Archive for Papers
Mary Minnick, President of Marketing, Strategy, and Innovation, Coca-Cola MAS Index
The normative ethical concept of “good” business leadership is an interesting question as increasing numbers of women enter senior positions in global organizations. The groundbreakers set standards for not only women but also men – their leadership style directly influences the livelihood of the people they lead and the profitability of the company.
For example, let’s look at the leadership ethic of Mary Minnick, President of Marketing, Strategy, and Innovation for Coca-Cola, within the context of Hofstede’s cultural index of MAS (Masculinity Index).
Minnick’s recent business leadership in Japan overseeing Asian countries, and now globally (based in Atlanta), has informed and been informed by her gender. The ethics surrounding female business leaders, and the transferability of these ethics, is central to today’s construct of global business conduct. Is her “masculine” work ethic transferable to other female leaders in the same global regions – but with better acceptance – given time?
Hofstede states MAS as being “entirely unrelated to national wealth.” , showing American national culture scoring 62 on MAS (a high rank of 19) . Japan scorinf 95 (2nd to Slovakia), China scoring 66 (rank 11-13), Hong Kong scoring 57 (rank 25-27, lower MAS than the US), Taiwan scoring 45 (rank 43-45, even lower). According to Hofstede, the US is one of the societies which is “masculine”: “…when emotional gender roles are clearly distinct: men are supposed to be assertive, tough, and focused on material success, whereas women are supposed to be more modest, tender, and concerned with the quality of life.”
Minnick’s leadership characteristics are, per MAS, quite against her gender’s prescribed role, whether perceived by businessmen in Asia or the US. The business leadership choices Minnick has made for the growth of Coke have been colored by how not only Asian but also how American and Australian (score 61, rank 20, right after the US) businessmen experience working with a female leader who demonstrates the business ethics of a traditional male leader.
Profile of the Leader
Review: Mary sounds like a real monster. She seems almost proud of the way she treats employees and disappointed that she couldn’t use “anger” in her management style in Asia. Surely, she can get the job done and still be a person?
The quote above is a BusinessWeek reader’s response to its August 7th, 2006 cover article, “Queen of Pop,” implying that Minnick, in her high-MAS leadership qualities, has somehow made herself less of a “person.” Throughout, the article describes Mary Minnick as:
blunt, impatient, knocking the soda giant’s staid, cola-centric culture on its ear, worldly, smart, speak[ing] rapid-fire, frank, brusque, clout and political savvy, ha[ving] a stirring vision, corporate agitator, innovative, spunk[y], resourceful, [having a] full-frontal management [style], [not bothering] to ingratiate herself with staff , [someone who] doesn’t apologize, raising the bar, been right to try to shake things up, [one] not to celebrate, [doesn’t] spend a lot of time talking about why something is good…
These quotes reveal an executive who is driven to hard work and succeeding, having a pressing sense of time, possessing an internal gauge of innovation. She’s said of herself:
“I would say I have a rather impatient sense of urgency on just about everything,” “I tend to be quite discontented in general,” “I think I started to temper my management style in Japan. Because of the culture, you have to learn patience and a certain sense of decorum. They don’t appreciate anger and displays of emotion.”
The January 24th, 2006 issue of Fortune, describes Minnick :
She has been known as a tough and sometimes abrasive boss — a burden, often unfair, that has been a handicap for many women leaders. “I’ve received coaching,” she acknowledges. “It’s not so much about softening as it is about being less intense and more balanced in my sense of urgency.” It’s a tricky balance to maintain. “Intensity has been a big contributor to my success,” she adds. “A lot of times your greatest strength can be your weakness.”
By 1997, Minnick was running Coke’s South Pacific group, covering Indonesia, Australia, New Zealand, and all of the Pacific Islands. By early 2000, she had done so well that then-CEO Douglas N. Daft promoted her to head up all of Japan, where she made her mark on Coke, even as her leadership skills were highly tested by resistant Japanese businessmen. Some of these instigators wrote private letters to Daft, asking him to reassign her away from Tokyo. His response:
“This woman will be there longer than you. She has my full support.”
This great reinforcement of hierarchy, from the CEO of Coke giving the highest credibility mark to his designated lieutenant, was invaluable to Minnick’s positioning, allowing her to lead more effectively. The Japanese culture respects authority and autocratic decision-making (high PDI .) Innovation and product diversity were the twin sceptres of her tenure, launching innumerable products and watching the market data almost daily in partnership with 7-11 Japan. She also achieved a first: organizing Japan’s bottlers. She was also careful to always emphasize the uniqueness and innovativeness of Japanese culture. In 2002 she was promoted to head up all of Coke Asia. In 2005, she was promoted to her current position. Minnick had spent 10 years in Asia, primarily in Japan and Hong Kong.
Transferability of the Leader’s Ethic
The question of transferability of Minnick’s leadership and work style ethic would be more helpfully answered in terms of time rather than geography. The stereotypical “American” qualities are also “masculine” qualities – acceptable to most other cultures to some degree if demonstrated in a male business leader – very challenging for men to cope with in a female business leader.
A possible answer may lie in the evolution of the MNC itself, as it adapts best practices to increase competitiveness on the shifting sands of the global economy. Traditional feminine traits are, ironically, lending better organizational and talent management ethics to global business competitiveness. This trend should accelerate as the numbers of MNCs’ female CEOs increase. Both the US and Asian countries may evolve to a more equitable distribution of masculine/feminine gender roles in global business hopefully sooner in time. For the health of robust economies, gender neutral business leadership ethics would be the ideal to strive for.
The fast-food industry is a multi-billion dollar global industry, and one of the largest in the world, with multiple and diverse players. Most of the strongest brands are American, and despite short-term ups-and-downs, the greater expansion pace doesn’t show signs of abating.
The hottest regions are the emerging economies (such as China), being fought over by competitors such as Kentucky Fried Chicken, Wendy’s, Pizza Hut, and of course McDonald’s, which leads the industry in sales, profitability, number of retail stores and overall brand recognition. Most of these competitors are highly vertically-integrated franchises with very strong integrated operations and strategic planning systems.
In many countries these establishments are perceived as quintessentially representative of “American culture”, and this is both a boon and a danger for fast-food outlets. The attraction of American culture is a strong lure, and good for business; but today special interest groups such as Greenpeace, PETA, Muslim fundamentalists and other protectionists are increasingly active in boycotting and otherwise damaging outlets’ businesses.
Kentucky Fried Chicken (Japan) Limited (KFC-J) was started as a joint venture (JV) in early 1970 between JV initiator Mitsubishi, who wanted to develop domestic demand for its poultry operation, and Kentucky Fried Chicken (KFC). Harland (Colonel) Sanders had franchised in 1956 a fried chicken recipe that was so successful, he sold some 700 franchises in 9 years. KFC was bought by John Y. Brown and Jack Massey for $2 million from the 74-yr. old founder in 1964, and in the next 5 yrs. KFC revenue grew from $7 million to $200 million. In 1970 KFC was building 1,000 stores a year in the U.S. However, the rapid growth caused a big problem: management turnover, and by the late-1970’s the U.S. economy slipping into a recession caused the stock to fall from $58 to $18. The management exodus continued.
Compounding matters, a fast food industry shakeout began, and franchisees suffered under the lack of higher management support and guidance, the recession, and strong competition. Low morale affected customer service and product quality, and management was too preoccupied with its own internal disagreements to pay much attention to international operations. In mid-1971 Brown and Massey sold KFC in a stock swap to Heublein, Inc., a packaged goods company with well-branded franchises such as Smirnoff Vodka.
KFC’s small international staff was folded into Heublein’s international group, which struggled to control the independently-minded foreign subsidiaries. Meanwhile, KFC-J under Loy Weston and Shin Ohkawara went ahead with their own development plans, including menu adjustments; and thinking of KFC-J as a fashion business, focusing marketing on upscale young couples and children, which helped KFC-J to thrive. By the end of 1972, 14 new stores mainly in Tokyo opened, and in 1973 50 more were added. 1974 was slated to be KFC-J’s first profitable year, but the oil crisis hit Japan, and losses began, causing refinancing and store expansion slowdown.
In 1975, Michael Miles was appointed VP-Int’l Operations for Heublein, and strategic planning was his credo. He focused his attention on KFC’s international operations, and implemented a strong strategic planning system, which took about 2 years for subsidiaries to gradually adopt. KFC-J, however, was resistant and adopted what it could to Japanese practices, and went along with the new system reluctantly. In 1976, KFC-J made its first profit, 14 million yen, a modest amount.
In the early 1980’s KFC headquarters reorganized under pressures of domestic operations doing poorly, which was significant as it accounted for 2/3 of KFC’s global sales. Churches and other aggressive new competitors appeared. Miles focused upon a “back-to-basics program” of quality, service, and cleanliness systems (QSC); and by 1979 profits rebounded, bringing KFC closer to McDonald’s profit levels.
Miles hired a professional manager, Bob Hiatt, to duplicate the systems with the international subsidiaries, with the pitch that “better strategic plans meant better bottom-line results” and the operational aim of achieving consistency and control worldwide. KFC-J again resisted, citing Mitsubishi’s practices, and preferring short-term losses for long-term gains. However, Hiatt and other senior managers insisted on reports (store-level efficiency targets, QSC ratings, trends) and operations control systems to improve strategy, financial systems, and database management systems. Performance bonuses were also implemented to help with management performance and retention.
As international operations slowly improved, giving KFC strong sales growth and profitability, R.J. Reynolds (RJR) acquired the company in October 1982 as part of its diversifying away from tobacco products. KFC then came under the control of Richard Mayer, who also held strong convictions about the values of strategic planning. Although KFC-J was KFC’s largest, fastest-growing, and highest-potential international subsidiary, by late 1983, KFC-J was opening its 400th store, by on a per-capita basis this represented less than 25% the level of penetration in the U.S.
The entry barriers to the fast-food industry are relatively high if there is only one outlet – the savings increase exponentially when the number of outlets increase, and product quality and supply is controlled. For KFC-J, supply was easier through it’s powerful Joint Venture partner, Mitsubishi, which provided poultry and other supplies. Additionally, as it had in early 1970’s, Mitsubishi was also a funding source. So, a new fast-food entrant has better chances of surviving if it has a parent or partner or some other funding source with which it can set up strong strategic planning and operations systems, particularly in Japan.
Market conditions are another consideration, as burger-type of chains are dominated by McDonald’s, Burger King, and Wendy’s. For KFC, Popeye’s is its biggest challenger. The nature of the fast-food industry is about price, convenience, taste, and environment. Brand comfort is certainly a consideration, but locale and price dominate. Chains which can physically dominate good locations and have alternative menus such as “Dollar Menus” or foods preferred by local tastes do best. Buyers can easily switch if competitors are physically located closely to each other, so quality control is an additional concern. It is more profitable to retain an existing customer than to acquire a new one.
KFC’s management of its international operations has improved dramatically over the last 3 decades. Implementing strategic planning and operational controls is critical, and although more entrepreneurial spirits consider the reporting and other controls stifling, in a organization the size of KFC’s, controls are imperative. Consistency of product, including its environment, are key to brand recognition and drawing traffic. Good management knowledge of outlets’ activities is invaluable to decision-making, including how much of what kind of support to provide. McDonald’s “owns” its suppliers in the sense that its control over product quality is total and huge in dollars. For KFC-J, having Mitsubishi as a solid, agreed upon JV partner could not be a better fit in solidifying against Porter’s concerns of Supplier and Substitutes control, Buyer control, and resistance to New Entrants.
The nature of the Japanese market was also condusive to KFC-J’s success, as the involvement of the Japanese government is critical to success in Japan. Other competitors seeking entry to Japan would need a similarly strongly positioned partner the caliber of Mitsubishi or some other sogo sosha.
Dick Mayer should consider carefully where to move Loy Weston. Weston has been with KFC-J for a long time, and despite his success in Japan, in the 4 years since he’d taken on the VP-North Pacific position, progress had been slow. Shin Ohkawara was doing fine running KFC-J, but Korea, Taiwan, Thailand, and Hong Kong needed not just an entrepreneurial spirit, but also a strong strategic mind with an taste for detail. Mayer should examine the reasons why KFC-J was successful, and determine how much both Weston and Ohkawara actually contributed. Perhaps in actuality he might have ridden on Ohkawara’s strengths, or Mitsubishi’s strengths, or lucky market conditions, or some combination. If he really did have a workable system, at least some parts of it should be transferable to success in Korea, Taiwan, Thailand, and Hong Kong (KTTHK).
Assuming that KFC-International is still regionally based as shown on p. 725, Mayer at HQ could:
– have KFC-HQ create another position to put Weston in,
– OR put him back as KFC-J head,
– and in either case promote Ohkawara to VP-North Pacific.
Before that, Mayer could first give Weston stricter performance achievables within a reasonable timeframe, as determined by market studies. In the meantime, Mayer could have Ohkawara evaluated to see if he might have a greater chance at making KTTHK successful. It’s important to retain experienced management, and Mayer should figure out a politically expedient plan to retain both men, being particularly gentle with Weston. Weston, having been a white man heading up a large American enterprise in Japan for a long time and advancing in age, may be delicate to handle.
KFC-J, with its Mitsubishi partner, is strongly positioned in Japan, and growth can continue. Any new entrants should be watched for, but more attention should be paid to KTTHK.
KTTHK are different markets, but all are economic tigers with market segments which KFC would appeal to more from a brand perspective (fashion) than a price perspective (fast food isn’t always the cheapest source of food in overseas markets). Certain people in these markets might potentially resent a Japanese head (Ohkawara) of an American chain coming into the market, given the countries’ histories with Japan, so from a political standpoint having Mayer continue for a year or two longer might be better from a PR standpoint. Also, as he’s been with KFC for so long with a good track record, despite his shortcomings he’s still a valuable manager to retain. Mayer might find more politically comfortable ways to communicate the need for KTTHK to show results, perhaps spend some time personally with Weston in these countries and developing a strategic plan in tandem so that Weston feels he is involved with the new plan. Having management’s buy-in in critical to the successful implementation of a strategy.
Additionally, significant location scouting is important for Seoul, Taipei/Kaoshung, Bangkok, and HK Island/Kowloon, as fast-food’s primary marketing (product, price, PLACE, promotion) need is a high traffic, fashionable shopping area with lots of young buyers. Maybe Mayer could go on a few location scouts with Weston. All four of these urban markets have a rich supply of new repeat customers, in addition to tourist dollars. Location is key to KFC’s expansion in these areas, with specific studies to students’ and young office/retail workers’ traffic patterns. Appealing to their tastes is less important than location in a “hot” area, as these markets are all intent on emulating “American” culture.
I’d like to see KFC and all other fast food establishments make nutritional information available to customers. In the years that I and my family have traveled in these Asian countries, we have seen a shockingly obvious, rapid deterioration of young peoples’ health (overweight, acne). Taiwan and Hong Kong are particularly education-oriented, so one generally finds these establishments filled with students who munch on fast food while studying their copious homework. Business profitability is good, responsible business and profitability is better.
Prof. Theodore Levitt (Harvard Business School) stated almost two decades ago that “[t]he globalization of markets is at hand. With that, the multinational commercial world nears its end, and so does the multinational corporation”
How does today’s global business environment comport with his vision? He may not have been prescient, but he pointed the way foreshadowing the tumultuous developments.
Whether called “Multinational Corporation” (MNC) or “Global Corporation” (GC), the animal is the same animal – only it has gone through evolutions across the decades. Levitt used the name of MNC for the previous form, and the name of “Global Corporation” for the next evolved form. At the time of Levitt’s writing (1983) he characterized the MNC as “operating in a number of countries, adjusting its products and practices in each – at relatively high costs.” He contrasted this “old” MNC form to the “new” corporation, the “Global Corporation” (GC), as one which “operates in difference countries without adjusting its products and practices – and at relatively low costs.”
I think the current iteration of management practices and the corporation’s role in globalization is evolving – at an accelerated rate – and this may be the “new” nature of the GC: adaptability. (A return to “old” MNC, Levitt may say.)
Several trends contribute to this evolving form:
– Our times are driven by technology
– Our times are driven by the leadership of certain countries’ companies and their associated larger culture – particularly American.
– The dotcom boomers such as web-related companies, IT/SW companies on the network side, telecom companies, and even companies which supported these companies (management consulting firms) all colluded, hand-in-hand with voracious VC’s, to the feeding of new funding practices, management practices, and expectations.
– Wall Street catapaulted along, and international money markets fed the tidal ripple effect in the rest of the world.
It is no wonder then, as instant cable news and the Internet bandied about American firms’ ridiculously large valuation numbers achieved in embarrassingly short times; as MTV and other tv shows made American culture and material desires the standards-bearer for personal consumption; as McDonald’s, Nike, Coca-Cola, Starbucks, and Citibank made the American culture physically ubiquitous; and as Americans/Europeans and “western” ways of conducting business dominated WTO/IMF/World Bank/UNDP negotiations; that there should be backlash and resentment against all things American/western – not least of all the capitalist way of doing things and its tentacled manifestation, the Global Corporation.
Now, in our post-dotcom, 9-11 and domestic terrorist attacks era, the nature of the corporation is once again evolving to the changing landscape. Levitts’ perspective, that the global/human commonality of scarcity drives the efficiency model and the desire for money, is valid…
But I’d like to add that our era now requires GCs to pay more attention to the needs of locals – and that some measures of social responsibility need to be taken. Human life and the operation of corporations cannot be all about efficiencies and profitability.
Levitt’s perspective is essentially based on the need for standards – an agreeable position that is difficult to reinforce – because human being are inherently territorial, and seek to differentiate… Particularly under situations of duress (New Zealanders or Native Americans losing their land, heritage) or even of age (teens across races, religious, are affected by raging hormones).
Today’s industrial revolution of technology has made communication instantaneous, feeding the creation and fast growth of a global culture. In the world of technology, without a doubt this need is great – IEEE has made good inroads in this, along with the W3 Consortium (Tim Berners-Lee’s group).
In the realm of trade, certainly the need for standards is also clear. WTO has made significant steps in addressing the need for all countries to abide by the same set of rules. Further, in commercial products, the human desire for the newest or the best is as naturally unavoidable as crows’ attraction to shiny objects, so standardization of “high quality” is an ever rising bar as innovations percolate.
However, today’s global era demands that GCs do need to adapt to the local tastes, they should understand what the customer wants, and not presume to know the customer better than the customer himself. Purchases are not based upon price alone, unless they are generic products… Broadly speaking, purchases are emotionally driven – which is why “brand” means more now than ever as homogenization spreads. Even with technology-related products.
Today’s GC is both “fox” and “hedgehog” – Ikea’s success makes it methodology an attractive model to study. It has maintained both its own standards, as well as made regional/local adaptations. Toys-R-Us and McDonalds have also found it beneficial to pay attention to “[d]ifferent cultural preferences, national tastes and standards, and business institutions”. Any GC seeking future profit must be both in China. So, Levitt’s example of Hoover is for me an indication for the “new” GC to make adjustments in its attitude. Lacking knowledge about new features available, buyers stated what they thought they wanted. With new marketing promotions, they discovered other more desirable features. But the corporation’s attitude, I think, should still be of giving the customer what he wants – not being “thoughtlessly accommodating” – but of thoughtfully sharing.
Several trends have catalyzed the arrival of today’s era:
– Technology at the enterprise level has transformed economies of scale across industries, contributing to M&As.
– M&As have proliferated across media, communications, consumer products, and distribution channel industries, contributing to the homogenization of information as well as products offered.
– But perhaps the most powerful of all, the “product” and brand of American culture has homogenized the global “taste” for products. As with Italian fashion culture, the “brand” of a culture is a powerful motivator to purchases, in addition to the individual- and country-level trends mentioned above, which drive the GC’s evolution. Low price regardless of features, or heavy promotions regardless of price, are alone not the primary drivers of purchases. Brand associations are very powerful – and as GCs continue to merge and acquire each other and homogenize products, and consumers get swept up in common consumption tastes, product lines will increasingly rely upon “perceived” value differentiations that branding cloaks products in.
Convergence is happening, yes. But not to the exclusion of addressing sub- or micro-level overseas sensitivities or practices. Some markets (China) are simply too large or variegated to be forcibly and quickly changed by GCs without the GCs themselves making significant adaptations in their own practices and products. GCs who adapt to standards but also address local environmental conditions, cultural and institutional needs are the ones that find a smoother path to market entrance and market share.
1. Technology Exchange
R&D is expensive, and payoffs don’t always come quickly. This factor is the most significant element to the other trends following, as today’s products life spans are very short, and time is of the essence in business.
2. Global Competitors
A large dominant player with deep pockets such as IBM causes smaller players such as Fujitsu to scramble for partners. Big players such as GE and Fanuc causes other players to join together to compete more effectively against the big boys.
3. Industry Convergence
High-tech is about convergence. Applications and production greatly overlap. Again, time is of the essence, and alliances of existing players can help block out new entrants.
4. Economies of Scale and Reduction of Risk
Pooling resources and focusing activities can raise the amount of activity, or the rate of learning, and also avoid duplication. Risk-hedging could be another benefit resulting from sharing the risk with another party.
The relative pros of collaboration exploded in the ‘80’s, where “Triad Power” and “Stick-to-Your-Knitting” management concepts seduced many companies. Triad Power focused on the need to develop strong positions in the U.S., Western Europe, and Japan. Stick-to-Your-Knitting focused a company’s efforts on its strengths, and other operations would be outsourced to alliances. DEC and Ericsson, Chrysler and Maserati tried this with some success.
The cons of collaboration are obvious: one firm may use the opportunity to develop competitive advantages; the complexity of organization and strategy managing these alliances are significant; “learning by doing” is a valuable experience which adds knowledge to the company which is lost in collaborations; short-term solutions may cover up long-term problems. Xerox and Fuji-Xerox faced some of these issues, as international partnerships often face: economic, political, social, cultural. American companies are accustomed to expectations of Wall Street and watching for hostile takeovers, and are quite short-term in vision; whereas Japanese companies are seemingly insensitive to stock fluctuations, and more long-term in vision.
The rationale for the collaborative strategies is that in today’s global economy, the types of alliances above are critical to survival. Timing is everything, and if your competitor has something you need, and you have something your competitor needs, and you can agree on friendly competition, this is better than gaining no market share at all against all the other competitors in the field – especially if there’s a Goliath in the field, Davids need to band together. At the end of the day, the longer a firm goes without gaining more or new market share, the greater its chances of being squeezed out by competition.
Today’s strategic alliances are generally between companies in industrialized nations. The focus of these alliances are on creating new technologies or other products, instead of hashing over old ones. Most importantly, today’s alliances are usually made during industry transitions, when positions and advantages are being redefined. Unlike traditional JV’s, today’s alliances are widely varied, from formal JV’s, to sharing R&D, to minority equity participation.
My view on alliances is that generally they seem to be beneficial in some way. For example, in Japan, strategic alliances are certainly beneficial for both parties. For example, KFC and Mitsubishi, Philips and Matsushita, Mitsubishi and Caterpillar benefited in ways as discussed above:
– KFC and Mitsubishi
KFC-J got a strong established partner with government connections and financial and real estate resources, Mitsubishi got an outlet for its poultry operations.
– Philips and Matsushita
Philips needed a hot growth area other than stagnating Europe, Matsushita had trouble finding an American partner and admired the Philips organization. A technology exchange and licensing agreement helped both.
– Mitsubishi and Caterpillar
Cat realized that industrially developing countries would grow their own Cat competitors unless Cat was there already. Komatsu turned down Cat’s overtures, but Mitsubushi accepted, fulfilling a domestic demand during Japan’s high construction years.
Today’s MNCs are faced with fast and technologically-influenced changes in global markets. Optimizing global efficiencies, national responsiveness, and worldwide learning all required MNCs to find new strategic orientations and changes in organizational capabilities.
International markets are complex and volatile, requiring management to find new ways of efficiently meeting rapid changes.
Many MNCs such as Dow Chemical and Citibank tried different operational management structures, such as the “Global Matrix” popular in the ‘80’s. This model prescribed MNCs manage their international operations through an international division at the early stage of foreign expansion, which both foreign sales and the diversity of products sold abroad are limited. Subsequently, those companies that expand their sales abroad without significantly increasing foreign product diversity typically adopt an area structure. Other companies that expand by increasing their foreign product diversity tend to adopt the worldwide product division structure. Finally, when both foreign sales and foreign product diversity are high, companies resort to the global matrix. In this process, theory didn’t translate well to practice, and debate was often reduced to generalized discussions of the comparative value of product- versus geography-based structures and to simplistic choices between “centralization” and “decentralization.” The Global Matrix turned out to be an organizational nightmare. Other structures were sought.
The dynamics of structural relationships between the headquarters and subsidiaries or branches, and the other types of organizational structures for the entire global corporate group and the roles of the SBUs (such as “National Units”, or “subsidiaries”, or “foreign operations”) include:
1. Decentralized Federation
Most European companies expanding abroad faced local competition, so they needed to build local production facilities, and these National Units became increasingly independent. This form suited European management tastes, where the internal culture emphasized personal relationships rather than formal structures, and financial controls more than operational/technical details. National Units had more operating independence and strategic freedoms from HQ, and were managed more as a portfolio of offshore investments rather than a single international business. At HQ, strategic decisions were decentralized, with loose, simple controls over subsidiaries, and subsidiaries mainly took capital out and sent dividends back, focusing on its own local market. This type of organization gave the company a multinational strategy with a decentralized federation.
2. Coordinated Federation
American companies varied from European companies in this development, with an international strategy with a coordinated federation. HQ provided mainly formal system controls such as planning, budgeting, replicating parent company administrative systems, and subsidiaries provided mainly knowledge flows back to HQ in technology products, processes, and systems. This was also an “old boys’ network”, particularly powerful after World War II, where companies leveraged the U.S.’s strengths in technology, financing, and sheer size. Newly independent nations and reconstructions created built in demand for these American companies. Although the management systems were sophisticated (management consulting firms such as McKinsey and Bain did quite well during this period), foreign operations often felt they weren’t accorded a level of respect as they felt they deserved, with the amount of responsibility they managed. Instead, they were treated as extensions of HQ’s plans, carrying out formal plans and subject to controls by HQ.
3. Centralized Hub
The typical Japanese company forayed into the international market mainly in the 1970’s, and faced a different environment than American and European companies. Trade barriers were falling, and its plants were new, efficient, and scale-intensive. The Japanese culture also contributed to this form, where competitive strategy emphasized cost advantages and quality assurance, and required tight central control of product development, procurement, and manufacturing. A centrally-controlled, export-based internationalization strategy represented a perfect fit. Group-oriented management practices came into play, communications-intensive, and people-dependent. A global strategy with an export focus was the norm for these MNCs, with HQ maintaining tight, simple controls in key strategic decisions made centrally, and subsidiaries mainly managed the flow of goods.
4. Integrated Network Model
This type developed for the transnational corporation, different from multinational, international, or global corporations: It builds and legitimizes multiple diverse internal perspectives able to sense the complex environmental demands and opportunities; its physical assets and management capabilities are distributed internationally but are interdependent; and it has developed a robust and flexible internal integrative process. With transnational corporations, HQ doesn’t need to centralize activities for which global scale or specialized knowledge is important. It gives National Units/subsidiaries the ability to become the company’s world source for a product/expertise. Being local, these Units can have their thumbs on the local pulse in trends and developments. Units become interdependent, and distributed, specialized resources and capabilities are shared. There are large flows of components, products, resources, people, and information amongst the Units. HQ has a complex process of coordination and cooperation in an environment of shared decision-making.
In Michael Porter’s argument that “companies achieve competitive advantage through acts of innovation,” how does “innovation” fit within the process of strategic decision-making? How different is the process of a sovereign state achieving national competitiveness from that of a single firm or industry?
In corporations as in individuals, continual growth is key to success in life. “If it ain’t broke, leave it be” is philosophy difficult to sustain for our era of global corporations. Porter’s perspective rings true. I do believe technology’s effects and the involvement of an ever increasing number of nations in the global economy make constant innovation and change a requirement for global corporate survival.
There are many product innovation examples in the Porter uses, where “relentlessly improving productivity in existing industries by raising product quality, adding desirable features, improving product technology, or boosting production efficiency” are illustrated with examples of German auto manufacturers, Japanese home electronics manufacturers, Italian ceramic tile manufacturers, and so on.
But there are other areas of innovation too – such as internal process innovations – which can lend competitive advantage. For example, in cases of M&A, the inevitable reorganization of internal operations often give entrenched “ways of doing things” a fresh airing, sometimes adding to competitive advantage. Here’s a case where it does so: A multinational financial institution recently undergoing post-M&A reorganization has created a new way of approaching security which is giving them a significant competitive advantage. Previous to the 9-11 Attack and the merger, the Security Divison and the IT Divisions seldom spoke with each other, much less worked with each other. Security was long perceived as an operational expense only. After the trauma of 9-11 and M&A layoffs, a consultant advised this institution that there is a need to address the corporation’s security from a holistic vision, whereby Security and IT would work together to decrease costs incurred by dishonest or disgruntled employees. This is a new operational approach which will decrease the financial institution’s operational expenses. In addition, this internal innovation in conducting business will also contribute to insurance rates reductions, further saving the institution money.
In Porter’s Five-Forces Model, “innovation” is a critical element within the process of strategic decision-making. Innovation can be, as Porter observed, “mundane and incremental”, and it can be in the realms of technology or in the ways of doing things. This leaves a lot of room for good ideas from managers involved in strategic decision-making. Any changes or improvements in these areas can lend the corporation competitive advantage.
For example, military strategy can be applied to address two of Porter’s Forces: Intensity of Rivalry Among Industry Competitors, and Barriers to Entry – If two competitors in the same industry focus upon different niches, and one discovers a low barrier to entry of the other firm’s core business, it can erode that competitor’s competitive advantage in many ways… Physical presence alone in retail outlets can significantly affect brand perception. The attacked competitor can counterattack by using a “multipoint strategy” – counterattacking in related areas of business with similarly low barriers to entry. Cosmetic companies are a prime example of this, and utilizing a multipoint product strategy to gain shelf space and brand positioning is easily seen in any drugstore.
For other industries such as aerospace or biotechnology or software, innovation is the integral core of companies’ R&D efforts, without which they rapidly lose their competitiveness. Their strategy must wholly include factors such as needs and costs of physical facilities, acquisition of new talent, and the development or acquisition of patented technologies. At a very high level of barriers to entry, the entrenched become even more highly competitive as the buyers of their products are not the mass market, and limited in numbers. This sometimes gives the buyer some leverage to negotiate for particular specifications, especially if there is intense rivalry amongst the few suppliers.
When the question is enlarged to examine the process of achieving national competitiveness of a sovereign state as opposed to a firm or industry, it becomes much more difficult to quantify. How to go about improving national competitiveness must first start with what to measure, and how. Porter examines various traditional measures: macroeconomic variables of exchange rates, interest rates, government deficit levels; or abundant inexpensive labor; or ample natural resources; or government policy developments; or balance of trade; or management practices. He also asks, just what is it we’re trying to measure? What is “competitiveness”? No nation has companies dominating every industry in the world.
Porter settles on “productivity” as the most meaningful concept of competitiveness at the national level. The process of increasing productivity in a nation versus a firm or an industry is tied to the strength of its industries, and the health of its companies within those leading industries. There is a symbiotic relationship between the nation and its companies. The improvement of a nation’s productivity (and hence its competitive advantages) lies in, according to Porter, four broad attributes of a nation: Factor Conditions; Demand Conditions; Related and Supporting Industries; Firm Strategy, Structure, and Rivalry. These determinants create the national environment in which companies can become strong and competitive. Companies can then return the benefits to the nation by feeding the nation’s collective productivity, and thereby its national competitiveness. The process then must include: ample resources (including skills) for particular industries chosen; good data on markets and other information necessary for solid strategic decisions; harmonious company and owner goals to the development of the industry and the nation; investment in R&D. Standard economic considerations of labor, land, natural resources, flow of capital, must thus be expanded. In today’s knowledge-based economy, domestic demand is important, but even more important are sustained and significant investments in specialized human skills as well as science/ engineering are key for future growth. (We must watch our recent tendencies to “import” intellectual capital – much of this brainpower returns to their motherlands, creating brain-drain.)