Thursday, July 27th, 2006
MULTINATIONALS 2.0: THE EVOLUTION TOWARD A NETWORKED AGE
Steve DeAngelis of ERMB and EnterraSolutions is at the cultural tipping point where his message, once reserved for consultations in elite corporate settings, IC and DoD related forums, think tanks and discussions on esoteric blogs like this one, is entering the MSM. I’ll have some comments later but first here is the context of Steve’s argument:
U.S. News & World Report quoted DeAngelis in “Multinationals 2.0“, an article that examined the position put forth by IBM CEO Samuel Palmisano that multinationals as a business structure have outlived their time and are due to be replaced by a radically decentralized, networked, corporate entity called ” globally integrated enterprises”. Steve explained why to U.S. News:
“Here’s the even bigger vision: As more and more countries–particularly the developing ones in Africa, Latin America, and the Middle East–become more interconnected and dependent, it will result in a safer, more orderly world. “The business world has this enlightened self-interest in integration,” says Steve DeAngelis, CEO of Enterra Solutions, a software solutions company that helps global companies integrate far-flung operations. “Look at China and the United States. Look at all the economic bridges we are building. Each one we build is a step away from military conflict.” So while multinationals have traditionally been stereotyped as corporate villains–for polluting the environment or attempting to overthrow unfriendly Third World governments–the new organization would supposedly make the planet a better place.”
Steve added some important observations in a post at ERMB
“The article notes that the old business model for multinationals was the “hub and spoke” model, where corporate headquarters was the hub and subsidiaries were the spokes. Business moved in direct relationship with the hub (which is a problem in a 24/7 world). Mohanbir Sawhney, a technology professor at Northwestern University’s Kellogg School of Management, agrees that this approach is no longer viable. In order to be resilient in today’s business climate, a business must “end up with centers of excellence distributed around the world.” In other words, instead of one hub with multiple spokes, you have multiple hubs (or nodes) of excellence which are connected and supportive. “
Structurally this would mean shifting away from the extreme hierarchical centralization of 20th century corporations. A centralized, bureaucratic model that resulted from adoption of Taylorism in production process, seeking economies of scale and the consolidation of industries into oligopolistic markets, a situation later ratified by New Deal regulatory supervision. The
“globally integrated enterprise” is structured somewhat closer to a scale free network, though it actually isn’t one, it would still be a radical departure from past practices for most companies.
Technically, we are talking about a corporation that would be a modular hybrid that employs a devolution of decision-making power and organizational decentralization to increase the corporation’s resiliency. There would still be some hierarchy and strategic direction but a GIE is a much flatter model than the pyramid-like IBM of 1965, 1985 or even 1995. In a globalized market a GIE is much harder for individual states to damage through inept regulatory, fiscal or trade policies than a multinational HQ that can be “held hostage” to erupting political controversies in a particular state or trading bloc.
On the flip side, the increasing ubiquity of real-time global communication has made corporate reputation a vital but fragile commodity. The room for error, scandal or ethical shortcomings is virtually nonexistent once a story has arrived on the global media radar. As with militaries or heads of government, corporations have only a few hours, perhaps minutes to react to an emerging story in a way the global audience will consider credible, sufficient and responsible. It is here that a resilient structure is required, specifically, as Steve wrote:
“…the essence of a Resilient Enterprise — freer linkages, richer exchanges, greater feedback loops, and improved environment for sharing and innovating.”
This kind of a structure is an advantage in two ways to a corporation facing a crisis. First, the freer flow of information from the outside, closer to real-time, simultaneously throughout the organization reduces the distortion of stovepiping and groupthink and prevents many problems from arising in the first place. Secondly, there is an acceleration of organizational response time, particularly where pro-active, autonomous, decision-making is part of the institutional culture.
It is important to point out that ” Multinationals 2.0″ represents a model far more than a reality but it is a model that the economic conditions of globalization would tend to reward. Multinationals 2.0 would also be a structure and a culture that would be easier to build from the ground up than try to retro-engineer into a venerable corporate giant like IBM with a longstanding institutional habits of mind ( Palmisano gets all the more credit for moving in this direction instead of taking the easier, short-term path of most CEO’s) .It will be interesting to see how foreign multinational models like the Japanese Kereitsus, Korean Chaebols or European conglomerates with strong state and union corporate governance, choose to engage this concept or if they will try an alternative strategy to build resiliency.
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