Fifty odd years ago when I was a small boy, few households owned a car. But we all aspired to owning one and they were only made a few miles away in the heartlands of England that was still a powerhouse of automobile manufacturing at the time – although the cracks that eventually decimated the industry in the UK were beginning to show. Today, more or less everything we aspire to – including that wonderful Microsoft Surface that I’m after – is made elsewhere as the drive to lower input costs has shifted economic activity from Europe and North America to Asia, Latin America and Africa.
As a result, the west has higher levels of unemployment and most markets are in the doldrums. Recent McKinsey Global Institute research suggests that 400 midsize emerging-market cities, many that we don’t even know the names of, will generate nearly 40% of global growth over the next 15 years. Likewise, the International Monetary Fund confirms that the 10 fastest-growing economies during the years ahead will all be in emerging markets. This shift has resulted in some interesting phenomenon, not least successful companies based in the Far East buying up semi-moribund companies, such as the UK’s car makers, Jaguar and Land Rover, and turning them into a success by marketing them to the burgeoning middle classes in India and China. But if the west is not to end up as the basket case of the world economy, our companies clearly need to do a better job of making themselves global. There appears to be no best way of achieving this with both those companies that have grown by M&A and those that have grown organically experiencing problems.
McKinsey has identified what they call four ‘tensions’ in managing strategy, people, costs, and risk on a global scale with the importance of each of these four tensions varying from company to company, depending on its particular operating model, history, and geographic footprint.
- First are the processes for developing strategy and allocating resources which can struggle to cope with the increasing diversity of markets, customers, and channels.
- Second is the fact that companies find it difficult to leverage the human capital and transfer lessons learned in one market to another.
- Third ‘tension’ is to do with managing the balance between driving down costs by standardization and managing diversity in order to address different markets.
- Final ‘tension’ is to do with risk management as both global companies get deeply immersed in economies where there are unfamiliar risks that many find difficult to evaluate – and conversely an over structured approached to risk management in an emerging market can constrain long-term success.
What first struck me about the list was how most of the tensions could be equally applied to long-established companies and subsidiaries operating in mature markets; how many of the ‘tensions’ such as strategy formulation and communication, planning and budgeting and cost management would benefit from investments in performance management solutions such as SAP Enterprise Performance Management – and finally how on demand solutions delivered via a public or private cloud can help get companies up and running quickly in emerging markets.
What also struck me was that the boards of our major companies here in the west may serve their stock holders better in the longer term, if they upped sticks and relocated their corporate head offices in the other hemisphere. They say sticking close to the customer pays off!