Chapter 3 Achieving Global Integration

1. Chapter 3 Achieving Global Integration

2. Global Integration at Zara • Zara’s successful “fast fashion” model • Standardized processes for fashion design & distribution • Strong corporate culture to deploy processes globally • Rotation of store managers across countries • Country and HR managers meet weekly to ensure culture is respected • Stores only given guidelines, no formal templates

3. Importance of Global Integration • Increasing competition necessitates global integration • Responding rapidly to market changes • Efficiencies of scale and cost • Global integration optimizes global performance • Requires decision-making and alignment of resources on a global level • Can be limited to a particular product, function, or value chain segment • E.g., McDonald’s, Walmart, P&G, Google Apps for Work

4. Importance of Global Integration • Factors favoring integration • Global consumers • Homogeneity of tastes • Regional integration • Importance of fast decisions and operational speed • Business Advantages of Global Integration • Economies of Scale • Tight Links in the Value Chain • Supporting Global Customers • Global Branding • Leveraging Capabilities • World-class Quality Assurance • Competitive Platforms

5. The Meganational Firm • “One-country” approach to creating competitive advantage • world as a single market • Frequently used in early stages of internationalization, but enduring in many successful multinationals • Often seen as ethnocentric in management style • Strong reliance on vertical control

6. Tools of Global Integration Both vertical control and horizontal coordination facilitate global integration by increasing organizational alignment • The emphasis on control is especially strong in meganational firms Most multinationals use four types of control mechanisms: • Output control • Personal control • Process control • Normative control • A common element in all control mechanisms is the use of expatriatesandat least some degree of standardization

7. Implementing Global Integration Firms employ all four control mechanisms in varying degrees, leading to different organizational configurations

8. Global Integration Through Performance Management – Output Control • Performance Management monitors effective alignment of resources • rewarding global rather than local objectives • Difficult to measure performance of local subsidiaries when key decisions are made globally • Output control must be based on measurements that go beyond traditional financial reports • e.g., Globally standardized cycle times in manufacturing, or qualitative customer feedback to be compared with feedback from subsidiaries • Effective output control can be a differentiated global organizational capability • e.g., Amazon, Maersk, Zara

9. Global Integration through Socialization: Normative Control • Socialization as main tool to establish normative control • e.g., Odebrecht • Unconscious process of reward and punishment • Approached in individual or collective, formal or informal way • e.g., The “IKEA Way” • Weaknesses of strong normative control • Must be administered in moderate doses with care • Need to maintain openness and flexibility • Socialization and Expatriation - normative and personal control are closely interconnected

10. Global Integration Through Expatriates: Personal Control • Expatriation is a form of direct, hierarchic, personal control • Not “where”, but “who” • Sending expatriates to subsidiaries can have the same results as centralizing decisions at headquarters • The Evolution of Expatriate Management • Pioneered by the first “meganational” – The Roman Empire • Used extensively since the early days of international business

11. Multiple Drivers of Expatriation • Assignments either Demand-driven or Learning-driven • Trend towards shorter assignments linked to specific task or need • Increased standardization of expatriation policies

12. Portrait of Expatriates • Who are current expatriates? • Most expat transfers within economically advanced countries: • e.g., USA, China, UK • Increasing diversity in ethnic origin, gender, age, and roles performed

13. The Expatriate Challenge • Making the expatriate assignment successful for the individual, the family, and the firm is a significant challenge • But not as much as often thought • How real is the expatriation failure problem? • No empirical studies show this • “Massive misquotations” of outdated, unrepresentative group of articles • 2015 Brookfield survey reported only 7% of expats return early • Is premature return an adequate indicator of failure? • Far more damaging for expat to stay when he/she is failing expectations • Expat retention rates are comparable if not lower than rates of overall employee retention

14. Global Integration Through Standardization – Process Control • Standardization of key operational procedures ensures consistent performance in cost, quality, and compliance • Infosys & McDonald’s - high degree of process control and global standardization • Standardization enables transfer of work organization as a complete system to a foreign location • NUMMI—former JV of GM & Toyota • HRM alignment is essential for transplanting work systems

15. Global Standardization or Local Adaptation?

16. Balancing Global Standardization and Local Adaptation • The criteria (principles)tend to be more global than implementation • What to standardize, what to regionalize, what to localize, and what to reinvent? • Implementation vs. Internalization • Strong interpersonal relationships encourage internalization

17. Standardization or Adaptation: Western Multinationals in China

18. The Limits of Meganational Integration • Lack of autonomy – not encouraging local initiatives • “Copy exactly” can be a source of competitive advantage (Intel), but may discourage necessary experimentation • Lack of innovation – only top-down, not bottom-up • Two way flow of ideas is a continuous challenge for many meganationals • Lack of engagement – fewer decisions left to be made locally • Digitalization reinforces vertical control, forcing employees to follow global data-driven processes and systems

19. The Transnational Approach toGlobal Integration • Control vs. Coordination – differences in how a firm exercises authority • In multidomestic and meganational firms the responsibility and accountability are clearly defined • In transnational firms, who is the “boss” may vary with circumstances: business, function, customers, etc. • Coordinating multiple priorities requires task forces or steering groups outside of formal structures • Connecting people in different parts of the organization • Standardized processes manage complexities of transnational remains • In transnational firms, the locus of authority is both vertical and horizontal • Managing the tension between the two is the challenge and contribution of HRM

20. Emergence of Transnational Firms • The Competitive perspective • Subsidiaries abroad may represent larger markets than at home • Varying degrees of strategic importance among subsidiaries • Increased pace of competition • Limits of competitive advantage from economies of scale • The People perspective • Higher level of education among workforce • Emerging viability of virtual workplace • Cooperation – “empowerment” and leading without authority • The Network perspective • Organizations as networks of internal and external relationships • Organic or adaptive organizations characterized by dense, strongly interconnected networks have a higher capacity for coordination • Principle of Requisite Complexity

21. Vertical Integration vs. Horizontal Coordination

22. Horizontal Coordination Mechanisms • Structural Mechanisms • Multidimensional structures • Lateral steering tools • Cross-boundary teams and projects • Social Architecture • Social capital • Shared values • Global mindset • Global HR Processes • Talent Acquisition • Performance Management • Leadership Development HRM as “organizational glue” • Steering Mobility

23. Global Integration 2.0 • Horizontal coordination does not replace vertical control, it transforms it • Corporate staff become coaches and network facilitators • General management becomes responsibility of all senior and middle managers • Focus of planning shifts from content to process—conflict resolution • Digitalization and new IT technologies can enhance self-management and learning • Social media, big data, and machine learning generate new insights • Enables global HR managers to act more quickly and with more confidence • .. However, watch out for unintended “big brother” consequences