vision, meticulous thought process and excellent planning Always looked for the most profitable markets across the world and for products/services across the world Institutionalized Global Mindset. People with a global Mindset are leaders who can separate emotions from business decisions and make the appropriate decision that would maximize shareholder value when faced with competition, market growth, and difficult economic trends. Essential Organizational Components of Globalization There are 3 important organizational components involved in transforming a company into a global company: Component A: Defining the Global Sourcing Strategy Component B: Building the right Corporate Culture Component C: Managing Global Teams @Zinnov LLC 4
Definition of the Global Sourcing Strategy For the success of the global sourcing strategy, it is very critical to have a clear strategy for Globalization from an organizational perspective. Leadership Team The first important step is creating a leadership team that can effectively guide the company through the Global Sourcing process. The team should have diverse skill sets and consist of individuals who understand: The company business and the people of the company (Business Leaders) The different functions and where they fit into the bigger picture (Functional Leaders) New cultures and These leader are able to bring a cultural frame work change (Human Resources Specialist) Companies like ABB have transformed into a true Global Organization through a combination of different cultures and do not have any particular national identity. They have Global Identity! The Global Sourcing Message At the end of the Global Sourcing Roadmap Design phase, it is very important to craft the right message to communicate to the employees. Crafting this message early in the game will help organizations handle the concerns that their employees might have in moving work offshore. During offshore outsourcing, numerous employee concerns will come up. For example, Will I lose my job as a result of work being moved? Are we not exploiting third world countries by paying them low? Why are we putting our money into some foreign country? Will our clients feel good about us doing work offshore? How secure will our data be in all these offshore countries? Though all these are valid concerns, the realities that make organizations go offshore are: Organizations are given a fighting chance to survive and make profits by moving their work offshore Cost savings to the magnitude of 40%-70% is very common in global sourcing initiatives. This infuses organizations to invest more in core businesses. Competitors are increasingly moving offshore there by leaving very little choice other than Global Sourcing Shareholder value increases significantly because of the cost savings It brings new experience to the company and as people work seamlessly with their offshore units internal efficiencies generally improve @Zinnov LLC 5
As the company understands global cultures, it provides a nice launch pad for global business opportunities, thus increasing opportunities for the employees Successful global sourcing does not necessarily mean loss of jobs. In many cases it would mean re-alignment and re-organization; with all employees working towards the common goal of value-addition to the company The Global Sourcing message that the leadership develops to communicate to the employees should take into account these realities. A good offshore message will discuss, and explain: Realities of Current Business Environment Cost Advantages of Global Sourcing Competitive Advantages New opportunities that Global Sourcing could potentially create Company s commitment towards employee s and shareholder values Defining/Changing Organization Structure: Global Organizations must devise an organizational structure that enables rapid decision-making. A rigid hierarchical structure may not work very well for global organizations. Multi-centered organizations work well. Successful global organizations have attempted to establish core competency centers in different countries. While defining the global organization structure care should be exercised to ensure that the organization designers are not restricted by their own cultural attitudes. It is very critical to understand the value systems of the countries in which global sourcing is planned. The following figure highlights a few essential differences between Global and Non-global organization structures. Defining the Change Management Process Having a clear change management process that can handle the huge degree of complexity involved in Global Sourcing is very critical. Change management includes defining processes, defining new roles, managing competitiveness, and managing complexity that arise from Global Sourcing. @Zinnov LLC 6
Building the Right Corporate Culture Building the right Global Corporate culture is a very critical element for the success of Global Organizations. Definition of Global Culture Global Corporate Culture is a worldwide system of shared goals, values, and behaviors. Building the Global Corporate Culture requires systemic thinking. In understanding the culture of a country in which the organization has a presence, the elements shown in the following figure have to be thoroughly understood. Language: Understanding the importance of spoken, written, official languages are important pieces of the overall knowledge of language of a country Legal Environment: A through understanding of common laws and regulations, Intellectual property laws, Anti-trust regulations is important Social Setup: Understanding the religion, and the social strata (collectively referred to as the Social setup here) will provide a clear picture of the belief systems, sacred objects, type of prayers, taboos, religious holidays, social interest etc Material Culture: Understanding the inventions, scientific achievements, Entrepreneurship will help understand the risk taking attitudes, quest to knowledge etc Educational System and Values: Understanding the Educational system (formal and non-formal) and the values, attitude to time, perfection, completeness etc. Companies like AT&T have developed a Global Business Curriculum which includes business training as well as Global and area studies Political Environment: Knowing the ideologies, Nationalism, Sovereignty and the political risks are an important part of understanding the culture @Zinnov LLC 7
Steps to Build Global Corporate Culture Building Global Corporate culture requires systemic efforts and it is a time consuming process. Many existing employees do not really sign up for this task and this makes the process of building Global Culture very challenging. Building Global Corporate Culture is not a one-time effort. It is an ongoing task. The first and foremost step in building the Global Corporate Culture is to relate to the basics with which the organization is formed. Concentrating on the vision, values and behaviors is essential in building the right corporate culture. One needs to be sure that the vision and the fundamental values of the organization are ready for this challenge. The vision of the organization should be globally inspiring. Inspire the key managers with the Global vision. The management community is the backbone in spreading the right message among the Employees. A daylong seminar with the key managers of the different organization and the leadership team addressing the Global Vision and the basic values will really help. The seminar should be an open forum where the managers can be very honest with the leadership team and table all their questions/concerns. These key managers should be made accountable for spreading and executing the Global Vision In translating the Global Vision into action, it should be understood that though the company has one common vision, executing and explaining this vision should be done with the cultural identity of the different nations Working with the different diversity groups in putting together forums/meetings to spread the awareness and the importance of different cultures can really help Organizations should make every effort, on an ongoing basis, that decisions are not made in one country and decisions are decentralized Creating opportunities across the global locations and moving resources to different locations will help people understand to work well with different cultures Creating culturally sensitive performance reviews and reward systems will help to a great extent Interesting Gestures Scratching the head indicates anger to the Japanese In Arab countries showing the soles of one s shoes is an insult In Africa, people generally pound their palm and emphasize agreement Managing Global Teams Managing Global teams is a complex task. Selecting the right global managers is the first and foremost task for smooth Global Management. The following illustration by Jean E. Heller in the book Criteria for Selecting an International Manager summarizes the complexity of Global Management. Ideally, it seems, he(she) should have the stamina of an Olympic Swimmer, the mental agility of an Einstein, the conversational skill of professor of languages, the detachment of a judge, the tact of a diplomat, and the perseverance of an Egyptian pyramid builder And if he(she) is going to measure up to the demands of living and working in a foreign country, he(she) should have a @Zinnov LLC 8
feeling of culture; his(her) moral judgments should not be rigid; and he(she) should show no signs of prejudice 3 Global Management is not as tough as the illustration above but it definitely is complex. It requires intense focus and ongoing training for the managers. Sherman & Bohlander in the book Managing Human Resources say, The biggest mistake managers can make is to assume that people are the same everywhere 4. This statement deserves full attention. Most of the global management problems will disappear if this statement is understood well. A partial list of the essential skill set of a Global Manager is provided here: Adapt style of functioning to the cultural background of the country Generalized expertise across all areas of the enterprise Ability to see opportunities and limitations A sense of reality Operational effectiveness Ability to take quick decisions Ability to keep all the required people in the loop Ability to transfer the required sense of urgency across boundaries Being sensitive to gestures in different countries (For example, In western and Arab Cultures prolonged eye contact with a person is acceptable. In Japan, on the other hand, holding the gaze of another person is considered rude. The Japanese generally focus on a person s neck or tie knot. Source: S. Hawkins, International Management 5 ) Understand the root cause of the problem and not magnify the issues in the foreign countries out of proportion Ability to motivate and inspire across cultures Being able to understand the culture (as described in the previous section of this paper) @Zinnov LLC 9
Conclusion Global sourcing is transforming many organizations into global organizations. The three essential components of globalization are Global Sourcing Strategy, Building the Right Corporate Culture and Managing Global People. Excelling in these components will provide an organization a significant competitive edge. The essence of globalization is quite simple. It simply means there are no geographical boundaries for business. There is cross border competition for market, jobs. The initial phases of transformation into a global organization can be very challenging, but, if organizations approach globalization with systemic thinking, the results can prove to be very beneficial to the organization. References 1. Reich Robert B. The Work of Nations: Preparing Ourselves for 21 st Century Capitalism. New York: Alfred A. Knopf, 1991. 2. Rhinesmith Stephen H. A Manager s Guide to Globalization: Six Skills for Success in a Changing World. Chicago: Irwin, 1996. 3. Heller Jean E. Criteria for Selecting an International Manager. Personnel 57, no. 3 (May- June 1980), pp. 48. 4. Sherman Arthur W., Jr. and Bohlander George W. Managing Human Resources. Cincinnati: South-Western, 1992. 5. Hawkins S. International Management 38, no. 9 (September 1983), pp. 49. @Zinnov LLC 10